This commentary was originally featured in the Austin-American Statesman on October 15, 2017.
Austin is vying for Amazon’s impressive new “HQ2” — a second company headquarters that could supercharge the local economy with $5 billion in capital investment and 50,000 new, good-paying jobs. Landing the state-of-the-art campus would be nothing short of blockbuster.
While Austin has much to offer and much to gain, it shouldn’t fall into the trap of proposing a mammoth incentive package like other cities. Though deals laden with tax abatements, grants and other government goodies might generate some interesting headlines, they don’t generally make for good public policy. That’s especially evident in Austin.
Soaring property tax bills are making Austin unaffordable. In just the last 10 years alone, the average Austin-area homeowner has seen their bill grow by almost 80 percent, rising from $705 in 2007-08 to $1,251 in 2017-18. Homeowners groaning under the weight of these hefty tax bills could see a further increase, still, if certain economic development tools are poorly employed.
Local property tax abatements are a favorite among government planners. This enticement lets a taxing unit, such as a city or county, exempt from taxation some or all of a property owner’s increased value for a period of time. While this might benefit one particular enterprise, it comes at the expense of everyone else.
The recipient of a tax abatement agreement gets a discount on their tax bill — for a short while at least — but most everyone else has to pay for those added city services, which all too often means even higher property taxes.
On a more macro level, Austin officials should be leery of government-directed incentives, because these kinds of policies encourage unfair competition.
Because government doesn’t have any money of its own, any public tax dollars that officials want to use to incentivize economic growth must be collected from those already paying taxes. Frequently, that means collecting taxes from existing businesses to redistribute to a new business that uses that edge to compete directly for customers and market share. Needless to say, that’s not a level playing field, especially for small businesses and entrepreneurs who may already be struggling.
From a market-based perspective, city officials ought to be cautious about government picking winners and losers because of what it could mean for the marketplace.
The normal order of things gets disrupted when money and resources are shifted from productive hands into those that are less productive but more politically connected. For obvious reasons, this tends to emphasize the wrong aspects of an economy and it can stunt competition in unhealthy ways
But if Austin shouldn’t pursue a traditional economic development approach for the reasons listed above, then how exactly can it get Amazon’s attention? Simple: Commit to the Texas Model.
Amazon made it clear that one of its key preferences for any new location is “a stable and business-friendly environment”. There’s no better way to guarantee this environment for Amazon than to publicly pledge to adopt a sweeping new agenda that commits the city to policies that will bring permanent change in this direction. Elements of the agenda could include: limiting yearly property tax increases; easing land-use restrictions to increase housing stock; eliminating unfriendly regulations; relaxing building-code requirements; and generally reducing the cost of city government.
Not only would this be a unique, sustainable and attractive way to get Amazon’s attention, it’s a formula that already proven to boost the economy. For more than a decade, Texas has enacted just these kinds of policies — and as a result, it’s been transformed into America’s economic engine.
Though Austin has the chops to be a serious contender for Amazon’s new HQ2, it’s important that the city go about attracting it in the right way. Let’s avoid getting tangled in costly economic development deals and instead put forth a compelling citywide agenda that helps foster a competitive business climate. Then, even if Amazon declines the city’s invitation, Austin will have started to create the kind of stable and business-friendly environment that others will find irresistible.