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Corporate tax break program at risk after failing to clear Texas Senate

Bob Sechler
Austin American-Statesman
Tesla is receiving tax breaks under the state's Chapter 313 incentive program to build a factory in southeastern Travis County that will produce electric vehicles. The incentive program is in danger of expiring, although existing agreements won't be affected.

In a big blow for proponents of using tax breaks to attract economic development to Texas, a top state incentive program for businesses is in jeopardy of expiring after a key deadline passed Wednesday night without lawmakers renewing it.

The so-called Chapter 313 program — named for the section of the tax code in which it appears — has been lauded by advocates for enticing jobs and investment to Texas but derided by critics who call it a mechanism for publicly funded giveaways to corporations.

The program will end Dec. 31, 2022, if it isn't renewed. With the Legislature scheduled to adjourn Monday — and not meet again in a regular session until January 2023 — the state Senate faced a Wednesday deadline to vote on the main remaining bill aimed at extending it. But senators failed to do so.

"We're going to lose some major projects because of this, there's no doubt in my mind," said Tony Bennett, president of the Texas Association of Manufacturers, which considered renewal of the program a legislative priority this year.

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“Our neighboring states are certainly going to celebrate,” Bennett said.

In recent years, however, the program has come under increasing fire across the political spectrum. Progressives and conservatives alike have disparaged it for fueling a huge amount of tax breaks with seemingly few controls to ensure recipients weren't going to build their projects in the state anyway, or that the projects warranted the incentives to begin with in terms of job creation and development.

The two-year renewal called for in House Bill 4242 — the measure that failed to clear the Senate by Wednesday's deadline — would have resulted in about $4.5 billion in forgone revenue through 2043, according to a state analysis. From 2015 through 2019, a combined $6 billion in tax breaks have been agreed to under the program for 509 projects, the analysis shows.

Expiration of the program would only affect the ability to grant new tax breaks, and would not affect existing incentive deals.

“It's clear that the 313 program has just jumped the rails," said Dick Lavine, chief fiscal analyst with Every Texan, a liberal-leaning advocacy group.

“It was intended to compete for mega-projects that really could legitimately claim that they were going to go somewhere else," Lavine said. "Instead, virtually anybody who asked got a tax break, and it just got out of hand.”

It's possible an effort to renew the program could be taken up and approved in a special legislative session that's already planned for this fall to redraw voting districts, but it's uncertain if that will happen.

More:Texas business groups: Legislature must offer 'critical recovery measures'

A spokeswoman for Gov. Greg Abbott, who determines agendas for special sessions, didn't respond to a request for comment, nor did a spokeswoman for Lt. Gov. Dan Patrick, who controls the flow of legislation in the Senate.

Under the program — initially created by the Legislature in 2001 and extended multiple times since then — school districts are able to provide 10-year breaks on property taxes to businesses in exchange for new jobs and developments within their boundaries. The local tax revenue that school districts waive under the deals is substantially replaced by the state through its school funding formula, according to the Texas Comptroller’s Office.

In the Austin area, a number of major companies have entered into Chapter 313 agreements for breaks on their school taxes, including Tesla and Samsung.

Tesla, which is building a factory in southeastern Travis County to manufacture electric vehicles, has been granted a tax break valued at $46.4 million over 10 years under a Chapter 313 agreement with the Del Valle school district.

In January, Samsung applied for a Chapter 313 incentive deal with the Manor school district to potentially build a new semiconductor fabrication plant in the region. The tax break hasn't been agreed to yet — partly because Samsung is considering other areas outside Texas for the plant and hasn't settled on a location — but its value to Samsung has been estimated in documents filed with the state at up to $964 million over 10 years.

The Manor school district previously approved two Chapter 313 agreements with Samsung for its existing facility here. Those agreements — one created in 2005 and the other in 2012 — are ongoing and are providing the tech giant with an estimated $200 million in tax breaks over a 17-year period that ends in 2023.

Despite the controversy that has surrounded the program, some economists and economic development officials say it will be sorely missed if it's allowed to die.

Ray Perryman, president of the Perryman Group, a Waco-based economic research and analysis firm, said Texas has a heavy property tax burden compared with many other states, so the ability to lessen it is essential if it hopes to remain competitive for economic development projects.

The Chapter 313 program "is critically important in attracting capital intensive projects" and has "completely changed the economic development landscape of Texas" over the two decades it has been in place, Perryman said.

"Given the tax structure in Texas and the intense competition that is out there these days, this measure is very important," he said.

Former Gov. Rick Perry, now a board member of Dallas-based oil and gas company Energy Transfer LP, also weighed in recently to support the program. Energy Transfer, through subsidiaries, has been a recipient of Chapter 313 tax breaks.

"HB 4242 will keep TX #1 for jobs and investment," Perry wrote Wednesday on Twitter, before the deadline for Senate approval of the bill expired. "To my friends in the Texas Senate: Let’s keep Texas open for business!  Yes on HB 4242."