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Why Does the Richards Group Need a $1.8 Million Tax Break to Build a New Headquarters in Uptown?

View Larger Map of where the Richards Group wants to build.

I once wrote in D CEO that Stan Richards seems like someone I’d want to work for (if I didn’t already have this nice gig.) His advertising agency, the Richards Group, is the sort of home-grown firm that’s done Dallas proud by establishing a national reputation in its industry. The city should be rooting for companies like that.

But when I read today that the Richards Group is looking for a 10-year, 50-percent real property tax abatement in order to build a new $45 million corporate headquarters on a patch of land next to the West Village, along Central Expressway at Blackburn Street, I was confused. I don’t begrudge Richards trying to make the best possible deal that it can for its own business interests. They are far from unique in doing so. It’s just that the spot they want to build on, in a thriving area of Uptown, along one of the city’s major highways with great access to downtown and to North Dallas, would seem to be about as prime a parcel of land as there is.

Why must the city sacrifice almost $1.8 million in revenue as an incentive? Wouldn’t Richards, or any number of other companies, be lucky to set up shop there? So I called assistant city manager Ryan Evans to ask.

Evans didn’t personally negotiate this deal, but he says that we’ve got to remember that Dallas is always competing with the suburbs when it comes to deals like this one, and that the cost of land in the city itself is often significantly higher, making prime locations like these both an asset and an obstacle to recruiting companies.

Worse yet, there’s information asymmetry in negotiations for projects like these, an asymmetry that’s disadvantageous to the city. Dallas won’t know who it’s competing against, or what other offers are on the table. Sometimes they won’t even know what company is involved (because they’re dealing only with a broker) or where the land is located (Evans didn’t know whether that was the case in the Richards Group negotiations). The risk of losing a big company and all the economic activity such an organization fosters — he mentioned high-profile losses of years past, like TXU and Perot Systems — looms over all talks like these.

So it’s like playing a hand of poker. The city doesn’t know for sure that the Richards Group won’t make this move without the tax break. It might even have what it considers a fairly strong hand to play — better location, access to talent and transportation, amenities, etc. — but it can’t help but factor in the other players that it’s got to believe are also sitting at the table.

“All these are calculated risks,” Evans says. “Consider what potentially you are gaining, what potentially you are losing, and decide how much to ante up.”

The Council’s being asked to ante up that $1.8 million in exchange for the promise of an expected net fiscal impact of $4.3 million, and the Richards Group will be obligated to add 50 more employees to its existing 600 within two years in exchange. The city staff thinks that’s a gamble worth taking.

The Council is set to vote on it June 26.