If budget problems get bad enough and last long enough, maybe politicians will do something revolutionary: Stop giving taxpayer money to private companies.
Ending corporate welfare wouldn't close the funding gap for most cities, but it would represent progress — for both public finances and tax policy. Big business throws so much weight around city halls in North Texas that only a Great Reset could reverse things.
To get an idea of the bubble in government giveaways, consider the sweetheart deal that Euless created for Redi-Mix Concrete.
The city built a regional headquarters on North Main Street, spending $4.9 million for a 27,551-square-foot building on 2.2 acres. Redi-Mix occupied the space at the beginning of the year, and it pays zero rent, as long as it generates a certain level of sales tax.
It also gets a rebate for one-quarter of the local sales tax it collects -- for concrete delivered throughout the region, not just in Euless. In 2008, Euless returned $567,000 to Redi-Mix under this agreement, but that amount fell by more than half after the recession stalled the construction industry last year.
Another corporate perk: Because the city owns the headquarters and is tax-exempt, Redi-Mix pays no real estate taxes (although it does pay a much smaller tax bill on business property). Local taxes on a $4.9 million commercial building in Euless would top $116,000 -- money that would be helpful to city government, the Hurst-Euless-Bedford school district, Tarrant County and more.
To recap: Redi-Mix gets a new headquarters, pays no rent, pays no property taxes and gets back a good chunk of its sales tax.
One more thing: The deal lasts 25 years.
"This is a crucial business partner for our city, and we know they have other options," Deputy City Manager Loretta Getchell says.
Like many in this business -- euphemistically called economic development -- Getchell sounds almost apologetic. In these tough times, it's hard to explain to regular folks that they have to pay their share for public services, while some big companies get big breaks.
And it's not like Euless built a piece of infrastructure that also benefits the residents. Only one constituent, Redi-Mix, reaps the rewards.
At the same time, Euless has been struggling with its budget. In the past two years, the general fund has fallen by several million dollars, property tax assessments are down, and sales tax is projected to decline 18 percent. Through layoffs, early retirement and attrition, the city has eliminated 32 positions, one-twelfth of its work force.
In that light, this all looks like some civic race to the bottom. But the reality is that if Euless didn't pony up for Redi-Mix, the company could go a few miles down Texas 183 and put the touch on Bedford, Irving, Fort Worth and others. Most cities would jump at the chance to land an employer with 250 workers and local sales tax over seven figures.
"This is the game we all have to play," Getchell says. "It's the business environment."
There are worse deals out there. Last week, I wrote about RadioShack holding up Fort Worth for $10.7 million in tax breaks in exchange for signing a five-year lease. RadioShack has almost $1 billion in cash, while Fort Worth has to figure out how to close a $77 million gap in next year's budget.
The Fort Worth City Council is expected to approve that deal on June 8. How?
As much as it stinks, the politicos believe that the alternative is worse. RadioShack has threatened to move out of Fort Worth, which would eliminate 1,100 jobs in the city and the marketing cachet that comes with a Fortune 500 company. RadioShack even asked other cities, including Charlotte, N.C., and Albuquerque, to submit relocation bids.
Redi-Mix was never so heavy-handed, Getchell says, but Euless wanted to pre-empt any possibility. Euless had recruited the company, then known as Beall Concrete, at the start of the decade, and both had grown up together. Redi-Mix occupied a vacant firehouse -- again, rent-free -- and got the sales tax rebate.
As the company added workers, it needed more space, and Getchell said elected leaders and city officials hatched the headquarters idea. The city takes on added risk, but for Redi-Mix, it's essentially the same deal with a few wrinkles.
If it doesn't generate $2 million in local sales tax, it has to pay rent to the city at market rates. In 2008, Redi-Mix would have met the threshold; in 2009, it would have been short by at least half.
Getchell figures that Euless will bank enough sales tax from concrete to recoup the headquarters' costs in three to five years, depending on the economic recovery.
But this is a zero-sum game, and somebody is getting skinned.
Redi-Mix isn't pouring $100 million of concrete into Euless annually; that's what it distributed around the North Texas region in 2008, extrapolating from its Euless tax rebate. The bills simply flowed through the Euless office, and that's where sales tax was collected.
So concrete poured in Weatherford generates taxes for Euless. And Euless is giving a tax break to Redi-Mix with what's really house money (or Weatherford's).
The tough economy should force us to reconsider these schemes, and state leaders should weigh in, too. Local officials don't have the strength to say no -- not when companies threaten to move the whole operation -- but cities need all the tax revenue they're entitled to.
RadioShack's new deal captures this conundrum in full. The company proposes to shift some sales and purchases to its Fort Worth address, because that paperwork alone will generate an extra $1.5 million in sales tax for the city.
The catch: RadioShack wants half of it.
ABOUT THE WRITER
Mitchell Schnurman is a business columnist for the Fort Worth Star-Telegram. He can be reached by e-mail at email@example.com.