Point Austin: Instrumental Incentives

Of the economic incentive deals put together by the city of Austin during recent years, the pending National Instruments Corp. proposal – posted for public hearing and presumably a vote today (March 7) – appears to be one of the better ones. In exchange for annual performance-based rebates of half of the anticipated real and personal property taxes, NI commits to a major capital investment and 1,000 new, highly-paid jobs over the next 10 years. The staff calculates the city's 10-year investment at $1.7 million, net benefits to the city at $7.6 million.

Beyond the direct financial benefits, the deal has a couple of unusual flourishes. NI also agrees to maintain its existing Science, Technology, Engineering and Math outreach program (STEM) in area schools, annually serving 1,000 students. (That's not entirely philanthropic – they're hoping to help fertilize a garden of new, locally grown engineers.) The company's hiring and benefits programs conform to the city's standards – including health insurance for families and same-sex partners. The new jobs are estimated to average $72,000 annually over the 10-year period; moreover, NI has agreed to a prevailing wage standard for construction workers building the expansion to its Northwest campus (prevailing wage or $11 an hour, whichever is higher).

The latter guarantee has been highlighted because of the controversy simmering over the White Lodging/Mar­riott hotel deal, where the hotel firm is disputing the prevailing wage guarantee it gave in return for the city's fee waivers and requesting an end to the city's wage audit. One of White Lodging's complaints is that it's mysteriously complicated to apply a prevailing wage requirement to "a private project" and "nobody seemed to know how to apply it." Curiously enough, the NI contract specifies the wage guarantees and the city's right to audit accordingly, and there's no mention of any mystery in paying workers what NI has promised to pay them. (For more on the hotel dispute, see "Then There's This,".)

Them or Us?

Another relatively new element to the National Instruments proposal is that it's not an attempt to woo a company to Austin from another town (like earlier examples, the Samsung or Apple deals). That changed the political dynamic somewhat at last week's City Council briefing, since there was no immediate threat of outside competition, and in fact Council members welcomed the prospect of a partnership with a homegrown success story.

However, because of the local job market – too few readily available engineers – Bill Spelman in particular raised the question of whether the city's calculations sufficiently reflect the additional service burden of all those new neighbors and their families. The city's fiscal impact matrix (aka "WebLOCI") does indeed reflect the costs of serving new NI employees, but staff acknowledged that the matrix does not precisely distinguish between existing residents and newcomers, using instead an estimated gross percentage. (The matrix also does not attempt to calculate indirect benefits/costs of the deal, e.g., secondary business and job creation generated by the company's expansion.)

That led to an exchange among Spel­man, Laura Morrison, and Economic Growth and Redevelopment Services Office Direct­or Kevin Johns to the effect that the matrix might be refined to incorporate the in-town/out-of-town hiring conundrum; Johns said he would take the question to the fiscal tool's authors at his alma mater, Georgia Tech.

A Deal's a Deal

None of the questions raised by the initial discussion is likely to scuttle the NI proposal. The largest question, of course, is whether cities (or other levels of government) should have to engage in this sort of incentive process at all, however justified by the immediate economics. To those quick to denounce such transactions as "corporate welfare," city officials respond with some justice that an exchange of real benefits, in which the city reaps more than it sows, doesn't qualify as welfare – it's simply a business deal, defensible (or not) on its own terms. Some Austinites argue that, good or bad on the specific numbers, it makes little sense for an already booming city to incentivize more growth – we're having enough trouble getting our arms around the folks who are already here. Yet it's also undeniable that Austin's relative insulation from the worst of the national recession is in part attributable to the city's steady, persistent growth.

Since the much-reviled 2003 Domain deal and the whopping 2005 Samsung deal, the city's done a much better job of refining its economic development standards and processes, and, should the NI deal result in yet additional refinements, that's all to the good. Prevailing wages, same-sex benefits, LEEDs building, certain public engagement requirements, even "no retail," etc., were not part of the original standards, and the fact that they've been added over the years reflects what staff and elected officials have learned – and what citizens have insisted upon – in the course of negotiating these transactions. Should the EGRSO staff come up with a way to make finer cost/benefit distinctions between in-town and out-of-town hiring, that too will be progress.

The shadow of the White Lodging dispute shouldn't cause an outright rejection of incentive deals, if they make financial sense for the city, but – as several speakers pointed out last week – it should make the city doubly careful about accountability and about requiring companies to maintain their commitments if they expect to retain their incentives. The National Instruments contract appears to have sufficient, performance-based protections for both sides to believe they'll get what they've paid for. Under current political and economic arrangements, that's pretty much all we can ask.

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Posted here is the draft Economic Development Agreement between the City of Austin and National Instruments Corporation, to be considered in a public hearing before the City Council, Mar. 7, 2013.

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