Isn't It FABulous?
Austin Ponders a $95 Million Incentive Package for New AMD Facility
According to Mayor Kirk Watson, the city's pending offer of $95 million in financial incentives to Advanced Micro Devices is only a "conceptual framework" of what could happen if the company expands its chipmaking facilities here -- or so he told the Chronicle last week. But that wasn't what City Manager Jesus Garza called the proposal in his April 26 letter to AMD President Hector Ruiz.
Garza told Ruiz he would "look favorably upon recommending" the $95 million package to City Council, with provisions for a bonus if AMD contributes to affordable housing and childcare programs.
The proposed package, which could include tax breaks, fee waivers, infrastructure improvements, and other development perks, would represent the largest city-subsidized deal ever crafted for a private corporation. The incentives could also generate public controversy over city officials' continued willingness to provide hand-outs to big companies -- much less an operation that will require up to four million gallons of water per day.
AMD, one of Austin's largest employers, with a 4,000-strong workforce and a stellar record of community service, is scouting the globe for a site on which to build its next-generation 300-millimeter chip plant -- an estimated $3 billion to $4 billion project.
Austin is competing for the prize with several other potential suitors, including one particularly aggressive rival: Dresden, the capital city of Saxony, Germany, where AMD already runs one chipmaking facility, itself built with the help of incentives worth several hundred million dollars. This time, the German government is expected to sweeten the pot considerably to make the most of its "Silicon Saxony" moniker. AMD is weighing other overtures as well, from the states of New York, Virginia, Georgia, and South Carolina. Closer to home, Round Rock, San Marcos, and Hays County are all vying for the new state-of-the-art factory.
The list of contenders may well lengthen, as new rivals continue to enter the ring, says Susan Dawson, chairwoman of the Greater Austin Chamber of Commerce, the group that's driving the campaign to land the new AMD factory. "We know that AMD is actively trying to narrow down the long list to a short list," Dawson said, "and we know that AMD remains interested in Austin."
City officials and the chamber want to make sure that Austin ultimately winds up at the top of the list. Details of what may turn into a mega-incentives package are documented in city records that show just how seriously -- and secretively -- the city is pursuing the AMD project. (The AMD documents were obtained by the Save Our Springs Alliance through an Open Records request.)
But Watson played down any notion that the proposal is a done deal. "I will have questions about all aspects of this and the way it should be approached," Watson said. "There's going to be parts of [the proposal] that I might question more than other parts. But right now I want to wait and see what the whole deal is."
Others would prefer to halt the behind-the-scenes process now, before the framework evolves into an inked agreement. "We're not opposed to AMD locating in Austin," said SOS counsel Bill Bunch. "We're opposed to any subsidies." He said SOS initially supported the concept of limited subsidies to kick-start the city's Smart Growth effort of steering major employers into Desired Development Zones. "But eventually Smart Growth became a lot more about growth and a lot less about smart," he said. "The only sane thing to do right now is slow growth down."
AMD remains tight-lipped on its selection process. "Austin is still under consideration," said John Greenagel, a spokesman at the company's Sunnyvale, Calif., headquarters. "There are other sites that are still under consideration, but we're not going to do what some companies do and issue a short list of competing communities and get into a public bidding war." Greenagel said the company expects to announce its choice late this year or early next year.
As recently as April, AMD officials were looking at seven different Southeast Austin properties (see map), all within close proximity to the company's Fab 25, AMD's most advanced semiconductor fabrication plant until Fab 30 opened in Dresden last year.
City Manager Garza acknowledged that $95 million in incentives would be a whopper of a proposal. "That number was thrown out to say, 'this is the kind of package that we could put together,'" he said. "The number could change depending on location, but at this point I think what's important is that we would like AMD to stay in Central Texas, if not Austin." As for the amount itself, Garza noted, "Obviously this is a much bigger investment -- $3 to $4 billion -- so I think that's a lot more value of what's being added to somebody's tax base. You have to look at this proportionately."
Previous city incentive packages for employers moving downtown, for example, would have gone to the since-cancelled Vignette office complex, which had secured a $25 million deal for a $350 million project, and the Intel building, for which the city approved $10.4 million for a $124 million project, before Intel abandoned the construction job, leaving behind a concrete and steel skeleton. The Vignette deal is presumably dead, but the Intel project is technically on hold, and would remain in force if the project ever moves to completion. Another major employer, Computer Sciences Corp., received a $10.4 million package from the city for an estimated $150 million project. CSC is nearing completion on its first two buildings, but it's uncertain whether a planned third building will materialize.
Two former SOS leaders, Robin Rather and Brigid Shea, have stood in support of the mayor and the council majority in subsidizing companies that choose to expand their facilities downtown instead of over the aquifer. But on the AMD matter, Rather and Shea oppose a subsidy program that would support a new chipmaking facility, by a company that already has a presence here.
"Given the terrible growth strains Austinites are suffering under, we need to be damn careful about what kinds of high tech companies we encourage to locate here," Rather said. "AMD has been an important player in Austin's economy for years, but their plans for the new Fab are very troubling. The Fab will be a hellacious water hog ... even if they try to recycle some of that, it's just not a sustainable, environmentally intelligent kind of business for a water-constrained city like ours."
If AMD chooses to build its factory here, Rather added, "it needs to pull its full freight. They already know what a great town Austin is. We shouldn't have to prove it all over again."
Shea, as a former council member, put forth a similar argument in 1995. When the council considered a proposal to offer tax breaks for chipmakers to build plants in Austin, Shea unsuccessfully tried to convince her colleagues that the breaks should only apply to new arrivals, not to existing companies. "You wouldn't have to offer a giveaway to a company that's already here," she said at the time.
Shea said she holds the same feelings today. "AMD already has economic and workforce reasons to build a new facility in Austin. Those should be compelling enough reasons to come here."
While business leaders initially touted the number of new jobs the automated facility would create -- once said to be 1,500 factory jobs and several thousand peripheral jobs -- their pitch has since softened, with the focus on job retention rather than job creation. AMD's existing factory is due to become obsolete in a few years, and the line of thought is that a new plant would sustain the existing workforce and keep thousands of outside AMD vendors and other peripheral companies in business.
"The AMD project is probably the single most important potential investment in this community since Sematech," the chamber's Susan Dawson said of the high tech consortium that chamber executives wooed here more than a decade ago. "It could not only protect important jobs and talent, and represent a huge boost to our tax base, but it is critical to our region maintaining its position of technology leadership."
Likewise, the mayor said a new AMD facility would help Austin tackle new workforce challenges. "We've never really had to face the issue yet of what occurs when we have industries that move from one generation to another," Watson observed. "If those jobs no longer exist, what do we do for those people? We've never had to deal with that as a community."
Still, as chipmaking factories evolve further into fully automated plants, we can expect more debate on whether these types of facilities can even sustain existing workforces. And beyond jobs, there's the issue of resources. Water is the lifeline of chip production, but a daily habit of four million gallons is hard for many to digest, given the drought-plagued nature of Texas and what is now an annual rite of summer: mandatory water restrictions. Last July, the city imposed mandatory water limits when all of Austin used 214 million gallons collectively in a single day. "If the Highland Lakes are going to continue to be a recreational source, then why would we want to keep sucking them dry every summer?" asks Bunch. "It seems to me that such a water-intensive industry would want to go where water is more plentiful."
Down the road, San Marcos has experienced water battles similar to Austin's; nevertheless, Mayor David Chiu said he would love nothing more than to see AMD in his own back yard. "It would provide a savings account for our future," he said. Regional leaders have agreed to work cooperatively with one another to ensure an AMD presence in Central Texas. In truth, said Chiu, "each one of us believes the best place for AMD is our own individual city." Chiu wouldn't say what his city would be willing to fork over to win the new factory, but he did confirm that company officials had narrowed their search to "one or two properties" on the city's north side.
Economic development and chamber leaders in other communities did not return phone calls from the Chronicle, although some other states are rumored to be springing for much more than what Austin might be willing to give.
"I don't think we have to compete dollar for dollar with other communities," said Chamber President and CEO Mark Hazelwood. "I hope this comes down to quality of workforce and quality of life. If we get into a situation where it's going to depend on finances, then we're probably not going to be successful because we just don't have the financial tools to compete, especially after the last legislative session.
"But I would hope that we make our best effort, and if we do that and we don't win, well, then we move on from there."
When all is said and done, the decision just might turn on who's offering the best deal, as one e-mail -- from an AMD manager to a city staff member -- indicated. "[We] are working hard to keep the next Fab in central Texas, but money talks a lot these days. Hopefully in the end, everything works out. Especially now that the city of Austin is finally working with us."