Taylor, Texas Takes the Trophy
The governor of Texas and Samsung Electronics (005930.KS) announced yesterday that the company would be building its next semiconductor fab deep in the heart of Texas, just a bit south of the town of Taylor and a ~30min. ride from Samsung’s Austin fab. Now that the decision has been made, we were curious to see what were the details of the offer that enticed Samsung to the Lone Star State (Fun Facts: State Slogan: The Friendly State; State Bird: Northern Mockingbird; State Large Mammal: Texas Longhorn; State Small Mammal: Nine Banded Armadillo; State Flower: Bluebonnet; State Plant: Prickly Pear Cactus; State Gem: Blue Topaz; State Soil: Houston Black; State Colors: Red, white, and blue; State Dish: Chili; State Snack: Chips & Salsa; State Sport: Rodeo; Most Important Texans [our choices] Janis Joplin & Beyonce).
In order to bring Samsung to their fair city, the government of Taylor created what they called an ‘extraterritorial jurisdiction’ as a tax increment investment zone to ‘facilitate development or redevelopment by financing the costs of public works’, ’for the public purpose of developing and diversifying the economy of the zone, eliminating unemployment and underemployment in the zone.’ Essentially the city is saying that the area is undeveloped and Samsung Austin Semiconductor intends to purchase the property and build a 300mm semiconductor plant, the size of which will be no less than 6m ft2, plus ancillary buildings, and the city would like to facilitate the purchase and help to assist the $17b project.
In order to make the sale work, Samsung has to deposit $500,000 with the city during the 1st six months to cover the city’s ‘Development Review Costs’ and thereafter, up to a maximum of $5m, which the city will pay back yearly at a rate of 1% of the zone’s collected taxes for 16 years. If it is not fully paid at that point, it comes from the city’s general revenue. But the real kicker is the ‘Economic Development Incentive Agreement’, which says that the city will provide ‘tax grants’ of 92.5% of the assessed property tax for the first 10 years, 90% for the next 10 years, and 85% for an additional 10 years, which are estimated to total $467.8m, with the total expected tax revenue of $522.6m, leaving ~$52.2m for the city in actual tax revenue after costs over the life of the agreement, or about $1.7m/year. Samsung’s restrictions as to what it does with the $11.7m (current assessed value) of land are few, other than a maximum building height of 250 ft, only one 6’ x 10’ sign at the entrance to the site, and being limited to two helicopter landing sites on the property. The ~1,074 acres has little on it now, a few houses, storage facilities, and a baseball diamond, with most of the land devoted to agriculture, and the agreement states that ‘no persons will be displaced and in need of relocation’ from the plan’s implementation.
All in, we expect the local and state government will take a hand in facilitating whatever larger scale improvements need to be made, such as widening access roads and providing power and water to such an operation. Texas runs its own power grid, separate from much of the country-wide systems, so the ~100 Megawatts/hr. of power needed (enough to power ~20,000 homes) would be ERCOT’s responsibility, although we wonder where the 2m – 4m gallons of water needed for the fab each day will come from, as there was no mention of such in the proposal. As we discovered during the Foxconn (2354.TT) Wisconsin fiasco, the devil is in the details, and while we have considerably more faith in Samsung’s commitment than that of Foxconn, politics plays a large part in such decisions. Hopefully this project will move past the planning stage some time before the semiconductor space heads into over-capacity.
In order to bring Samsung to their fair city, the government of Taylor created what they called an ‘extraterritorial jurisdiction’ as a tax increment investment zone to ‘facilitate development or redevelopment by financing the costs of public works’, ’for the public purpose of developing and diversifying the economy of the zone, eliminating unemployment and underemployment in the zone.’ Essentially the city is saying that the area is undeveloped and Samsung Austin Semiconductor intends to purchase the property and build a 300mm semiconductor plant, the size of which will be no less than 6m ft2, plus ancillary buildings, and the city would like to facilitate the purchase and help to assist the $17b project.
In order to make the sale work, Samsung has to deposit $500,000 with the city during the 1st six months to cover the city’s ‘Development Review Costs’ and thereafter, up to a maximum of $5m, which the city will pay back yearly at a rate of 1% of the zone’s collected taxes for 16 years. If it is not fully paid at that point, it comes from the city’s general revenue. But the real kicker is the ‘Economic Development Incentive Agreement’, which says that the city will provide ‘tax grants’ of 92.5% of the assessed property tax for the first 10 years, 90% for the next 10 years, and 85% for an additional 10 years, which are estimated to total $467.8m, with the total expected tax revenue of $522.6m, leaving ~$52.2m for the city in actual tax revenue after costs over the life of the agreement, or about $1.7m/year. Samsung’s restrictions as to what it does with the $11.7m (current assessed value) of land are few, other than a maximum building height of 250 ft, only one 6’ x 10’ sign at the entrance to the site, and being limited to two helicopter landing sites on the property. The ~1,074 acres has little on it now, a few houses, storage facilities, and a baseball diamond, with most of the land devoted to agriculture, and the agreement states that ‘no persons will be displaced and in need of relocation’ from the plan’s implementation.
All in, we expect the local and state government will take a hand in facilitating whatever larger scale improvements need to be made, such as widening access roads and providing power and water to such an operation. Texas runs its own power grid, separate from much of the country-wide systems, so the ~100 Megawatts/hr. of power needed (enough to power ~20,000 homes) would be ERCOT’s responsibility, although we wonder where the 2m – 4m gallons of water needed for the fab each day will come from, as there was no mention of such in the proposal. As we discovered during the Foxconn (2354.TT) Wisconsin fiasco, the devil is in the details, and while we have considerably more faith in Samsung’s commitment than that of Foxconn, politics plays a large part in such decisions. Hopefully this project will move past the planning stage some time before the semiconductor space heads into over-capacity.
Proposed tax increment investment zone for Samsung Fab – Source: GoogleEarth
The most densely populated prt of the site - Source: GoogleEarth
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