By Russell H. Withers, Director of Policy & General Counsel. April 29, 2021
Editorial Credit: Travel_with_me / Shutterstock.com
South by Southwest was founded in Austin, Texas in 1987 and has been held there ever since. House Bill 3023, as amended by State Representative Donna Howard, would obligate the taxpayers of Texas to provide ongoing financial support to the South by Southwest conference and its associated festivals on an annual basis in perpetuity. It would do so by fundamentally transforming the purpose and intent of one of the state’s major economic incentive funds.
I have come to terms with the fact that I am in the minority when it comes to state incentive programs. I do not believe that taxpayer money should be used to lure businesses to Texas, nor do I believe the economic benefits justify such programs. Low taxes and a reasonable regulatory environment are reason enough to come to Texas, and most businesses that move to Texas do so based on those factors alone. Nevertheless, such programs are generally popular.
The Major Events Reimbursement Program (MERP) is one of the more popular incentive funds. Meant to lure “major events” to Texas by guaranteeing payment to reimburse costs associated with preparing and conducting an event if certain conditions are met, this fund often covers millions of dollars in costs for events like the Super Bowl and the NBA All Star Game. For example, through the MERP, taxpayers covered $25.4 million in costs associated with holding the 2017 Super Bowl in Houston.
There are currently 27 statutorily authorized events eligible for MERP funding. One of the statutory requirements for the funding is that the event must have a “site selection organization.” State law is clear that events may receive funding through the program “only if” a site selection organization selects Texas “after considering through a highly competitive selection process one or more sites not in this state.” In other words, if it is a foregone conclusion that the event will be held in Texas, the MERP should not fund it.
The Texas House of Representatives just passed a bill with an amendment that would fundamentally change that premise by turning the MERP into a fund that will use taxpayer money, on an ongoing annual basis, to help pay for the “South by Southwest conference and festivals.”
Unlike every other event statutorily authorized as eligible for MERP funding, South by Southwest is an annual event held in Texas every year and has been so for more than three decades. It is specifically associated with Austin, Texas. Addition of the event to statute required an exception to the “site selection” requirement otherwise applicable to the other MERP-eligible events. There is no “site selection organization” for South by Southwest because the site is Austin, Texas. It is akin to “incentivizing” the Legislature of the State of Texas to meet in Austin every odd-numbered year rather than some other city in Texas.
In short, rather than provide an “incentive” to come to Texas, the MERP will now be used to spend taxpayer money on an annual basis to fund an event that has always been held here and will continue to be held here regardless of whether or not HB 3023 passes with the Howard amendment intact. This relates to a key point proponents often make about the MERP: It incentivizes major events to come to Texas because those events generate considerable tax revenue for the state. Indeed, MERP funding is determined based on a state estimate of tax revenues these events will bring in. But South by Southwest will be held in Texas no matter what. Texas will receive that extra tax revenue no matter what. Thus, using the MERP on South by Southwest undermines the entire premise of the program. The millions of dollars the state will spend on the MERP could be used to fund education or health care services instead of providing a government subsidy for an event that will be held here anyway.
As an unofficial benefactor through the MERP, the State of Texas will join other major sponsors of South by Southwest, including White Claw, High Grade Hemp Seed, SHOWTIME, Audible (Amazon), Dell Technologies, and TikTok. Dell and TikTok are notable parties for Texas to associate with as co-sponsors given recent events. Cybersecurity researchers recently discovered that Chinese-owned TikTok exposed the personal data of millions of American users to hackers. And Michael Dell’s recent comments about election reforms are among several corporate opinions that prompted Lieutenant Governor Dan Patrick to issue a statement asserting that “Texans are fed up with corporations that don’t share our values trying to dictate public policy.” These are but two troubling examples of corporate South by Southwest sponsors that the State of Texas may not want to associate with. There is no way to predict which corporate entities might sponsor South by Southwest in the future, but once the event is added to state law as MERP eligible, Texas will have no choice. Taxpayers of the Lone Star State will be ongoing annual sponsors of South by Southwest.
The Howard amendment to HB 3023 is Rep. Howard’s own bill, HB 2420. When that bill was heard in committee, Rep. Howard testified that a major motivation behind applying the MERP to South by Southwest is to help the festival “come roaring back“ after missing 2020 due to the coronavirus pandemic. The MERP, according to Rep. Howard, “is one of the tools we have to help get this economic driver back on track.” Respectfully, millions of Texans and Texas businesses experienced hardship in 2020. The vast majority of those individuals and businesses do not have the kind of support structure in place that an organization like South by Southwest has. Between a willing City of Austin and an enthusiastic list of multinational corporate sponsors, South by Southwest will happen again. The idea that the temporary pause of this event due to a pandemic justifies state aid is an insult to everyone who experienced hardship in 2020. Furthermore, using a state incentive fund intended for one-time reimbursements as an ongoing funding source smacks of the worst kind of opportunism; the Texas Senate should take action to strip the Howard amendment out of the bill.