Crooks’ stance on economic development

Published 12:24 pm Monday, March 4, 2019

Recent discussions involving how we move forward in Orange County with regards to economic development have certainly had their share of misinformation in them. When I ran for the position of County Judge, I stated that I did not believe that we were getting the best deals through our system of using the Economic Development corporation. I believed then as I believe now that the contributions made by the county taxpayer (as seen in the 2017-2018 EDC contributions list) are out of proportion compared to the other members of the OCEDC. I agree that as the county entity our contribution should be greater than other members but to be responsible for over 90% of the total funds the EDC takes in (not including money the OCEDC receives from the PILOT payments for County tax abatements) seems excessive. Particularly for County residents that have seen no personal return on their (tax) investment. Further, using property tax money to pay the $375,000 (two years in a row) while having to take out a tax anticipation loan to pay our bills without dipping into the restricted funds seems like an unwise financial move. I ran on a promise to be financially responsible and I believed that my offer of $129,000 for the 2018-2019 budget was more than fair given what we had. To that end I do believe in investments but I also believe that investments are made only after the bills have been paid. Unfortunately, Orange County has many bills that we must address in the very near future.

We have to address our faltering drainage system so that people will not flood and roads will not become impassable during a thunderstorm. We cannot continue to simply “patch” this problem and we cannot simply rely on federal and state program to fix everything for us.

We must rebuild our roads that have been “patched” too many times and devastated by storms and, in some cases, by overweight vehicles.

We have aging buildings damaged and patched through numerous storms, an aging vehicle fleet (over 12 years old per vehicle on average).

We currently have no emergency fund and that is unacceptable, particularly in our area. We should have anywhere between $4 and $8 million dollars available to deal with disasters if necessary but we currently do not have the funding for that.

Most importantly we have almost 400 county employees who have seen their benefits cut over the past several years without regular raises to compensate for those cuts. This has resulted in many problems including losing some very valuable employees and potential employees to the private sector with better pay and benefit packages.

I am here today to tell you that we can improve our drainage system, we can rebuild our roads, we can rebuild and repair our buildings (like our courthouse) and we can buy newer vehicles that are more reliable, safe, and less costly on maintenance, we can create an emergency fund, and we can fairly compensate our employees so that we may retain and recruit a quality work force.

However, like all governments and businesses, these things do cost money and most of what is needed costs money we do not have. So, what do we do? Some would say this is precisely why we should invest so much in the Orange County Economic Development Corporation. They say that by giving large incentives to businesses we will attract them here and have economic growth. Further, by hyper-funding the OCEDC through county taxpayer dollars, they will have more tools at their disposal to attract businesses. These things will give us the tools to grow Orange County and address the problems stated above. I have thought about this a great deal and I would like to share some of my concerns:

  1. While I was running for this office in the fall of 2017, many people asked me what my plan for economic development was and I would tell them that businesses and consumers grow the economy, not governments. In fact, President Ronald Reagan famously said in a speech involving the economy that government wasn’t the answer to the problem, government was the problem. While President Barack Obama later told business owners across America that they didn’t build their business, the government did. Clearly these two very opposite opinions shaped my thinking of what I would do to foster growth in Orange County if I had the honor of being elected County Judge. I told them, as I still believe today, that the best way to foster growth in out community is to provide a place where people want to live and business want to build. This is done by all those (admittedly boring) things listed above: fixing our drainage and roads, repairing the County infrastructure like buildings and vehicles, and promoting a professional and dedicated County workforce to serve the citizens that live and work here. These things aren’t glamorous nor do they get instant recognition in the media and no public official will every been seen as a hero for doing them since this is our job. However, if we do our job well, we can get our County in a place that people feel safe to live in, own a home or business in, feel protected from storms in, drive down the road without destroying their car in, and be served by some of the best people in Texas! My vision for the role of government in economic growth in Orange County is simply to do those things we are traditionally tasked to do, but do them better than any other county in Texas. However, these things (as mentioned before) cost money, tax money. It does not mean that there isn’t a place for incentives. I believe that there is a place and need for incentives and abatements if they are used with the best interests of Orange County in mind. This is not a slight against businesses that want to negotiate for incentives, it simply means that they have people looking out for their interests, as they should, and will look to get the best deal for them. Your elected government should be looking for the best interests of the people they serve, as they should. Further, this means all of them, not just the corporate citizens that may be looking to move or expand and the businesses that will assist in that.
  2. Also, while I was running for office in the fall of 2017, many people said that Orange County was “dying” or going in the wrong direction and that we weren’t being open for business. In fact, I still hear that today and it sparks yet another reason to give large incentives to promote growth. I said then as I say now, Orange County is not dying but I do believe that it may be headed in the wrong direction financially however, that is not due to the lack of business incentives. At the time of the primary election in 2018, we had 20 different abatement deals over the past 20 years involving 15 different businesses and more that $675 million dollars. These deals reflect far more that the majority of our county neighbors. Although I think some of these deals were overly and unnecessarily generous to the businesses the central point is this: we have been extending incentives and abatements rather generously for 20 years before people started thinking we were headed in the wrong direction or “dying”. That being the case, maybe we need to start working harder on making better deals for the County not just making more deals for the County.
  3. Funding anything that will later give money back to you is, by definition, an investment. With that in mind, if we are going to give incentives and abatements, we must be able to afford them. If we make an agreement today to abate taxes for a business coming in for 10 years, can we afford to wait that long before seeing any revenue from that deal? Can we afford to go without the improvements to the drainage and roads that long? Can we go 10 years without an emergency fund or raises for our employees and just hope nothing bad will happen? Can we go that long while giving $375,000 a year to the OCEDC, even if there is a benefit a decade from now will it be enough to compensate for debt or higher taxes we will incur during that time? Many say that without these incentives, businesses won’t come here or they say that we aren’t receiving taxes for that now anyway so we really aren’t losing anything. If so, why not abate every new business and even the new homes that come in? Wouldn’t we grow fast without losing anything? Of course, that would be financial suicide for our community because the additional infrastructure expenses would bankrupt the county while those already paying taxes would be taxed out of their businesses and homes. Again, this doesn’t mean that there is no place for incentives and abatements, it just means that, like most things, they must be done objectively, in moderation, and mostly with our primary concern being the benefit to the County and its citizens. These benefits must be clear and measurable not just nebulous terms like “growth” and “open for business”. We must have a plan when these deals are struck as to how the deal will finance these issues of drainage, roads, emergency funds, buildings, employee/retiree costs, and very importantly will they lower the overall tax rate for everyone. I am not alone in this belief as growing concerns across the country shows:

According to the Texas Public Policy Foundation (TPPF) a non-profit, conservative free-market research institute based in Austin, Tx.:

  • Tax abatements are seen as ‘safe’ incentives with little down side, but impose significant costs on taxpayers by shifting the burden of service costs from a new property onto existing taxpayers.
  • Tax abatements result in a subsidy from some taxpayers to others fostering a system in which local governments can pick winners and losers.
  • The most effective means by which the economy may be grown is by fostering a business friendly environment in which the government largely stays out of the way.
  • High local taxes (the overall tax rate for everyone) along with costs imposed by permitting delays and regulatory processes are barriers to economic growth that no level of economic development incentives can truly fix.

Finally, I would like to address the fear that, if we don’t fund our OCEDC with a large amount of taxpayer dollars each year that we cannot truly afford and if we don’t offer really spectacular deal to companies look to expand here, we will not grow. This is the fear that has been put out by some to make people believe, as President Obama did, that we the government, build the businesses. I believe that if we create a policy based in fear, no matter what we do we will fail.

Orange County has a great deal to offer any business that wants to open its doors here. We must strive to strike deals with those businesses based on that. To truly be partners however, we must be willing to step away from a deal that is not good for our County and our People. We must not be afraid to say “no” when the situation calls for it. We must be willing to get up from the table when we are simply too far apart on a deal. If we aren’t willing to do so, we aren’t negotiating at all, we are merely waiting to hear the other side’s terms. None of this this would be necessary to say if I didn’t believe in making deals when appropriate, it simply means we must make appropriate deals. I am not alone in this belief either:

According to Maxfield Real Estate Group citing a study done by Wilder VCU:

  • Most studies indicate that site selection criteria do not show financial incentives to be the major factors in business retention or expansion. Only 7% of firms considered incentives as a critical location factor. Their site considerations were primarily determined by real estate costs, site characteristics, and access.

I know his has been a very long document to read and it doesn’t begin to cover everything. The topic of economic growth is not particularly complicated but it does have many moving parts. Don’t be fooled by slogans, ask question. Don’t sell Orange County short, we have a lot to offer; too much to simply use one tool of bribing businesses to come here. We can use incentives when necessary but we can also sit down with the folks that run these businesses and talk like adults. I recently met with several business owners and managers. They are willing to take the time and listen to what our community needs to be prosperous and they, without exception, have indicated that they want to be part of a prosperous community. It’s better for them and it’d better for us. Sometimes when we delegate too much to folks, goals and ideals get lost in the instructions. Many of these larger corporations have staff that handle most of the negotiating and they are tasked with simply getting the best deal for their company. If we don’t drive a hard bargain and give away too much, they will certainly accept. However, I believe that we can negotiate better if we have limits on what we are willing to give up, explain our community’s needs and how meeting them helps both parties. We should make it clear that we must make a good deal for Orange County or we won’t make a deal at all. These companies wouldn’t be successful if they didn’t understand the need to make a good deal. Many are also successful because they take advantage of opportunities that present themselves. With that in mind, we must guard against offering too much. Just like making an offer on a home or a car, we don’t want to give away the farm when we don’t have to. Most importantly, we must stop injecting politics into this economic equation and stop trying to make these deals about who gets credit for “making it happen”. There is no credit to be had, particularly from government officials and people that work for the government because the government doesn’t build companies. If a company decides to build here it is because they see it as their best economic advantage in being here.

I am not against having an Economic Development Corporation I simply believe:

  • Like any other investment, we should not put into it more than we can afford and the dues paid by the members should be proportional.
  • Further, members of Commissioner’s Court that are also members of the OCEDC board should recuse themselves from votes regarding the funding of the OCEDC. If a portion of one’s political future rests with another organization’s success (like the OCEDC) that gets much of its funding from the County, there seems to be a moral conflict of interest in a vote to grant them taxpayer money.
  • It should be more financially transparent as long as it receives tax dollars, every dollar should be accountable by simply pulling it off the website by any citizen.
  • It should have clear and specific goals that are reviewed and reported on regularly to the general public.
  • The EDC can facilitate a negotiation between the County and a business but should not conduct those negotiations themselves. The elected county officials that directly answer to the citizens of Orange County should negotiate any deal involving the County from start to end.
  • No public official, employee, business owner, or citizen should be offended by any reasonable question asked by anyone to the OCEDC nor should anyone ever be discouraged from asking such questions. Public debate and dialog should be encouraged and labeling it offensive to stifle such debate is arrogant and insulting.

I am not against incentives and/or abatements for businesses or deals if:

  • The deal is clearly and contractually going to benefit Orange County and its residents. Merely building a structure and hiring people in itself is not enough. Every business that builds or expands a facility is going to spend money to do so and businesses hire people to do work so they can operate not to simply enhance a County’s economy. In addition, if we gave deals to companies just because they are building or hiring, we would abate and incentivize every new business in Orange County. We can do better than that at the negotiating table.
  • The deal must be reasonable in time as well as money. Who knows what the economy will be in 15 or 20 years? Even if we can legally claw back our incentives if a business is unable to maintain its structure or expansion and thus maintain its agreement with us, who is to say we will actually get anything? We may have a judgement owing us millions but if the business is bankrupt, all we will really have is a piece of paper and land we will have difficulty selling. It is not likely that this will occur in 5 or 10 years, but in 15 or 20 years or more, even the most brilliant economist cannot say and we shouldn’t act like it can’t happen, particularly when it is someone else’s money we are gambling with.
  • The deal must reflect the actual money more accurately. The agreements I’ve seen and in the minutes I’ve read, the citizens are told how much the company will invest. That is fine but the people that represent the citizens should point out that what is invested does not usually reflect the taxable value of the structure, particularly for industry. What is invested is considerably more than what we are able to tax, if there was no abatement. Further, the taxable value, once complete, almost always goes down (depreciates) over time. Particularly in a long abatement, say 10 years or more, the value that we eventually see paying a property tax is significantly lower that the amount stated as the investment value in the agreement. In short, the pot of gold at the end of the rainbow is much smaller than it appears at the beginning and, the longer the rainbow, the smaller it is. It doesn’t mean we can’t make the deal, but we should be much more transparent at the beginning as to what it really means to the taxpayer.
  • The deal must be actively enforced and enforceable. We must make sure that people representing the people of Orange County and their interests inspect regularly to make sure the agreement is being adhered to correctly. We cannot rely simply on the business reporting on themselves. Further we must write the agreements with both the ability and willingness to enforce them if necessary, without being swayed by accusations of being unfriendly to business. These are contracts not social clubs and both sides should adhere to what is written and agreed upon. This isn’t being unfriendly, this is business. I would also fully expect any business that has been abated to, rightfully, refuse to pay a tax bill sent to them if those taxes had been properly abated. That is not being unfriendly to local government, that is following the deal.

Dean T, Crooks is Orange County Judge.