When Petco didn’t meet its target of 400 jobs in San Antonio in exchange for tax incentives to build a distribution center here, City Council last week voted to let the pet supplier off the hook because of other significant investments it had made in the community, including $1 million for a pet adoption center.
But since January, the City has been evaluating the economic development incentive guidelines it uses to attract new industry so that future agreements could be flexible enough to allow companies to meet standards and fulfill promises in other ways that benefit the community.
Most city and county governments use tax abatements, rebates, and grants to compete for new business, jobs, and investment. Unlike many other states, such incentives in Texas happen more often at the local government level, where the tax burden is higher.
With guidelines in place for at least two decades in San Antonio, there are currently 75 companies with names like Toyota, Microsoft, and Navistar with active incentive agreements going back to 2005. For those companies, incentives reduce the cost of establishing a new plant, office, or warehouse and entice them to choose San Antonio over another location.
In exchange for the company’s promise to construct a building or hire a certain number of people, for example, the City abates taxes or rebates property taxes. In 2019, it entered into an agreement with Toyota worth almost $10 million to bring about a $391 million expansion at the manufacturing facility.
The criteria that a company must meet to qualify for tax abatements or rebates are outlined in the Texas Tax Code: Chapter 312 tax abatement and Chapter 380 grant or loan agreements.
State law requires the taxing entities to evaluate their Chapter 312 guidelines every two years; thus, the guidelines for those agreements get more frequent scrutiny than Chapter 380 agreements. The City has been retooling both for a more comprehensive program, a process that was delayed during the pandemic.
In the case of Petco, for a tax abatement worth $251,000, the company provided 250 jobs with qualifying wages and contributed $2 million to Animal Care Services.
“We try to see what are the benefits, what are the costs, what are the challenges that this project could create for our community, and that’s what we will continue to do,” said Alex Lopez, director of the City’s Economic Development Department. “As far as Petco was concerned, we evaluated it holistically and looked at … the good faith effort that both we and the company made.”
The new guidelines City staffers are recommending were developed with input from the City’s economic development partners, such as the chambers of commerce and the San Antonio Economic Development Foundation, public utility officials, public policy consultants TXP, and City Council members.
“Over the past year and a half … we’ve received additional perspective and guidance from Council about the types of community benefits that they would like to see incorporated into any kind of incentive that we provide,” Lopez said. “So we’ve tried to find ways to incorporate some of these priorities into a structure that companies can really understand when they’re considering approaching us for incentives.”
The proposed plan would allow the Economic Development staff to evaluate a company based upon outlined criteria in several categories, rather than meeting certain terms and percentages, and then it would be given a score that correlates to incentive levels and duration of the agreement. The categories for evaluating a company would include targeted areas, economic benefit, character of jobs and labor force, and infrastructure impact.
“It helps that we’re closing those loopholes that maybe have been there in the past with the qualifying,” said Councilwoman Rebecca Viagran (D3), chairwoman of the Council’s Economic and Workforce Development Committee. “If you checked off all the list, then you could … demand all of these things.”
One of the proposed changes is using tax abatements for larger, more substantial projects only, those requiring an investment of $200 million or more, Lopez said, and employing tax rebates for smaller projects.
“Another one of the changes that we’re recommending is that the minimum wage requirement be increased to $15 an hour … and 75% of the jobs be at the all-industry wage [level],” she said.
Currently, the guidelines state that all workers must be paid at least the living wage ($12.74/hour), and 70% must meet the all-industry wage ($17.37/hour). In addition, a company must show that it has adopted gender pay parity practices.
A major change in the proposal is the criteria for determining whether a project is even eligible for incentives. “But then once they’re considered, there’s going to be evaluation criteria that would determine how much or what type of incentive they’d be eligible for,” Lopez said.
The approach is much more sophisticated and flexible, said TXP President Jon Hockenyos, who has been advising San Antonio since 1991. “It’s more [about how] we evaluate the totality of what they’re bringing and how does some of that align with priorities the community has in terms of economic development.”
He acknowledged that taxpayers are often critical of economic development incentives, calling it “corporate welfare.”
“And to some degree, that’s right,” Hockenyos said. “One of the things that’s incumbent upon us … is to really ascertain how competitive a situation this [is]. We’ve got to do some homework, we’ve got to do some investigation, we’ve got to understand, do they have credible competing offers out there and is there a real chance if we don’t put a competitive offer on the table, they won’t come?”
The new scoring framework in the proposal is designed to reflect San Antonio’s economic development priorities, Hockenyos said, including specific industries and jobs it wants to attract.
For instance, while the City of Austin is more focused on jobs for people with a high school education, like those provided by car manufacturer Tesla, he said, for San Antonio and other communities in Texas, tech industry and tech jobs are priorities.
But also new is that the Chapter 380 grant guidelines would better target small businesses with reduced criteria thresholds.
“I also think this framework aligns better with your overall community priorities, aligns better with your long-term vision for San Antonio,” Hockenyos said. “It’s not just about the big companies. You add five new jobs, you can come to the city and talk about getting a little help. And that’s worth doing.”
The guidelines will be presented in August to a newly formed Small Business Commission, and a final set of guidelines will go to the council for approval later that month.
On Wednesday, Mayor Ron Nirenberg and council members weighed in on the proposal, requesting that staff consider some changes, including rewarding companies that offer workers’ compensation and further incentivizing development in disadvantaged communities.
“I’m talking about Edgewood, I’m talking about Pinn Road, I’m talking about Marbach,” said Melissa Cabello Havrda (D6). “Those are examples of locations throughout our city that have been left out of the process. I appreciate that there is an equity matrix, and I’m supportive of the policy, but I think there are a lot of opportunities for adjustment and I would like to drive business to high equity areas.”
Nirenberg also challenged the Council and staff to consider how the program intersects with the City’s other plans and policies, including those addressing climate, transportation, and broadband connectivity. But he said he appreciates that the proposed changes raise the standard for what’s expected in return for tax abatements and how the City approaches economic development.
“I think that sends a signal that we’re no longer going to be relying on tax abatements to bring in businesses here,” Nirenberg said. “And that the fundamentals that we’ve been investing in – from workforce to infrastructure to strong reliable utilities to the fact that we’re a growing city and a climatologically advantaged area – should be attractive to business investment.
“I like the fact that we are leaning more on those qualities rather than just the growth incentives.”