Tax Lean

Want a subsidy for your corporate expansion? Local governments are ready with millions in property-tax abatements -- and very little oversight.

Fuller urges people to not be lulled into a false sense of comfort by today's thriving economy. He vividly recalls the lean recession years of the 1980s when Houston lost some 220,000 jobs, by his estimate. County Judge Eckels echoes this line of thought in his own cautious support for abatements.

"You would never do an abatement based upon a short-term impact," he says. "But in the long term it leads to the kind of stable economic growth, stable infrastructure, the industrial development … in Harris County that sees us through the ups and downs of the national economy."

The county judge decries the way companies pit local governmental entities against each other to try to score a tax break, especially when a company's economic impact will spill over to a wider area than any single municipality. Competition between communities is fierce and can lead to surreal results.

UH economist Craig says tax breaks for some companies provide advantages over competitors.
Deron Neblett
UH economist Craig says tax breaks for some companies provide advantages over competitors.

T<1>he case involved an Englishman named Richard John Lawrence, who arrived in this patch of paradise to make a pitch for a Japanese electronics giant -- he never would say which. The company would create thousands of jobs, Lawrence told officials from the Greater Houston Partnership and their counterparts in Fort Bend and Tomball. All it wanted in return was a healthy tax break. Anyone interested?

The Partnership certainly was. It prevailed upon Harris County to offer an abatement. The Greater Fort Bend Economic Development Council went so far as to submit a contract to buy land in Rosenberg, with the aim of selling it to the unnamed company for a plant site.

Two local businessmen were so impressed by Lawrence they put him on their payrolls and supplied him with a car.

But all the jostling and hype turned out to be squandered on an empty lie.

There was no giant Japanese electronics firm, investigators said. Lawrence was allegedly just a shameless huckster playing on business boosters' eagerness to bring prosperity to their cities. He was charged with theft last September, accused of bamboozling the two entrepreneurs who hired him.

Eckels says he would like leaders from outlying counties to agree not to give abatements to companies that are scouting out turf in this region alone. "If you're going to be in this market area, the abatement should not be an issue on the table," he says.

"If none of us offered abatements, they'd still move here for transportation or schools or distribution centers or whatever amenities the developer is offering, but the taxpayers wouldn't be subsidizing that move, at least for the first few years."

Eckels believes tax abatements are not something that should be used all the time, but rather are "just one more tool in the toolbox of economic development." His ambivalent attitude is typical among leaders who view tax breaks the way a farmer would see potent, but not particularly healthy, fertilizers or pesticides. You've got to use them if you want your fields to produce a viable crop and compete for market share with other planters.

But Bernard Weinstein, director of the Center for Economic Development at the University of North Texas, would like to root out abatements altogether.

"Local tax incentives are a zero-sum gain and a dead-weight loss. They mostly go to large profitable companies which surely are not making investment decisions on paying a couple of hundred thousand dollars of local and state taxes," Weinstein says. "If Texas had never gotten into tax incentives, we'd have just as many jobs, our economic growth rate would be just as fast, and the pattern of industrial location would be just the same."

Critics like Weinstein and Craig hold that abatements have little or no impact on whether a company chooses to locate in an area, and pale beside other factors such as quality of the labor force, schools, location, infrastructure and proximity to suppliers. Weinstein says tax abatements are an offense to the concept of treating taxpayers uniformly.

Craig says that giving tax breaks to some companies gives them an edge over their competitors. "Your disadvantaged guys who are good citizens will get pummeled," he says.

In general, abatements get rubber-stamp approval by City Council and commissioners court. But when a proposed abatement does generate opposition, it's frequently prompted by protests from existing businesses. Such was the case when Albertson's sought an abatement to establish a warehouse. Commissioners voted it down. That was the one time Eckels can remember the court opposing an abatement.

Tatro, the one city councilmember who votes against abatements with any regularity, has rejected them on the basis of the potential harm to local companies. He criticizes his colleagues for approving abatements for firms he believes would have located in Houston anyway.

"We need to be a little more prudent with exactly who comes to the table in the first place," he says.

I<1>n January 1998 Robert Eckels's office requested information from the county pollution control department about the environmental record of Phillips Petroleum Company. The oil giant was seeking a $25 million tax abatement from the county to construct a K-Resin plant at its chemical complex in Pasadena. Eckels's office was doing routine information-gathering before the issue went to commissioners court for a vote.

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