City Of Katy Lands Amazon Fulfillment Center, But At What Cost?

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City Of Katy Lands Amazon Fulfillment Center, But At What Cost?

“A tree falls the way it leans. Be careful which way you lean.”

As residents of Katy Texas are busy making their daily slog down the congestion of the Grand Parkway or the soon-to-be traffic debacle around what is arguably the most expensive high school football stadium on the planet, perhaps it is time to question the pursuit of endless growth and the “more is better” mentality that seems to be the mantra of local, state and federal officials.  As we learned this past week, Katy Texas is going to be the home of a new million-square-foot Amazon fulfillment center. The Katy Economic Development Council, the City of Katy and Waller County are all hailing the deal as a boon to economic development. As we have learned that “development” can come at a surprisingly steep cost.

It’s rather fitting that the deal for the new Amazon fulfillment center was made official in the same week in which Jeff Bezos (Amazon founder) eclipsed Warren Buffet as the second richest human on the planet with an estimated net worth exceeding $76 billion. The retail juggernaut known as Amazon has been eating the entire U.S. retail sector for some time. That trend shows no sign of slowing, much to the demise of many well-known U.S. retail brands. Along with the biggest house in Washington Mr. Bezos bought a major U.S. newspaper, something that comes in handy if you ever need to shape a narrative on national policy.

If you want a glimpse into how Amazon has been able to achieve such tremendous growth, a look at the latest Katy fulfillment center deal should provide some clues. While local officials have been busy touting the new feather in their economic development cap, they probably won’t give much air time to the tax incentives which lured Amazon to the Katy prairie. The incentives for Amazon’s new Katy facility could dwarf those of a recent deal for an 855,000-square-foot warehouse in Houston’s Pinto Business Park which are estimated to save Amazon over $180,000 annually over 10 years.

Under Waller County’s 20-year deal it will rebate 50% of the taxes Amazon pays on the new Katy facility if the combined value of it’s property and inventory exceeds $100 million. As County Judge Trey Duhon explained it, it’s a “whole different ball game” when you have a Fortune 100 company like Amazon coming to town.

The City of Katy is also jumping on board with their own 20-year Chapter 380 agreement with Amazon. Under the deal with the city, Amazon has to meet certain thresholds for the new Katy facility including:

  • 1,000,000 square foot fulfillment center
  • Minimum 800 jobs
  • Minimum $20,000,000 in annual payroll
  • Minimum $85,000,000 in taxable value
  • Minimum $50,000,000 in building improvements
  • Minimum $110,000,000 in personal property

In return for meeting these standards, Amazon stands to reap millions more in tax savings with the Chapter 380 agreement with the City of Katy. While Chapter 380 agreements are often a balance of give and take, the potential savings for Amazon on this new Katy fulfillment center are rather impressive:

Amazon Chapter 380 Katy TX

Looking at this agreement, one could get the impression that the whole notion of “public purpose” as established in the Texas Constitution and government code has been turned on its head in the name of economic development.

The gurus on the economic development councils will of course point to the jobs Amazon is creating and the boost to economic activity that will accompany the new growth. The GHP estimates the economic impact to the area could be as much as $200 million and could generate roughly $500,000 a year in tax revenue after rebates. None of that revenue will help you lower the property taxes on your home of course, because property tax discounts are now reserved only for the most affluent in society. As we can see from the new Amazon deal in Katy, size matters and money talks.

While the GHP is selling a growth-oriented narrative, they aren’t telling you that the combined tax rebates of Katy and Waller County could exceed a $million per year. The City of Katy’s property tax rate is $0.50 percent, and Waller County’s tax rate is roughly 0.60 percent. If you have a facility project worth $100,000,000 or more (expected from the City of Katy staff member I spoke with) the math certainly works out quite well for Amazon.

Since Jeff Bezos is now worth more than the annual GDP of many foreign countries, it might be a good time to ask why Waller County and the City of Katy are so eager to provide massive property tax breaks to someone who obviously doesn’t need them, particularly when the new potential Amazon jobs look to be short on quality and pay.

Looking at the standard for Amazon employment it appears Amazon is required to hire at least 800 full-time employees with payroll expenditures of $20,000,000 per year. That translates to jobs at Katy’s Amazon facility paying an average of $25,000 per year. I would expect that most of the new employees will be those fulfillment or warehouse associates earning $12-$15 per hour. Combined with some massive tax breaks from compliant government officials, this helps to explain why Bezos has been able to amass a personal fortune. These are not jobs I would wish on my worst enemy, but don’t take if from me. For some perspective on what it’s like to work in an Amazon warehouse, read this and this.

In an age where politicians are busy side-stepping their own conflicts of interest and local officials are handing out property tax breaks to known felons, perhaps it is time we question the whole concept of endless growth simply for growth’s sake. When local, state and federal officials are bending over backwards to redistribute wealth to those who are already awash in it, it’s no surprise the social fabric of the United States continues to deteriorate as wealth and income inequality marches to new highs.

As evidenced from this new Amazon fulfillment center deal, Katy Texas is obviously no exception to the trend of wealth distribution toward the top of the food chain. If you want a big discount on your property taxes, you can get one if you are a Fortune 100 company. If you are a typical residential homeowner the local CAD doesn’t want to hear from you, but if you are worth $76 billion local government officials will fawn over you, assuming those “economic development” dollars will somehow trickle down into the local economy.

I think at some point we have to ask ourselves how much growth is enough? At what point does the growth outweigh the costs. It would seem to me that our local officials never stop to ask that question at all. We are living in very interesting times, in an economy that is predicated on asset bubbles, built on endless growth of both consumption and debt. But where does that leave us?

Like the proverbial frog in a pot of boiling water, Katy Texas homeowners are getting buried alive by rising property taxes and appraisal creep. While Amazon’s Jeff Bezos is busy chopping down all of those Truffula Trees, perhaps it’s time we listened to the Lorax and the wisdom he offered.

“UNLESS someone like you cares a whole awful lot, nothing is going to get better. It’s not.” The Lorax

 

By | 2017-08-03T14:13:11+00:00 April 2nd, 2017|Development, Real Estate, Spin Cycle, Texas Property Taxes|1 Comment

About the Author:

Aaron Layman is the broker/owner of Aaron Layman Properties LLC, based in Dallas Texas.

One Comment

  1. Dave Kranzler April 5, 2017 at 5:50 pm - Reply

    Wow great commentary/analysis

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