Texas Tax Code Chapter 313

Texas Tax Code Chapter 313 (aka the Texas Economic Development Act) creates a state tax incentive program for certain large businesses to limit the appraised value on their property for the purposes of local Texas public school district property taxes.[1]

An appraised value limitation is an agreement between a taxpayer and a Texas school district in which the taxpayer proposes to build or install property—and create jobs meeting certain job and wage requirements—in exchange for a ten-year limitation on the taxpayer's property value for school district maintenance and operations tax (M&O) purposes. For ten years, school M&O property taxes are not levied on the value in excess of the limitation amount. Limitation amounts are established by statute and vary by school district from $10 million to $100 million.[2] Unlike abatements based on a percentage of the property value, the structure of the program benefits primarily extremely large projects. The majority of projects are in the petrochemical or energy sectors, although some are typical manufacturing.

Created by the Texas legislature in 2001, and initially set to expire in 2007, the program has been renewed several times. In 2013, the Texas Legislature reset the expiration date of the program to December 31, 2022.[3]

Companies seeking a limitation submit an abatement application to the school district in which the project may be located. The school district forwards the application to the Texas Comptroller for evaluation. The school district may not grant final approval of the abatement without Comptroller analysis and approval.[2] For the 10 years of the tax benefit period, reduced local school district revenues are substantially replaced with state funds through the state public school finance system.[4]

The Texas Tax Code gives to the Texas Comptroller's office responsibility and authority to adopt rules necessary for the implementation and administration or the program.[5] The Comptroller's office delegates to school districts the responsibility to enforce provisions of the limitation agreements.[6] In 2013, in House Bill 3390, the Texas legislature charged the Comptroller's office with reviewing the number of qualifying jobs created in future projects receiving tax limitations.[3]

The Texas Comptroller's website posts documents related to the projects.[7]

Program Costs

A 2021 report to the Texas Legislature by the Texas Comptroller reported 509 active limitation agreements, representing an estimated $134 billion of total investment through 2019. That report indicates that for projects commencing between 2006 and 2020, local school property tax revenue reductions due to limitation agreements are approximately $10.8 billion.[4]

A "Tax Exemptions and Tax Incidence Report" prepared by the Texas Comptroller in November, 2020, estimated that limitation agreements would reduce school districts revenues by $916 million in 2022, and over $1 billion in 2023.[8]

Program Supporters

Supporters of the program argue that Texas' high local property tax rates put the state at a disadvantage when competing for businesses making new investments. Business groups say tax abatements are largely responsible for the "Texas Miracle," attracting projects that would have not come to Texas otherwise. They say, without the 313 program, Texas cannot compete with other states for new business investment. Proponents of the program claim that local school district property revenue reductions created by the abatement do not create a real cost to the state, arguing that "but for" the program, none of the companies applying for the abatement would have located in Texas.[9][10][11][12][13][14] Supporters further point out that the Chapter 313 program is extremely transparent, and that even with Chapter 313 agreements, schools' tax bases are increased.[15] The Texas Comptroller of Public Accounts has said, "The temporary reduction in public school taxes may be followed by greater tax collections on a much more valuable property — in a healthier local economy."[16]

Program Critics

Critics of the program argue that many of the projects receiving the abatement would have located in Texas for other reasons.[17][18] Elon Musk, in an interview after receiving a Chapter 313 limitation for his new Tesla Austin Gigafactory, said, “When talking to key members of the (Tesla) team that would need to move to Austin from California in order to get the factory going, Austin was their top pick, to be totally frank." [19] Two large LNG projects are being built in Texas even after being refused Chapter 313 abatements by the local school district.[20][21] Wind farms, critics say, find Texas an ideal location due to its rich wind resources, separate electrical grid, and large rate-payer-funded transmission networks. They say that the program's petrochemical projects locate in Texas largely because of little regulation, proximity to rich oil and gas shale plays, and access to deep-water ports and pipeline networks.[22] Some critics also point to the relatively small number of jobs created compared to the large amount of revenues forgone for each job.[23][24][25][26] Other critics point out that the taxable value of many Chapter 313 projects at the end of the 10-year abatement period is often far less than promised.[27][28][29] They further claim program benefits are too generous, as many companies typically agree to return about 40 percent of the initial tax savings to the local school district through "payments in lieu of taxes" outside the regular system of school finance.[29][12]

Program critics also argue the statute's requirement that the tax abatement be "a determining factor in the applicant's decision to invest capital and construct [a] project in Texas" is not the rigorous "but for" test legislative sponsors promised when the Chapter 313 program was revised and renewed in 2013 by the Texas legislature. The Senate sponsor of the 2013 legislation, Robert Deuell, said at the time, "We...have 'but for' provisions meaning that we really have to make sure that these projects would not have come to the state otherwise..." [29] Texas House of Representatives bill sponsor Harvey Hilderbran explained, "If they [companies] were going to come here anyway, they wouldn't get it." [30]  But critics note that the Comptroller's office routinely approves projects after the applicant simply asserts that the project is not 'financially feasible' without the abatement.[31][20][26][30] An article on the program published by the Texas Comptroller in November, 2020 noted, “It’s generally impossible to determine the factors that ultimately cause a company to make a final decision, but it’s plausible to assume that the availability of a large tax break is often a determining factor, if one of many.”[16]

Program Studies and Analyses

In 2010, the Comptrollers office studied the program, making recommendations.[32] The Texas Legislative Budget Board in its Texas State Government Effectiveness and Efficiency: Selected Issues and Recommendations (January 2011) analyzed the Chapter 313 program, making recommendations.[33] In 2013, the Chapter was amended to require the Texas State Auditor's Office (SAO) to review at least three major limitation agreements annually.[34] The SAO has published annual reports on selected agreements since 2014, but has never audited any company agreement-holders.[35][36][37][38][39]

In November, 2016, the Texas Senate Committee on Natural Resources and Economic Development issued an Interim Report to the 85th Legislature that was extremely critical of the Chapter 313 program.[23]

The Texas Comptroller of Public Accounts started issuing biennially reports on limitation economic development projects in 2008.[40]

In 2017, University of Texas political science professor Nathan M. Jensen released a study on the Chapter 313 program suggesting that 85 percent of the companies receiving the abatement would have located in Texas for other reasons.[41][42][43]

2019 Legislation

During the Texas 86th Legislature (2019), state representative Jim Murphy (Houston) filed House Bill 2129 to extend the expiration of the Chapter 313 program from December 31, 2022 to December 31, 2032.[44]  The Texas Legislative Budget Board estimated the local school district revenue losses to be approximately $10 billion between 2023 and the year 2049.[45] In a March 20 House Ways and Means committee hearing, representatives of about 50 companies and 40 economic development groups testified or registered for the bill.  Five witnesses testified or registered against the bill.[46][47] On April 9, House Bill 2129 was voted out of the Texas House of Representatives 115 to 28, with 91% of the Democrats and 66% of the Republicans voting for the measure.[48] The bill died in Senate committee.[49][50]

2021 Legislative Renewal of Chapter 313

Senate Bill 144 by Beverly Powell and House Bill 778 by J.M. Lozano would extend the program's expiration date from December 31, 2022 to December 31, 2032.

Notes and References.

        References
        1. "Tax Code Chapter 313 Texas Economic Development Act". statutes.capitol.texas.gov. Retrieved 2018-05-30.
        2. Texas Comptroller of Public Accounts (April 2016). "Chapter 313: Attracting Jobs and Investment". comptroller.texas.gov. Fiscal Notes. Archived from the original on March 4, 2018. Retrieved 2018-05-30.
        3. Texas Legislature, 83rd Regular Session, House Bill 3390
        4. Texas Comptroller of Public Accounts (January 2021). "Texas Economic Development Act Chapter 313 Summary Data 2021". p. 2.
        5. Texas Tax Code §313.031(1)
        6. Texas Administrative Code, Title 34, Part 1, Chapter 9, Subchapter F, Rule §9.1054(i)(3)
        7. Texas Comptroller of Public Accounts. "Chapter 313 School Value Limitation Documents".
        8. Texas Comptroller of Public Accounts (November 2020). "Tax Exemptions and Tax Incidence Reports, November 2020" (PDF). p. 34.
        9. Texas Taxpayers and Research Association (December 2010). "Questions and Answers about the Texas Economic Development Act" (PDF). Archived from the original (PDF) on July 19, 2014.
        10. Texas 2050 (September 22, 2016). "Texas 2050 - A Framework for Long-Term Economic Growth" (PDF). Archived from the original (PDF) on May 31, 2018.
        11. Texas Taxpayers and Research Association (January 23, 2017). "TTARA releases report on Chapter 313: State's 'single most important economic development tool'" (PDF). Archived from the original (PDF) on May 31, 2018.
        12. Texas Taxpayers and Research Association (January 2017). "Understanding Chapter 313: School Property Tax Limitations and the Impact on State Finances" (PDF). p. 7. Archived from the original (PDF) on March 5, 2017.
        13. Craymer, Dale; Bennett, Tony (April 6, 2017). "Chapter 313 helps keep Texas' status as an economic powerhouse". Houston Chronicle - Guest Editorial. Archived from the original on April 15, 2017.
        14. Moseley, Jeff (April 23, 2019). "Commentary: Texans suffer if tax relief tools are allowed to expire". Retrieved May 8, 2019.
        15. Advanced Power Alliance (April 4, 2019). "Texas Chapter 313 and Schools: Correcting the Myths".
        16. Texas Comptroller of Public Accounts (November 2020). "Chapter 313: Trading Tax Limitations for Development".
        17. Michels, Patrick (November 29, 2016). "Rationale for Texas' Largest Corporate Welfare Program was a 'Typographical Error'". Texas Observer. Archived from the original on November 30, 2016.
        18. Naveena Sadasivam (February 13, 2017). "Texas' Largest Corporate Welfare Program is Rapidly Ballooning". Texas Observer.
        19. Austin American Statesman (August 8, 2020). "Austin factory a key tool in Tesla's race against auto industry giants".
        20. Lavine, Dick. Center for Public Policy Priorities (March 29, 2019). "Lawmakers Should Not Renew Tax Giveaways without Proper Review" (PDF).
        21. Michels, Patrick (September 22, 2016). "Once Again, School District Shuts Down Tax Break for Gas Exporter". Texas Observer. Archived from the original on November 30, 2016.
        22. Sadasivam, Naveena (December 9, 2016). "Energy Transfer Partners May Have Misled State to Secure Tax Break". Texas Observer. Texas Observer. Archived from the original on December 10, 2016.
        23. Senate Committee on Natural Resources and Economic Development (November 2016). "Interim Report to the 85th Legislature" (PDF). pp. 50–83. Archived from the original (PDF) on May 31, 2018.
        24. Peacock, Bill (August 21, 2017). "Local Tax Incentives: Chapter 313 - Texas Economic Development A". Texas Public Policy Foundation. Archived from the original on November 3, 2018. Alt URL
        25. Michel, Patrick (March 14, 2016). "Free Lunch: Meet Chapter 313, Texas' Largest Corporate Welfare Program". Texas Observer.
        26. Toohey, Marty (May 17, 2015). "Big dollars, little oversight? Amid debate over Texas' tax breaks for businesses, little attention being given to biggest incentives program of all". Austin American Statesman. Archived from the original on May 31, 2018.
        27. Asher Price (September 15, 2016). "As the wind blows, Texas subsidizes school districts on tax agreements". Austin American Statesman.
        28. Eric Dexheimer (March 21, 2019). "Solar companies flock to a Texas tax break with questionable payback". Houston Chronicle.
        29. Senate Journal - Texas Senate (May 26, 2013). "Statement of Legislative Intent for HB 3390 (Senators Deuell, Davis and Watson)" (PDF). Secretary of the Texas Senate. pp. 3788–3796. Archived from the original (PDF) on May 31, 2018.
        30. Dexheimer, Eric (May 6, 2019). "With irate email, gas exec raises more questions about $580M tax break program". Houston Chronicle.
        31. Texas Tax Code 313.026(c)(2)
        32. Texas Comptroller of Public Accounts (March 2011). "An Analysis of Texas Economic Development Incentives, 2010. Texas Economic Development Act: Chapter 313" (PDF). pp. 17–26. Archived from the original (PDF) on March 4, 2017.
        33. Texas Legislative Budget Board (January 2011). "Texas State Government Effectiveness and Efficiency; Selected Issues and Recommendations. "Improve the Administration of the Texas Economic Development Act"" (PDF). pp. 1–10. Archived from the original (PDF) on March 3, 2018.
        34. Texas Tax Code §313.010
        35. Texas State Auditor's Office (November 2014). "Report No. 15-009 An Audit Report on Selected Major Agreements Under the Texas Economic Development Act" (PDF). Archived from the original (PDF) on March 3, 2016.
        36. Texas State Auditor's Office (August 2015). "Report No. 15-042 An Audit of Selected Major Agreements Under the Texas Economic Development Act" (PDF). Archived from the original (PDF) on March 3, 2016.
        37. Texas State Auditor's Office (October 2016). "Report No. 17-009 An Audit Report on Selected Major Agreements Under the Texas Economic Development Act" (PDF). Archived from the original (PDF) on October 26, 2016.
        38. Texas State Auditor's Office (July 2017). "Report No. 17-043 An Audit on Selected Major Agreements Under the Texas Economic Development Act" (PDF). Archived from the original (PDF) on September 3, 2017.
        39. Texas State Auditor (July 2018). "An Audit Report on Selected Major Agreements Under the Texas Economic Development Act" (PDF).
        40. Texas Comptroller of Public Accounts. "Biennial Reports".
        41. Depillis, Lydia. "Study: Texas' biggest tax break program is mostly a waste of money". Houston Chronicle.
        42. Jensen, Nathan M. (October 10, 2017). "Exit Options in Firm-Government Negotiations: An Evaluation of the Texas Chapter 313 Program". Washington Center for Equitable Growth. Working Paper Series. Archived from the original (PDF) on October 24, 2017.
        43. Jensen, Nathan M. (July 3, 2018). "Bargaining and the effectiveness of economic development incentives: an evaluation of the Texas chapter 313 program". Public Choice. 177 (1–2): 22–51. doi:10.1007/s11127-018-0583-8. ISSN 0048-5829.
        44. Texas Legislature Online. "House Bill 2129".
        45. Texas Legislative Budget Board (March 19, 2019). "Fiscal Note; House Bill 2129" (PDF).
        46. "Texas House of Representatives, Ways and Means Committee Witness List". March 20, 2019.
        47. Sechler, Bob (March 20, 2019). "Lawmakers debate need for state incentive program". Austin American Statesman. Retrieved April 9, 2019.
        48. "House Journal, Eighty-Sixth Legislature, Regular Session Proceedings, Forty-Second Day -- Tuesday, April 9. 2019. Page 1381" (PDF).
        49. Miller, Justin (May 20, 2019). "The $9 Billion School Finance Problem in Speaker Bonnen's Backyard". Texas Observer.
        50. Mann, Joshua (May 30, 2019). "Industrial tax incentive renewal dies in Texas committee". Houston Business Journal.
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