Thursday, June 18, 2015

Real Sweet Deal for RealPage

Here's what I wrote in October, 2014.
"State Farm's move to Richardson will leave behind big blocks of empty office space." That was the headline to a story in The Dallas Morning News revealing the ugly secret behind the big win for Richardson. ... It turns out that many of the 8,000 employees moving into those new State Farm office towers will be moving from just down the road, where State Farm is currently leasing space in five office buildings in Richardson's Galatyn Park. That will leave a huge hole behind that will need to be filled, perhaps with the city trying to lure other big tenants to move.
Source: The Wheel.
It's time for an update on this game of musical chairs.

Last week it was announced that RealPage plans to move 1,400 employees into a 400,000 square foot office building near Richardson's Galatyn Park.
The company and the Richardson Economic Development Partnership are working on an economic incentive agreement, which has yet to be finalized. RealPage's Winn declined to comment or share the details of the economic incentive package, but called it "compelling."
"Compelling." For whom? Playing this form of musical chairs is expensive to taxpayers. To the direct cost of $117 million in tax breaks given to CityLine we can now add an indirect cost, the unknown financial incentives to be given to RealPage to backfill the space vacated by State Farm. Who knows what the total cost will be after this latest round of musical chairs?

The game of musical chairs won't stop there. After RealPage's move to Richardson, it will leave behind 250,000 square feet of newly vacated office space. But it will be the taxpayers of Carrollton who will be asked to pony up financial incentives to lure someone else to move into that space.

Unlike the children's game where all but one player has to lose, this form of musical chairs can be a never-ending source of revenue for businesses. Although the dealmakers are quick to point out the increases in projected tax revenues from these deals, no one seems to be keeping track of the total cost of these tax expenditures. No one seems to be doing the what-if analysis that shows what the results would be without such deals. Maybe the buildings would sit empty a little longer. Maybe the building owner would have to reduce his asking price. But maybe the city would come out ahead by letting the free market work. Instead, the city, the chamber of commerce, and their joint creature, the Richardson Economic Development Partnership, all are focused on swinging big economic development deals. The taxpayers pick up the cost. The long-term impact on the city is not examined. The dealmakers on both sides make themselves look good in the headlines of Dallas Business Journal. And the game moves on to the next big deal.


Anonymous said...

Mark, I'm not arguing against your premise of a musical chairs game with business and local government playing but do question your example of State Farm. My understanding is that the State Farm presence in the former Nortel buildings was intended to be temporary. While their new buildings were under construction these workers were moved to Richardson but it was clear that they would move on to there new campus soon after. The space they occupied in the Nortel buildings had been vacant and in the end became vacant again. The intended and permanent gain was the thousands of workers in the City Line development. And now, RealPage is filling in the once and again vacant space in the Nortel buildings with a permanent presence - or as permanent as any business venture is. Another gain. I'd rather have the offered incentives be full tax revenues in city coffers but there is still a net revenue gain by Richardson and that is a good thing. Right? Regards.

Steve Benson

Mark Steger said...

"There is still a net revenue gain by Richardson and that is a good thing. Right?"

Compared to what? Would those old Nortel buildings have sat empty forever? Or would the owner have had to offer incentives out his own pocket to get the market to clear? In which case, there would be a tax paying tenant without the need for the city to offer an incentive. Maybe the city's revenues would be even greater if no incentives were offered. I don't know the answers to these questions, but I don't know how the city does, either. The city never even tries to offer a what-if analysis of options other than granting big incentives. So, honestly, I don't know if this is a good thing.

dc-tm said...

An end to local government eco dev deals and 380 authority should end.

Mark Steger said...

According to The Dallas Morning News, "The city will provide 50-percent real property and business personal property rebates for 12 years, according to the resolution approved June 22. The city will also provide a 75-percent sales tax rebate of the city’s 1-cent sales tax paid by RealPage for a dozen years and will waive development and building permit fees."