What happened: Debate over the City of Midland’s recent vote to increase the drainage fee has repeatedly turned into a broader argument about economic incentives. Some in the community have said the city’s decision to raise the fee is because the city is “giving away” money to large corporations.

That argument centers on disagreement over how tax abatements and rebates work and, more importantly, on confusion between the dollars the city collects today and the potential tax revenue that only exists if a project moves forward.

Why it matters: Tax abatements and rebates are economic development tools. Governments can use them to encourage projects that might not otherwise occur, or misuse them to subsidize projects that would happen anyway. Reasonable people can disagree about whether governments should use these tools.

Confusion arises when people treat abatements and rebates like cash spending. Incentives do not spend existing money. They change how governments collect future taxes if a private project moves forward. An abatement reduces taxes before collection, while a rebate returns a portion after collection. The policy question remains whether reduced future tax collections justify the development that follows.

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What they’re saying: Midland ISD trustee Matt Friez recently framed the city’s incentive agreements, including the Costco deal, as direct taxpayer losses. Friez argued that the deal represents a “$50–$70+ million public giveaway,” combining rebated sales and property taxes, MDC reimbursements, waived fees, and city-built infrastructure into a single cost figure.

Some speakers echoed that sentiment during public comment in the Jan. 13 city council meeting. They argued that residents will have a $2 to $5 per month higher drainage fee because the city chose to subsidize corporations rather than fund the needed infrastructure through general city tax revenue.

The other side: Those claims treat potential future tax revenue as if the city already held it in hand. Economic incentives only change how the city may collect taxes in the future if a project materializes. Development sometimes occurs without incentives, and sometimes it does not. Without the project, the higher tax revenue would never have existed.

By the numbers: For example, a vacant lot might carry an appraised value of $10,000 and generate about $35 per year in city property taxes. If a developer builds a new commercial structure on that lot and the appraisal rises to $300,000, the city could collect about $1,044 in property taxes per year without any incentive.  If the city grants a 50% tax abatement, the city collects about $522 per year instead.

Two facts exist at the same time:

  • The city collects more actual dollars than it collected when the lot was vacant.
  • The city collects less than it might collect later after the abatement expires.

In this example, the $522 represents the actual dollars the city receives today. The remaining $522 represents potential revenue. It only exists if the developer builds the project without the abatement rather than leaving the lot vacant.

When elected officials consider an abatement or rebate, they weigh whether the possibility of collecting $1,044 later justifies collecting $522 now rather than $35 for an uncertain period. The only guaranteed alternative to the incentive is the original vacant lot and its much smaller tax bill.

The big picture: City incentive agreements like the Costco deal often use performance-based, time-limited terms, with caps built into their structure. The city adjusts its tax collections only if the project opens and operates. If the project never materializes, the city collects nothing additional and rebates nothing.

However, since Costco opened, every other taxing entity in Midland County has collected its full share immediately. That includes Midland ISD, which receives property tax revenue at a rate nearly 2.5 times higher than the city’s. The incentive agreement applied only to the city’s share of future taxes for a defined period.

The bottom line: The Republican Party of Texashas questioned whether incentives distort markets, pick winners and losers, and disadvantage existing businesses.

However, that policy debate belongs at the state level. If Texas lawmakers choose to limit or eliminate abatements or rebates, they will act through reforms to Chapter 380 or 312 of state law. Until then, cities across Texas continue to use abatements and rebates as economic development tools.