Austin's Proposition 2

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NcongruNt
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Austin's Proposition 2

Postby NcongruNt » Thu Oct 30, 2008 11:21 pm

Hey everyone. I wanted to see if I could garner some opinions on this specific issue.

For those not in the know, Proposition 2 deals with tax breaks/subsidies to very large development and management companies to encourage building in certain areas of the city. The proposition itself is to amend the city charter to prevent any of these kinds of deals in the future, as well as the revocation of a specific deal made recently (The Domain).

The mayor (a liberal democrat) has come out vehemently against the proposition, arguing that it would open up the city to big legal costs relating to lawsuits, as well as affecting the city's credit rating, and "breaking" the city's "word".

I am no fan of corporate welfare, and that's what these deals are. I am also a proponent of local and small business. The developments the city attracts with these deals brings in large corporate chains to fill the properties, no local or small business at all, taking the profits out of town and out of state.

I am no fan of the mayor, either. His campaign culled the SXSW Interactive contact list and summarily spammed everyone local with campaign letters. When I wrote an e-mail to the campaign manager and copied the (now) mayor at his city council address, they responded lying through their teeth about how they got my address and told me that I had double-opted-in to receive the mails. I responded by telling him that he has ensured that he will not receive my vote (which he didn't, but won the election anyway).

Lots and lots of local businesses support this, including owners who are personal friends of mine.

I'm leaning towards voting for the proposition, but don't want to make an uninformed choice here. Arguments either way are welcome.

Here are links to the opposing sides:

http://www.stopdomainsubsidies.com (website having issues at the time of this post, will probably be fixed soon)
http://www.keepaustinsword.com/

I would appreciate any insight

EDIT: here is a link to an article that seems to have a relatively objective handle on the situation.
http://austinist.com/2008/10/21/novembe ... city_c.php
Search for "kenneth1"'s comments on the article, and you basically have my feelings on the situation right now.
Warning, these are public comment forums, and the 10-year-old rule doesn't apply there.
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dave_in_austin
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Re: Austin's Proposition 2

Postby dave_in_austin » Fri Oct 31, 2008 7:20 am

I support the proposition as I see no reason to encourage growth in Austin as the infrastructure of the city is already stressed to the breaking point. This has been going on for the 30+ years I have lived in Austin (and probably before that) and it is time to stop the taxpayer subsidies to encourage growth that serves no one except the politicians who get bigger budgets and more opportunity to control people's lives. I do not buy the argument that the city will spend millions defending lawsuits when they do not pay the subsidies as I foresee one of two things happening if the proposition passes. The first possibility is that the Domain will sue for the payment and the city will essentially not bother to put up a defense to the suit and will let the court rule that they have to pay. The other possibility I see is that the city will simply ask the AG or other judge to rule component of the proposition dealing with the Domain unenforceable since it unilaterally alters an existing contract. Either way, the city leaders will not honor what the voters say if the proposition passes just as they failed to do with the STNP, airport, and light rail. They do whatever they wish regardless of ballot outcomes. The successful passage of the proposition may keep future deals like the Domain from happening, but I believe that it will not effect existing contracts once the courts (with the cooperation of the city leaders) get through with it.


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Re: Austin's Proposition 2

Postby j_dock2 » Fri Oct 31, 2008 10:43 am

Part of why I moved out of Austin was its too-rapid growth and all that brings with it.

The short answer is, Austin can't afford any more deals like this anyway. Tax revenues are plunging - why give retailers and developers breaks that Austin can't afford, and do so into the teeth of a nasty consumer slowdown?

Vote Prop 2 and feel ok about it - those were dumb deals to begin with.

"keep our promises" - sure, 'cause you personally promised to support Starbucks and Apple stores with your tax money. OR DID YOU? :evil2:


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Re: Austin's Proposition 2

Postby NcongruNt » Fri Oct 31, 2008 1:11 pm

Thanks for the replies. I'm more confident in my position now.

It's actually quite amazing how scared they seem to be of this proposition. They've spent lots and lots of money on radio and television ads urging people not to vote for the proposition. They have had the proposition condemned by the Statesman - not hard to do. What surprised me is that they have opposition from the Austin Chronicle as well - a publication that's widely read by local business-loving folks. I received in the mail the other day - a 8.5x11 full-color double-sided piece of propaganda printed on card stock. Folks, that's not cheap. When the city council and the mayor spend bucket loads of money on advertising trying to quash a grassroots campaign, that tells me that they've got some serious interests in continuing the status quo. And I don't think it's about honesty and fairness, but about money.

The only arguments the city can make are abstract emotional pleas, while the Stop Domain Subsidies folks have hard numbers and have done the legwork to back it up.

What entertains me is that the city doesn't even lie well. They tout the Domain as an "affordable, transit-oriented, mixed-use development". Last I checked, $1000/mo for a studio apartment (that's the bottom end of the Domain residential scale) isn't what I would call "affordable". They also pretend that people who pay that much for an apartment and shop at Louis Vuitton/Nieman Marcus/etc are going to take the bus. They are trying to sell us a fantasy that they can't even believe themselves.
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flintknapper
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Re: Austin's Proposition 2

Postby flintknapper » Fri Oct 31, 2008 1:50 pm

dave_in_austin wrote:I support the proposition as I see no reason to encourage growth in Austin as the infrastructure of the city is already stressed to the breaking point. This has been going on for the 30+ years I have lived in Austin (and probably before that) and it is time to stop the taxpayer subsidies to encourage growth that serves no one except the politicians who get bigger budgets and more opportunity to control people's lives. I do not buy the argument that the city will spend millions defending lawsuits when they do not pay the subsidies as I foresee one of two things happening if the proposition passes. The first possibility is that the Domain will sue for the payment and the city will essentially not bother to put up a defense to the suit and will let the court rule that they have to pay. The other possibility I see is that the city will simply ask the AG or other judge to rule component of the proposition dealing with the Domain unenforceable since it unilaterally alters an existing contract. Either way, the city leaders will not honor what the voters say if the proposition passes just as they failed to do with the STNP, airport, and light rail. They do whatever they wish regardless of ballot outcomes. The successful passage of the proposition may keep future deals like the Domain from happening, but I believe that it will not effect existing contracts once the courts (with the cooperation of the city leaders) get through with it.


I couldn't agree more!

I lived in Austin for about 20 years, but moved away in the mid 80's when unprecedented growth and politics (read city council) got out of control. For "big cities" in Texas...I still rate it the best, but we chose to raise our daughter in a small town...where things are a bit more to our liking.

I would not vote for anything that would further promote the growth of Austin. Much of the "charm" of Austin has already been lost, continued growth will only hasten that. Whoever did the growth projections (needed to determine infrastructure) 25 years ago, missed the mark. Austin still hasn't caught up ....and never will at the rate it is growing.

It was a nice place when you could still tell North Austin from South Austin. Now days, everything has been swallowed up. Georgetown and Round Rock might as well be part of Austin, same with Elgin, Manor and Pflugerville. Leander, Cedar Park and probably Liberty Hill....all swallowed up. Oak Hill to the Southwest along with Dripping Springs...you can't tell them from Austin.

NO SIR, Austin doesn't need anymore growth IMO.
Spartans ask not how many, but where!


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Re: Austin's Proposition 2

Postby srothstein » Sat Nov 01, 2008 2:21 am

Just to give an opposition opinion, I am against prop. 2. The programs to bring businesses in are a good idea to shore up the economy. They bring in some large chains, btu the y also do support small businesses. One thing you have to remember is that many of those large chains are actually franchises, so the name is national but the local store is locally owned.

The arguments mentioned here seem to be more on the emotional side against it, basically being against the growth and development. There may or may not be any factual reasons to be against the development overall, and I agree that unrestrained growth is bad, but this is an emotional argument.

Yes, the programs can be seen as corporate welfare, but that is what brings in jobs and is the basis of the economy. The logic of the development programs is that the developer will get back a portion of the property taxes on the property if it grows and meets certain milestones. This is a win for the developer and a win for the city. The developer makes money, but the city also makes more money from the taxes on the property than they would have otherwise. And, the handouts tot he developer do not last forever while the higher property values (tax revenues) do last.

Lastly, repealing the present deal is a contract breach. It can, and probably will, result in a lawsuit against the city which will cost it more than keeping the contract. The suit would be solely dependent on the good will of the developer to file or not.

I think the proposition is a bad idea overall, but might be something to look at if it did not include repealing the current deal. That part was pure sour grapes on the part of a small group who had opposed the deal to begin with and is the deal breaker on the proposition to me.
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dave_in_austin
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Re: Austin's Proposition 2

Postby dave_in_austin » Sat Nov 01, 2008 2:22 pm

srothstein wrote:<snip>
The logic of the development programs is that the developer will get back a portion of the property taxes on the property if it grows and meets certain milestones. This is a win for the developer and a win for the city. The developer makes money, but the city also makes more money from the taxes on the property than they would have otherwise. And, the handouts tot he developer do not last forever while the higher property values (tax revenues) do last.
<snip>
Lastly, repealing the present deal is a contract breach. It can, and probably will, result in a lawsuit against the city which will cost it more than keeping the contract. The suit would be solely dependent on the good will of the developer to file or not.



The issue here as I understand it is not a property tax rebate, but rather a sales tax rebate. The development is effectively allowed to keep a portion of the sales tax it collects from consumers. The property tax abatement argument as a win-win situation has a serious flaw in that it is true for all construction that happens in the city. When a home owner builds a house, the city gets more property tax than it did from just the land and that higher property value lasts. Why not give the home owner a property tax abatement for 10 years to encourage him to build then? The same argument can be made for any business small or large also. There is no more reason to give a property tax abatement to a retail development than there is to a home owner.

The argument the city leaders use on the Domain subsidies is that the rebate here is on sales tax which is something unique to retail business and thus we encourage retail business by giving the incentive so that the land is used for this use rather than for housing or manufacturing that would not produce the sales tax. What they assume is that the construction of a retail business will somehow create significant new consumer demand and buying power and thus generate real new sales tax revenue. Of course what happens for the most part is that purchases made at the new development are simply displaced purchases that would have been made at another retail outlet and would have generated the same sales tax revenue for the city. I see these agreements as just payback for political favors. When is the last time you saw a proposal in Austin for a sales tax rebate to Wal-Mart? I would guess that Wal-Mart generates more sales tax revenue for the city than the Domain ever will.

There is no need for tax kickbacks on retail development and that is what proposition 2 tries to eliminate. As I said before, I expect the Domain deal to be unaltered as the courts will uphold it, but it may limit future agreements.

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Re: Austin's Proposition 2

Postby Lodge2004 » Sat Nov 01, 2008 3:04 pm

dave_in_austin wrote:There is no more reason to give a property tax abatement to a retail development than there is to a home owner.


I'm not from Austin, but IMHO, somebody spending $500m on a development responds to different inducements than a home builder who is spending $150k. Limiting the city governments ability to offer property tax abatements also limits their ability to attract developers. If that is the intent of the proposition, then people should vote for it. If the intent is to correct some perceived unfairness, then I'm not sure that's going to happen. Seems like the city will either come up with some other type of inducement or they will simply be unable to attract new business. In either case, I don't see how the locals benefit (unless limiting growth is the goal).


dave_in_austin
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Re: Austin's Proposition 2

Postby dave_in_austin » Sat Nov 01, 2008 10:49 pm

This proposition is about sales tax refunds for retail development only. It does not try to control property tax abatements. That what I was trying to make clear in my reply srothstein. He was arguing that property tax abatements were acceptable because the increased value of the property due to the improvements will benefit the city in the long run and thus such improvements should be encouraged by property tax abatements. I was saying that that logic and be applied to any construction of property improvements and a business is no more deserving of it than a home owner. The relative benefit to the city is probably better for home construction as a house built on a one-acre lot generally adds more to the tax base than a wharehouse on the same lot and thus in some sense, the homeowner is more deserving of the abatement than the business, but you never see it happen in Austin. In any event, this proposition only address restrictions on sales tax incentive to retail developments.


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Re: Austin's Proposition 2

Postby srothstein » Sun Nov 02, 2008 3:22 pm

Dave,

You are correct about the current proposition applying to sales tax refunds, but the logic is still the same. If I give them back 1/2 of the sales tax for ten years, or however long, then I am still up by some amount over their not developing there. I am up even more because I get the increased revenue from the property tax also. And, since we know businesses tend to clump together, if I give it to the first developer or store, I am up more from other stores that will also go into that area, and from sales increases at existing stores in that area due to increased traffic.

In effect, it does not really matter which source is the tax revenue stream, if I give them some of it back, I am still up over there not having been any development there at all.

The problem with the argument for the home owner is that he does not generally increase the revenue from other sources than his own property. He does not generate long term jobs in that specific area (enough home owners might, but that takes a developer coming in and not just a single home owner building). But I would not even argue with giving a home owner a break on taxes to remodel, if it was part of the increase for a specific time. The city would still be up overall. It is the city that says the development must be a certain size.

You might want to argue how long or how much the tax rebate should be, and even what size development (jobs or dollars) it requires, but to ban the tax rebates completely is just wrong, IMHO.
Steve Rothstein


dave_in_austin
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Re: Austin's Proposition 2

Postby dave_in_austin » Sun Nov 02, 2008 6:43 pm

The argument on increased sales tax revenue is only valid if the retail development creates increased consumer buying power and demand. Otherwise, the purchases at the new development are simply displaced purchases that would have been made at similar stores a few miles away generating the same sales tax revenue. Without somehow causing an increase in consumer buying power with creation of the development, I fail to understand how a net increase in sales tax revenue for the city would occur. It does not matter if I turn left to the existing shopping mall that was built without tax rebates or turn right to go to the shopping mall that was built with tax rebates. Either way the tax revenue still goes to the same place and there is no increase in tax revenue caused by my shopping at the subsidized mall.


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Re: Austin's Proposition 2

Postby srothstein » Sun Nov 02, 2008 9:03 pm

The shopping is displaced from the current shopping. The question for Austin is where is it displaced from? Did it come from the new shopping center in Bee Caves, which means a net uptick in Austin taxes? If ti came from the older shopping centers in Austin, I agree that it did nothing to help the city.

But, it almost always can be shown that a new development will result in increased sales taxes for the city. Part of this is the increase in shopping caused by the advertising of the new, part is the movement from outside the city (especially for an upscale center like the Dominion), and part from the increased prices of the new center (Dominion stores charge more for the same item than Wal-Mart and sales tax is price based).

A well written contract should only allow the sales tax rebate to the developer if there is an increase in overall sales tax revenues to the city. Of course, there is still a slight flaw int his since other areas may also have the increased taxes (tax revenues seem to almost always go up, even in bad economic times - this crash may change that, but it seems unlikely right now).
Steve Rothstein


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