North Austin News

Big cash incentives to big businesses can jeopardize local businesses and backfire on taxpayers, a University of Texas-Austin professor says.

Nathan Jensen, who is a professor in the Department of Government at University of Texas-Austin, questioned the wisdom of the Georgetown City Council of giving $4.4 million in tax incentive deals to Costco in order to get the company to build a 158,000 square-foot store in the city on the corner of Interstate 35 and Lakeway Drive.

“With rare exceptions, incentives are bad public policy,” Jensen told the Texas Business Coalition.

Most incentives go to companies that would have made the investment without an incentive, Jensen believes. 

“It is spending taxpayer money on development that would have occurred anyway. It will lead to higher taxes or the reduction of services,” he said. 

Georgetown approved the tax breaks for Costco at a Dec. 10 council meeting because the project is expected to create 235 new jobs. In three years, the city is expected to recover the costs involved in the incentives. 

Jensen disagreed. He told the Texas Business Coalition that the negative impact on local businesses would wipe out any benefit to the municipality.

Jensen cited the “Walmart effect” – when a new Walmart opens in an area, local businesses are unable to compete and they close.

“If the government is subsidizing a new business and that leads other existing businesses to close, that is a major concern,” Jensen said. “Certain businesses only displace other businesses.”

City of Georgetown officials responded to Jensen’s arguments, saying in a statement that they project that local spending will increase when the warehouse store opens.

“The Costco store in Georgetown is expected to increase the proportion of purchases by residents inside the city and reduce the city’s retail leakage to nearby cities,” City of Georgetown Communications Manager Keith Hutchinson said in a statement to the Texas Business Coalition. “In addition, the Costco location is anticipated to attract shoppers from northern communities outside of the Austin metro region.”

Jensen said he does not buy the city’s rosy economic forecast. He stands by his prediction that the Costco development will have little overall economic benefit. 

“This looks to be a very bad incentive deal that is targeting the wrong type of investment and isn’t pushing for higher wages," he said. "These are exactly the kinds of deals that cities have moved away from.”