Austin voters recently voted on Proposition 2. If passed the proposition would amend the charter to prevent the city from providing financial incentives to developments. The city of Austin would no longer be allowed to offer monetary kickbacks to would be developers.
A cities ability to attract potential developers is what can make or break a city. The developers want the best for the businesses they are developing. If a city will offer the developer tax break incentives to the business the more likely the businesses will want to be there. If the city loses its ability to give tax breaks to developing business then it will be much harder to find a developer that will be willing to build in the area. Without constant development the city will stop growing.
If Prop 2 where to be passed the cites ability to grow will be greatly hindered. The taxes that the new business would have payed to fund the government will have to be made up by the tax payers. The proposition would also force the city to break contracts already made with developers in the middle of projects. The resulting lawsuits and legal fees would have to be absorbed by the tax payer.
Though I personally don't like the idea of bribing business to build in certain areas, I do understand the economic value in the practice. If Austin voters take this tool away from there city the consequences will be felt down to the microeconomic level. If the ability to attract developers to Austin is removed the tax payer will feel the hurt and will very shortly demand an explanation.
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On November 11th, 2008, Uniformed Texas wrote a blog describing the recently voted upon Proposition 2. Tax subsidies regulation for developers would be created if Proposition 2 was passed. This all came to light because of the development of the Domain, a modern shopping center.
What took part in the formation of the Domain? A foreign developer approached the city of Austin with a proposal, I can only describe as, utopian. All projections equaled benefits for Austin, money and growth. They promised space, jobs, and affordability. The developer was really a wolf in sheep's clothing. All the calculations were exaggerated. The developer promised the City of Austin would only have to pay a little over 37 million dollars, when they ended up having to pay over 64 million. They said they would utilize over 4 acres of land, when they only used 1.4 acres. And finally, they vowed the retail jobs would average a salary of 35 thousand dollars a year, when the average salary is only 22 thousand dollars a year. The deception is overwhelming. Yes, there was growth for the city, but not even close to the claims of this developer who took advantage of our city. The rich continued to get richer, while the City of Austin developed a fiscal nightmare.
The City Council only deliberated for a week and approved the proposal. They failed to educate Austinites of the possibility of a mini mall going up. I believe if Austin residents were aware of the dirty deal about to go down, they would have protested. At the very least they would have asked questions and might have gotten the City Council to evaluate the figures the developer was proposing.
Uniformed Texan spoke of how, "the proposition would also force the city to break contracts already made with developers in the middle of projects. The resulting lawsuits and legal fees would have to be absorbed by the tax payer." When, "the legal fees they say we’re going to suffer -- we have a compromise agreement that says the city can walk away at anytime with no recourse and no damages so the fact is there is no grounds for a law suite."
Honestly, I can not place sole blame on the developer. I think they were aware of their deception, but the City of Austin did not verify their projections before approving the proposal. Unfortunately, Proposition 2 failed and the city will still be able to make payments to the Domain and offer tax incentives to future projects containing retail. I think Austin should have learned from its first mistake. But instead, they are going to continue to be taken advantage of at the tax payers expense.
The lasted blog entry by Uninformed Texan, entitled 'Developing in Austin', covers the issue of Proposition 2 which was turned down on election day. Proposition 2 is the proposed amendment of the current ability for the city to give retail businesses tax subsidies. This has been a highly controversial voting topic within Austin, particularly in regards to the Domain because this would be one of the main businesses affected. Both sides have great points in the matter, the whole point is to pick which are most important. The votes prove this with 52% of votes against Prop 2, and the other 48% supporting it, according to Bizjournal's article on the subject.
I agree with Uninformed Texan's idea that "a city's ability to attract potential developers is what can make or break a city." It is important that businesses continue to thrive and increase in quantity so that Austin's citizens will have not only more job opportunities, but also increase in wealth. Being able to offer developers tax break incentives definitely does raise the chances of new businesses being established, but even without them, many smaller business continue to open up. Local businesses play an essential role in Austin due to the diversity of needs and people residing here.
It has been said that if the proposition were to pass, many contracts would be broken, resulting in "lawsuits and legal fees" which taxpayers would absorb. But the fact is, this statement is only a prediction possibly even used as a scare tactic toward voters. However, there is the chance that some sort of lawsuits could occur, and then yes, it would affect taxpayers.
In my opinion, it's unfair that taxpayers have no voice on where these taxes are going to business-wise. But the fact is, there are some cases where incentives would be very helpful, and ridding the council of any choice on the matter wouldn't be beneficial overall.
(I made a typo on my comment in the first sentence, it should be "the LATEST blog entry".) Sorry about that!!
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