Monday, May 18, 2015

Sweet Jesus, $47 Million?

"Sweet Jesus, $47 Million?" That's what Unfair Park's Eric Nicholson exclaimed when learning the total of the City of Richardson's economic development agreement for the construction of apartments, offices and retail in the Palisades development.

Is he right to be flabbergasted? On the one hand, $47 million is a big number. No doubt about that. But compared to what? And what does the city get for its $47 million? Spoiler alert: the more I think about this, the less certain I am of what I should think.

There are some who believe, on principle, that governments shouldn't provide financial incentives. For them, this case is easy. Hell no. No matter the lost benefits even if the land ends up sitting vacant forever (which it won't, they say, but even if).

Others are against the idea of government picking winners and losers. Take the crony capitalism out of it. Either everyone should be eligible for the same incentives or no one should be. Even if giving incentives selectively is the way for the community as a whole to get maximum benefit at minimum cost.

Still others don't mind awarding incentives selectively but believe this particular development is a bad one. It's a mishmash of suburban single family homes (as a buffer for Canyon Creek) and big apartments (which some suspect will leave the city holding the bag as they age) and some speculative office construction hoping to land a big tenant (like Samsung). They aren't against economic incentives in general. They just don't like incentivizing anyone to build this particular development.

Those are a lot of good reasons to question this economic development agreement. I'm sympathetic to each argument, while not yet 100% convinced by any or all of them. But let's assume you and I come down on the side of supporting economic incentive agreements for the right project. And we believe that Palisades, as planned, is a project worthy of being built at the right price. I know, a lot of assumptions, but play along with me. It still doesn't answer the questions posed at the start. $47 million is a big number. But compared to what? And what does the city get for its $47 million?

Eric Nicholson notes that "the city isn't simply cutting [the developer] a $47 million check...Exactly how much is paid out each year depends on how much money JP Realty Partners spends on infrastructure and how much the property's assessed value has increased."

In other words, the 50% tax rebate the developer gets for 25 years will come out of the increased taxes the city collects. It's a tax expenditure if you will. It's still real money, but the city still ends up with more money collected in taxes than it would have if nothing is done with the property (I know, I know, that's still an if). If the developer ends up getting the maximum, $47 million, and that's a 50% tax rebate, then the city is getting the other 50%, or $47 million. After that, the city keeps 100% of the increased taxes. That's what the city gets out of it.

Could Richardson have negotiated better terms? Perhaps. I don't have either the experience in general nor knowledge of this specific negotiation to answer that.

Could Richardson have just said "no deal"? What would happen? Maybe the property owner would build anyway, with no incentives. Or maybe he'd delay breaking ground until some future city council was more agreeable to offering an incentive. Again, I don't have either the experience in general nor knowledge of this specific negotiation to predict exactly what would happen if the city pulled any incentive off the table.

And compared to what? Well, when Toyota was lured to Plano, The Dallas Morning News reported that Plano awarded Toyota a "10-year, 50 percent abatement on real and business personal property taxes... In addition to Plano's incentive package, the state will kick in $40 million from the Texas Enterprise Fund." In another case, The Dallas Morning News reported that "Irving is giving the developer of 7-Eleven's headquarters a more than 80 percent property tax break for 13 years." Those are some big numbers, too. They didn't stop Plano and Irving from executing the agreements.

In the end, I don't see this as a slam dunk decision. You first have to decide how you feel about economic incentives in general. Then you have to wrestle with the numbers to decide if Richardson is getting a good enough deal in this case. Finally, you have to speculate on what would happen if Richardson does *not* enter into a deal.

Some people's view of the world is black and white and aren't troubled by the complexities of a case like this. Not me. My head hurts thinking about all the angles to this deal. I start with Eric Nicholson's reaction: "Sweet Jesus, $47 million?" But I end up torn. It might not be the best deal Richardson could have swung. But it might not be such a bad deal, either. I'm sorry if you've read this far and are disappointed in that wishy washy answer. I'd love it if someone from the city, someone who negotiated this deal, would make the case for it. If anyone ought to know what it is about this deal that makes it a good one for the city, it's you. You negotiated it. Remove my nagging doubts. Please.

As always, if I've made a mistake in my facts or my math, I'd love to hear from you. Meanwhile, back to your regularly scheduled bashing of Mayor Maczka.


dc-tm said...

Don't like this deal or many of the ed deals. It is unfair to residents and other businesses that invest their capital and do not get the same is just more unfairness like the deals with fossil and blue cross.

Unknown said...

Thank you, Mark, for asking the right questions in your commentary. Many of us can't wrap our heads around this deal, in spite of the spirited banter going back and forth on the blogs. It would be incredibly helpful if someone from the city would explain their reasoning behind its approval and how it was researched.

I understand that cities give away the farm to entice corporations, like Plano did for Toyota and Irving did for 7 Eleven. But those are nationally known companies that employ citizens. What do we know about JP Partners?

Sadly, Dave Chenoweth's point is well taken. Fossil, which is a very profitable company, is moving tech jobs to India where they will only have to pay an employee $6000 a year. While only a few hundred jobs may be transferred, it speaks to the fears that citizens have about sweetheart deals that promise to enhance the city coffers and provide local employment.