McALLEN, RGV – After losing out on landing a major manufacturing company that would have initially hired 350 skilled workers, the City of McAllen may have to increase the dollar amount it offers in incentives.
This is the view of Keith Patridge, president and CEO of McAllen Economic Development Corporation. Patridge said McAllen simply could not compete with the incentives package the City of San Antonio offered the manufacturing company from India.
The company in question makes components for firearms and plans to build an injection mold plant to manufacture precision metal parts, Patridge recently told MEDC’s board of directors. He said the company will start out with 350 employees. In time, he said, that figure will rise to 580. The average salary at the operator level will be about $14 an hour, Patridge said, and about half the labor force will be engineers.
“There are very few of these types of companies in the world and we really were going after them. The (McAllen) city commission stepped up and offered an incentives package that was very good. It was higher than we have ever offered before but we were still not successful,” Patridge said.
“Janie was working them for about the last year and we lost them. We lost them to San Antonio. We know that San Antonio offered $10,000 a job in job credit for them and gave them, for ten years, a 100 percent tax abatement. That is what we are competing with.”
Janie is Janie Cavazos, vice president of U.S. business recruitment at MEDC.
Possibility of recapturing company later
Patridge told the Rio Grande Guardian he would rather not name the manufacturing company publicly because he may be able to lure them to McAllen at a later point.
“We never take no for an answer. We don’t like to lose so we are going to continue to work on it to see if there is some way we can pull them here or at least as they expand, and we know they need to be in Mexico at some point, that we are the one that they would come to,” Patridge said.
“One part of the business has to be on the U.S. side. The other part could be in Mexico. Even though we knew we were never going to compete with San Antonio with the incentive dollars they were offering, we felt we have Reynosa and from an operational standpoint, we were in a strong position. San Antonio could not compete from the operational cost standpoint. But, because that is down the road a little bit, we lost out to San Antonio.”
Patridge said he does not particularly like offering incentive packages to lure companies to the area and in the past did not really need to. He said much of MEDC’s focus over the years has been on maquila operations and being next door to Reynosa meant lower labor costs was often a great incentive for the companies MEDC was trying to attract. However, he said now that many maquila plants are being developed in the interior of Mexico MEDC’s strategy may have to change.
“In light of the fact that maybe our competition is changing, we are now probably going to have to compete on an incentive basis with San Antonio, or Austin or Dallas or Houston or various areas around the country,” Patridge told the Rio Grande Guardian.
Patridge spoke in depth about McAllen’s incentives policy at a recent MEDC board meeting. He said what are called ‘380 Agreements’ are signed by both the City of McAllen and the company moving into the area. “It is a contractual relationship between them, stating what the companies will be doing in exchange for the incentives the city has agreed to provide,” Patridge explained.
Patridge said that normally, McAllen’s 380s are negotiated over a five-year period so the payouts by the City are made over a five-year period.
“Each year the company has to meet certain requirements. If they meet those requirements the city pays out. Since 2011, for the last five years, we have had nine companies that have signed 380 Agreements,” Patridge said. “The City has committed $1,215,000 in incentives. That is the commitment. What we have actually paid out is $243,000. There were 631 jobs created. That means we gave an average incentive over the last five years of $584 a job. That is the incentive we have provided. That is extremely low.”
So, the City of McAllen has paid an average incentive of $584 a job to land a company while the City of San Antonio can offer up to $10,000 a job. Quite a contrast, Patridge acknowledged. “I think we have to look at our incentives, how we present those incentives, and really take a look at who our competition is,” Patridge told the Rio Grande Guardian.
Not all companies take incentives money
In his overview of incentives to the MEDC board, Patridge said: “In many cases the incentive offers are nothing more than an engagement ring. All the company want is to know that we want them here.”
Patridge said often times the company does not take up the offer of an incentive. “Literally, what happens is, we negotiate incentives and they never bother applying for it. Joyce spends a lot of her time sending letters to these companies saying, we need your information so we can verify jobs, so we can verify dates of employment, we can verify wage rates, we can verify investment numbers, and they never respond. All they want to know is that we want them here. If we do that they do not even bother going out there to collect the numbers (to land the incentive money).”
Joyce is Joyce Dean, executive vice president of MEDC.
Patridge said those companies that want the incentive money only get it after they have delivered on the promise to create a certain number of jobs at a certain wage rate. “It is not a question of us having to go back with claw-back provisions and try to get it back from them. We don’t pay upfront. In certain instances we may give one-fifth upfront, in the first year, but then they have five years to make sure they at least get to that first year commitment.”
Patridge said that with most cities, the entire half-cent sales tax money goes towards its economic development efforts. He said that is not the case with McAllen. He said much of the monies goes towards certain projects approved by voters when the half-cent sales tax was approved in a referendum.
“At the time, because our strategy was always focused on Mexico and with Mexico there was such a saving for locating in Mexico, any incentive we offered was not even close to what the companies were able to get in Mexico. Now, because of the violence issue and things, it has shifted a little bit. Now we have to be in the incentives game a lot more in order to compete with other cities in the U.S.,” Patridge said.
While most of McAllen’s half cents sales tax receipts are not used for incentives, Patridge said, city leaders have set aside half a million dollars per year for this purpose. “That was set aside. We do not get it. It remains in city coffers. It is in a fund up there and every company that we want to provide incentives to, we have to take to the city commission. We go through executive session and we present it to them (the city commissioners). I do an analysis of what the impact will be to the city both from sales taxes, wages, all of those things. We give them an assessment in executive committee, and then they (the City Commission) vote to either grant or deny the incentive. We don’t see the money. The only involvement we have is MEDC does the audit of the company.”
