In the inaugural publication of this magazine, I wrote an article on meeting economic development competition. In that article, I pointed out three keys to a successful strategy. One of them was, “Understand the incentive process and use it wisely.”
Today, because of the global economy in which we live, competition is no longer limited to our neighborhood. The competition, in many cases, can be around the world.
It is important to understand that economic development has always been a competitive process. Today, because of the global economy in which we live, competition is no longer limited to our neighborhood. The competition, in many cases, can be around the world. Fortunately, we have tools at our disposal to provide economic development funding and, as a result, we can meet that competition. These tools include the Killeen Industrial Foundation, the Killeen Economic Development Corporation (KEDC), Tax Increment Reinvestment Zones, and 380 Agreements. Most are available to every community. Economic Development Corporations, however, can be different from place to place.
SALES TAX FOR ECONOMIC DEVELOPMENT
During the 71st Legislative Session, the Texas Legislature passed the Economic Development Act of 1989 which permitted cities, for the first time, to collect up to .5% sales tax for economic development purposes, in .125% increments, if approved by voters within local political subdivisions.
The sales tax for economic development creates a substantial stream of steady revenue. That revenue can only be used for economic development as defined by state law. It provides a considerable advantage to the cities that collect it. In fiscal year (FY) 2012-2013:
- 709 Economic Development Corporations collected the tax
- Those entities collected a total of $659,917,416
- The average amount collected was $932,087
Sounds like a great idea. Except there are limitations. Some cities, including Killeen and Temple, cannot collect the tax. State law limits total sales tax collections to a maximum of 8.25%. Of that total, 6.25% is reserved for state use and 2% is reserved for local use.
All cities, in the immediate area of Killeen, collect the full 2% sales tax for local use. Killeen and Temple collect 1% for its general fund, .5% for property tax relief, and .5% for the county. Belton and Copperas Cove collect 1% for the general fund, .5% for economic development, and .5% for the county. In FY 2012-2013, the City of Belton collected $1,437,396 for economic development. The City of Copperas Cove collected $1,340,780.
Killeen and Temple are prohibited from collecting the sales tax for economic development without first modifying their present tax structures through the election process. In fact, two elections would have to be held. The first election would give voters the choice to roll back what they have previously approved to create capacity under the 2% local limit. The second election, if the first were successful, would give voters the choice to approve collection of the sales tax specifically for economic development.
KILLEEN ECONOMIC DEVELOPMENT CORPORATION
I doubt it is a coincidence that the Killeen City Council created and passed an ordinance in 1989 to create the Killeen Economic Development Corporation. The ordinance created a funding stream for KEDC from the city’s general fund and required that the staff of GKCC serve as the staff for KEDC. All of this was to meet economic development competition.
The great benefit from KEDC is that, absent the ability to collect the sales tax for economic development, KEDC provides a flexible and responsive funding methods to meet the competition posed by cities that do collect the tax. There are additional benefits.
KEDC is a broad-based group made up of elected officials and community leaders. The composition of KEDC sends the signal to business prospect that this community combines business expertise with political reality to make good things happen.
KEDC is empowered to act and act quickly. This sends a powerful message to business prospects that this community can do business in a flexible and fast manner without the bureaucratic constraints found in many economic development sales tax cities.
And, KEDC is not subject to state regulations imposed on sales tax cities including prohibitions on the use of incentives for retail and educational development.
Funding from KEDC is used to drive the economy forward by providing incentives to induce capital investment to create jobs. This is done by investing in infrastructure, providing matching funds for grants, and funding our participation in organizations which we protect and grow Fort Hood.
THE APPROVAL PROCESS
KEDC has nine members who must approve all expenditures. Those members serve for three year staggered terms. Three are nominated by the city council. Three are nominated by the GKCC Board of Directors. Three are nominated by the Killeen Industrial Foundation. All must be approved by the city council.
Members of the city council act on KEDC expenditures in two ways. First, the council must approve the appropriation to KEDC. Second, the three city council representatives, who traditionally have been council members, vote on all KEDC expenditures in their capacity as KEDC members.
THE FUTURE
Our community is fortunate. For many reasons, we have many opportunities ahead of us. However, it should be said that the future brings with it no guarantee. The tools that I have mentioned and elaborated on in this article are critical. Without them, we will be unable to shape and achieve our future economic potential. With them, we can manage the incentive process wisely and, in doing so, create economic prosperity from which we will all benefit, especially future generations.
Written By: John Crutchfield III, President & CEO, Greater Killeen Chamber of Commerce
Published in the Greater Killeen Business Quarterly 2016 Annual Report & Economic Outlook