The Austin Chronicle

The Depot Comes to the District Hat in Hand

By Rachel Proctor May, December 3, 2004, News

Most folks don't run for school board expecting to review economic development packages – or at least they haven't in more economically innocent times. But that's what the Austin ISD board of trustees (somewhat reluctantly) did Monday night, as district consultants presented to the board a $5.7 million tax incentive package for a Home Depot research and development center predicted by its supporters to bring 500 jobs to the Austin economy.

However, the board's predicament is somewhat bass-ackwards, at least according to traditional understandings of the term "incentive." Home Depot has already decided to locate the 500-job data center in Austin – four months ago. But when Home Depot officials made the announcement, they said that they fully expected AISD to "take care of" them. At the time, the city, county, and state had already taken care of the company in the form of $25 million in incentives. But exploiting a 2001 state law designed to encourage school districts to grant additional incentives, Home Depot in August applied for further goodies – an abatement of its local property taxes, the main source of funds for the public schools. The trustees must now "decide" whether to approve Home Depot's application by Dec. 13.

In other words, as Jimi Hendrix might have put it: "'Scuse us while we kiss this butt."

But as explained by Jon Hockenyos of Texas Perspectives Inc., who AISD hired to study the plan's economic impact, that's simply the way business works these days: If Austin doesn't offer the best package, the jobs will go elsewhere. "It's a tough world out there, and a tough game," Hockenyos told the board. "A lot of people are playing, and they're playing hard." In this context, Hockenyos said, Austin's long-term economic prospects depend on "sending a message" that Austin is "open for business."

In other words, folks, get used to puckering up. But while the long-term impact of the incentive game may be negative, the immediate impact of this particular deal is a gain for AISD. First, Home Depot comes to the table bearing flowers and chocolates in the form of about $1.2 million in contributions: $425,000 of phone and computer networking equipment, two paid student internships, two "playscapes" valued at around $100,000 each, and much, much more! (That is, as AISD's general counsel Mel Waxler explained, "The Home Depot and AISD will continue to have conversations on ways to expand [these] benefits.")

But more importantly, the state will effectively reimburse AISD for any revenue it loses due to Home Depot's property tax break. Here's how: The abatement package reduces the taxable value of the Home Depot data center for 10 years, from about $170 million to about $130 million. After the 10 years, the property will return to the rolls at its full value. But in the meantime, AISD will get a credit, equal to the lost tax revenue, toward its payments into the redistributive state school finance system, known colloquially as Robin Hood.

Of course, as anyone following school finance knows, this whole plan has a pretty major hole in it: The Legislature wants to overhaul Robin Hood as soon as they come up with something better to replace it. However, the plan on the table takes this into account: If the school finance system changes in such a way that AISD will no longer be reimbursed, Home Depot itself will reimburse the district. "That's as firm and solid an agreement to protect the district against harm as we could think of," said Kevin O'Hanlon, an attorney who helped AISD put together the deal.

But while the plan protects AISD, it doesn't necessarily protect Texans. If the state reimburses AISD for the taxes it doesn't collect, that money has to come from somewhere. Trustee Patricia Whiteside on Monday expressed concern that the plan could hurt other districts by reducing the overall school finance pool. The consultants assured her the state would make up the lost revenue; but even if that dubious assurance proves true, the money still has to come from somewhere else in the none-too-flush state budget. And there's the larger question of the long-term impacts of an "open for business" sign, and whether greater and greater giveaways will be required to lure and keep companies in town. That is, those who live by the incentive can also die by the incentive, when another city or state can offer a little bit more.

That makes development incentives an uncertain bargain some trustees say they don't like being asked to make. Trustee John Fitzpatrick said he thought the decision was probably outside of the "core competencies" of the board and complained that trustees had only been given a copy of the package for the first time last week. Whiteside agreed that economic development is "a distraction" from the board's real business. But although she still wants more info on how the deal will affect the state budget, she's convinced that the deal, at the very least, won't harm AISD.

"I want to feel comfortable that students in other parts of Texas aren't suffering because we're not collecting taxes," she said. "But at this point I am comfortable that our district will not suffer because of this."

The board will hold a public hearing on the deal on Dec. 6 at 8:15pm at the Carruth Administration Center, 1111 W. Sixth.

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