This story has been updated.
For every dollar spent on tax abatements and grants to attract new businesses to San Antonio, the City of San Antonio is projected to earn almost three times the initial investment, according to a local research analyst.
Steve Nivin, associate professor of economics at St. Mary’s University, provided a briefing on the city’s incentive programs to the City Council’s Economic and Workforce Development Committee on Tuesday.
The analysis, solicited by the city’s Economic Development Department, demonstrates that the money spent on incentives has paid for itself through property tax and sales tax revenue, company and employee spending and CPS Energy revenue.
Nivin calculated the return on investment by analyzing the costs associated with the program, the cost of the tax abatements and grants and the revenue generated for the 69 active agreements on the books through 2021. Combining the total costs of the program and the incentives, he said that for every dollar spent, the city earned $2.85 in revenue.
The city began a process in 2021 to evaluate the economic development incentive guidelines it uses to attract new industry.
The goal was to make future agreements more flexible and allow companies to meet standards, such as in capital investment or employment, and fulfill their promises in other ways that benefit the community.
In January, city staff kicked off a strategic planning initiative to review the city’s role in economic development and update the guidelines used to qualify business investments for various tax breaks and grants.
Nivin’s analysis of how the incentive program is performing will be part of the discussion involving the city’s policies going forward, said Brenda Hicks-Sorensen, director of the Economic Development Department.
Between 2005 and 2021, the city is projected to invest over $71 million in administering its economic development programs related to incentives, which includes the operations of Hicks-Sorensen’s department, according to the report by Nivin. The amount is a projection because it takes into account agreements with monitoring periods that extend as far as 2039.
The total incentives amount provided to companies in tax abatements and loans comes to almost $180 million.
In return, those initiatives resulted in $5.6 million in investment by the private sector, which includes current and projected revenue.
The city will receive $670 million in revenue from these projects resulting in a net revenue of $419 million.
“Based on this analysis, the return on investment of the incentives is quite substantial even by the most conservative measure,” Nivin stated in his report.
The analysis did not report performance for specific individual agreements nor did it include terminated agreements. The report also did not incorporate the most recent incentives offered by the city to the DeLorean Motor Company, Spurs Sports and Entertainment and the cancer therapy center Proton International.
In the most recent agreement, the city approved a grant of $562,500 for the DeLorean Motor Company to establish its headquarters in San Antonio and a promise to create 450 jobs by 2026.
Two of the largest investments that qualified for incentives in recent years came from capital expansion plans by Microsoft ($500 million in 2017) and Toyota ($391 million in 2019).
Another agreement with Toyota in 2009 worth about $6 million in tax abatements in exchange for a $100 million investment continues through 2026.
But a total of 19 supplier companies with ties to Toyota also received incentives in 2005, when the plant was built, with 17 of those agreements set to expire at the end of the year.
An analysis of the program was last performed in 2017 when there were 72 agreements with over $100 million in incentives and $3.6 billion in incentives. That year’s data showed that for every dollar spent on programs and incentives, the city earned $2.67 in revenue.
Councilman Manny Pelaez (D8) said he was glad to see a return on investment for the program so he can counter the “corporate welfare” talk he hears from constituents.
“There really does appear to be the argument that we’re in the black,” Pelaez said. “And I think that’s an important conversation to have with the public except that we’ve never had the tools or at least the data with which to have that conversation.”
Also on Tuesday, Hicks-Sorensen gave the council’s Economic and Workforce Development Committee a briefing on a proposed professional services agreement between the Economic Development Department and Main Street America.
The nonprofit Main Street America is a subsidiary of the National Trust for Historic Preservation that is focused on building stronger communities through preservation-based economic development. In its 40-year history, the program has assisted 2,000 communities, including Orlando’s Curry Ford West, its most recent.
“That area has historically been a pass-through for commuters and is currently being revitalized with a strong focus on community and culture,” Hicks-Sorensen said, adding that Main Street America communities have experienced over $95 billion in reinvestment since 1980 with over 161,000 businesses started and over 717,000 jobs created.
The proposal calls for spending $131,500 in American Rescue Plan Act funds to conduct a pilot program with Main Street America focused on improving two corridors in San Antonio. Council members were quick to offer suggested corridors in their districts.
The selection criteria will be available in early 2023, Hicks-Sorensen said, adding that the department is planning to seek input via the SA Tomorrow Plan, the city’s Planning and Transportation departments, Neighborhood and Housing Services, and local business and community organizations.
“Since this is a two-corridor pilot, it might make sense for us to look at partnering with an organization that’s maybe a little bit more established, and then one that’s brand new, so we have very different experiences and lessons learned from that going forward as well,” she said.
This story has been updated to correct the spelling of Brenda Hicks-Sorensen’s last name.
