Votes – 20 Sep 2016

After a few relatively ho-hum council sessions, this week’s meeting was packed with substantial votes. We had a complicated business incentive, a landscape ordinance upgrade, a change in the way we calculate impervious coverage, and we applied for a $1,000,000 grant to help improve our wastewater infrastructure. I supported all of these items, but the business incentive was, perhaps, the most challenging and complicated vote I’ve made to date, so I’m going to spend the entirety of this article explaining what factors shaped my opinion. Fair warning, I’m going to explain this with transparency and in detail, so the article will be lengthy.

Agenda: here
Video: here

RSI incentive to create 82 new jobs

Council: 5-1 in favor
My vote: in favor

As a new councilmember I am slowly being brought up to speed on a number of complicated situations. One of them has to do with RSI, a Kyle-based electro-mechanical distributor specializing in hardware manufacturing for various contractors, including the DOD (Department of Defense). RSI built their headquarters in Kyle nine years ago and employs approximately 50 people at that location. They also have operations in Pflugerville and elsewhere. Many of the Kyle jobs are high-wage and, as a result, RSI is one of Kyle’s most important employers.

When RSI moved to Kyle in 2007 they were given several city incentives to do so. One of those incentives was a form of property tax abatement. The basic outline of the deal was that, for five years, Kyle would maintain ownership of the land on which RSI developed. Thus, when the Hays County Appraisal District (HaysCAD) billed for taxes, RSI would only be taxed on their inventory and not their real property. Five years came and went, and in 2011 the ownership of the land was deeded over to RSI per the agreement.

But a mistake was made in the process. HaysCAD did not record the transfer in their system and, as a result, did not generate a bill for the property taxes. In 2011, when RSI received a bill for their inventory but not their real property, they contacted HaysCAD and informed them. This attempt was documented and is on record. HaysCAD told RSI there was no bill and RSI did not owe. It is believed RSI also contacted the city about the bill and were told the same thing. This went on for a few years, where RSI would contact HaysCAD about paying their property taxes and RSI would be told there was no bill.

Approximately nine months ago, our new city manager and his staff discovered the error. RSI was notified of the situation and a tax bill was generated for the current year and the previous years, totaling just over $600,000. You can imagine how that sat with the employer. Virtually no business can write a check for six years of property taxes at once. But the bill was generated nonetheless and RSI was legally obligated to pay.

With a snafu of this magnitude, and with no way to easily assign blame, the city, county, and business began working on a deal to help rectify the situation. The parties worked for months behind the scenes and burned through several iterations of a deal. This was all happening without my knowledge — and rightly so — because I hadn’t yet been elected to council.

To further complicate things, just as RSI was given the $600,000 bill they were simultaneously bidding on two very large multi-year contracts with Lockheed Martin and Boeing. Should those contracts be accepted, their operation would more than double and RSI would go from 50 employees to over 130. The contracts would be meaningful to the city because 80 new high-wage career jobs would represent a significant boost to the local economy.

With all of these factors to consider, on September 6, an agreement came forward and I was briefed. The deal included a roughly $480,000 loan to RSI from the city. RSI would pay their current year’s taxes out of pocket and the remainder of the bill from the proceeds of the loan, which would be amortized over 10 years and repayable to the city. Furthermore, should RSI land the contracts and create 80 new sustainable jobs, they would be credited against that debt and would have the payments waved. The county, for its part, would pay the city for ½ of the credit and thereby share in the incentive.

As I poured over the agreement leading up to the September 6 Kyle City Council meeting, I came to the following conclusion. RSI, the city, and the county were all culpable for the tax problem and should have all contributed to the solution. RSI should have done more to insure their taxes were properly billed, the city should have insured the property transfer was recorded with HaysCAD, and HaysCAD should have fact-checked their assertion that RSI didn’t owe the taxes. The deal presented on September 6, as I saw it, only recognized errors from the city and county, not the employer. RSI was getting a loan and a jobs incentive that would forgive the loan. I decided the deal was not fair because RSI wasn’t contributing enough to the problem, so I informed staff that I could not support it.

Because I had only just been briefed, as a courtesy to me, the city manager requested to table the agreement until the September 20 meeting. In the meantime, I asked to meet with the owner of RSI to discuss his perspective and see if I could be persuaded to support the agreement. He obliged. After a lengthy discussion, I was not changed in my opinion that RSI was not contributing their fair share to address the problem. My belief was that, if RSI wanted the jobs incentive, they should borrow the money for the taxes externally. And if RSI wanted the city loan, they should not receive the jobs incentive. A few days went by and the owner asked if I would meet him halfway. Would I be willing to support the agreement, he asked, if everything stayed the same but the credits per job were cut in half, thereby making it a half loan, half incentive agreement?

My first reaction was no, I would not. But after thinking about it, I realized my unwillingness to compromise was more about me hating the situation than the proposal. After all, the compromise meant that all three parties – business, city, and county – would be sacrificing to insure the company could survive and move forward. So, after some reluctance, I agreed. And thus, when the revised agreement was presented to council, I supported the item.

This entire process was challenging to me because virtually nothing in the deal was black-and-white. I could easily have railed against the agreement because, on the surface, it represents the city taking taxpayer dollars to bail out a business who for five years didn’t pay their taxes. But that view – while easy to defend from a politics perspective – over-simplifies the case and assigns no blame to the city or county. I could have also been unwilling to compromise with the employer and said “Here’s my offer, take it or leave it.” But that type of non-negotiating would have put my ability to influence the agreement in jeopardy.

In the end, I chose the perspective that I employ in my own life and business. When a mistake happens and everyone is culpable, the correct way forward is to find a path that resolves the issue while making every party equally miserable.

2 thoughts on “Votes – 20 Sep 2016”

  1. What a challenging situation. I respect how you didn’t just accept what was briefed and looked further Into the situation. As you are also a business man I’m sure you see the perspective from all angles as well.

    A tax mistake and it seems like the city and county tried to take the majority of the fault but it was in part the business. Example (smaller scale) military member gets overpaid for three months..he knows about it and yet chooses to ignore it as if he someone deserved the extra money. Then accounting realizes mistake and all at once redeems their overpayment and now soldier has no check for a month. That is an extreme example but same principal. And they dont cut any deals.

    I like your thoroughness and your detailed explanation Travis.

    Joseph

  2. I have to commend you for your thoroughness in considering this difficult proposition; but believe that your vote was the proper one for all concerned.

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