A bill by Rep. Jeff Cason (R-Bedford) would eliminate the tax abatement chapter in code entirely.
The Texas Economic Development Act of 2001 established the ability for independent school districts (ISD) to issue property tax abatements for companies that bring jobs to their wards. An abatement is an agreed-upon reduction in a property’s valuation for tax purposes. There is a 10-year limit on the lifespan of these Chapter 313 abatements.
While they cannot be issued in perpetuity, critics of the abatements insist the cost-benefit analysis leaves taxpayers in the red on balance.
Industries eligible for such incentives include manufacturing; research and development; “clean coal” projects; nuclear and renewable electricity generation; and computer data centers.
Additionally, any project with a projected capital investment above $1 billion is eligible.
To qualify, companies must create 25 jobs in non-rural districts and 10 jobs in rural districts.
As of the Texas comptroller’s latest total, $15.5 billion in abatement value is currently active for companies across the state. Of that total, 50 percent, $7.8 billion, of the limitation amount belongs to renewable energy companies and 47 percent, $7.3 billion, to companies within the manufacturing category.
Research and development companies pull in $290 million while two units at the South Texas Project nuclear plant receive a total of $60 million.
While the legislature intended to spur economic development with the provision, Cason questioned its efficiency, stating, “In reality, however, by the paltry amount of actual economic stimulation created by Chapter 313 has been heavily outweighed by the cost to the taxpayer.”
“Because the taxpayer has been required to make up for the lost revenue, and the corporate welfare created by Chapter 313 has created little in actual job growth, the overall benefit to the state has been a net negative.”
Meant explicitly to attract jobs to an area, beneficiaries of Chapter 313 during the first 10 years of its existence exceeded the promised total job creation total in each year except one. And through the end of 2019, Chapter 313 beneficiaries created 15 percent more jobs than they had pledged to.
Over 80 percent of those jobs created, according to the comptroller, were generated by companies in the manufacturing category while renewable energy companies were responsible for only 13.1 percent.
Cason specifically singled out this discrepancy in his release.
Rhetorical heat levied at renewable energy companies’ Chapter 313 sub-par return on investment expounded after the Texas blackouts. While in raw mega wattage more thermal-based generation faltered, wind and solar generation all-but-disappeared during long stretches of the winter storm’s cold spell.
The conservative Texas Public Policy Foundation (TPPF) has long been opposed to the abatements, and after the storm, Sen. Brian Birdwell (R-Granbury) filed Senate Bill 1255 that would remove renewable energy companies’ eligibility for the deduction.
TPPF and other such advocates say the financial priority given to renewable generation has come at the expense of new thermal generation projects.
At all levels, thermal-based companies also receive their fair share of subsidies, whether federal, state, or local. But renewables boast substantially more.
While proponents maintain the program’s success at bringing in jobs, a 2017 University of Texas study found that “85 to 95 percent of companies that received the credit would have relocated to Texas regardless of whether the program existed.”
Cason’s bill was referred to the Ways and Means Committee in mid-March but has not yet been set for a public hearing.
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Brad Johnson is a senior reporter for The Texan and an Ohio native who graduated from the University of Cincinnati in 2017. He is an avid sports fan who most enjoys watching his favorite teams continue their title drought throughout his cognizant lifetime. In his free time, you may find Brad quoting Monty Python productions and trying to calculate the airspeed velocity of an unladen swallow.