Liveable City Releases Study of Austin’s Economic Development Strategy and Incentive Programs

(Austin, Texas) Liveable City, an Austin non-profit working to protect the quality of life of the people of Austin, today released a first of its kind report examining economic development strategy and use of public incentives in Austin. 

The report questions where Austin's economic development strategy comes from, how it is implemented, and what institutions shape our economic development policies and programs.  Focusing on tax incentives and how they fit into broader economic development activities, the study examines why incentives are used, how much the city is giving, and what the taxpayers are getting from the public investment. The study also identifies reforms needed to create a unified, sustainable economic strategy, embraced by the community, to better position Austin for future economic challenges and opportunities.

Entitled, Building a More Sustainable Economy: Economic Development Strategy and Public Incentives in Austin, the study was authored by economist Michael Oden, a professor in the Community and Regional Planning Department at the University of Texas at Austin. 

Liveable City commissioned the report due to concerns that Austin’s economic development process is viewed by many as detached from community priorities, is secretive and is removed from informed decision-making and accountability. Other factors leading to the study are increasing national and global competition, the current economic downturn, and ongoing conflicts over tax incentives to retail businesses. Incentives to the Domain Shopping Center spawned a November charter initiative to restrict incentive use in Austin. 

The study finds that compared to many other communities, the city and Greater Austin Chamber of Commerce have demonstrated a sophisticated approach to economic development and have been relatively disciplined in the granting of public incentives to desired firms. Austin has completed just 19 tax incentive deals from 1991-2006 compared to 91 in Houston and 208 in Dallas. Incentives are also now performance based, requiring firms to meet agreed upon job creation and investment targets to receive the incentive.

But with a softening economy, the report argues that it is time to reevaluate and reenergize Austin’s economic development strategy with improved incentive policies that ensure high returns from the investment of public funds.

The report evaluates firm based incentives which are used to encourage firms to locate or expand in Austin and project based incentives which are used to influence the location and quality of physical development – where and how we build.

In the case of firm based incentives, the report found that the five incentive deals approved over the past several years are generally consistent with economic development goals and seem to yield net economic benefits for the city. However, the city must have a more complete accounting of all costs and benefits and the process of granting firm based incentives needs significant reform.

In the case of project-based incentives, the report finds a more mixed record. While some project-based deals, such as the Mueller redevelopment and Triangle Square, were shaped by strong community input and consensus, others such as CSC and the Domain went through without adequate review or public deliberation.

The report also reveals that the complete costs of many project-based incentives were impossible to determine from public records. The report calls upon the city to reveal the amount of direct and indirect subsidies committed to each project and the city’s total annual expenditures per project.

The $37 million incentive package to the Domain Shopping Center is used to show how an uncharacteristically bad deal can emerge from the existing inadequate process.

The report argues that Austin needs a new approach that is more transparent and rigorous, allowing the public and the Council to deliberate whether potential economic deals reflect broader community priorities. 

Key recommendations include: 

  • Consistent Process -- Every deal must be considered according to clear evaluation criteria within a consistent overall time frame. 
  • Fiscally Responsible Process – Deals must be considered only after a neutral third party cost-benefit analysis which details public and private costs and benefits.
  • Deliberative Process – After the project evaluation and cost benefit analysis is made public, the city must conduct a public hearing before a recommendation by the City Manager regarding an incentive.
  • Accountable Process - Produce a publicly accessible document detailing all incentive spending and performance compliance on deals involving public subsidies.
  • Strategic Process -- Undertake a major strategic planning initiative to accelerate the development of environmental industries to better position Austin as an environmental industry center.

The full report is available at www.liveablecity.org

 

About Liveable City:

Founded in 2002 by a diverse group of public policy experts and experienced community advocates, Liveable City promotes broad community collaboration on urban quality of life issues. Its mission is to address Austin’s long-term social, environmental, and economic needs by focusing on the interconnections between issues confronting our city. For more information or to review previous studies go to www.liveablecity.org.