The Tax Incentives Arms Race

Breaks from county and city governments abound in an attempt to lure big corporations—and their employees—to North Texas.

Tax incentives have become as common as bluebonnets and traffic jams in North Texas. Name a big new development—the Toyota campus under construction in Plano, Nebraska Furniture Mart in The Colony, the Facebook data center at AllianceTexas—and you’ll find that tens of millions of dollars in property tax breaks greased the skids to clinch the deal.

We call this economic development, the cost of doing business with corporate America. Civic leaders typically do victory laps when they land a big fish, like in Fort Worth this summer when leaders rolled out the red carpet—and a record 20-year, $146.7 million incentive package—for Facebook. “Facebook likes Fort Worth” screamed the headlines. And why would it not?  

So when state Sen. Konni Burton, the Colleyville Republican whose District 10 includes Fort Worth, threw cold water on the deal, it turned some heads in North Texas and Austin. In a column written for The Texas Tribune, Burton criticized the Facebook tax breaks, saying they would allow the company to dodge $7.4 million a year in taxes in exchange for creating only about 40 jobs that pay $70,000 a year. (By the way, Facebook reported annual revenue of $2.9 billion in Q4 2014.) 

“The money Fort Worth and Texas are leaving on the table to Facebook must be made up somewhere, and that somewhere is from the wallets of you and me,” Burton wrote. “Fort Worth and Texas got the short end of this stick.

Local pols dismissed her rant as buzz-kill, the idealistic stance of a Tea Party ideologue. Within days, state Rep. Charlie Geren, R-Fort Worth, stepped up to defend the deal, pointing out that even with the tax breaks Fort Worth will still collect $2.4 million a year from property that was empty.    

Although Burton’s views are extreme, she raises a good point. Are North Texas cities, already straining under the costs of underfunded pensions and public services, giving too much away to subsidize successful corporations?

Take Nebraska Furniture Mart. The company considered sites in Collin County for its ginormous appliance and furniture store before choosing prime real estate off of the Sam Rayburn Tollway in The Colony—along with an incentive deal worth about $800 million over 40 years. (Yes, 40!)

And this is no fledgling startup. Nebraska Furniture Mart is owned by Berkshire Hathaway, the company run by Warren Buffett.

Tax breaks for giant companies aren’t unusual either, according to Good Jobs First, a Washington-based nonprofit that studies the issue. The group has compiled a list of “megadeals” that show companies such as Boeing, Alcoa, General Motors, Ford Motor, Nike, and Intel getting billions in subsidies.

Bill Peacock, vice president of research at the Austin-based free-market think tank Texas Public Policy Foundation, is philosophically opposed to abatements because they allow governments to pick winners and losers. And, he says they aren’t needed in the state that leads in job creation.

“It’s wrong to take money from taxpayers and consumers and give it to big business,” Peacock says. “Texas has proven that you don’t need to do that to get businesses to come here.” Officials involved in corporate recruitment say municipalities have no choice but to play the incentive game, which often pits local cities against each other. 

Earlier this year, coffee maker Farmer Bros. picked a site near the Texas Motor Speedway for a new headquarters complex, where it will move 300 jobs from California. Desiring a home in the center of the country, it settled on DFW for its great transportation network. After comparing several properties, it was happy to accept 10-year deals from Northlake and Denton County to abate 75 percent and 60 percent of property taxes, respectively. But were the incentives a deciding factor? It’s hard to say.

Denton County Commissioner Andy Eads says the county only uses incentives when they are necessary to secure a deal that’s worth it. Farmer Bros. promises to bring a variety of full-time jobs, including top management, manufacturing, R&D, and distribution. And the corporate headquarters will attract steady visitors who will spend money at area hotels and restaurants. In a perfect world, Eads says, he wouldn’t give tax breaks to big companies. “But if other cities, other counties, other parts of the state, other states are doing it, it’s about being competitive,” he says.

So how do we stop the arms race? Local governments clearly can’t resist using tax incentives to attract high-profile businesses, but corporations can. Maybe it’s time for a little restraint.

Comments