City Hall Hustle: Who's Zoomin' Who?

Right behind the Hanger comes LegalZoom

No sooner had the last incentives argument sped away, another one zoomed in.

The day after City Council's Jan. 28 unanimous vote to approve an incentives package for the Hanger Orthopedic Group – $500,000 spanning 10 years, to entice the company into moving here – word leaked of another company eyeing Austin for relocation.

And leaked is the right word, for a few minutes after the news broke that Los Angeles-based LegalZoom was mulling a move to Austin, the information vanished from the city's website. (City Hall insiders called it a posting error, and the early reveal doesn't appear to have compromised the proposal.) The info was soon reposted, and like the Hanger proposal, the deal is mercifully simple and straightforward – and not least of all, cheap. LegalZoom, a privately held company founded in 2000 that allows users to create online legal docs like wills and incorporations, is considering relocating here its L.A.H.Q. (The company's Hollywood bona fides – one of the founders is O.J. Simpson attorney Robert Shapiro – were illustrated by the code name bestowed on the then-still-confidential proposal: "Project Red Carpet.")

In exchange for the relocation, the city would fork over a $20,000 grant each year through 2020, provided the company completes the terms of the agreement. Those terms include creating 600 positions by 2016 and maintaining them until the agreement expires, along with $1.75 million worth of improvements to its eventual headquarters in northwest Austin and sufficient use of local, minority, and women-owned contracting businesses. A financial analysis by the city predicts $8.1 million worth of benefits from the deal, accounting for growth in taxes, utility revenues, and more, and $7.5 million in costs in the form of city services, leaving a net benefit to the city of about $563,000.

As with the Hanger debate, salaries will certainly inspire discussion. LegalZoom proposes adding jobs each year until it has created 600 new jobs by 2014. The average annual wage in 2010 is $42,000, and it inches up until hitting $51,000 in 2014. However, the median wage – a more accurate gauge of salaries for those outside the boardroom – stays at $31,000 from 2010 to 2012, before jumping to $50,000 in 2013-2014. Moreover, as Austin Interfaith illustrated during the Hanger talks, the city's new vetting of economic incentives, while vastly improved, still doesn't implement a base wage that salaries can't dip below.

Maybe it's just incentive fatigue, but reaction to the proposal has been decidedly muted so far. At his state of the city address this week, Mayor Lee Leffingwell said, "So far, I like what I see" of the LegalZoom proposal. Despite small but persistent opposition to incentive deals as expanding Austin to an unmanageable size, Leffingwell is unabashedly in favor of economic development. While noting he personally opposed the Domain incentives when they were created, he said: "I'll do deals like the one we did with Hanger every day of the week: performance-based, judicious, focused on a targeted industry, good-paying jobs with good benefits, and cash-positive for taxpayers over the life of the deal. Moreover, tied to larger incentives from the state's Texas Enterprise Fund" – which has signed on for an additional $1 million contribution to LegalZoom – "which also have performance criteria that must be met. So I say, bring me more."

Despite Leffingwell's appetite for recruitment, there are some more specific concerns being raised about LegalZoom's business model. D'Ann Johnson of Texas RioGrande Legal Aid is concerned the company comes dangerously close to acting as a de facto attorney for clients, potentially leaving them open to litigation. Moreover, some of the simpler, uncontested services LegalZoom provides can be found for free on sites like TexasLawHelp.org, through employees of the Travis County Law Library, or even through nonprofit groups like Johnson's. As she says, "$1.2 million" – the cost of the city incentives and the state Texas Enterprise Fund grant – "buys a lot of paralegals." If the city approves the deal, she says, "Some education needs to be done about the free services that are available."

Compared to the millions spent and allocated for projects like the Domain or companies like Samsung, Leffingwell calling the LegalZoom proposal "judicious" is the understatement of the year. A $20,000 grant would barely cover the company Christmas party, much less be a major economic incentive to move here. More likely, the company was looking to Austin for the reasons others do: A young, tech-savvy work force is a perfect match for a young, tech-savvy workplace. Ultimately, it raises the question of why the city had to offer even minimal incentives in the first place – and the answer invariably is that other cities were offering them as well.

The LegalZoom deal will be formally presented to council Feb. 11. As long as the city does its due diligence in selecting stable corporations, and entering into "performance-based" and "cash-positive" agreements, we should proceed. But if there are doubts, the city shouldn't hesitate to roll up the red carpet.


For more City Hall chatter, see "Council Preview." And follow www.twitter.com/CityHallHustle.

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KEYWORDS FOR THIS STORY

City Council, LegalZoom, Hanger Orthopedic Group, incentives

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