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Fact Sheet: Formula 1 and Senate Bill 1515

Wednesday, July 28, 2010

In response to questions and comments regarding the announcement yesterday that Formula 1 Racing is coming to Central Texas, Senator Kirk Watson is releasing the following fact sheet about Senate Bill 1515, the bill he carried during the last legislative session, and what it requires with regard to incentives for Formula 1.  Those wishing to read the bill should go here.

The Basics of the Bill:

Senate Bill 1515:

• Requires either the city or county to endorse any project eligible for incentives, either directly or through a non-profit organization that the local government(s) designates.  This is tool for local governments, not sporting events.  The law requires application from local officials before incentives are granted.

• Went through the standard legislative process – hearings in both chambers, open floor votes, etc.  It was the subject of scrutiny and input at the time.

• Concerned only the general policy question of whether Texas should treat events like Formula 1 racing the way it treats events like the Super Bowl. It is entirely independent of any particular project – the legislation covers all of Texas, while the F1 project now under consideration is specific to this region.

• Ensures that this is a performance-based program.  The bill specifies that F1 will qualify only for the state incentives equal to an amount that the event is projected to put back into the state’s coffers though increased tax receipts.  Ideally, these projects would prove to be a net win for Texas and the budget – but they legally cannot be any worse than a break-even proposition for the budget.  And there may be (and it would be expected that there are) economic development benefits beyond the budget.

• States that the money appropriated to the Major Events Trust Fund is not a recurring obligation.  The $25 million that's been discussed in connection with F1 was a one-time commitment to put money into a revolving fund that will make this program work – like money sitting in a bank vault waiting to be loaned out, money that’s later replenished through tax receipts.  So the alleged $250 million, 10-year figure does not require a series of annual $25 million appropriations; it simply requires tax receipts related to the event to come back into the state's coffers, replenish the fund, and then be reimbursed back out (depending on how much revenue the Comptroller finds will be created through the event in future years).

Process by which incentives are granted:

Incentives are awarded through the Major Events Trust Fund by the following process:

1. A “site selection organization” – which would be an entity such as the NFL, Formula 1 racing, or another private entity planning to stage a major event – would decide to hold an event in Texas after a competitive selection process.

2. The site selection organization would need to partner with a city and/or county.  Only these local governments, or a non-profit group authorized by those local governments, could apply for Major Events Trust Fund incentives.

3. The local governments or the authorized non-profit committee (not the “site selection organization”) may request that the Comptroller’s office determine the increases in tax revenues that will come from the event.

• The request cannot be submitted more than one year before the event is held.  In other words, the process by which incentives are awarded cannot even begin until the event is a year or less away.
• The Comptroller may not undertake any of the actions necessary to using the fund unless a request is submitted by a local government.

4. Upon receiving the request, the Comptroller’s office will set geographic boundaries for the area that would be affected by the event, and would begin analyzing and forecasting the sales tax receipts, mixed beverage tax receipts, car tax receipts, and other revenue streams that would come to the state specifically because of the event.

• This analysis would determine the maximum amount of state incentives that the applicants (the city, county, or authorized non-profit) would be eligible to receive.
• The applicants would not be eligible for incentives in a greater amount than the event would create in tax revenues.

5. The Comptroller would then begin setting aside tax revenues attributable to the event.  Typically, once the event is concluded, the Comptroller would reimburse the government or non-profit that applied for the incentives, up to the amount that the event qualified for (that amount was outlined here in step 4).

Senate Bill 1515 also created a process by which the most economically significant events – those projected to generate at least $15 million in state and local tax revenue – could enter into long-term agreements for incentives that equal the amount of tax revenue the events would be projected to bring to the state.  (In these cases, the Comptroller could provide the incentives before the event takes place.)

However, as was outlined above, the Comptroller’s office cannot project the amount of those incentives without a request from a local government or authorized non-profit, and that request cannot be made more than one year before the first event.

In other words, even if all parties intend to enter into a long-term contract, the terms of that contract – and, specifically, the amount of incentives that the event is eligible for – cannot be set more than a year before the first time the event is held.

Conditions for support:

It appears that there are many intriguing potential community benefits of an F1 race – and, more importantly, a privately funded facility that could host the race and many other facilities.  This could be an exciting opportunity for Central Texas.

To assure it is, let’s move forward in the following way:

• Local government should be fully involved by way of a completely transparent process.
• Public funds should not be committed to the project without some certainty that the public will fully recoup its investment.
• The process by which the project’s economic benefits are analyzed should also be completely transparent.

In addition, the effort should yield community benefits above and beyond the project itself.  In my opinion, those benefits can include – and organizers should work to create:

• Partnerships with area school districts, community colleges, and universities to maximize the educational and research opportunities at the site.
• Facilities that allow for research and commercialization opportunities, film and television production, and workforce training.
• Employment opportunities for people living in the vicinity of the track, and to work with historically underutilized businesses.
• Environmental efforts that minimize the air quality impact from any race, achieve the highest LEED certification possible, create state-of-the-art recycling programs, meet all appropriate environmental regulations and practices, and work with regional partners to improve water quality and achieve other environmental goals.
• Music venues, recreational amenities, and other resources that will deepen the facility’s connection with Austin and Central Texas.
• Transportation programs, infrastructure improvements, and partnerships to improve mobility in the region.
• A pattern of high-quality, sustainable development in the area of State Highway 130, including assistance with infrastructure and land-use planning.

I'm optimistic that the organizers will demonstrate these community benefits and others.  Like any economic development project, this event and facility should actually help develop the economy.  It should prove to be an asset for the entire region, and for a long time.  I’m happy to work with organizers and the community for the mutual benefit.