Tuesday, March 7, 2017

City of Tyler tax abatements: Good policy or crony capitalism?

Just what's going on here?

 
Wow.  Two posts about the city of Tyler in two days.  Hope this doesn't become a trend.  Anyhoo, an article in the Telegraph yesterday caught my eye:
 
 
To sum it up, the city council is considering extending a 100% tax abatement to Hood Flexible Packaging, a company that makes "heavy duty shipping sacks."  For those of you who don't know, this means that the company will not have to pay any property tax to the city during the term of the agreement.  To continue to qualify for the abatement, the company will have to invest $4.5 million in it's local operation, add four new jobs, and retain four positions it already has.
 
But what is the city's objective here?  I thought that the main purpose of local tax abatements was to lure new businesses into the area.  Hood, like many other local companies has already been given a tax abatement that started in 2013.  Now the company is threatening to upgrade one of it's other plants in Canada instead of investing in the Tyler location if the city doesn't give them a free ride on property taxes.  Anybody see a problem with this?  I do.  All a growing company has to do to avoid local taxes is to threaten to invest in another location every few years if they don't get their way.
 
Another argument that local leaders also repeat about offering tax abatements is that it brings in jobs.  But my question to leaders in Tyler and Smith County has always been this:  Why does it seem that the jobs that are brought in are usually relatively low-paying manufacturing and distribution jobs?  Don't get me wrong--there is nothing wrong with those kinds of jobs.  But what about jobs for college graduates?  This city has three medical centers, two colleges, one regional university, and is bursting at the seams with upper middle class families whose children go off to college in Austin or College Station or Waco and never return.  Thousands graduate from local colleges annually, and where do they go?  Isn't it time to try to plug up the "brain drain" that we have going on here?  Is anybody looking at ways to bring in high-tech jobs?
 
 

Is it effective in growing the local economy?

 
I'm cynical enough that if I knew tax abatements were really good for the community, I might turn a blind eye to other considerations such as fairness.  This is apparently done all over the U.S.  But many pundits argue that there is little evidence that this practice actually benefits local economies in the long run.  The main government practices that most conservatives believe promote economic growth are low taxes in general and limiting government regulation.  Would it make more sense to make everyone pay their fair share and try to keep taxes low across the board?  I'm just saying show me the data.  I hope Tyler's city council members are saying the same.
 
 

But isn't it crony capitalism?

 
Yes it is.  Crony capitalism is a term describing an economy in which success in business depends on close relationships between business people and government officials. It may be exhibited by favoritism in the distribution of legal permits, government grants, special tax breaks, or other forms of state interventionism.
 
 

Is it fair?

 
Not really.  Then again, nothing in this life is fair.  But when certain businesses get a free ride, the rest of us--homeowners and other businesses--pick up the tab.  And don't forget that Tylerites were just informed that, because of budget shortfalls, city services are going to be cut!  So in that context, city leaders are considering just letting this company--as they do many others--avoid paying property taxes?
 
 
 

What about transparency?

 
That's what bothers me most about this--there is none.  What many of you don't know (I didn't until recently.) is that matters involving "economic development" are exempted from the Texas Open Meetings Act.  Therefore these deals between businesses and local governments can be hammered out in secret, away from the prying eyes of journalists, watchdogs, and, most importantly the public.  And if we've learned anything recently from local scandals it's that bad things can happen when government is allowed to operate in secret!
 
There have been failed attempts in the legislature over the years to change this.  Business interests have argued that to disclose deliberations between a local government and a business could give that company's competitors and unfair advantage.  Huh?  Wouldn't it be more fair for everyone (including taxpayers) if such matters were kept above-board, so businesses would have to compete fairly?  Taxpayers would almost certainly benefit, because companies would be forced to offer favorable deals to local governments or risk getting displaced by their competitors.
 
 
 
 

So what do you want us to do, Joorie?

 
 
I want you, faithful readers to write your state legislator and demand transparency when it comes to local tax abatements and other deals between private businesses and government.  And if you're on the Tyler City Council, I want you to consider carefully what you are doing here.  Mostly, don't forget...
 
We are watching.

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