Amid Austin budgeting and Amazon talk, debate over incentives rises

As Austin’s budgeting for fiscal 2018 drew to its final three days this month, two unexpected debates arose.

Should the city stop paying tax reimbursement incentives to the Domain, outlined in a 2003 agreement through 2023?

And should the city cut funding for the staffers required to provide “expeditious review” of permits for Google Fiber, as promised in a 2013 economic development agreement?

The City Council ultimately passed on making any changes related to the Domain and cut only $100,000 of the $700,000 budgeted for Google Fiber’s expedited permitting. But the conversation immediately made Austin business advocates nervous the city is flirting with a reputation for reneging on agreements — particularly as Amazon looks for a home for its secondary headquarters.

“I also work with my 13-year-old and I know that when I tell him ‘If you do this, then we’ll go get ice cream,’ then we’d damn well better get ice cream,” said Drew Scheberle, senior vice president for policy and advocacy at the Greater Austin Chamber of Commerce. “Companies that operate anywhere in the world, they want to know that a deal is a deal.”

EARLIER: Austin City Council approves incentives to bring Merck tech center

The debate comes amid an ongoing review of Austin economic development incentive polices, with a council that has signaled it might be less inclined to grant large incentive packages than in the past and more inclined to focus on a deal’s community benefits, such as affordable housing and skilled jobs that don’t require a college degree.

“In this city, ‘incentive’ has always had a kind of negative connotation,” Mayor Steve Adler said. “So should we decide that’s a tool we’re never going to use? Or can we, in fact, use that tool to drive things the community really wants?”

Austin’s name continues to be tossed around as a potential location for Amazon, which has cities nationwide vying for its second headquarters. Adler said he’d like to see Austin submit a proposal for the project, which is due next month. The company has said significant incentives would be required for it to consider a location for 50,000 new employees and $3.7 billion in capital investment.

Council Member Leslie Pool, who is leading the charge to reconsider Domain payments that come out to about $2 million a year, said she didn’t think Austin would fit Amazon’s criteria.

“I would not be supportive of doing incentives for Amazon, and we should be honest and forthright in our position on these things,” she said. “A number of us have campaigned against them.”

The idea of rescinding Domain incentives, which involve a tax break of $37 million over 20 years, has been on the table at least a decade. A push to revoke the incentive package became a ballot proposal in 2008, but voters rejected it.

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Simon Property Group, which owns the Domain, pushed back against any 2018 cuts to incentives with two letters to the council saying it had taken a risk to invest there during a difficult economic time and lived up to its end of the deal.

“When Simon made its decision to invest in the Domain … we did so with full reliance on the City and County’s pledge to financially support what would be a transformative and very expensive effort,” wrote Simon Vice President of Development Kathleen Shields, adding that it’s “a commitment that we still rely upon and which made this extraordinary project possible.”

Pool will keep looking into the Domain agreement, she told her colleagues, to possibly bring it back to the table. She said the city has kept to its word but that, since one council cannot bind another to future spending, the city has options.

“I have never supported the city or any municipality giving away millions of dollars in support of bringing a large corporation,” Pool said in an interview last week. “The city has a lot going for it, and these corporations would come without us subsidizing them.”

Adler opposes drawing back incentives to the Domain, saying, “It’s pretty simple, the city made a deal.” But he also said the council dais should be a place where people can raise any ideas for conversation. He voted against the $100,000 cut to Google Fiber permitting, but said it was less of an issue than Domain incentives.

“It wasn’t tied to any particular level of funding or objective metric,” Adler said of the Google agreement. “I voted against (the cut) just because I had concern about making that kind of change to a project on an idea or concept that hadn’t been daylighted.”

Mark Strama, head of Google Fiber in Austin, said he wasn’t concerned about the cut and didn’t see it as the city reneging on its deal.

“We understand that budget adoption is a delicate balancing act, and we were fine with wherever the council came out on it as long as staff kept working,” he said.

Strama added that a new Google Fiber strategy of digging shallower trenches was making its Austin process much less complicated — and its permits faster to process.

Council Member Jimmy Flannigan, who raised concerns during the budget meeting about changing course on incentives, agreed with Adler that the Google changes were less of a big deal, but said he didn’t want to see uncertainty on executed deals.

“When we create risk, the contracts we make are not fulfilled, (and) the contracts we make in the future get more expensive,” Flannigan said. “Those who sign large contracts pay attention to this council and our consistency.”

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