87th LegislatureEnergyState HouseTaxes & SpendingTexas House Approves Minor Extension to Tax Incentive But Kills Decade-Long Expansion

After days of consistent opposition, Rep. Jim Murphy postponed his renewal and expansion of the Chapter 313 tax incentive program until after this session.
May 10, 2021
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A cadre of bipartisanship effectively torpedoed a tax incentive extension and expansion bill on the House floor on Monday. 

A kind of “death by 1,000 amendments,” one stripping a substantial portion of the bill, legislation to extend and buttress a tax incentive program effectively died during the House’s floor debate.

State leaders tout Texas as the best state to do business in, and stand on a strong foundation from which to make that claim. In addition to passive draws like a good climate and no income tax, the state also employs active incentives as part of its business-attracting strategy. One of those incentives, which is criticized by portions of conservatives for being underhanded and unnecessary, is Chapter 313 property tax abatements for certain industries.

Established by the Texas Economic Development Act of 2001, 313 abatements are used by school districts to attract businesses to their areas. Like any other economic development incentive, it is deployed in the hopes of bringing jobs and commerce to the district, and with those comes taxes paid to the governing body. In exchange for the abatement award, companies pledge to bring a specific number of jobs to the area.

These companies have generally created more jobs than they have pledged.

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Often, these abatements are given to renewable energy companies. In fact, half of the total 313 abatements on the books belong to renewable companies. Nearly half, 47 percent, belong to manufacturing companies.

Chapter 313 must be renewed every 10 years and, this being two decades since its original passage, must be renewed for the second time this session or expire.

Two bills in the Texas House would renew the Chapter 313 program. House Bill (HB) 1556, by Rep. Jim Murphy (R-Houston), and HB 4242, by Rep. Morgan Meyer (R-Dallas), are similarly named but substantively different. The latter extends the program for two years until the end of 2024 while the former extends it a decade and expands its criteria to include investments into already-existing infrastructure — like “renovat[ions], expan[sions], or “moderniz[ations].”

Meyer’s bill passed swiftly through the House, initially on Friday last week, and then on Saturday in its final reading. It will now move to the Senate. 

But Murphy’s bill was challenged on a point of order by Rep. Bryan Slaton (R-Royse City) and before ruling by the chair, the legislation was postponed to Monday.

“Renewal of this statute is important for Texas to continue to compete on a global level. This a great time to move Texas forward,” stated Murphy, laying out the bill on Monday. He further cited Texas’ burdensome property taxes as a barrier to new investment flowing in.

According to the fiscal note, Murphy’s bill has a $460.7 million negative impact on the state’s general revenue fund through 2031 due largely to annual administrative costs.

The fiscal note’s estimated school district property tax losses over the course of the decade are $44.5 billion. That calculation is based on the estimated total of companies taking advantage of the abatement, and the full amount of property taxes that would have been paid without it. School districts argue that the abatement will bring in a flow of property taxes that otherwise would not have come, and that applies to varying degrees for how the program is set up currently.

But the expansion to include renovations and other business expenditures that is not brand-new construction wouldn’t bolster that argument.

An amendment by Rep. Tony Tinderholt (R-Arlington) was successfully tacked on stripping the expansion of the program’s benefits to such renovations — leaving it mostly as just a 10-year extension of the current program.

“Wind farms are one example of Chapter 313 projects very likely to renovate (‘repower’) and become eligible for multiple Chapter 313 agreements under the bill,” the fiscal note’s assessment reads. Opening up the awards to renovations would allow these companies to “double dip,” and the fiscal note estimates that many of the Chapter 313-enrolled wind farms will “repower” shortly after the program’s renewal under Murphy’s bill.

Conversely, petrochemical companies also receive a sizable portion of the Chapter 313 awards and the fiscal note states those facilities “regularly renovate or upgrade their facilities to maintain productivity and competitiveness.” Those facilities, too, would be able to double dip on the abatements.

Rep. Jon Rosenthal (D-Houston) successfully added two amendments to the bill — one mandates jobs created under the program to meet certain requirements, such as a $15 per hour minimum wage and another compels at least have of jobs created to be within the county of the awarding school district.

In an unusual move, the state’s two most influential think-tanks — the conservative Texas Public Policy Foundation (TPPF) and progressive Every Texan — issued a joint statement in opposition to the proposed renewal legislation.

“Texas is fortunate to not need incentives to persuade companies to locate here,” Jason Isaac with TPPF and Luis Figueroa with Every Texan stated. “Research and experience show that abatements are an unnecessary and wasteful perk and companies would have come to Texas regardless.”

“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. Texans shouldn’t be on the hook for these sweetheart arrangements, and we certainly shouldn’t maintain them at the expense of our schools.

 “Texas ought not to extend Chapter 313,” the statement concluded.

Through debate on the floor, it was clear that members ranging from conservative Republicans to progressive Democrats had issues with HB 1556 as proposed. But if the Senate runs with HB 4242, the more narrowly tailored of the two, the program will not sunset but will have to be reconsidered in the next regular session.

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Brad Johnson

Brad Johnson is 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.