The Texas Senate last night allowed a key procedural deadline to pass without renewing a key part of the Texas Economic Development Act, potentially killing a major corporate incentive program.
The Texas Economic Development Act allows school districts to offer property tax abatements to businesses in return for making local investments. These incentives, known as chapter 313 agreements, have been offered to major Austin area manufacturers like Samsung and Tesla. Elsewhere in the state, school districts have given tax breaks to Exxon Mobil, Chevron, and Phillips 66, as well as to numerous wind and solar firms.
Chapter 313 and some other parts of the Texas Economic Development Act are set to expire December 31, 2022, under a sunset deadline in the original legislation.
Supporters of renewing the incentive program say that chapter 313 agreements have helped lure corporations to Texas, creating jobs and investment. Because property taxes in Texas can be higher than other some states, the abatements are needed to attract investment, they say.
The deals can result in higher tax revenues for the school districts because of new buildings and factories, even if the firms end up paying lower rates on their property than the rest of taxpayers.
Critics, on the other hand, say that the incentives often go to firms that would have made the investments anyway. The deals are costing schools much needed revenue, they argue.
Earlier this year, competing interest groups battled over whether to extend the chapter 313 program and in what form. The Texas House settled on a compromise solution to extend it by just two years, without making changes to the program.
The House on May 8 approved HB 4242, changing the program expiration to December 31, 2024. But many of the most fiscally conservative members of the Texas House opposed the measure, as did a handful of Democrats.
Moreover, both the leading conservative and liberal think-tanks in Texas came out against HB 4242. The Texas Public Policy Foundation (the conservative think tank) and Every Texan (the liberal think tank) issued a joint statement May 7, the day before the House vote:
“Texas is fortunate to not need incentives to persuade companies to locate here. Research and experience show that abatements are an unnecessary and wasteful perk and companies would have come to Texas regardless. But the carve-outs do have a real impact on our ability to adequately fund all public schools and ultimately shift the responsibility for supporting them onto other businesses, homeowners, and renters. Even the expectation to create the paltry required number of jobs is often waived. It’s time to call these tax breaks what they are: handouts to favored industries and to the few school districts that use them to incentivize companies to locate there.”
Despite opposition from these groups, a Senate committee approved HB 4242 a week ago, and the Senate set the bill on its intent calendar, indicating that it could come up for a floor vote.
But last night the Senate spent much of the evening scrambling to complete legislation overhauling regulations of electric utilities and work out billing issues from the February storm that shut down power in much of the state and shouldered consumers with large electric bills.
Senate rules prohibit further consideration of any more bills for the rest of the legislative session, which ends May 31, apart from working out differences between different versions of the same legislation already approved by both the House and Senate.
That means that the incentive program will expire before the next regular legislative session begins in 2023. The only hope for the program now is if the governor calls a special session of the legislature and puts the issue on the agenda.
Lieutenant Governor Dan Patrick, the senate’s presiding officer, has called for a special session to deal with other issues, but it’s not clear if he will support including this issue on the agenda.
In all there are 577 active chapter 313 agreements statewide, according to a list maintained by the Comptroller of Public Accounts. The average abatement amount in these deals is $26.9 million, and the total active abatements granted under the program come to $15.5 billion.
