Ditch the tax breaks: Better policies would attract companies to Texas

Photo by Kati Drisc

Our long national nightmare is over. After a year plus of flirting with more than 200 cities, Amazon decided to split its new headquarters, HQ2, between New York City and Arlington, VA. Several cities in Texas were on the HQ2 short list, and over the course of Amazon’s drawn-out deliberations, most of the discussions I’ve had about HQ2 with residents of those cities have been negative. Texans are not on board with their cities offering tax breaks to lure massively profitable corporations to places where current residents are already living with soul-crushing traffic, skyrocketing rent and dilapidated infrastructure. Texas has a history of this kind of corporate welfare, having given out more than $7 billion in tax credits for companies to relocate to the state from 2002 to 2016, according to Nathan Jensen, a government professor at The University of Texas at Austin. Despite healthy economic growth over that time, many Texans do not feel as though this kind of economic development policy benefits them.

Despite the prevailing attitudes of their residents, cities will have a strong incentive to court companies like Amazon as long as the trend of urbanization continues. People are moving to cities in droves in pursuit of better opportunities, and that will have an effect on traffic and the cost of housing. Cities can’t just stand athwart the tide of urbanization yelling, “stop.” Instead of handing out tax breaks, cities should adopt a two-pronged approach of land-use reform and infrastructure investments to promote economic growth without imposing too much of a burden on current residents.

Broadly speaking, land-use and zoning laws define the kind of construction that is allowed in different parts of a city — commercial over here, single-family over there, multifamily somewhere else, etc. These laws should be reformed to allow for the construction of more multi-family housing in traditionally single-family neighborhoods. Other residential areas should be reclassified for “mixed-use” construction, allowing homes and businesses to be built closer together and giving people the option to live closer to work. Similarly, loosening parking requirements on apartment buildings would encourage the construction of more housing in the urban core. To accommodate residents who decide to live closer to work and ditch their personal vehicles altogether, cities should encourage ridesharing and novel transportation services like Lime scooters and Jump bikes. These policies would increase the supply of housing and take pressure off rising rents. From the perspective of firms looking to move to a new city, a lower cost of living means a lower salary premium required to attract top talent.

Along with land-use reform, cities should continue to support existing public transportation and invest in expanding streets and bike lanes to make it easier for residents to get around town without vehicles of their own. To the extent that residents continue to rely on their personal vehicles, road maintenance should be an utmost priority. Beyond transportation, flood prevention and water supply are other areas prime for government investment. The catastrophic flooding from Hurricane Harvey in Houston and the recent boil water notice in Austin show how susceptible our water management systems are to extreme weather events, and that’s before taking into account the effects of population growth and increased water demand, which will tax these systems even more over the next several decades. A combination of infrastructure investments, smart building regulation and efficient water-pricing schemes is necessary to avoid a future of frequent flooding and water scarcity.

I share the skepticism of many of my fellow urbanites about the benefits of our cities bribing companies like Amazon to set up shop in our backyard. However, as a native of a town of 1,600 who transplanted to the city less than a decade ago, I know first hand the urge to move to the city to pursue personal and professional longings. As long as that continues, we can’t sit idly by as traffic grinds to a halt and rents explode. We need a suite of policies that will promote economic growth without leaving our neighbors behind, and a focus on land-use reform and infrastructure investments could go a long way toward accomplishing that goal.

The views expressed in this article are the author's own.

Andrew Reimers

Energy systems analyst