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Texas Incentives Lure Video Game Companies

Texas is ranked second in the nation in video game employment. And Texas' unusually generous incentive arrangements for video gaming companies are at least part of the reason.
In the lobby of the Twisted Pixel Games studio in Austin, a futuristic motorcycle welcomes visitors with an electric blue glow. The robotic motorcycle stars in LocoCycle, a new video game produced almost entirely in Texas.

If Twisted Pixel plays its cards right, Texas could reimburse the company for up to 15 percent of in-state expenses on the project.

The state — ranked second in the nation in video game employment, with roughly 5,000 residents working in the industry — is not content to hold steady. With the industry already spending millions in the state, lawmakers see video game companies as an important component of economic growth. Last month, the Texas Film Commission expanded its incentive program to attract video game makers.

The state’s incentive program, which industry officials say is among the largest in the nation, offers cash grants to film, television and video game productions for wages paid to Texas residents, along with other spending in the state. Legislators allocated $95 million to the program for 2014-15, up from $32 million in 2012-13.

Video game companies that spend at least $3.5 million in Texas can now apply for a 20 percent base reimbursement from the commission, plus a sales tax exemption on production equipment. Previously, the maximum base reimbursement rate was 15 percent, and companies had to spend at least $5 million to qualify. Although the state would not disclose specific figures on how much the video game industry brings in, companies that received incentives from the film commission in 2012 spent $52.5 million in the state.

“As our games get bigger, there’s the ability to get more back from the state,” said Chieu Phan, finance manager for Twisted Pixel, which has received $67,922 in grants for three projects since 2010.

Josh Havens, a spokesman for Gov. Rick Perry, said in an email that unlike programs in other states, the one in Texas “focuses on keeping money in the state by providing grants to qualified projects for Texas wages paid and in-state spending.”

Twisted Pixel relocated from Indiana in 2008 because of the Austin Chamber of Commerce’s efforts to lure the company, Phan said.

“They talked about the film incentives program, and that was one of the reasons why Twisted Pixel chose Austin, not to mention the food locales” she said.

Another reason, Phan said, was Texas’ reputation as a hotbed for talent.

According to the Entertainment Software Association, which represents American video game companies, Texas is home to 24 colleges and universities that offer video-game-related courses and programs. More are on the way, including a University of Texas at Austin post-baccalaureate program that will enroll students in 2014.

Another, the Southern Methodist University Guildhall graduate program, has existed since 2003. Gary Brubaker, its director, said the program began after game developers told the school that they “have a harder time finding good quality talent than getting capital or investors.” He said Texas’ incentives for video game companies were often better than those for oil and gas companies.

Critics say the grants are unnecessarily generous state subsidies. “That cash grant no doubt exceeds what the company would have paid on the sales tax,” said Greg LeRoy, executive director of Good Jobs First, a Washington group that promotes corporate and government accountability in economic development.

Calvin Johnson, a tax law professor at the University of Texas at Austin, said video game companies also received significant federal tax benefits. He said a set of deductions and another research and development credit made the video game industry the most heavily subsidized in the country.

“This is corporate welfare, making the rich richer,” Johnson said.

Proponents argue that the incentive money is crucial to keeping Texas competitive in the industry. When Texas first extended its incentive program to include video games, it was among the first states to do so. Now more than 20 states offer similar programs.

“We don’t have to be here in Austin, Texas,” Phan said. “We can be anywhere else.”
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