Wrong time for $40 million tax giveaway

Copyright 2004 Houston Chronicle
April 3, 2004

Gov. Rick Perry, who often complains that Texans are paying too many taxes, just gave away another $40 million worth.

He and legislative leaders, who endorsed the deal, called the giveaway to a consortium of high-tech companies an investment in Texas' economic future. The idea is to keep the consortium, Sematech, from pulling out of Austin and packing its payroll and research potential off to New York.

Investment, however, is often simply a more palatable word for gamble.

Proportionately, $40 million is a small slice of Texas' $118 billion budget. And in case you are wondering, no, it wouldn't have done much to bail Texas out of its multibillion-dollar school finance dilemma.

But it is a lot of money, particularly at a time when important, basic public services and programs are being reduced. It could have been spent on a lot of other things.

For starters, it is enough money to pay the annual salaries for 1,000 additional state troopers or several hundred college professors.

The same amount could have paid for financial aid for thousands of additional college students whose personal budgets are being strapped by the tuition increases that the governor and lawmakers let happen with the tuition deregulation law.

The Legislature also could have used that $40 million to soften the cuts it made in the Children's Health Insurance Program. The $40 million in state funds would have drawn another $102 million in federal matching money, enough to provide health care during the current budget period to 67,000 children from low-income, working families.

Instead, Texas is reinforcing its shameful distinction as the nation's leader in uninsured children, while giving a $40 million cash infusion to Sematech, a semiconductor research consortium with such prominent corporate members as AMD, Hewlett-Packard, IBM, Intel, Motorola and Texas Instruments.

The grant approved by Perry, Lt. Gov. David Dewhurst and Speaker Tom Craddick includes $30 million in direct payments to Sematech, with another $10 million awarded to the University of Texas for related research.

In return, Texas taxpayers are getting Sematech's contractual promise to keep 400 or so employees and most of its research in Austin, where it has been since the late 1980s, and state leaders' expectations that an expanded research effort will spin off even more jobs and allow the Texas economy to eventually cash in on technological advances that most of us may be unable to visualize.

Let us hope our leaders prove to be correct, although it may be years before we know. For now, however, the deal, which took several months to negotiate, raises some questions.

According to the agreement, Sematech would have to repay the state if it doesn't keep 400 jobs, at an average annual pay of $70,000, in Austin for the next seven years and if its research and development doesn't indirectly create another 4,000 jobs by 2014.

Even if that provision were enforced -- and who knows what political factors may be in play in seven or 10 years -- Sematech still would have what amounts to an interest-free loan from Texas taxpayers.

Economic development may include a role for government. But it has put public officials in the questionable posture of trying to outbid each other for corporate suitors, who aren't above playing off one jurisdiction against another.

Texas offered money to Sematech because New York was trying to lure the consortium away. Sematech moved a small part of its operation to Albany last year but now has agreed to keep the remainder of its work in Austin.

In 1999, Austin approved $10.6 million in incentives to encourage Intel, a Sematech partner, to build a major new building downtown. When Intel fell on hard times in 2001, it abandoned the project in mid-construction, leaving a ghostly concrete shell mocking the city council for months.

The $40 million Sematech grant is coming from the $295 million Texas Enterprise Fund, which the Legislature created at Perry's urging while it was cutting other programs last year. Besides the Sematech deal, the state has committed another $86.5 million to help land what state leaders hope will prove to be corporate expansion plums in North Texas and San Antonio.

Normally, businesses want government to leave them alone. But if government is offering a handout, they are ready to become partners for progress -- their own, and maybe, just maybe, the taxpayers'.

Robison is chief of the Chronicle's Austin Bureau. clay.robison@chron.com