Texas lawmakers decide $ 10 billion in tax breaks is enough, at least for now
Can a state be too business friendly?
Texas rulers boast that they have no income taxes and light regulations, and they are aggressive in handing out tax breaks, cash grants, and other aids to attract business and investment. Apparently there’s a limit to largesse, and it’s around $ 10 billion – at least for now.
Last month, the Texas legislature did not re-authorize a generous business incentive program known as Chapter 313, referencing its place in the state’s tax code. The program is set to expire in December 2022, but business groups, chambers of commerce and other supporters say they hope to resuscitate it in 2023.
“It’s the death of the program as is,” said Chris Wallace, CEO of the North Texas Commission, which defends the regional economy. “But even some who voted against said they wanted to see him come back, just in a different form.”
Created in 2001, Chapter 313 allows certain industries to avoid most of the school taxes for 10 years if they invest in large projects here. Appraisals are capped at a portion of their actual value, often reducing the school tax bill by half or more.
Over the past two decades, Chapter 313 tax breaks have been granted to more than 500 Texas projects, saving companies $ 10.8 billion in school taxes, according to the state comptroller’s 2021 report.
These incentives have helped attract $ 217 billion in private investment, including auto factories, semiconductor factories, chemical refineries, natural gas processors, and numerous wind and solar power projects.
Many states would see this as a good ROI, over 20 to 1. But critics insist most Chapter 313 projects would have come here anyway.
“What made this program so valuable for special interests was that it was such a big mess,” said Nathan Jensen, government professor at the University of Texas at Austin. “They loved it so much because it was free money. “
About 61% of active projects concern renewable energies and 38% the manufacturing sector, with a small number in research and development. But more than 70% of the total tax savings and investments were made in the manufacturing sector, especially chemicals, plastics and natural gas.
Chapter 313 projects are concentrated in rural areas of West Texas, the High Plains and the Gulf Coast. In the Dallas area, Texas Instruments Inc. has received Chapter 313 grants for chip manufacturing plants, including the wafer manufacturing plant under construction at Richardson.
Plano ISD agreed to reduce TI’s property taxes for 10 years, saving it approximately $ 100 million. The plant is expected to cost around $ 3.6 billion and create at least 488 jobs.
“In my personal experience, it was really important that we could use this tool to get TI to invest in this wafer factory,” said Bill Sproul, CEO of the Richardson Chamber of Commerce.
TI went to great lengths to show that it had other options, including “strong and competitive incentives” from the sites in Singapore and Utica, New York. The additional savings from other sites would have ranged from $ 1.3 million to $ 4.1 million per year, according to school administrators.
The TI deal, Tesla’s gigafactory near Austin, and Toyota’s San Antonio truck plant are often cited as the best examples of the Chapter 313 program. These projects clearly could have been located elsewhere, and property taxes Texas highs could have discouraged giant investments.
But most of the Chapter 313 tax breaks aren’t necessary, according to Jensen’s research. Companies do not have to prove that tax relief is essential to close a deal; the tax saving must simply be “a determining factor”.
The state comptroller, who must approve the Chapter 313 agreements, said it was difficult to assess. “It is plausible to assume that the availability of significant tax relief is often a determining factor, if not one of many,” the comptroller’s office wrote in a November report.
School districts are supposed to be free from the rewards, but the state revenue needed to offset Chapter 313 agreements “is substantial and is expected to exceed $ 1 billion in 2023 alone,” the comptroller said.
Companies also make additional payments to school districts to help gain support for tax breaks. These payments, often amounting to more than 40% of the tax benefit, reveal a fundamental flaw: “Doesn’t that prove that the incentive is at least 40% too great? Jensen wrote in a 2017 editorial.
The payments also indicate which companies really have other options, as those companies negotiate significantly lower additional payments than school districts, he said. According to his research, Chapter 313 incentives were key to landing only 10-15% of approved projects in his sample.
At least 85% of companies would have invested in Texas without the tax breaks, Jensen found. And the cost to taxpayers per job has exceeded $ 1 million by some calculations, in part because these are capital intensive, not labor intensive projects.
In a survey series last month, the Houston Chronicle documented numerous examples of Chapter 313 abuse. Of the 35 natural gas processing plants that received $ 380 million in incentives, 10 had publicly announced the projects before seeking help, the the Chronicle reported. One company started working on the site months before applying and still got the grants.
There was a similar pattern with renewable power producers, who are typically drawn to West Texas by strong winds and state-funded power lines that carry electricity to Dallas and beyond. .
Criticism of Chapter 313 has escalated, and this year’s legislative session included a major bill to reform the program and extend it for 10 years. But the bill would have extended breaks for renovations, expansions and small projects, and it weakened job and salary requirements. A budget note from the Legislative Budget Board estimated that the program would cost schools more than $ 6.2 billion over the last five years of the extension.
“They’ve gone too far,” said Dick Lavine, senior tax analyst at Every Texan, formerly the Center for Public Policy Priorities. “People had to come face to face with how out of control this thing had gotten – and the reins were even looser.
“The budget note was outrageous, and it just blew up the summit,” he said.
Each Texan, a left-wing advocacy group, issued a joint statement with the conservative Texas Public Policy Foundation – the first time the two groups have made such a public affair, Lavine said.
“It’s time to call these tax breaks what they are: handouts to favored industries and the few school districts that use them to encourage businesses to locate there,” the statement said. “Texans shouldn’t be held responsible for these cherished arrangements, and we certainly shouldn’t keep them at the expense of our schools.”