Despite objections of some residents and two of its members, the Austin City Council approved $679,500 in incentives Thursday to entice Massachusetts-based Athenahealth Inc. to open a research-and-development office here.
A council majority decided that, ultimately, the amount of money the city was putting up over a 10-year period was trivial compared with the $5 million the state is offering to put up and the benefits the company would provide for the city.
“We offer a relatively token amount to leverage … that entire five million” that the state is offering, Mayor Lee Leffingwell said, noting the company could choose a neighboring city like Round Rock instead. “We have to rise to the occasion.”
The council approved the deal by a 5-2 vote, with members Laura Morrison and Kathie Tovo voting no. The economic development grant would be awarded over 10 years, provided the health information technology company adds 607 jobs as promised at a new research and development center slated for the former Seaholm Power Plant building on downtown’s west side. The company has said the jobs would pay an average annual wage of $132,085.
Though the grant is relatively small — it amounts to $250 per job, per year, over 10 years — it nonetheless drew out a cluster of vocal opponents who have been objecting to Austin’s use of incentives to lure a few medium to large businesses here. They said Austin is doing well enough that the city does not need to be courting companies with public money, particularly in light of the rising tax burden and increasing cost of living.
Company officials have said they also were are also considering California, Georgia and Massachusetts for the R&D facility, and they said the latter two states have each committed $9.5 million in incentives to attract the latest expansion. Austin city officials say the R&D center would be a good fit for Austin, helping anchor its life sciences and health care industry sectors.
Athenahealth has pledge to hire 90 percent of the jobs locally, many of them high-paying software developer jobs. The incentive package would result in a net benefit to the city of $1.67 million, according to the city’s Economic Growth and Development Office.
Some critics questioned whether the city should be trying, at a time of extreme traffic congestion, to attract a company to a publicly owned downtown site that was originally intended for a public use, such as retail or a museum. Ed Wendler Jr., a developer critical of the city’s use of incentives, also questioned why Austin would grant incentives to a Seaholm tenant when it has already given the company hired to redevelop the prime site a 99-year lease for a $1.
“Why would we pay twice?” he told the American-Statesman, a sentiment echoed by Council Member Sheryl Cole, who said, “The Seaholm project has received an extraordinary amount of city subsidies” for creating a public amenity, but said other concerns ultimately led her to vote yes on the deal.
During the discussion, city officials noted that Austin now only has nine such active deals and that many concerns about the city’s use of incentives are based on concerns in other cities that are less cautious with them.
In addition to the net $1.67 million benefit, landing the R&D facility at Seaholm would add about $200,000 in property tax revenue over 10 years that would help pay down debt service at former power plant site, which the city and a private developer currently are transforming into a mixed-use project that will feature condos, offices, restaurants and shops.
Athenahealth has told the city it expects to spend at least $13 million to renovate the space it is considering in the iconic 1950s-era power plant building.
Athenahealth currently employs 36 people at the Domain mixed-use project in North Austin. The fast-growing publicly traded company provides cloud-based services such as electronic health records, medical billing and other services for doctors’ offices, hospitals, clinics and other health facilities nationwide.
In the city’s cost-benefit analysis for the incentives, total benefits over 10 years were estimated at $5.9 million. They include tax- and revenue-generating expenditures by both the company and its employees, said Rodney Gonzales, deputy director of the city’s Economic Development Department.
Athenahealth has more than 2,700 employees worldwide and has had annual revenue growth of more than 30 percent since it was founded in 1997 by Todd Park and Jonathan Bush, a first cousin of former President George W. Bush. Its 2012 revenue was $422 million.
Why it matters
Athenahealth Inc. promises to bring hundreds of high-paying jobs, many of which would be filled by local residents, creating opportunity for job-seekers and a boost to the local economy. Critics note that Austin is spending taxpayer money to lure such companies, only to harm those taxpayers by bringing in more residents who drive up housing costs and tax bills.