Representatives of the biggest industry groups in Texas went before the state House Ways and Means Committee last week to warn about the dire consequences that lie ahead if the state’s largest corporate tax incentive program expires at the end of the year.
Supply chain challenges and volatile geopolitics, industry lobbyists said, are pushing major manufacturers—like high-tech chip makers—to expand operations in the United States. And with other states vying to secure new projects with lucrative tax breaks, they warned, Texas will not be able to compete.
“Without these programs, we wouldn’t even be in the game,” told Tony Bennett, president of the Texas Association of Manufacturers, at the hearing last Thursday.
Amid similar warnings (including misguided fears) about losing out on business 20 years ago, state legislatures created a program called Chapter 313, allowing local school districts to grant 10-year property tax breaks in exchange for companies locating large industrial projects within their boundaries. Since then, the program has exploded in size, with critics blasting Chapter 313 for needlessly forgoing school tax revenue by handing out projects that would come to Texas anyway.
During the 2021 legislative session, supporters of the program pushed for a massive expansion and extension of the program. But growing concern and scrutiny over 313 deals helped kill that effort, and a last-ditch attempt to extend the current law for two more years died in the Texas Senate. That ensured the program would come to a close at the end of this year.
Since the end of the session, companies have rushed to lock in these lucrative tax deals for as many projects as possible. The Texas Comptroller, which oversees the program, said that it currently has more than 400 active applications on file, compared with the roughly 120 that it receives each year.
“We anticipated that there would be some amount of an uptick. I will cut to the chase and say it is way more than what we anticipated,” Associate Deputy Comptroller Kory Castillo told the committee.
While oil and gas companies have long been top beneficiaries of Chapter 313, the state’s booming renewable energy industry has secured a growing share of the bounty in recent years, driven by a constant stream of commercial wind farm projects and a rapid expansion of solar development. Of the 400 current applications, Castillo said that more than 60 percent are for large-scale solar farms. The manufacturing industry accounts for just under a third, composed largely of several massive semiconductor plants that are in the works across the state.
The longtime supporters of Chapter 313 acknowledged that the program had serious flaws, but pressed lawmakers on the urgency to craft a replacement in the upcoming legislative session next year.
“Obviously, 313 is probably somewhat damaged goods, the brand is probably more negative than positive,” said Dale Craymer, president of the Texas Taxpayers and Research Association, which has been supportive of the program. “I think we’re willing to work with the committee on creating a new program that we can all get to a comfort level with.”
It’s not clear exactly what that replacement could look like. Last session, the main cohort of Chapter 313 supporters—namely, the corporate trade groups and school districts that benefit the most—opted to bank on a plan to dramatically expand the size and scope of the program instead of simply extending the program as is. That plan blew up in the face of unexpectedly strong opposition, and a last-ditch effort to renew Chapter 313 for two more years died in the Texas Senate.
Craymer said a new program needs to more effectively measure the costs and benefits of these sort of big tax breaks. Currently, companies only need to show that the cost of 10-year property tax breaks are less than the overall economic benefits of the project over 25 years. He said the state needs to come up with a program that better weights the long-term benefits with the real costs that come with major industrial projects, including more population, more students, and more strain on local infrastructure and resources.
“I really think that sort of socio-economic impact approach to evaluating projects is a more appropriate one,” Craymer said.
Dick Lavine, a senior fiscal analyst at Every Texan and a longtime Chapter 313 critic, said that the Legislature needs to come up with a streamlined replacement that limits tax deals to projects where incentives are actually necessary for a company to locate in the state. “We have to determine that, to separate wheat from chaff. 313 didn’t do that,” he said. “We really need a much better analysis” of projects, including requiring companies to provide offer letters from other locations, gap analysis of costs with various locations, and other state and federal incentives that a project already has.
State Representative Trey Martinez Fischer, a San Antonio Democrat who helped block the legislation to dramatically expand 313 last session, said he was surprised by the dire warnings from industry. “As a committee member, I’ve not heard a syllable about the need to do something, work harder, to figure out a compromise,” he said. “We start filing bills in two months.”
Rumors have been floating around the capitol for months that the corporate lobby is gearing up for a full-court press in January to get lawmakers to pass a new version of Chapter 313. But when Martinez Fischer asked whether industry reps were working amongst themselves on drafting legislation, the replies were vague.
“We’re working on, I would call them concepts,” Bennett of Texas Association of Manufacturers said. “’Cause, you know, y’all are the ones that write legislation.”
“I appreciate your humor,” Martinez Fischer replied.