Apple seeds confusion around incentives

In this column, Wendler & Aleshire (W&A) throw several arguments at the Apple subsidy deal.  Some are worthwhile but not all are crisp. In general, there seems to be a brewing community desire for a ‘better way’ on corporate subsidies, but those articulating the desire for an alternative fail to explain it concretely or constructively.  Let’s consider the arguments made by W&A as their piece exemplifies this problem.

First, they use a series of clunky examples to show us what we already know: that Apple is an immensely cash rich company.  They make a social justice argument that the subsidy is unfair prima facie.

Personally, I don’t find that logic compelling.  It is too categorical an argument (‘don’t subsidize a company with cash’) that precludes socially- and financially-positive return on investment projects.  Moreover, I doubt that if the subsidy was just $100 dollars, W&A would be writing this column.  The real issues is the perceived benefits to the cost.

Sadly, W&A do not delve into the details of the deal.  They don’t conduct an analysis (like this one) that factors in the costs and benefits given deal flight risk.  Instead, they move on to their second argument which implies that this type of analysis would not be worthwhile because there is a lack of accountability legislation enforcing the promises made by incentive recipients.  I find this to be their strongest argument: we should indeed keep recipients of public funds accountable to public promises.  I don’t agree that an accountability scheme should push for prioritizing the hiring of unemployed locals as the most valuable contribution.  Depending on the deal and industry, we might want the subsidy to help create a local cluster, and hence, the whole point would be to have a significant import of human capital that doesn’t exist locally.

Third, W&A offer an extensive and probing set of indicting questions about the ‘benefits’ of growth that ends up coming across as anti-growth. To summarize, a reader might take away from their questions the impression that corporate subsidies create a particularly unfair type of economic growth and that in Austin, growth is already unfair anyways.  They argue that a focus on ‘jobs’ deals hides the broader debate about growth.  This is odd to me since pretty much any policy in Austin is immediately inflicted with our continued muddled sentiments about growth.

More importantly, I consistently am irritated that many advocates that care about distributive concerns (‘are the poor and middle class subsidizing the wealthy and corporations’) in town recklessly embrace discourse that sows distrust in government without offering a positive policy role for government.  It seems that W&A care about the anti-egalitarian risks posed by the Apple deal.  But their discourse is that of a limited government populism as opposed to a progressive vision.  If they are concerned about the distributive benefits of the Apple deal, then they should urge that the tax proceeds be funneled towards egalitarian social spending; they could argue for the land-use and facility operations to meet green standards; they could support union service providers trying to participate in the process.  And so on.

Similarly for broader ‘growth’,  we can certainly help shape the contours of who receives the benefits of population and economic growth through local policy through taxing, spending, regulation, and land-use policy.  W&A do not offer concrete advocacy of policies that could do this.  The column just leaves us with a distaste and suspicion about government action and all that without even considering the actual job and subsidy numbers behind the deal(!).

This type of small government populism (repeatedly brought up by local green orgs during water infrastructure debates) is ultimately self-defeating for those of us with a progressive vision for Austin.  We need to make a case for the things government should do and how it should do them, not for it to stay ‘uncorrupted’ on the sidelines and essentially let the market and public policy inertia from past eras decide our fate.


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4 Responses to Apple seeds confusion around incentives

  1. mdahmus says:

    The most frustrating aspect of this is how many people confuse “jobs” with “good for Austin”.

    This project is located on the fringe of the city limits. Likely a large proportion of the employees that work here will not live in the city of Austin. Most of the time, we rely on the property tax generated by their place of employment to cover the costs associated with their time in the city (police, fire, EMS, etc).

    If we’re giving their employer a large property tax break, we no longer have enough to cover their time in the city. This makes it a bad deal for the city – unless the employees actually live within the city (then it gets more complicated – bound up in issues about cost of living for lower income workers and possible positive externalities to subsidizing their employment).

    In other words, why would we want to subsidize the employment of a worker who lives in Round Rock, and doesn’t produce anything but net-negative externalities for the taxpayers of Austin?

    Of course our local polity doesn’t talk this way because we have to pretend we’re all about “regionalism”, but only when it means Austin pays for other jurisdictions.

    • Julio Gonzalez Altamirano says:

      Good point. We want to avoid having Austin property tax losses on economic development projects subsidize sprawl and we want Austin’s coffers to at-least break even on net economic cost to revenue from the development. However, I think it might still be possible to have a deal where Austin offers an incentive and the employer has a lot of suburban employees – even the majority – and it is a satisfactory return on investment. What I am getting at with my post is that we need less categorical thinking and a more concrete and consistent set of goals and ‘hurdle rate’ for these investments.

      If one of the goal is the count of new employment of Austin residents at a certain income level, then our subsidy strategy should focus on that and judge a deal by how efficient it is at achieving the stated goal. Whether the company being subsidized is incredibly cash rich or some of the jobs go to suburbanites might be deemed outside the scope of the criteria.

      All of this suggests a process that gives less discretion to the council and instead acts more like an ongoing RFP process open to any company through something like a credit per verified jobs for local residents in strategic industries at non-poverty levels of employment. This would reduce discretion, reduce the ability for particularly sophisticated consumers of corporate welfare to game the system, and nudge the process towards efficiency by creating an actual market place for the public good we want.

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