Cities use incentives to draw busines

Cities use incentives to draw busines

Written by Kara Vaught Sunday, 07 October 2007

Business expansion or relocation involves analysis of the potential workforce, transportation avenues and available real estate. Once a selection of suitable locations is identified, meetings are scheduled with officials in each city to discuss a factor that could clinch the deal: the incentives package.

Available incentives

Cities have the ability to provide perks to a company in order to make relocation or expansion in that area more attractive.

“Incentives mean different things to different companies,” said Phil Brewer, economic development director for the City of Cedar Park. “It may mean expediting permits, getting inspections done quickly, waiving of fees or below-market price land. The incentives that get the most publicity are the tax abatements, but it could also be reduced water or wastewater rates.”

Basically, a city can provide an incentive in any area over which it has control. Cedar Park has additional power in the form of 4A and 4B Corporations. These special economic development entities are allowed by law to provide some perks a city cannot, such as per-job credits.

“Let’s say a company comes in and says, ‘We’re going to create 100 jobs, and our salaries will total $10 million,’” Brewer said. “The first year 25 jobs are created, and 25 more for each of the three years after that. We’ll ‘incentivize’ each job, so at the end of each year, when they prove they’ve created those 25 jobs, we’ll write them a check for ‘X’ amount.”

Cedar Park used a per-job incentive package with sensor manufacturer 3PS, Inc. when it relocated from Hutto.

Economic development corporations can also buy land, build facilities or even give land to a company as part of an incentives package, Brewer said.

Another tool allows a city to share the sales tax it collects with a company. Sales tax information is normally restricted to protect companies from competitors. Through a Chapter 380 program, a business can instruct the state comptroller to provide a city with the amount of sales tax it generated. 1890 Ranch has such an agreement with Cedar Park.

While some other incentives have time limits by law, sales tax sharing through Chapter 380 can continue for as long as the city and company agree to the deal.

Benefit to the city

Although cities appear to give up much in incentives, the benefits are mutual. Cities grow the economy and businesses grow revenue.

“So many communities want to expand their tax base and workforce because that provides additional revenue streams,” Brewer said. “In many cases, it allows you to lower the property taxes that residences and businesses pay because you are able to spread out that tax among more property.”

With increased revenue from thriving businesses, cities can also undertake more projects that affect quality of life, including parks, libraries, roads and schools.

The increased appeal from such amenities draws more residents, which in turn attracts more business in a cycle that ideally produces a healthy, prosperous city.

The process

Before a relocation or expansion, companies identify the cities with the largest customer base.

Then the availability of land or a suitable building is examined.

“Typically these days the process is moving so fast that they like to find an available building because it is faster than construction,” Brewer said.

After narrowing the list of possible locations, company representatives visit with city staff and other business owners.

“They want to see what housing costs are, look at the school district and the employee base,” Brewer said. “Those are things we rate very highly on; we are very fortunate.”

Leander is becoming increasingly attractive to developers as well, said economic development director Kirk Clennan.

“We’re aggressive with land development because we can get them through the permit process quickly," Clennan said. “There haven’t been a lot of examples where we’ve used economic incentives yet. We’re not there yet, but with the Capital Metro rail line and the transit-oriented development, it won’t be long.”

Leander does not have a 4A or 4B Corporation, but has used utility and infrastructure reimbursement as incentives for projects such as H-E-B Plus! and the Gateway at Leander shopping center, for which land has now been cleared.

As Brewer said, different companies need different incentives, and often the deal offered by one city can tip the scales in its favor for development.

Protecting the investment

As Leander grows, Clennan said the city is careful to protect itself when offering incentives.

Each deal is performance based.

In the case of per-job incentives, if the company must eliminate some of the jobs it created within a set amount of time, it must pay back the money it received.

“With any kind of incentive you have a clawback clause so that if the company doesn’t live up to its promise, you get those dollars back,” Brewer said.

Cedar Park incentive examples

BMC Millwork

• Incentives used: Cedar Park extended Arrow Point Drive for access to the complex. For BMCS new facility, the city is sharing the cost of extending utilities and constructing a road, and will share a portion of the sales tax generated by BMC for a period of time.
• Expectations: Incentives were based on BMCs investment and sales tax potential. The new facility will total 120,000 sq. ft.; 80,000 for building materials, storage and distribution and 30,000 to house regional staff, construction services management and design staff.
• Location: 1920 E. Whitestone Blvd., and ground was recently broken for the new facility on BMC Drive, which is on the south side of Brushy Creek Road just east of the Foxworth Galbraith lumber distribution facility.
• What it does: Manufactures door and millwork products.

3PS, Inc.

• Incentives used: Funding totaling $12,250 for 3PS, Inc. to move to Cedar Park from Hutto and hire new employees.
• Expectations: The creation and maintenance of 20 jobs.
• Location: 1300 Arrow Point Dr.
• What it does: Provides sensors for applications including automotive and military.

ETS-Lindgren

• Incentives used: Funding totaling $464,000 for ETS-Lindgren to expand their facility and hire new employees.
• Expectations: $324,000 of the funding was based on the companys $4.5 million capital investment in the expansion and $140,000 was based on the creation and maintenance of 70 new full-time jobs.
• Location: 1301 Arrow Point Dr.
• What it does: Provides products to detect, measure, shield and control electromagnetic, magnetic and acoustic energy.

1890 Ranch

• Incentives used: A Chapter 380 program where the city shares a portion of the ad valorem (property) and sales tax proceeds generated off the project with the developer.
• Expectations: Endeavor, the developer, must comply with all of the performance measures set forth in the agreement relating to the amount of gross leasable space developed in the project, capital investment in the project, the amount of leased and open for business space.
• Location: Northeast corner of RM 1431 and 183A Toll
• What it does: 1890 Ranch is a retail center that opened Oct. 15. Stores include Super Target, Office Max, PetSmart, Circuit City, Ross, Chick-fil-A, Wachovia Bank, Gold’s Gym, Starbucks, Massage Envy and a Cinemark Theater.

Leander incentive examples

H-E-B Plus!

• Incentives used: Reimbursement for the realignment of FM 2243.
• Expectations: Creation and maintenance of jobs and increased sales tax revenue for the city.
• What is does: Grocery store, pharmacy, RediClinic and International Bank of Commerce.
• Location: 651 N. Hwy. 183

Transit-oriented development

• Incentives used: The city will reimburse up to 50 percent of developer’s infrastructure costs.
• Expectations: Creation and maintenance of jobs and increased sales tax revenue for the city.
• What it does: In addition to serving as the northernmost stop on Capital Metro’s light rail line, scheduled to begin in 2008, and with the Park & Ride system now in place, the TOD is planned to be a mixed-use development of homes, offices and retail shops.
• Location: 2,300 acres across Hwy. 183 from H-E-B Plus!

Gateway at Leander

• Incentives used: Reimbursement of infrastructure including a storm sewer system.
• Expectations: Creation and maintenance of jobs and increased sales tax revenue for the city.
• What it does: A shopping center to include Lowe’s, Kohl’s, Taco Bell, McDonald’s, IBC Bank and Regent Bank.
• Location: 47 acres on the northwest corner of Hwy. 183 and Crystal Falls Parkway.