Pharmaceutical giant Merck has notified City Manager Spencer Cronk that it is terminating its incentive agreement with the city effective June 23. As a result, Merck will not have to comply with the terms of the agreement, which included an investment of nearly $29 million and the creation of at least 600 jobs with an annual salary of more than $84,000 by the end of 2025. The company loses out on about $1 million from the city and $6 million from the state of Texas.
Despite its withdrawal from the agreement, Merck is proceeding with its information technology hub at the University of Texas Medical School’s Health Discovery Building.
Company spokesperson Pamela Eisele told the Austin Monitor via email on Tuesday, “Merck is excited to have an IT office in Austin, and we are grateful to everyone that helped us along the way.”
She confirmed that the company was exiting its incentive contract with the city as well as its agreement to receive $6 million under the Texas Enterprise Fund. Eisele told the Austin American-Statesman the change was a result of “internal priorities and events,” but declined to be more explicit about whether Merck has scaled back its plans for Austin.
Rebecca Giello, interim director of the city’s Economic Development Department, said Merck did not reach out to her department to let them know it was terminating the contract prior to sending the letter to the city manager. The only clue they had was that the company requested changes to its agreement with the city in July 2018 that would give it more time to satisfy the requirements of the contract.
At the time the contract was initially signed in 2017, a fiscal analysis of the project predicted it would generate $1.9 million in net benefits to the city over the course of the 10-year incentive agreement.
Giello said Tuesday that the amendment signed last summer “was to allow more time at the initial stage of the agreement for ramp up before scheduled performance would be required. In other words, it provided Merck more time to evidence required job creation,” which the company requested.
As the Monitor reported in April 2017, the Merck approval was “the first one granted by the city since 2014, and the first for members elected with the change to district representation. Three packages were approved in 2014 for Websense, Dropbox and Athenahealth.”
Both Dropbox and Websense have terminated their agreements with the city. The agreement with Merck was the first done by the 10-1 Council.
Somewhat ironically, the Statesman reported Tuesday that a trade association says Austin is the place more IT workers want to be than any other city in the U.S.
Photo by Cathrin Badzung – Merck KGaA Germany, Corporate Communications, CC BY-SA 3.0, Link
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Economic Development Incentives: This is shorthand for a series of programs designed to lure business to a given region. In Austin, the program tends to take some form of tax-based incentives. These can include rebates or grants that are often tied to a set of stipulations. These tend to include local hiring goals, same-sex partner benefits, or, more recently, wage floors for construction workers who build facilities for the incoming organizations.
