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The True Cost of a Microchip

  • Austin and Williamson County are two of four national finalists for a large chipmaking plant that Samsung is going to build.

  • Samsung has asked for significant tax abatements from the locales to build in their area.

  • At some point, are the size of the abatements so big that the deal does not make sense for the local area?




Samsung is back in the news this week. The Travis County Commissioners are soon to discuss the application for tax abatement from Samsung. And a neighboring county is competing with Travis to house the chipmaker’s new factory. While we have talked about this before, I figured it would be a good time to revisit the issue.


So what’s the big deal that we need TWO articles about Samsung? Well first, another company is considering building another factory in Central Texas. That’s great news. And just to be clear again – it is fantastic news. We want them to build here and bring jobs. So many good things happen when companies build factories and bring jobs to an area.


But, like all companies do now, Samsung has picked a few areas where it may build and is making those areas compete with each other for Samsung’s plant. It wants tax breaks. And the area that gives it the biggest tax breaks may just win the factory.


So the question I keep wondering is – at some point are those tax breaks not worth it anymore? Is it too much for an area to give? If you’ve read this blog at all, I bet you know my answer already (hint: I’m a lawyer).


What is Samsung Building


In case you missed the first article or do not remember, Samsung is building a $17 billion chipmaking plant … somewhere. With the plant will come up to 1800 new jobs. As of right now, it appears that the four finalists for the plant are:


· Austin

· Taylor (Williamson County)

· Phoenix

· Upstate New York


We knew that Austin was going to be one of the finalists (that’s what I wrote about a few months ago) but Taylor is a new addition. That information was just made public this week.


Obviously this new plant would be a boon to whoever gets it. And, with the chip shortage throughout the world, it is much needed. There’s little doubt this would be a fantastic addition to any area’s workforce.


The Cost of the Jobs


As I wrote above, Samsung is demanding tax breaks to build the plant in a town. My last article went in detail how Samsung wants tax breaks that may total over $1 billion to build in Travis County. On July 20, the Travis County Commissioners are going to discuss whether to move forward with a tax abatement proposal to lure Samsung to the County.


It now appears that the Taylor school district is considering a proposal that would grant Samsung $314 million in tax breaks over 10 years. And undoubtedly Williamson County will have to chip in for more incentives.


Samsung is actively negotiating with all the proposed sites to determine who will get the plant. So while its unclear what Phoenix and New York are offering, suffice it to say they are coming up with significant packages themselves.


Is the Cost Worth It?


If Samsung chooses one of the Central Texas sites, that will be great for our local economy. We want these companies to come to Texas. Jobs are good. And its difficult to impossible right now to get these companies without competing. But the question I keep coming back to, though, is – is it worth it? Is this a good idea for cities to compete like this?


A number of studies have been done to show that these are not good deals for cities. Look at Samsung and Travis County, for example. If the numbers are correct, Samsung will get $555,555 in tax breaks for every job it eventually brings to the County. That is a lot of money that the County will not have to build infrastructure for the new people that move here because of Samsung.


Does that mean that Travis County definitely should not do it? Of course not. It may be worth it. For example, there may be more than just the 1800 jobs that Samsung brings. There are second level jobs that may come also. But it just seems to me like we automatically accept that giving tax incentives to get a big Samsung plant (for example) is a great idea. And I just want to know more about the financial impacts for the City and County.


So what’s the answer? Should Texas cities and counties continue to give large tax breaks to companies to build plants and factories and offices here?


Maybe.


(You know that was coming, right?)

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