Print 🖨

Below is the HillCo client report from the August 27 House Select Committee on Economic Development Incentives.

The Committee met to hear testimony from various state incentive programs, including the moving image industry, special events funds and local programs.  The Committee also discussed the coordination between state and local economic development entities.

Bernard Weinstein, SMU's Maguire Energy Institute

  • Never seen a stronger Texas economy
  • Positive business climate is a contributing factor to the Texas economy
  • His research shows incentive/tax breaks are minor factor in relocation – posits that maybe in Texas we go overboard offering incentives
  • Cautions making incentives for Tesla factory
    • Not clear that Tesla is going to make it as significant impact in car market
    • Not sure if they would even be in business if not for all the federal tax breaks
  • The question needs to be raised is if Texas is getting money worth
  • Texas has given 3900 subsidies over last 20 years, worth $6billion – according to one source
  • Need to be careful of what is offered and do a cost benefit analysis of incentives since tax base is being given away
  • Rep. Rodriguez confirms if witness is saying that companies will come to Texas with or without tax breaks
    • Doesn’t think pattern of industrial growth will be that different if got rid of tax breaks – nationwide
    • Rodriguez agreed state does need to make sure they are getting money worth – but asked witness how would he measure
    • Comptroller office looks at deals although unable to offer many suggestions at this time, witness thinks clawbacks are good but need to be enforced and not difficult to enforce
  • Witness said if Texas offered nothing thinks Toyota would have moved here whether or not breaks were offered
  • Legislature needs to look very carefully at cost and benefits of programs
  • Rep. Button pointed out Toyota sent letter that said economic incentives were part of consideration to Texas
  • Witness notes justification of some of the economic development programs were designed primarily for small cites, rural areas but are now being heavily utilized by larger cities and suburbs of those cities

 
Mayor Oscar Lesser, City of El Paso

  • Economic development a large important part of his job
  • In 14 months have lowered unemployment to just 7% and can say it would have never happened without incentives
    • Prudential, Charles Schwab, etc located in El Paso and they have an option on where to locate
    • When asked if companies said they wouldn’t come without incentives, Mayor said it is about return on investment (ROI)
    • Rep. Springer inquired if companies hired a location consultant
    • Some do, but companies look for return on their investment
  • Rep. Ashby asked for any recommendations/changes to the incentives
    • Witness said McLeroy – the next witness – will elaborate
  • Working on project now that will bring 1200 jobs in community and it is between them and Georgia
    • Company is located in both areas and looking where to expand
  • Need to be competitive
  • Lost a company to New Mexico and all the growth potential because El Paso did not have the economic development incentives needed

 
Matthew McLeroy, City of El Paso – Economic Development

  • Yes, he has heard that if city does not offer right incentives then company will not relocate to the area
  • Consultants are hired and paid based on percentages of incentives – incentive offers do impact decisions
  • 380 agreement recommendations
    • Need to add municipal land to agreement quickly
      • Manufacturing deal with New Mexico example – inability to get a 380 agreement on land and was one of tipping points
    • Assumption in P3 projects – need to get rid of some of ambiguity in language, municipally owned vs. publically owned
    • In cluster focus areas – need to tailor language in the incentive program
  • Rep. Nevarez wants to know what other specializations can be targeted in rural area other than oil and gas
  • Texas Enterprise Fund – decision process of 90 days is a deal killer
    • Focus on improving and not abolishing it
  • Companies can hire consulting company whose payoff is based on total incentive packages, witness responds to Rep. Villalba’s and Rep. Oliveira’s questions
    • Everyone offers something different in various incentives package  
    • The company pays the consultant – in El Paso every major deal he has been a part of uses consultant

 
Heather Page, Director of Texas Film Commission

  • $1.5 billion industry in Texas
  • Funding is by grant
  • 811 programs created jobs and income in Texas because of film incentive
  • Texas state rate is still lower than other states and industry still comes
  • 2010 Comptroller report concluded the program was efficient and effective – most, if not all, jobs go to Texans 
  • Balance of fund is in range of $32 million
  • Villalba said funds have been come politically charged and there have been previous amendments drafted to cut funds (produces films not in accordance with value system or providing rate of return) so how would witness address?
    • 658 rate of return for previous biennium
    • In regards to content question witness states – if we want to keep incentive program we stay true to values provided in mandate and can’t scare people away in order to compete
    • Reviews content but is not going to claim “judge of good taste”
    • Films may not be rated until after produced – so may not have rating when reviewed
    • To review and judge the witness follows statute – does it show Texas and Texans in a negative fashion?
    • Has not yet turned down a project – doesn’t see content issue as being a problem   
  • Button asked about lack of claw backs and absence of sunset date
    • Don’t need to worry about claw backs – payout based on completed audited jobs
    • Internal audits of portion of program in Governor’s office but no other outside audits
  • Ashby asked if only incentivizing two portions of state (Dallas and Austin)
    • There is production all across the state, spring should be busy time for Houston
  • In regards to comparison of North Carolina film incentives/problems
    • They incentivized non-resident wage and the rate is higher
    • Texas does not have to spend as much as other states – we have great environment
  • Film/TV incentives as a mobile industry can be advantageous
  • Rep. Oliveira asked about residency requirements
    • Require ID verification

 
Bill Hammond, CEO Texas Association of Business

  • Focused comments on “moving images” incentives in Texas
  • Point out that legislature has given serious consideration and the appropriations process has given the program continued and increases in funding – validation
  • The program costs very little the way it is financed
  • Program brings great jobs to state and helps Texas attract and retain a skilled workforce 
  • Knows without incentives the work/productions would go elsewhere
  • Rep. Deshotel noted there are other ancillary benefits to this program
    • Points out Dallas brought tourism to Texas
  • Have carefully crafted program to protect Texans’ tax dollars

 
Michael Walbrecht, VP for Warner Bros. Entertainment

  • Texas has many positive environments – weather, location, etc
  • But incentives are also a factor
  • They have done 5 television series here in last 5 years and exploring a miniseries
  • Use many local vendors in process of making the product
  • Believes Texas is strong partner but without the incentives the shows would not have been made here
  • Have budgeting software where can compare costs of location
    • TV group uses the program and Texas is one of the locations compared
    • Major motion picture group does not have Texas in the comparison of 17 areas
      • Increasing incentive budget overall would probably draw more large feature films
  • Oliveira asked about facilities in Texas
    • Pretty good in major cities – that works out ok but it comes with time

 
Steve O’Brien, CEO of ReelFX

  • A great deal of jobs created come from some companies like theirs
  • So many of these jobs go offshore and to Canada as well -not just to other states
  • Incentive help them win business of Open Season 2 over India and it got them passed tipping point
  • They have added 300 jobs since then

 
Tom Foulkes, VP of State Gov Affairs for ESA – Entertainment Software Association

  • Submitted written testimony
  • Incentive program has played critical role in helping it become industry leader it is today
  • Created jobs for Texans (5k) and at $90k average salary
  • For video game industry there are 21 states working to lure high tech highly compensated jobs to their locale – competition will keep growing
  • Texas is moving forward – higher education in Texas degree offerings, affordable cost of living, incentives, etc.
  • Texas has strong undergraduate and graduate media/entertainment programs (ie video games)
    • Button thinks there may be more interest in entertainment software for students
  • Rep. Perez asked how Texas compares to other states in regards to skilled workers
    • Seeing many people move into Texas , yes Texas has skilled workforce

 
Robert Wood, Director of Economic Development and Analysis, Comptroller

  • Major Events Trust Fund
    • METF differs in event and site selection have to be named in statute (ie Final Four, NCAA)
    • Events need to have a minimal increase in tax to state
    • City, County or Non-profit organization that is authorized by city or county
    • Comptroller on front end will look at request from the community and estimate how much they believe will be brought to state as a result of the event
    • Fund amount is maximum amount that will be brought in or part of local share
    • Locals do have to participate – need to put in part of funding
    • 5 different taxes are included in estimate including – General Sales and Use (largest), Hotel Tax, Rental Car Tax
    • Post event reporting is required immediately following the event and if significantly lower state can reduce amount of funds available
  • Events Trust Fund
    • Events not listed in statute but have to meet certain criteria
    • SB 1678 put restrictions on smaller events
    • Process to apply is same as METF
    • Reporting similar to METF
  • Statute lays out eligibility and comptroller does not have discretion if good or bad event – eligibility determination at local level
  • Formula One – committee applied and they provided an economic impact report – their estimate was $29-32 million and Comptroller estimate was $25 million
  • Statue requires funding, there is no discretion – asked Oliveira
    • Witness answers affirmatively
  • Is there a finite amount of money in fund asked Oliveira
    • Based on per event and there is not a finite amount of money said Wood
    • Wood noted the fund is not appropriated – incremental tax
  • On annual basis monies spent –
    • 2013 Events Trust Fund $25 million, 2014 $15.2 million
    • 2013 METF $9.3million, 2014 $42.8 million
  • Oliveira noted that money would go to GR if not being spent and if funding is capped
    • Yes and there is not a cap
    • Oliveira concerned there is no limit
  • Ashby said he shared Oliveira concerns that approval process is open ended as long as criteria is met  
  • Is the purpose of the fund to attract events that wouldn’t have otherwise come or to offset local expenses asked Ashby
    • Statutory purpose deals more with helping local communities offset expenses – history goes back to PANAM games
  • Ashby struggles if state should assist events moving within cities in Texas – doesn’t seem constructive
    • Witness doesn’t see it often but it does happen
  • Ashby asked why awards are not in many rural areas
    • Restriction on smaller events and they need to apply
    • Rarely are submitted applications denied  
  • Button – Asked Oliveira and Ashby to work together to develop specific recommendations regarding
    • Timeframe of achieving purpose
    • Funds limited
    • Sunset date
  • Funding is tied to incremental tax increase expected from event
    • State under statute can reduce fund
  • All of payments from Comptroller office are after the fact – no payments are made until proof is provided  
  • Lower attendance was recent provision added
  • There is clawback provision on attendance but have not had to use since communities already voluntarily do that
  • CHAPTER 313
    • Value limitation – and creates a certain of job and install real and personal property
    • Supplemental payments are also included
    • Job and wage requirement
    • 60+% of job minimum requirements are waived
    • Agreements between district and company
      • Comptroller does need to approve
    • Specific provisions/limitations were added during the last session
    • Audit requirement added and report is expected out some time this fall
  • Oliveira felt intent was being diluted from original legislation and inquired how abuses from school districts are being monitored
    • 60% are waiving the minimum? asked Oliveira
    • Yes said Wood – because of industry norm
    • HB 390 did add provisions which gave Comptroller more authority and they must approve the project
  • Biennial report based on companies over life of program cost is $2 billion for 128 agreements for 2012 – new report being done covering 250 agreements so expects the amount will at least be doubled if not more since projects are larger
  • Oliveira noted that doubling the projects could cost us that revenue – we pick up the tab in the hold harmless agreements who want to cut the deals
    • There isn’t really a cap argued Oliveira
  • Oliveira argued that 15% of power grid also comes from wind projects and now relying on wind projects – thinks the legislature has to deal with school finance one way or another
  • Oliveira thinks this is something that needs to be looked at very carefully – this is a significant amount of money that school districts give out and “we pick up the tab”
  • Oliveira would like to know besides wind farms, what type of waiver on job requirement are being done?
    • Wood said across the board – predominately wind farms but not all
  • Supplemental payments outside of funding formula were limited
  • Oliveira said was curious why increase in agreements       
    • Wood said could be federal tax credit set to expire and possibly because HB 3390 took effect 2014 so application rush before effective date – artificially displaced by new statute
  • Discussion on companies working the system to get incentives – making empty threats and how to prevent
  • Oliveira questioned if incentives were really needed and tells story of disingenuous negotiations of companies in order to increase incentive offer and wants to know how Comptroller measures this intent
    • Wood said they look on public announcement and in area related to product but that is a good question
  • Springer asked if analysis was done on what type of projects would not meet new legislative requirement
    • Only found one in informal process that would not pay off within 25 yrs said Wood
  • Many factors are looked at when granting funds– jobs created during construction, tax impact of entire process etc so not finding many projects that do not qualify but not sure when factoring in depreciation rates
  • Button stated this incentive “could be another black hole sucking up state revenue” there is not a specific limit on funding
  • Button – Asked Springer and Oliveira to work together to develop specific recommendations
    • Top three improvements that can be done to this incentive program

 
Renn Neilson – Head of State Practice at Baker Botts

  • Power to tax is power to destroy – difficult concept to wrestle with
  • In response to Oliveira’s claim of corporations making empty threats
    • It is abuse and he does not defend it
  • First few years of companies are about cost so may not still be viable without incentives
  • 313 is complicated because of school finance system
    • Revenue protection/hold harmless adds to complexity
  • Recommendations
    • Comptroller could publish out of total tax statements generated from 313 – what is total tax savings and how is that split? Did school district get 50% or 40% of total tax savings
    • Gives a market when representing a developer

 
Marla Roe – Exec. Dir. of Frisco Visitor and Convention Center

  • Event trust fund got NCAA event and brings huge economic impact
  • Many tourists visit as a result – economic driver
  • Economic impact reports show over $26 million

 
Matt Wilson – Dir. of Sports and National Accounts for Arlington Convention and Visitors Bureau

  • Reviewed events and visitors as well as funding that was attracted  
  • Financial support from trust funds allow them to be a competitive venue for the events
  • City expenses are predominantly public safety
  • Other costs include event planning, traffic management, etc
  • Numerous dollars collected in sales tax from fans attending events and spending funds in the community

 
Hope Andrade, Texas Workforce Commission

  • Skills development fund overview
  • It is premier job training development program in Texas
  • They have taken the skills program even further to support smaller employers
  • However Texas needs new tools to remain competitive
    • Rapid response workforce development services
    • Flexibility in fast responsiveness for employers deciding to remain and expand or those considering moving here
    • Center on recruiting high demand jobs and in cooperation with local and state economic development agencies, community colleges, etc
    • Concept is currently under development so welcome any thoughts
  • Oliveira asked how much is appropriated and if the funds are exhausted
    • Yes – $50 million per biennium
    • They are requesting an exceptional item for $10 million
  • Oliveira asked what types of jobs are being created, average salaries, maintained qualifications for fund
    • Will let Demerson fully explain but not doing minimum wage jobs
  • Button has heard comments that businesses would prefer direct funding and not give up trade secrets
    • Andrade said tool they are talking about creating will answer some of those needs to help customize it with their training and still thinks funding should go through community colleges
  • Working to have industry talk to education about the jobs that are out there

 
Aaron Demerson, Texas Workforce Commission

  • Training program has been developed with employers, technical colleges, and community colleges
  • Program grantee examples were offered

 
Greg Yoxsimer, Human Resources Chevron

  • Fund has provided training for employees – offered background on training and relationship with Midland College which continued after grant had ended
  • In middle of grant with Odessa College – working towards commitment of 142 new hires, etc
  • Rep. Miles left a question with Button to ask if company hires ex-offenders
    • They do background checks
  • Ex-offender program pack will be assembled for Miles 

 
Terry Trevino, Exec. Dir. Seguin Eco Devo Corp

  • Try to use all tools in tool box – other countries and states are becoming very astute in economic development incentives
  • Recruited Caterpillar Plants – now has a boom and this was a catalysts for the community
  • Every year it is challenging – for smaller communities
  • 4A sales tax can now be robust community and ranked 4th in nation
  • Would like to ask committee to continue to fight for these incentives as they have been very successful
  • Rep. Springer again posed previous question of earlier witnesses how do they get on the radar – was there a site selector?
    • Have had great experiences with site selector
    • Terry Ward was previous site selector
  • A lot of towns would like handcuffs taken off of 4A
  • 4A and 4B sales great but so many mechanisms for recruiting housing
  • They knew over time knew they could get developers to come in, even without incentivizing them
  • Texas Capital Fund – there are many incentives out there such as 380, federal awards, etc
  • Getting multiplier effect and getting funding higher to increase housing

 
Paul Davis, Pasadena Economic Development Corporation

  • Economic developer is salesman for the community
  • Pasadena 15th largest city in the state and have a number of partnerships
  • Gets many leads from different sources
  • Gets many leads from government office but 95% are cold leads so still need to follow up on them
  • Most businesses do not ask for incentives when they come to Pasadena but there are always a few cases
  • Exception – Nestle water – they wanted good commercial water rates and they were in the position to do so and go back Friday to negotiate with major water bottle company
  • Been able to compete with Houston
  • Being able to show fast turnaround is crucial to smaller areas/rural
  • Benefits generate $4.3 million just on 4B
  • Houston area landed 76k jobs in 2014, etc major growth in metro areas
  • Need to help rural areas get share of businesses as well

 
Kevin Johns, Eco Dev Dir of Austin

  • Part of regional economic development initiative – by county
  • Fully committee to help other cities throughout state of Texas
  • 3 roads for economic development – use existing assets, incentives, best practices which are all done in Austin
  • Everything that creates job and taxes in one place
  • In global business 24% of business in Austin are from first generation or foreign born businesses  
  • Tool developed to predict ROI
  • Various best practices listed
  • Critical to success is partnership at state

 
Rodney Gonzales, City of Austin

  • Can’t do this without the state
  • Business expansion handouts (handouts/agreements online)
  • “But for” test used
  • Don’t compete with other cities in Texas for projects directly
  • Market recruitment – go to other states and marketing themselves
  • Uses evaluation matrix when it comes to qualifying companies
  • Don’t have 4A or 4B so will take profit from project and use it as an incentive and can compute project through software
  • Button stated 4A&B can be important but sometimes it is used to compete within cities
    • Finds it refreshing Austin does not compete with other cities said Button
  • Incentives are not provided up front – shifted to performance based model
  • Chamber acts as intermediary – everyone has same level playing field and then company chooses who they will follow up with

 
Avarila Cruz, President of Greater San Marcos Partnership

  • Regional economic development organization that includes surrounding communities such as Hays
  • Incentives cannot turn a bad location into a good one
  • Discussed the importance of economic development funds especially those communities without access to 4A or 4B funds
  • Request committee look at amount of time of the process takes for Enterprise Fund application
  • Texas State received emerging technology grant which lead to establishments of lab, jumpstarted PHd program, and relationships on campus with industry leaders, etc.
  • Question if emerging tech funds should be for start-ups or university was discussed
    • Thinks message is Texas is interested in technology innovation

 
Jess Fields, Texas Public Policy Foundation

  • Gives example of incentives gone wrong with story about City of Corsicana
  • Incentives are growing  
  • Long time period study conducted to review effectiveness of incentives
    • Did not see economy grown, no jobs grown, no retail sales increased
  • Transparency concern/open records act– economic development agreements are done in executive/close sessions and behind closed doors and citizens don’t know much of the details
  • Villalba posed the question of why the companies want to keep the information secret
    • Villalba said as corporate counselor he hears it is needed to be confidential because maybe if company employees heard of potential of moving could be disruptive at headquarters  
    • Villalba however agrees that after discussion/exploratory phase complete details should be publicly available
    • Competitive issues could also be a concern and reason for certain limitations on transparency
  • Button reads letter from City of Corsicana which supports the incentives
  • Ashby, Perez, and Villalba will review transparency concerns

 
Bill Longley, Texas Municipal League

  • As 22 of 22 invited witness said he will wrap up testimony quickly
  • Appreciates committee looking into issues

 
PUBLIC TESTIMONY
 
Lynn Spencer, San Patricio County EDC

  • County has small budget
  • Housing in small town is big deal
  • Look at countywide EDCs/rural areas and get access to resources so they can do more
  • Great to have big pots of money to spend but need to use some of that money to get them to look at them in the first place – need funds

 
Robert Willingham, Prosper EDC

  • Type A&B funds are very important to the community
  • They discourage poaching companies within the state/metroplex – but cautions that Texas is a big state

 
Ray Dunlap, Fairview EDC

  • Spoke in favor of A&B
  • Has to be voted in by voters and statute has provision to vote it out if they want
  • Recommends banding together locally to combine travel budgets  

 
James Yohe, Nocona EDC

  • Film incentive – opportunity to grow their own
  • High school students doing green screen productions

 
Ginger Sledge, Local Texas Film Producer

  • Lot of local talent homegrown in this state
  • Incentives have brought people back

 
Dale Fowler, Victoria EDC

  • Testimony sent in
  • Used just about every one of incentives discussed during hearing 

 
Danny Booth, Terrell EDC

  • 13th city to pass tax – developed industrial park which has grown by several hundred acres
  • Created jobs and added to tax roles
  • Used many of the incentives and would like committee to consider continuing the funds that helped make them competitive

 
Susan Blackwood, San Antonio Sports

  • Experience with incentives as started it when bidding on PANAmerican games
  • Gave more historical background on major event trust funds
  • In regards to earlier question on rural communities accessing these funds
    • Facilities are needed – in response to Ashby’s earlier question regarding rural participation
    • Need community support to get in application

 
Robert Jackson, VP Public Policy Houston First Corp.

  • Created to manage and operation its convention and event facilities
  • Event trust funds have been instrumental in them securing events
  • Ancillary outcomes include bringing in global leaders to community, tourist dollars, etc

 
Monica Paul, VP of Sports for Dallas Convention and Visitors Bureau

  • Supports event trust funds
  • 80% of events which they have hosted would not have come or frequented as many times if not for funds
  • In last three years have received $11 million from event trust funds and it has generated an economic impact of $365 million to Texas

 
Michael Sawaya, City of San Antonio

  • Better prepared to bring events to Texas
  • Event trust funds gives confidence state is with them when bidding on events
  • Bringing 40k dentist because they have the sports arena to hold them, examples of other conferences coming to San Antonio given

 
Kirk Slaughter, City of Ft Worth

  • Incentives great tool when competing on open market
  • Use event trust fund for NASCAR and then world-wide equestrian shows so don’t compete within Texas cities but they go to other states
  • Working on 5 year contracts with events
    • State is capturing and keeping incremental state tax coming in as result of events
    • He noted this makes a good partnership

 
Ed Heimlich, Honor Quest

  • No amount of incentive will bring companies to Texas is the word gets out there is no liberty in Texas
  • Testified against incentives noting bad actors are “disregarding with impunity” laws/liberty

 
Next meeting will be Sept. 24 in Houston and it will discuss energy and private space incentives, freeports and the Cancer Prevention Research Institute of Texas (CPRIT).