Taylor, Texas, paid a high price to land Samsung Electronics Co.’s large new chip facility. Now the question is whether the investment will be profitable.
To lure the factory to the town, which sits on Austin’s northeastern suburban fringe, state and municipal officials gave plenty of incentives. For what is believed to be one of the greatest foreign investments in the United States, that may all add up to hundreds of millions of dollars.
The approach highlights a long-running controversy about substantially funded economic development programs. Despite the eye-popping numbers in pitch decks and politicians racing around to claim credit for job creation, research reveals they don’t always deliver.
The benefit of capital-intensive manufacturing is generally the tax revenues, said Nathan Jensen, a professor at the University of Texas at Austin, who studies subsidy programs. But these tax revenues are exactly what the state and local governments are giving back to companies.
When it comes to attracting large, new company investments, few states are as precisely tuned as Texas. For decades, companies have been drawn to the state by its low taxes and lax regulations, including tech tech giants such as Apple Inc., Tesla Inc., and Amazon.com Inc., all of which have expanded there.
Texas, on the other hand, knows how to seal the deal with substantial incentives. According to data from Good Jobs First, a Washington-based policy resource center, the state has given out about 6,300 awards totaling more than $8 billion in subsidies. In terms of total funds granted, Texas is ranked sixth in the country. With a total of $40.8 billion, New York is the most valuable city in the country.
Texas has a long history in the business-development game and has used tax incentives and subsidies, as well as its low-tax environment, to lure factories and other businesses from elsewhere in the U.S. since the 1980s, said Margaret O’Mara, a history professor at the University of Washington, who studies the tech industry. This promotion, of course, comes at the expense of tax revenue and investment in other public infrastructure and services, she added.
Consider Wisconsin’s $4.5 billion deal with Taiwan’s Foxconn to construct a high-tech manufacturing base, which turned into a fiasco after the Apple supplier failed to meet hiring goals.
Samsung’s strong presence in Austin, where it has a large facility with more than 3,000 people and fabricates some of the country’s most sophisticated chips, will be greatly augmented by the plant in Taylor. The South Korean tech behemoth intends to invest an extra $17 billion in the new factory, which will employ over 2,000 people.
As Samsung examined incentives from cities in New York and Arizona, as well as nearby Travis County, home to Austin, local leaders fought diligently to secure the investment.
After power disruptions put Samsung’s Austin factory offline for more than a month last winter, ensuring the plant would have constant electricity was a critical priority. According to the Austin Business Journal, officials even helped organize a deal to ensure that water could be pumped in from a nearby county.
The plan comprises a ten-year waiver of 90% of property taxes, followed by a ten-year waiver of 85%. An incentive program that reduces the taxes Samsung would pay for schools is estimated to cost $314 million.
In addition to the tax breaks, the state is awarding Samsung a $27 million grant from the Texas Enterprise Fund, which is targeted at attracting job-creating initiatives. The corporation could potentially receive assistance with the facility’s construction and operation, such as sales tax exemption on building materials.
It’s safe to say this is one of many subsidies they are going to enjoy, said Kasia Tarczynska, a research analyst with Good Jobs First.
Of course, in the midst of a labor shortage, obtaining so many people presents a number of difficulties. There are also the hazards that towns confront as a result of the influx of thousands of new residents, such as traffic jams, rising house prices, and other strains on the region’s infrastructure.
Taylor intends to issue revenue bonds supported by Samsung’s utility payments to finance infrastructure costs, according to Stacey Osborne, a municipal representative. It plans to issue debt worth $17 million to $18 million in the first quarter of next year, but she added that the city could decide for a negotiated private placement and that the total amount could fluctuate depending on construction cost adjustments. Taylor owes approximately $51 million in debt.
Governor Greg Abbott said the plant will provide “countless possibilities” for Texans and “play a major role in our state’s continued exceptionalism in the semiconductor industry” in a statement announcing the deal on Tuesday.
The single most significant and consequential development for the local economy since the International & Great Northern Railroad laid tracks here in the 1870s, Taylor Mayor Brandt Rydell said.
The investment will put Taylor — and Texas — at the forefront of a growing global sector. Chip shortages have impacted the economy this year, prompting the Biden administration and Congress to seek for new domestic production.
Taylor is located in a booming region with a tight labor market, which means workers will have to be brought in from outside. Even so, the advent of a huge new plant will almost surely give a little town known for its barbeque an extra kick.
Abbott may benefit from the investment as he plans to run for reelection next year.
It will help Abbott build a narrative that the state is open for business and drawing in corporate investment, said Cal Jillson, a professor of political science at Southern Methodist University in Dallas.
As financial services companies and internet titans develop in the state, the governor has presided over some of the fastest economic growth in the country.
However, he has adopted a conservative social agenda, which has generated opposition from businesses concerned that it will make it more difficult to operate in Texas and recruit the best talent.
This is a very visible way for the governor to show that he is creating jobs, said University of Texas’s Jensen. Governors get a considerable increase in support from voters — in particular more moderate voters — from these kinds of wins.
Subsidies aren’t just a Texas phenomenon, nor are they limited to Republicans, according to Brett Theodos, a senior scholar at the Urban Institute. He cited Georgia’s lucrative film tax credits as well as Tennessee lawmakers’ approval earlier this year of roughly $900 million for a Ford Motor Co. facility near Memphis.
This is something that Republicans and Democrats have done — it’s not confined to one party, he said. It’s not fully resistible when multinational corporations can play cities and states off each other.