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Austin tax breaks sought by Samsung among biggest ever

Bob Sechler
Austin American-Statesman
Samsung, which has major operations in the Austin area already, is seeking tax breaks to build an estimated $17 billion chip plant in the city.

If Samsung receives the $1 billion-plus in property tax breaks that it's seeking in exchange for building a $17 billion state-of-the-art chip plant in the Austin area, the incentive package would rank among the 20 most expensive nationwide in at least 45 years, according to a public interest group that tracks incentives.

The taxpayer-funded incentives sought by Samsung from the Manor school district, the city of Austin and Travis County are worth a minimum of about $1.06 billion combined, and potentially nearly $1.8 billion, according to documents filed with the state.

The low end of the valuation would put the incentive total at No. 20 in a ranking of more than 400 U.S. "megadeals" dating to 1976 and compiled by Good Jobs First, a Washington-based nonprofit. At the high end, the incentive total would rank No. 12 on the list.

Either way, it would be by far the most expensive incentive deal in Texas over that time, according to the group's database.

More:Samsung wants $1 billion tax incentive for new Austin plant that would create 1,800 jobs

Agreeing to a deal that ranks so high on the list means a community is "giving away the store," said Greg LeRoy, executive director of Good Jobs First. "We can safely say taxpayers can never break even."

LeRoy's group is critical of taxpayer-funded incentives to corporations, except in certain circumstances that don't apply to the potential Samsung deal.

But the sheer size of the tax breaks that Samsung is seeking from the Austin area has given pause even to some economists who generally are supportive of incentives as tools to attract development. Last week, for instance, Austin-based economist Angelos Angelou said the amount is probably just the company's opening salvo in negotiations.

More:Here's how Samsung's Austin incentives would compare to some other deals

Samsung executives have declined to comment, except to confirm that Austin is among a number of locations under consideration for its new chip plant. Samsung, which is based in South Korea, already has a large presence in Austin, and it has taken steps recently that could indicate an expansion already is in the works — such as by purchasing more land here.

The wide range for the minimum value of the local incentives that Samsung is seeking — $1.06 billion to about $1.8 billion — is the result of different calculations regarding a potential 10-year property tax break for the project from the Manor school district.

At one place in the documents filed with the state — which include Samsung's application to the Manor district for the tax break — the value to the company is cited as about $253 million when viewed over a 20-year period. In another, the possible school district tax break works out to about $964 million over 10 years.

According to the documents, Samsung also intends to seek a five-year break on property taxes from the city of Austin that has an estimated value of $87.2 million, as well as a 20-year break on property taxes from Travis County that's worth an estimated $718.3 million.

Samsung's requests for the tax breaks have not been approved by any of the local taxing entities. Travis County spokesman Hector Nieto said Monday that the county hasn't received Samsung's application for them, and Veronica Samo, a spokeswoman for the city, declined to comment.

According to the database compiled by Good Jobs First, a 2013 agreement in Washington state designed to provide $8.6 billion in tax breaks to aircraft manufacturer Boeing is the highest-priced incentive deal in U.S. history.

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In Texas, an $802 million deal in 2011 that brought Berkshire Hathaway-owned Nebraska Furniture Mart to The Colony north of Dallas is the state's most pricey deal so far.

However, two previous incentive agreements with Samsung that helped bring its existing operations to Austin rank relatively high on the Texas list. A 2006 deal worth about $233 million to the company ranks seventh-largest in the state, according to the database, and a 2012 deal worth about $84 million is No. 15.

Nathan Jensen, a University of Texas professor who studies taxpayer-funded incentives to corporations, said Samsung's potential $17 billion expansion here would be great for Austin and Texas overall, "if they paid their taxes."

But Jensen said a huge incentive deal for the project could "turn a win into a loss" for the region. He pointed to research indicating that most tax breaks simply pay corporations for actions they were going to take anyway — which he said will probably be the case if the Samsung deal wins approval because Samsung already has major operations here and "a shovel-ready site (for expansion) that the company already owns."

In its application for the Manor school district tax breaks that Samsung filed with the state, the company says it wants "to continue to invest" here "because of its strong ties to the local community and the successful past 25 years of manufacturing in Texas." But the documents also call the potential tax breaks "a determining factor," saying "the company would likely locate the project in Arizona, New York, or Korea" without them.

The documents also say that Samsung intends to apply for additional incentives from the state-operated Texas Enterprise Fund, which would add to the total cost of the potential deal for taxpayers. The enterprise fund is designed to provide a final carrot to lure a corporate expansion or relocation to Texas.

Despite the potential price tag, however, Waco-based economist Ray Perryman said he thinks the project still could be a boon to the Austin area, "given the number and nature of the jobs and the synergies with other (high-tech) activity" already underway here.

But Perryman said he hasn't conducted a detailed analysis of the project that would be necessary to make such a determination with certainty.

Samsung has said the project would create about 1,800 jobs, with an initial average annual wage of $66,254. The facility also could have a local economic impact of $8.6 billion over its first 20 years of operation, according to the documents filed with the state.