The Freeport Opportunity

Over the last year, both behind the scenes and in public, the City of Kyle, the Greater San Marcos Partnership, and Hays County have been lobbying Hays CISD (HCISD) to pass a specific inventory tax exemption that will help attract certain kinds of manufacturing and distribution companies to our area. It’s called the Triple Freeport exemption, and could be a game-changer for the city of Kyle. But it doesn’t work without the support of HCISD.

What is Triple Freeport?

Triple Freeport exempts specific kinds of manufacturing and distribution companies from being taxed on inventory in their facilities that are shipped outside of the state in 175 days or fewer. In 1989 the State of Texas permanently exempted all companies from freeport taxes but left an option for local entities to bypass the measure. At the time, most entities kept the tax in place. In recent years, however, with competition to land large employers increasing, Triple Freeport exemptions are passing all over the state. Among those to now offer the exemption are San Marcos, New Braunfels, Dripping Springs, Cedar Park, and Pflugerville.

The results are fairly straightforward. If you want to build a manufacturing or distribution facility in Texas, and the bulk of your inventory is shipped out-of-state, cities with freeport taxes are immediately struck from the list of possible locations. San Marcos now offers the exemption, Kyle does not. That means, all things equal, San Marcos will absorb those employers and Kyle, emphatically, will not. A good example is the $191,000,000 Amazon fulfillment center coming to San Marcos. That facility boasts 1,000 new jobs and will be able to utilize the new freeport exemption on any goods stored and shipped outside of the state. Kyle’s status as non-Triple Freeport, among other things, severely limited our chances to land Amazon. Moreover, C-FAN and Goodrich Aerostructures, our district’s largest freeport tax payers, now have a $578,000 annual reason to relocate.

Why Kyle Needs a Triple Freeport Exemption

I have been on record in support of Triple Freeport exemptions for Kyle. I believe our status as non-Triple Freeport has cost us jobs and prevented employers from considering Kyle as a place to either build or expand.

There are three primary reasons HCISD should pass this exemption.

First, the State of Texas and the district’s current freeport taxpayers will jointly offset any loss in revenue to HCISD. It’s complicated math, but here are the highlights, derived in part from the recent study from Moak, Casey, and Associates:

  • During the first five years, HCISD will lose approx. $3.5 million dollars in freeport tax revenue.
  • The State of Texas encourages school districts to offer a freeport exemption and will offset revenue losses by crediting HCISD approx. $2.5 million over the first five years.
  • The district’s businesses that pay freeport taxes have signed agreements to pay approx. $1.7 million to offset remaining losses.
  • Therefore, during the first five years after passing the exemption, HCISD would likely see revenues INCREASE by $700,000.
  • The ongoing HCISD freeport shortfall is reported to be approx. $48,000 annually, which means, all things remaining as they are, it would take nineteen total years before the school might see its first shortfall on this deal.

Second, the consequence of keeping freeport taxes could jeopardize the retention of our current manufacturing and distribution business community. The Moak/Casey report states it saliently: “If the affected companies choose to relocate from HCISD because of the absence of a freeport exemption, there will be a negative initial financial impact on the District, with the potential for longer-lasting harm to the local economy.”

That’s not smoke-and-mirrors, either. Business owners choose locations that make fiscal sense. They relocate for similar reasons. For C-FAN, saving $325,000 annually is motivating. It might not happen this year or next, but eventually, unless we keep the playing field level, our freeport revenue will almost certainly diminish, and with it potentially hundreds of jobs and hundreds-of-thousands in property/sales tax revenue.

And third, the freeport tax exemption gives Kyle its best chance to land a large employer. Having freeport taxes means we are courting businesses with one arm tied behind our back. We have an abundance of commercial land available to be developed, a strong supply of residents from which to recruit employees, a sound economic development policy, immediate access to the I-35 corridor, and a strategic location between Austin and San Antonio. But it’s all meaningless to companies who would be taxed on freeport goods. They will go elsewhere.

In the end, HCISD has a choice to make. Keep the freeport revenue with the certainty of no new revenues in the future. Or give up the revenue and accept the subsidies. Keep in mind, as far as the State of Texas is concerned, this tax doesn’t exist anymore.

To me, HCISD should pass the exemption because it’s in their long-term interest. Kyle is an ideal location for manufacturers and distributers. We should not throw it away just to keep freeport tax revenues from a small number of employers. This is about staying competitive with surrounding cities. Freeport taxes are antiquated and will not grow along with our population. And they strongly incentivize our current business to leave the area. Being a Triple Freeport community gives us the ability to create opportunities for the future and attract employers on a level playing field.

And given a level playing field, the future of Kyle is bright.

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