Analysis: San Antonio’s Economic Development Incentives Pay Off

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A Credit Human branch is located at St. Marys Street and Alamo Street.

Bonnie Arbittier / Rivard Report

The City approved a $5.9 million tax incentive package last October for the construction of Credit Human‘s new 10-story headquarters, to be located at the Pearl.

For every $1 spent on incentives to attract new or expanded business to San Antonio, the City earns more than five times that in revenue, according to a study presented Tuesday to the San Antonio City Council’s Economic and Workforce Development Committee.

The Return on Investment (ROI) study reviewed active incentive projects that began in 2003 and will continue through 2037, taking into account revenue inflows and outflows. It found that economic development packages return $5.22 for every $1 invested in incentivized projects.

The ROI comprises new sales and property taxes, hotel occupancy taxes, and CPS Energy revenues. The study did not take into account the projects’ impact on school districts, University Health System, the Alamo Colleges District, Bexar County, or other entities. But the time period extends to 2037 because almost all of the companies maintain a presence in San Antonio after incentives end, generating ongoing revenue to the City and economic benefits to the community.

St. Mary’s University economist Steve Nivin, a former industry development manager for the City and current director and chief economist at the economic development think tank SABÉR Institute, presented the study’s findings – the first such analysis since 2008 – with Rene Dominguez, the City’s economic development director.

“We are looking at systematizing this and seeing if we can do this on an annual or biannual basis,” Dominguez said. “We’re already looking ahead at ways we can highlight the great work we’re doing, the impact we’re having.”

Projects the study assessed are actively monitored incentive agreements that were underway at the start of 2017. It compared the outflow of funds associated with the incentivized projects to inflows of revenue associated with a project. Though tax abatements do not necessarily represent City cash outflows, the study treated them as City outflows to demonstrate the cost of providing tax abatements.

Incentive programs, which can include tax abatements, fee waivers, and grants, are monitored by the Economic Development Department, which has an $11 million budget in the City’s fiscal-year 2018 budget. One of the first incentive projects the City ever approved was a seven-year moratorium on annexation to bring Sea World of Texas here in 1988; the State of Texas kicked in another $15 million in tax abatements.

Based on total private-sector dollars invested of $3,686,571,815, with the City’s incentives totaling $121,073,847, the City has realized revenue of $632,552,460 for the projects studied.

But that revenue total would go much higher, Dominguez said, if the study had looked at all projects his department is currently monitoring. “We took a conservative view,” he said.

As an example of how incentives pay off, Nivin illustrated the project life cycle of a customer operations center, which made an $83 million investment in San Antonio and promised 1,000 jobs. The City provided the company with a six-year, 50-percent tax abatement package in 2011.

When the abatement period ended in 2016, sales taxes were at $400,000 and property taxes at $200,000 for $600,000 in total taxes collected.

(CPS Energy revenues could not be quantified for individual projects due to privacy rules, but were included in the overall revenue total.)

In the case of another example, a data center given a similar incentive package in 2015, Nivin said the break-even point will come in 2020.

“My experience over the years – it varies from project to project – but on average the break-even point is around six to seven years, depending on the incentives and the project,” Nivin said.

“This is spot-on and somehow we have got to get this out to the public because we get questioned every time: ‘Why are you giving incentives to bring this development to town?’” said Councilman Clayton Perry (D10). “We need to simplify it more to put it out there. But $5 for every [$1] we put in is very easy to understand. … I am very excited to see this, and [it] tells a great story.”

Councilman John Courage (D9) echoed Perry’s response to the report.

“That’s the kind of information I would disseminate to my constituents who would probably have a change of heart, if not change of mind, about the City’s incentive programs,” Courage said.

“I have to say this is a better picture [for] us to understand, and I’m not as likely to be so off-put by incentives maybe now as I was before I saw this. But I still have a little skepticism and would like to see more data on things that have not been successful to help me understand more.”

Courage requested more data on companies that fail to meet milestones, such as in hiring, as required in most incentive packages.

“Failures are extremely uncommon,” Dominguez said. “Some projects don’t meet milestones, and we have a call back [of funds], but [the companies] stay here and continue operating. The vast majority are still here.”

Councilwoman Rebecca Viagran (D3), who chairs the Economic and Workforce Development Committee, requested a map plotting the locations of all incentivized projects in the study. Dominguez said that the projects are located throughout the city, and most are not in the city center.

This story has been updated to clarify which projects receiving incentives were part of the study and that sales taxes and property taxes combined were $600,000 when the abatement period ended.

2 thoughts on “Analysis: San Antonio’s Economic Development Incentives Pay Off

  1. If I understand what this actually means, it says “assuming the incentivized projects stay all the way through 2037, by that time we predict they’ll have returned 5:1 on the original investment.”

    If so – and the prediction is for the future – then the use of the past tense “the City has realized $632M for $121M investment” is misleading. But if not, then I don’t understand the methodology since it also says “But the time period extends to 2037 because almost all of the companies maintain a presence in San Antonio after incentives end, generating ongoing revenue to the City and economic benefits to the community.”

    For disclosure: the SABER Institute is affiliated with a local Chamber of Commerce.

    I agree with Councilman Courage and am skeptical and would like to see the actual study, along with full disclosure of the data and its underlying assumptions and compare it to comprehensive analyses like this one: http://www.pewtrusts.org/~/media/assets/2012/04/12/pew_evaluating_state_tax_incentives_report.pdf

    When will the data and the study be released?

  2. The part I want to know about includes local school districts, UHS and ACCD. When the Bad Times come around, those ROI parameters decrease; and I/We are still paying for local school districts, UHS and ACCD.

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