As part of an effort to lure new business development within the state boundaries, Texas lawmakers are trying to devise a replacement for the expired Chapter 313 plan, and one potential answer has been put forth in House Bill 5 (HB 5).
HB 5, though, lacks specifics, making it hard to evaluate.
“The existing bill is very light on details,” Brent Bennett, policy director for Life: Powered, a Texas Public Policy Foundation initiative, told the Austin Journal. “A lot is still being worked out behind the scenes, and we can expect the bill to look very different when it comes up for a committee hearing.”
In its present form, however, it appears that HB 5 “seems to maintain the original structure of Chapter 313, whereby school districts give a limitation on the taxable value of a new project, thereby delaying the impact of the project on the district’s tax rolls, in exchange for upfront money in some form,” Bennett said.
State Rep. Todd Hunter (Corpus Christi) filed HB 5 on Feb. 28. The Texas Tribune described its purpose as being to "create jobs and to generate state and local tax revenue for this state" through property tax agreements with businesses. HB 5 is meant to replace Chapter 313, a plan that allowed school districts to give property tax breaks to capital intensive facilities. Chapter 313 expired on Dec. 31, after the Senate refused to renew it, Bloomberg reported.
As the state forges ahead to find a replacement, Richard Lavine of Every Texan urged legislators to not repeat the shortcomings of Chapter 313, though he couldn’t fairly assess HB 5.
“Chapter 313 was a program that was completely out of control,” Lavine said. He called HB 5 just a sketch of a bill. “Until we've seen the details in color, we really don't know what it's going to do,” he said.
Chapter 313 has been criticized as being a form of "corporate welfare."
"The Chapter 313 Tax Abatement Program was corporate welfare at the expense of individual Texas taxpayers,” Jeramy Kitchen, executive director of Texans for Fiscal Responsibility, said. “Government should never be in the business of picking winners and losers, even if it is under the guise of economic development. If Texas lawmakers are serious about providing incentives, they would instead take seriously the historic opportunity in front of them to provide actual and meaningful property tax relief to Texas taxpayers altogether while simultaneously putting the state on a path to the tax's elimination."
Like its predecessor, HB 5 is designed to “create jobs and to generate state and local tax revenue for this state.” The bill states that it would enable Texas to be more competitive with offshore manufacturing, secure high-paying, full-time jobs for its citizens, generate new economic opportunities, and “encourage the establishment of advanced manufacturing industry sectors critical to national defense and security.”
Chapter 313 had many detractors, with Bennett calling it an economic development program that “is a classic example of giving tax breaks to special interests to the detriment of the common good.”
“It was created based on a claim, using bad information, that the state was not attracting enough capital investment due to its high property taxes,” Bennett said. “While property taxes are still too high, and capital-intensive projects bear a large tax burden in Texas, shifting that burden to other taxpayers, particularly small businesses and residents, does not help the state’s economy. What is needed is to restrain local spending, as the legislature has been trying to do, and keep tax rates low for ALL taxpayers, not just a special subset of large companies."
Despite Chapter 313’s flaws, Gov. Greg Abbott has recently been trying to reassure business leaders that state lawmakers would act during this legislative session to improve the state’s economic development tools now that it has expired. Abbott underscored the importance of passing a replacement soon, as Texas has already felt the impact of losing Chapter 313, recently missing out on a “massive” corporate project to New York, Texas Tribune reported.
Chapter 313, when it was introduced to the Texas Legislature in 2001, was also intended to bring jobs to the state of Texas. The original form of what became the Texas Economic Development Act (Chapter 313) required 250 qualifying jobs with no waiver provision. The legislative process reduced this requirement to what we have today: 10 jobs in rural areas and 25 in urban areas, Texas Policy explains. This provision can also be waived by an amendment to the statute passed in later legislative sessions.
It carried weight because without jobs, residents experience no direct benefit from these deals, Texas Policy adds. While the school districts might have greater funds available, increased tax revenues can lead to increased spending rather than providing much-needed relief. The authors of the statute understood that jobs were a promise kept to locals for granting a tax deal to a prospecting business.
Opponents do say it has shortcomings.
“The main thing Chapter 313 did was to pit Texas school districts against each other,” Bennett said.
The Texas Industrial Areas Foundation's network of 10 sister organizations across the state has called Chapter 313 to task for shortchanging children.
“It is shameful to take money from schoolchildren to line the pockets of wealthy corporations,” the Rev. Michael Floyd, a member of the Central Texas Interfaith community, said. “Chapter 313 costs taxpayers $1 billion a year in the form of tax giveaways to multinational corporations, money which could have gone to public schools."
As for HB 5, “It’s not really clear how much of a tax break would be given, for how many years, what percentage,” Lavine said. “All the basic details are missing in the bill that was filed.”
It also has a low bar that companies have to clear to reap benefits, he said, adding that lawmakers should require recipients to show bid offers from other states, rather than just being able to say they won’t come to Texas without an incentive.
Bennett echoed the scarcity of details in the replacement legislation.
“The only potential improvements we see (with HB 5) are limitations on the types of eligible projects and on the total dollar amounts to be given away,” Bennett said. “It seems evident right now that wind and solar will not be eligible for any new program. That doesn’t make the program better, but that does limit its harm.”
Kitchen, meanwhile, is concerned that HB 5 is just Chapter 313 in disguise, saying, "House Bill 5 represents a continuation of corporate welfare at the expense of the individual taxpayer.”
Another question is whether Texas even needs such an incentive program.
“I'd say it's been very lucrative for the beneficiaries, but otherwise, a loss of revenues that we need for our schools,” Lavine said of Chapter 313. “The central point is that the vast majority of these projects would have come to Texas anyway because of our natural resources or our workforce or geography, so it’s an unnecessary loss of revenue” – to the tune of $31 billion.
Critics of Chapter 313 and any successor plan think the state might be better off investing in the schools and communities, rather than spending money on giveaways to business.
"What is needed is to restrain local spending, as the Legislature has been trying to do, and keep tax rates low for all taxpayers, not just a special subset of large companies,” Bennett said in calling for the state to consider an approach that would benefit a broader subset of residents.
Floyd agreed, saying, "The best route to economic development is investing in education and workforce, and Chapter 313 literally robs potential funding from these important priorities."