Texas Won Nothing
Don't believe what you read about the Samsung subsidy deal.
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“Texas wins contest to host Samsung's new $17 bln chip plant.”
So says the headline in Reuters regarding Samsung planning to put a new semiconductor plant in Taylor, Texas, a town about 30 miles outside of Austin. Everyone involved is a winner it seems: Texans, President Joe Biden, Gov. Greg Abbott.
Don’t believe it. There was never a contest for Texas to win. The only real winner is Samsung, while the rest of us will have to deal with the folly of what Texas’ leaders did.
Ostensibly, the reason Texas is a “winner” is because Samsung was considering Phoenix, Arizona, and Gennessee County, New York, as alternative sites for the plant. But there’s no real proof that’s true. Samsung has a sizable presence in the Austin area already, and putting a plant there made good sense for plenty of reasons having to do with Samsung’s existing operations, the infrastructure there, and the Austin workforce that was ideally suited to the corporation’s plans.
Yes, Samsung said New York and Arizona were possible locations, but it only made real moves in the Austin area. Semiconductor corporations continually use New York as a stalking horse to gin up subsidy deals when they have no intention at all of actually going there, as evidenced by the still nearly empty plant they all say they’re going to use. New York is to semiconductor plants what Las Vegas was for so many years for NFL teams: The convenient foil for extracting subsidies.
So the contest in question really came down to Texas versus Texas, or more specifically, Austin proper versus Taylor. Had I been betting, I would have put money on Samsung settling in Austin itself, next to its existing operations there. I do think the incentive package Taylor leaders put on the table probably tipped the balance between Austin and Taylor in the latter’s favor.
How much money are taxpayers paying to shift a single factory 30 miles down the road? A lot!
I’ve looked through the documents, and there are two huge property tax handouts — one from the county and city and one from the local school district — that will equal somewhere around $700 million over 10 years, and there are options for extensions beyond the 10-year timeframe. The school district’s share will come via a program known as Chapter 313, which I detailed here, so the whole state of Texas will be paying for it, as the premise of Chapter 313 is that school districts hand out property tax breaks and then are made whole by the state.
Then there’s $23 million from the Texas Enterprise Fund, a “deal closing” slush fund for the governor. And there will be local infrastructure outlays. So all told, as Good Jobs First’s Greg LeRoy said, we’re probably talking north of $1 billion in subsidies for one factory.
$1 billion so that the plant was 30 miles away from where Samsung’s executives probably intended to put it the whole time. That was the whole “contest.” The “win” seems less impressive now, no?
Even if Taylor manages to come out ahead in strict dollar terms, which is debatable given the increased services it will have to provide which Samsung won’t really be paying for, it’s clear that this kind of competition is ruinous. A metro area competed against itself to book investment in one jurisdiction over another, even though the workforce and the circulating dollars from wages and suppliers will all be exactly the same either way. That $1 billion bought a ribbon-cutting for the politicians involved, nothing more.
In fact, you can argue Austin won by losing, as some percentage of the workforce and local spending will benefit Austin without the city having to shell out any subsidies.
The other wrinkle here is that Chapter 313 is set to expire at the end of next year, so in many ways it’s a zombie program doling out decades worth of tax breaks before it disappears. Abbott made some noise last week about maybe calling a special session of the state legislature to renew it in the wake of the Samsung deal, but that hasn’t happened yet. You better believe folks will mobilize to make sure Chapter 313 stays good and expired if it does, but Texas will be stuck with the Samsung deal — and surely others that are rushed through under the wire — even if it never comes back.
I guess my grander point is this: If one were talking about a clearly rigged sporting event, it’d be weird to say “Team A won by 40 points, good job Team A,” instead of “wow, that game was rigged so that Team A couldn’t lose, that’s outrageous.” But in economic development, the fact that the game is rigged is just accepted, and politicians receive plaudits for “winning” something that isn’t a real competition, but a cynical exercise to extract resources from the public.
Other semiconductor corporations are going to do the same thing, especially if federal subsidies start flowing too. I’m not optimistic future deals will be covered any better than the Samsung one, but hey, a guy can dream.
SHAMELESS SELF-PROMOTION: I talked with The American Prospect’s Alex Sammon about Tulsa giving remote workers money to move to the city. You can read the piece here.
ONE MORE THING: Corporations and city officials using non-disclosure agreements to hide subsidy deal details from the public is always corrupt and infuriating. But sometimes it’s a little funny too, like this example from Iowa.
Citing confidentiality agreements, local economic development officials declined to confirm that Amazon employees would sort orders at the massive warehouse, as they do at buildings in Ankeny, Bondurant and Grimes. But in an application for a state grant to pay for new turn lanes around the warehouse, the Woodward City Council copied sentences from aboutamazon.com to describe the building's future occupant.
Sloppy, Woodward City Council. So sloppy.
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— Pat Garofalo