CORPORATIONS hungry for tax breaks cheered last year when Congress made funding permanent for a tax credit for developers of low-income housing. Until then, the year-to-year nature of the funding had made the credit risky.
Now companies are rushing to the table with proposals but are finding that competition is keen for the limited-availability tax credits.
One such company is Advanced Micro Devices of Sunnyvale, Calif. In order to gain a tax credit, AMD wants to build up to 10 ``villages'' with a total of 2,500 apartments in Austin, Texas. The first units would be available in five years to families earning up to $27,000.
Under Section 42 of the federal tax code, AMD would qualify for a reduction of $90 million on its income tax bill, spread out over several years. AMD and an operating partner would own the housing. AMD also would receive 60 percent of the operating profits beginning in 2007.
AMD, the nation's fifth-largest maker of computer chips, conducts all its United States manufacturing in Austin. The company employs 2,800 workers at three sites. It is spending $1 billion on a fourth facility here called FAB 25.
``FAB 25 is our future,'' says Michael Woollems, director of taxes at AMD. The company will build its own versions of Intel Corporation's 486 and Pentium chips at the nearly finished facility.
Mr. Woollems says AMD used up loss-carryforwards and other tax breaks last year. This year, federal taxes will jump to more than $100 million. Finding a way to lower its taxes would help the company stay competitive, he says.
AMD is up against ``the best of the best of the world,'' Woollems says. And while FAB 25 is costing $1 billion - ``an unprecedented figure for any industry'' - the prices chipmakers can charge for their products are falling 30 percent annually on average, he says.
In Austin, eyebrows have been raised over AMD's request to receive an additional $42 million in local tax abatements from the city of Austin and surrounding Travis County over a 10-year period. AMD wants federal and local tax breaks totaling $132 million for apartments it estimates would cost $110 million to build. ``They want us to give away the store on this deal,'' scoffs city councilwoman Brigid Shea.
At one time, Austin dispensed tax breaks liberally in order to attract high-tech companies. The strategy worked. The city has accumulated a critical mass of electronics companies whose presence alone is enough now to encourage other firms to open here.
Seeing that, voters have frowned on additional tax giveaways. Austin last gave an abatement in 1989.
Woollems points out that AMD's proposal does not reduce its current local tax payment. The $42 million abatement would come out of more than $100 million in new property taxes that AMD would pay on FAB 25 over the next decade. Under its proposal, AMD would still pay all school taxes.
The proposal will be evaluated against a flood of other recent offers. Austin used to be an overbuilt, low-rent city. In the last three years, only 50 of the 40,000 low-income units built in Texas were in Austin.
Today, the glut is gone. The growth of the city as a high-tech corridor has driven up apartment rents and home prices. Apartment occupancy rates exceed 95 percent.
Between the tax-credit change and pent-up demand for housing, developers have flocked to Austin from California, Florida, and other states, says Tim Stack, manager of community and multifamily programs in the city's planning department.
These developers have submitted applications to begin building low-income housing worth a combined $100 million, Mr. Stack estimates. Of that, AMD's first phase of 500 apartments would be worth $22 million.
As the sole applicant seeking tax abatements, AMD was heavily criticized at one of Austin's raucous city council meetings last week. Comments by owners of existing apartments were typical: If the council wants low-income housing, why not cut taxes on existing projects so owners can reduce rents?
Woollems says AMD's proposal has several advantages. First, its program is ongoing, whereas investment syndicates spread risk by building just one project in a city. Second, it intends to make sure services such as child care and learning centers are available at each complex ``to help people help themselves.''
Woollems, who attended last week's council meeting, says the most shocking public perception was that the low-income projects would become slums. He says the record of Section 42 housing is one of ``outstanding success'' because of private ownership. By all appearances, the AMD units would be ``upscale.''
While most Austinites wish for additional low-cost housing, it remains to be seen whether AMD can overcome the local aversion to tax breaks. Woollems says the mayor has convened a panel to study the issue. He hopes for a decision within two weeks.