Texas-Size Hopes for MCC’s Effect on Austin Economy Quickly Deflated

Bobby Ray Inman and Microelectronics & Computer Technology blew into town three years ago, borne on a dust storm of excitement and great expectations.

Austin was ready to be a new Western boom town, the best watering hole on America’s high-technology trail, and MCC seemed just the spur it needed.

Now, though, some around here talk as if the dust had settled in their mouths.

John Lindley is a real estate consultant who gets asked four, five, even six times a week to tell the story of Austin and MCC. It’s a chore he approaches with relish.

At his office in the Echelon complex, black jabs of glass and steel in the rolling hills, Lindley sits with his back to the patchwork aerial map of the city that covers one wall. At times, he interrupts his chain-smoking to reach casually into his breast pocket and pull out a telescoping pointer. He likes to show exactly where the careless developers and speculators lost their shirts in the land-selling frenzy that followed MCC’s arrival.

When Peck Young, a local political consultant, does the telling, it’s a yarn of money and greed, of expectations unmet and dreams come true. Of how MCC came to town and because of it--or as nearly as anyone could say in such matters--Austin grew up.

“To Austin, MCC is more symbolic than tangible. It’s like Spindletop to this community,” said Young, referring to the gusher near Beaumont that was the wellspring for Texas’ oil wealth. “Austin used to be a city that felt like a town, now it . . . feels like a city.”

Took Wealth From Ground

Texas, Young likes to explain, always took its wealth from the ground--cattle, cotton, coal and oil, and lately, real estate. But as in many other areas across the country, the political and business leaders of Texas were turning envious eyes to Silicon Valley, an area in Northern California’s Santa Clara Valley that had snubbed its orchards for more cerebral fruits--the microchip and the computer.

Austin, the state’s capital, always relied on government and the university to give it immunity from the boom-bust cycles that afflicted the rest of the state. But, under the Legislature’s tutelage, it began trying to diversify its economy.

“Instead of King Cattle, King Cotton, or King Oil, it was now going to be King Microchip,” Young said. “Now, we were going to be the new Silicon Valley. Instead of digging it out of the ground, we were finally going to use our heads to make money.”

When Inman took MCC’s search for a site public, 57 cities in 27 states entered the bidding.

Austin was already in the midst of rapid growth. IBM, Texas Instruments and other high-tech companies had been lured to the attractive city nestled in the river-fed hill country. But it wasn’t so overcrowded with high-tech companies that MCC would be just another member of the pack. It had a highly educated population, an acclaimed “live-ability,” historically low unemployment rate and the University of Texas, home of a respected engineering college.

The way Lindley sees it, once it was clear that Austin had a chance of landing MCC, “it became a matter of pride for Texas to win. Had they (MCC) not had the national publicity, they would not have gotten anywhere near the concessions.”

$60-Million Package

After the state made its proposal to MCC, a package of more than $60 million in public and private support, it was no longer a contest.

Included were a $23.5-million building at University of Texas’ Balcones Research Park, which MCC leases for $1 a year, low-cost mortgage loans for MCC employees, use of a Lear jet for a year (privately donated, at a cost of about $1 million) and nearly $40 million from University of Texas and Texas A&M; for expanded electronics and computer sciences programs.

But the state, in its energy-weary economy, is in a crunch of its own; the fund to pay for MCC’s building is still about $7.5 million short.

MCC’s presence has encouraged other companies, such as 3M, Motorola and Lockheed, to locate relatively small facilities in the city, but it did not have the wide-ranging pull some had hoped.

For one thing, the technology industry has been going through rough times of its own in the past two years. Austin has felt the pinch of layoffs and plant closings as high-tech companies have retrenched.

For another, the city has not yet become a haven for start-up companies. Most of Austin’s venture capital still goes out of state, the city’s business leaders admit. “There’s no venture capital market here,” said George More, a high-tech entrepreneur who was on the committee to recruit MCC. More founded Bird Circuits, a manufacturer of printed circuit boards, but with little help from home-based venture capital.

Also, there has not been the kind of job creation that some anticipated. “It was a time of euphoria in the community. People misunderstood what MCC would do, and so there were a lot of exaggerations,” said Angelos Angelou, chief economist for the city’s Chamber of Commerce. “It was not a manufacturing company, and so you don’t have the same kind of multiplier--the formula that says for every job brought in, there will be three more created within two years.”

Said More: “MCC made it clear that its maximum employment would be 200 to 300. But the community shut its ears and seemed to infer that it would be 10 times that.”

Even if MCC blossomed a dozen-fold, its staff couldn’t have filled all the houses that were planned by eager developers.

In 1982, Austin was home to about 200 developers and builders. By 1985, more than 800 companies had activities in the city, including some of the biggest-name developers in the state. Young called it a “herd mentality” among “hustler developers.” They were “all hype, all pitch. They wanted to keep the momentum (of Austin’s land boom) going,” he said.

Some developers made a hobby of what the townsfolk call “land-flipping,” that is, buying a piece of land and quickly, some times before the title was in hand, selling it again for a higher price.

Lindley said: “Before the MCC announcement, there already had been some land speculation, but the announcement really moved it forward.” He said most of the experienced, out-of-town developers “did one flip and left. But some tried to do a couple of flips and a few got caught. Most of the people who got caught, though, were local people.

“Land was being offered, and some sales actually made, at three and four times what prices were 12 months before,” said Lindley. “There was a time in mid-’84 when it was almost impossible to buy a piece of land (in Austin) for a price at which it could be profitably developed.”

More said one of the worst short-term evils has been the way the hoopla led to “inflated land values and people’s expectations. The town is now going through decompression from the hype that was internally generated. MCC has been a marvelous partner for the city, a model citizen. But it has been a victim of the naivete of the local folks.”

In the suburbs, the race to keep up with the building boom in the downtown business district has led to a glut.

Occupancy Rate Drops

In 1982, the occupancy rate neared 95% in Austin’s 16 million square feet of office space. That has dropped to 70% as another 14 million square feet have been added. Angelou said it will keep falling, to about 60% by mid-1987, when there will be another 6 million square feet available.

Some of Austin’s banks and savings and loans are seeing hard times as real estate loans they made--some even took equity positions in the deal--begin to sour.

Land values throughout Austin rocketed by more than 50%. Big housing developments stopped dead in their tracks when the hoped-for influx of new companies and well-paid employees failed to materialize. There are record numbers of foreclosures; city, county and school districts are still paying the bills for their rapid expansion.

Young said the city’s expensive growth “will be a burden to the government for 20 years, as it pays off the debts it took on” to build the roads, schools and other enhancements to the infrastructure.

Things are even tightening up at the University of Texas, which is one of the richest public universities in the country. In these lean times, its nearly $15-million-a-month stipend from an oil-endowed trust is being eyed by the state Legislature as a revenue source.

“What nobody was counting on,” said MCC’s Inman, “was the drop in the oil price . . . Now the state Legislature is tugging on the rug of sustained support at UT.”

Put Austin on Map

Many in Austin’s business community believe that, despite current economic woes, MCC will prove a valuable asset. “No money could buy the type of publicity Austin got,” said Angelou. “It put Austin on the map of high-technology, identified it as the emerging high-tech center in the Southwest.”

Bird Circuit’s More said: “A lot of people are walking around, wringing their hands and saying the city is in trouble. But they’re woefully wrong. . . . The city is growing at a nice rate, and we’re doing pretty well.”

Sheridan Tatsuno, a Dataquest analyst, said: “Everybody had high expectations of MCC, including the state of Texas. . . . But the returns may be more diffused than the state thought. To quantify the benefits may be hard, and if they’re hidden or hard to quantify, some of the companies may say it wasn’t worth the money. But if they didn’t have it at all, they might not be in the game at all.”