Property tax breaks help economy, raise city revenue, proponents say
June 18, 2011 at 1:18 a.m.
Victoria almost lost it.
About 120 jobs were on the line in 2001. South Texas Electric Cooperative, Inc., had to decide whether to keep its plant in Victoria or move closer to San Antonio.
"It was a toss-up," said Michael Packard, the plant's general manager.
Thanks to the city's tax abatement program, which provides property tax breaks, Victoria convinced the company to keep the plant and its jobs in the Crossroads, Packard said.
Purpose of the tax-break program
When the city recently renewed its tax abatement program, the goal was to attract new businesses and to retain existing ones, according to the program's guidelines adopted June 7.
The guidelines also required companies to create new jobs. That helps retail and other service industries in Victoria, said Dale Fowler, president of the Victoria Economic Development Corp.
"JCPenney will be more successful, if we have more of these jobs in the community," Fowler said
Fowler was referring to primary jobs and the "ripple effect" they create in the economy. When well-paying, primary jobs are created, then those workers spend money on the retail and service industries, Fowler said.
Eventually, the property tax break runs out. By that time, the city can collect a tax revenue higher than ever because of the company's investment into the property.
For example, StarTek received a tax abatement in 2008 after it took over an old grocery store building. Fowler said the building was in poor condition, but StarTek's renovations have put it on the tax rolls for about $4 million.
The program also ensures that companies stick around for the long-term because of the large investment required to qualify for the tax break, Fowler said.
One need look no further than the South Texas Electric Cooperative for an example of that.
It has expanded its service area and invested more than $126 million into the plant, Packard said. He predicted that the company will probably still be in Victoria 20 years from now.
"We're going to be here for a long time," he said.
How the process works
Property taxes are phased in over four to eight years. The size of a tax break depends on how much a company invests into its project.
Companies apply for the tax break through the VEDC, which screens the application and gives its recommendation to the city council for the final decision.
A company must also turn in its application before it starts work on the project.
Fowler said that it takes the VEDC about a week to do a feasibility study on an application.
On larger projects, like the incoming Caterpillar plant, the VEDC pays an economist to do a lengthier study, Fowler said. Those take a week to 10 days to complete.
A company must increase the property value by at least $500,000 and create 10-plus new jobs. If it defaults on its agreement, it must pay back the previous tax abatements, Fowler said.
What qualifies for the tax break?
Retail businesses are not covered by the tax abatement program. Neither are hotels or housing facilities.
Businesses eligible for the tax break are listed below:
Manufacturing facilities: Structures that produce goods.
Distribution centers: These must send goods to a point 25 miles away.
Research facilities: Structures used for research to improve or develop new goods, or the process to develop such goods.
Regional service facilities: A service hub that serves a larger market outside of Victoria.
Results of the tax breaks
The city's deal with the South Texas Electric Cooperative was a success, as far as jobs are concerned. The company has hired about 60 more employees for its Victoria plant, Packard said.
While StarTek defaulted on its tax abatement agreement, its renovations have resulted in higher property values.
So even the StarTek example "turns out to be a pretty good story," Fowler said.
StarTek has also paid back all the taxes that were abated, Fowler said.
Renu Power received a tax break on its power-plant property in 2009. The property was on the tax rolls for under $1 million before, but is now on there for more than $80 million, Fowler said.
John Jones, facility manager for the incoming Caterpillar plant, said that a combination of factors helped tilt the company toward Victoria.
That included the city's transportation systems, site availability, and the education of its residents because of the local college and university.
The property tax break also played a role, Jones said.
Fowler said that the city has momentum in attracting primary job-creating industries.
"It's the only way to participate competitively if we want to bring these kind of jobs to our community," Fowler said.
Criticism of the property tax breaks
Not everyone views the tax abatement program kindly.
Jeff Williams, owner of the Bible Book Store and 2010 candidate for city council, said that the tax breaks "essentially rob Peter to pay Paul."
For example, while a company receives a property tax break, it may have four-ton trucks using city streets. But without their taxes, the city must rely on other, small business owners to pay for the streets' upkeep.
"You and I are having to pay for the potholes that those trucks create," Williams said.
He added that big businesses that receive the tax breaks are then able to use their money for investments, while smaller businesses not qualified for the tax breaks have to pay for their public infrastructure costs.
All of the Victoria city council members said they supported tax abatements but some offered qualifications. Councilman Gabriel Soliz said he wanted tax abatements for retail industries. Council members Joe Truman and Denise Rangel said they wanted some forms of tax incentives for other businesses. Truman especially wanted tax incentives to help enhance downtown.
"It's not adequate for redevelopment of regions," Truman said about the tax abatement program.
Council members Tom Halepaska, David Hagan and Paul Polasek, as well as Mayor Will Armstrong, said they wanted to restrict tax abatements to their current use.
"I have reservations about tax abatements in general," Hagan said, explaining why he didn't want to expand the program.