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January 19th, 2009
Freethought San Marcos: Incentives should be focused on workers, not corporations

Freethought San Marcos: A column

For nearly 25 years, my family has shopped at HEB. Except for the little experiment with reorganizing aisles into a confusing array of cart-clogging shelf designs at the big HEB store a few years ago, we have been pleased with the way the two HEB stores in San Marcos have been run. We believe they have provided good value at reasonable costs. We like HEB.

It is no small thing that HEB has been a good corporate citizen for San Marcos, giving money for city park development, contributing to the San Marcos Area Food Bank, supporting United Way campaigns, helping with disaster relief efforts, following good environmental practices, supporting local schools, assisting a “support our troops” effort, and participating in other charitable endeavors over the years. Some of this could be due to the presence in San Marcos of a scion of the family that owns HEB, Eleanor Butt Crook. She has made many charitable contributions, both personally and through the corporation, to help those in need in San Marcos. Mrs. Crook has demonstrated the charitable impulses that have helped America become a more compassionate and caring nation.

My positive opinions about HEB and the family that owns it make it hard to criticize the company, but I find myself flabbergasted that it would seek and accept economic incentives for an expansion of its distribution center in San Marcos. What is more puzzling is that the incentives are relatively small by the standards used recently by the San Marcos City Council. HEB will receive less than $30,000 a year in property tax abatements in the beginning, reaching nearly $50,000 per year by the end of the tax abatements, for expanding the distribution center, adding as many as 320 new jobs to the area economy over the next 20 years.

I understand, whether I approve or not, when a publicly-owned company seeks economic incentives from local and state governments. Their fiduciary duty to their stockholders is to increase profits by any legal means to benefit those stockholders. They have a legal duty to be greedy. But with a privately-owned company, such as HEB, only the private owners benefit from receiving development incentives, and there is no legal duty to enrich stockholders.

I can’t imagine that the family owners of HEB really need $30,000 to $50,000 a year to expand its San Marcos distribution center. The company has over $12 billion a year in sales. Even at a modest return for the grocery business, its profits are at least $500 million a year. In 2004, Charles Butt, the company’s CEO, was listed by Forbes as the 222nd richest person in the world, with a net worth over $2.3 billion.

The San Marcos distribution center has a lot going for it. It is located just off the IH-35 corridor midway between Austin and north San Antonio. It has access from the interstate via a recently-built overpass, reducing delays by trains. There were 47 acres adjacent to the present location available for expansion. The enlargement of this distribution center was a good corporate move, less costly than building a new facility or relocating into a larger distribution center elsewhere. In short, the economic incentives could not have been much of a factor in its decision. So, why did HEB seek them? Why should San Marcos taxpayers subsidize a business decision that would have been made without the incentives? Why did a charity-supporting, community-oriented, fabulously-successful business gobble up a pittance from the city council’s incentives trough and take badly needed tax money from the city?

In theory, I don’t have more problems with socialism than I do with capitalism. However, corporate socialism as practiced by the San Marcos City Council and governments large and small all around the country is a disgusting phenomenon. Corporations and businesses of all sizes play governments against one another to see which one will cough up the most money for their faux-capitalist ventures.

Capitalism is supposed to foster competitiveness through which businesses either sink or swim. The businesses are supposed to operate on the same playing field, without one being benefited by government to the exclusion of another. Whenever businesses go to government looking for a handout, they expect that (at least to the extent of the handout) their risks will be socialized while their profit remains privatized. Maybe its time for the City Council to start sharing in the profits of these businesses. After all, the jobs they create are just a by-product of their business. They are not creating the jobs in order to get the handout. In the case of HEB, it is expanding its distribution center to increase profits through greater efficiency. To do so requires more employees.

It is a bit like an owner of a stable of horses making the argument that since his horses eat hay, the alfalfa seed producers should give it some money to build a new barn. In the capitalist system, the seed producers may conclude that this is a good idea, but they will do so only if they get a percentage of the business’s profits or are paid interest on the funds provided to the horse owner and the funds must be repaid after a period of time.

In the present economic incentive system, the businesses seeking handouts game the politicians into giving them money for nothing that would not have occurred anyway. We no longer have capitalists. We have corporate socialists.

HEB intends to create 114 mostly low-paying jobs until it reaches Phase 4 of the expansion in 2021. Of the 114 jobs suggested in Phases 1, 2, and 3, only seven of them are living-wage jobs; i.e., they pay at least $17 an hour, the amount needed for a parent and child to live adequately in this area. So 94% of the jobs that may be created by the HEB expansion in the next 12 years pay below a living wage, and the agreement with the city requires HEB to create only 80% of the 114 jobs to receive the tax rebate.

Why should tax rebates be paid for such meager improvements in the San Marcos economy? The most straight-forward answer is because Economic Development San Marcos, the two chambers of commerce, and the City Council believe in corporate socialism. They won’t offer individual San Marcos citizens the money needed to further their education and improve their job prospects, but they will give money to a private corporation that made half a billion dollars last year in profits. And this deal also bails out the land speculators who own the 47+ acres adjacent to the HEB Distribution Center. They had hoped to sell the land to Hays County for its proposed county office complex, but when the county decided to go elsewhere, an HEB expansion was just what the owners needed to realize a profit off their speculation.

If the City Council wants to keep promoting corporate socialism, why doesn’t it at least require that all of the construction for the project be done by local contractors so that there is some real benefit to more of our citizens. And why doesn’t it make requirements of HEB that will give San Marcos residents a greater opportunity to secure the jobs HEB intends to create and that make the jobs more attractive for local residents. Such requirements could include offering job training to San Marcos residents that would qualify them for the jobs to be created; or requiring on-site child care as part of HEB’s operations; or arranging for the San Marcos bus system to make possible low-cost, energy-conserving transportation for workers living in San Marcos. The city could create a health care system that all businesses receiving development incentives must contribute to so that their employees will have medical care. I’m sure that creative minds focused on San Marcos citizens could think of many more ways that such an incentive contract could help San Marcos families, rather than merely providing corporate socialism to the wealthiest among us.

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8 thoughts on “Freethought San Marcos: Incentives should be focused on workers, not corporations

  1. Lamar, You go through all this trouble to point what a good company HEB is and then you say it means nothing. If $30,000 to $50,000 really isn’t that much why not give them it to them considering their contributions to our community? Seems like a nobrainer to be.

  2. It seems to me that the brainy thing to do is help people directly, not through corporate socialism schemes, which depend for success on an unsubstantiated belief in “tinkle-down” theory.

  3. Perhaps it would help to think of the cities as businesses competing for the same customer set. In the same way Best Buy and Circuit City have the same products they must come up with competing value propositions to entice the customer. That could be better prices, better service, better location or any number of things. San Marcos competes against Georgetown, Temple, New Braunfels, Seguin etc for the same retailers, manufacturers, distributers. Were the HEB incentives justifiable? Hard to say without all the facts and some inside intelligence but I sure like the outcome.

    I take issue with the use of the term “tax rebate” which implies COSM will be cutting a check to HEB. My understanding is this is waiving a portion of HEB’s tax increase. The difference may be semantic but the word choice seems purposefully chosen to “spin” the nature of the incentive.

    Another phrase I don’t like is “living wage”. While I admire the goal of high-paying jobs it’s important not to discount the value of entry level jobs. Not all jobs are “careers”. Folks need to start somewhere and learn workplace skills. In San Marcos we need both types of jobs. I believe improvements in the San Marcos job market will come incrementally. Like most issues, there is no silver bullet and we can’t turn away economic development opportunities because of slight imperfections.

  4. It is called a tax rebate because that it what it is. HEB pays their increased taxes, which are placed in a special account. If HEB meets the terms of the contract, the City rebates the increased tax payment to it each year. There is no spin involved in the language used.

    The problem with the City Council is that it doesn’t really care about the quality of the jobs. Because of the outlet mall and other service businesses, which San Marcos has in abundance, we need living wage jobs. We have all the entry level jobs we need. We should be focused on finding ways to improve the incomes of families, not keep them low. Most of the incentives go to support entry level jobs and those that pay a bit better, but few incentives are given for living wage jobs, which is my primary point. The City Council cares mostly about helping businesses, not San Marcos families. It is my position that their priorities are very wrong. If corporate socialism is good, then why isn’t socialism that helps families?

  5. Living wage? Have to start somewhere? What are you kidding me? Have you not looked at the folks who staff the HEB and similar businesses? With few exceptions these are not people who are “starting out” their working lives. With the exception of the managers and a few specialized workers (meat cutters, for example) these people are almost all part time workers including those who wish they could find a full time jobs with benefits, but can’t. If I should have to pay a few cents more for an apple in order that the workers get a decent wage – so be it. And HEB does not need a tax break from the cities where it does business. And HEB does not need to give donations to local events and organizations. HEB is a business.

  6. Interesting article Mr. Hankins, but you miss the real intent of incentives given by local governments. HEB, the new Target Development, the Outlet Malls, all of them were coming to San Marcos before they even talked to the local elected officials. The use of incentives in San Marcos has only one purpose. It allows the local politicians to appear to have some effect on economic development decisions. You ask why the HEB incentive was so small? It is because they did not need it. It was the cost to allow the local elected officials and wanna-be elected officials to look like they had some influence on the decision.

  7. You are absolutely right about this, though there may be some elected officials who really believe that without their corporate socialism the San Marcos economy would flounder, a dubious proposition at best if you look at general growth trends in Texas and particularly Central Texas over the last 20 years.

    One of the problems is that the people making these decisions are in (or want to be in) the same social/economic class as the people getting the incentives and pushing for the incentives. It is only natural to want to reward your peers, the people you socialize with, go to church with, hunt with, and club around with.

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