The arrival of Samsung Electronics Co.’s massive new chip factory did not come cheap for the Taylor community in central Texas. The question now is whether the investment will pay off.
The state and local authorities have offered a series of incentives to attract the plant to the city, located in the northeastern suburb of Austin. It could all run into hundreds of millions of dollars for what is expected to be one of the largest foreign investments in the United States.
The approach highlights a debate that has raged for years about heavily subsidized economic development projects. Research suggests they don’t always deliver, despite impressive numbers in pitch decks and politicians rushing to take credit for providing jobs.
âThe advantage of capital-intensive manufacturing is usually tax revenue,â said Nathan Jensen, a professor at the University of Texas at Austin who studies grant programs. “But this tax revenue is exactly what state and local governments give back to businesses.”
Few states are as sophisticated as Texas when it comes to securing significant new business investment. Its low taxes and lean regulations have attracted companies for decades, including tech giants like Apple Inc., Tesla Inc. and Amazon.com Inc., all of which have grown in the state.
But Texas also knows how to close the deal with generous incentives. In total, the state has awarded nearly 6,300 awards representing more than $ 8 billion in grants, according to data from Good Jobs First, a Washington-based political resource center. Texas ranks seventh in the country for total dollars donated. New York leads the country with a total of $ 40.8 billion.
“Texas has a long history in the business development game and has used tax incentives and subsidies, along with its weak tax environment, to attract factories and other businesses from elsewhere to the United States for years. 1980, “said Margaret O’Mara. , professor of history at the University of Washington, who studies the technology industry.
“This promotion, of course, comes at the expense of tax revenues and investments in other infrastructure and public services,” she added.
For an example of how tax breaks to attract business can backfire on us, consider Wisconsin’s $ 4.5 billion deal with Taiwan’s Foxconn to build a high-tech manufacturing center that has grown up. turned into a fiasco because Apple’s supplier failed to meet its hiring targets.
The Taylor plant will dramatically increase Samsung’s already large presence around Austin, where it has a sprawling complex that houses more than 3,000 employees and manufactures some of the most sophisticated chips in the country. The South Korean tech giant plans to invest an additional $ 17 billion in the new plant, which is expected to create more than 2,000 jobs.
Local officials worked diligently to land the investment, as Samsung weighed the incentives of communities in New York and Arizona, as well as neighboring Travis County, home to Austin.
A key consideration was ensuring the plant would have constant electricity after power outages last winter took Samsung’s Austin facility offline for more than a month. Officials even helped negotiate a deal to ensure water could be piped from a neighboring county, according to the Austin Business Journal.
The plan includes the 90% exemption from property taxes for one decade and 85% for the next 10 years. An incentive program that cuts taxes Samsung pays for schools would cost $ 314 million.
In addition to these cuts, the state is giving Samsung a $ 27 million grant from its Texas Enterprise Fund, which aims to attract job-creating projects. The company could also obtain assistance with the construction and operation of the facility, for example by exempting sales tax on materials used in construction.
âIt’s safe to say this is one of the many grants they will benefit from,â said Kasia Tarczynska, research analyst at Good Jobs First.
Of course, finding so many workers in the midst of a labor shortage presents a host of challenges. And then there are the risks communities face in adding thousands of new residents, including traffic jams, escalating house prices and other burdens on the region’s infrastructure.
In a statement announcing the deal Tuesday, Governor Greg Abbott said the plant would bring “endless opportunities” to Texans and “play a major role in our state’s continued exceptionalism in the semiconductor industry. “. Taylor’s mayor, Brandt Rydell, called it “the most important and important development for the local economy since the International & Great Northern Railroad laid tracks here in the 1870s”.
Samsung “sets the stage for another important chapter in our future,” said Kinam Kim, vice president and head of the company’s Electronics Device Solutions division. âWe are also proud to bring more jobs and support training and talent development for local communities. “
The investment is expected to put Taylor – and Texas – at the forefront of an industry of growing geopolitical importance. The chip shortages this year have had huge economic consequences, leading the Biden administration and Congress to push for new domestic production.
Taylor finds himself in a rapidly growing region, and its tight job market suggests workers will need to be brought in from elsewhere. Regardless, the addition of a major new factory will almost certainly give an extra boost to a small town known for its barbecue.
The investment may also come in handy for Abbott as he steps up his bid for re-election next year.
âIt will help Abbott build a narrative that the state is open for business and attracts investment from companies,â said Cal Jillson, professor of political science at Southern Methodist University in Dallas.
The governor has presided over one of the fastest growing economies in the country as financial services companies and tech giants thrive in the state. But he also adopted a conservative social agenda that generated a backlash from companies fearing it would complicate operations in Texas and attract top talent.
“It’s a very visible way for the governor to show that he is creating jobs,” said Jensen of the University of Texas. âGovernors get a huge increase in voter support – especially more moderate voters – through these kinds of victories. “
Grant programs are hardly a Texan phenomenon – or a phenomenon exclusive to Republican politicians, said Brett Theodos, senior researcher at the Urban Institute. He pointed to the lucrative tax credits for running movies in Georgia and the nearly $ 900 million Tennessee lawmakers gave the green light earlier this year for a Ford Motor Co. plant near Memphis.
âIt’s something Republicans and Democrats have done – it’s not limited to one party,â he said. âIt’s not totally resistible when multinational corporations can play cities and states against each other. “
Noah Buhayar, Michael Tobin and Danielle Moran, Bloomberg