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The Senate Committee on Business & Commerce met on May 21 to take up & vote out HB 173 (Klick), HB 2702 (Guillen), HB 2266 (Leach), and HB 5 (Hunter). A video archive of the hearing can be found here.

This report is intended to give you an overview and highlight the various topics taken up. It is not a verbatim transcript of the discussions but is based upon what was audible or understandable to the observer.

HB 173 (Klick) Relating to the licensing and regulation of genetic counselors; requiring an occupational license; authorizing a fee.

  • Voted out to full Senate (8-2)

HB 2702 (Guillen) Relating to payments associated with certain medical examinations under the workers’ compensation system; imposing a fee.

  • Voted out to full Senate (9-1)

HB 2266 (Leach) Relating to judicial review of certain local laws applicable to state license holders.

  • Voted out to full Senate (6-4-1PNV)

HB 5 (Hunter) Relating to agreements authorizing a limitation on taxable value on certain property to provide for the creation of jobs and the generation of state and local tax revenue; authorizing fees; authorizing a penalty.

  • New CS laid out
  • Chair Schwertner – Tax incentive program to try to attract businesses and improve economic environment & increase employment in TX
  • Schwertner provides an overview of key provisions in the New CS to HB 5:
    • Schwertner – Concerns from prior program were significant, including job req, school involvement, transparency, etc.
    • Highlights Pg 5 of the bill, new CS adds independent contractors back
    • Pg 3, eligible projects have been changed to including:
      • Electric generation facility
      • Petrochemical manufacturing facility
      • Semiconductor fabrication
      • Seawater/brackish desal
      • LNG terminal or storage
      • Gas processing plant
      • Hydrogen facilities
      • Carbon capture facilities
      • Petroleum facility
      • Pharmaceutical manufacturing
      • Emerging or innovative tech manufacturing, incl. aerospace parts and automotive manufacturing
      • Headquarters of publicly traded company w/ more than $5b in annual revenue
    • Excludes non-dispatchable electric generation facility & electric energy storage facility; this can be read as wind & solar as well as battery
    • Pg 11, on persons ineligible, refined the section to cover 2A boycotts, ESG policies, and hostile nations
    • Plan to offer an amendment on the Senate floor to further refine list to align with what the Comptroller already has
    • Pg 16, clarifies approval process between Comptroller (Pg 16), Governor (Pg 17), and Legislative Oversight Committee (Pg 18)
    • Oversight Committee includes 3 from House, 3 from Senate, and 1 member serving as chair alternating between House & Senate
    • On Pg 31, Oversight Committee report recommends to legislature types of projects to add or remove from eligible project list; not just approving projects, but also charged with evaluating new techs that should be added or industries that should be removed
    • On Pg 22, deferral period from Jan 1 of second tax year, limits the timeframe for a deferral & applicant must provide notice & reason for deferral to Comptroller
    • New CS further refines AG’s enforcement jurisdiction
    • Also includes language changes requested by the Comptroller on regulatory and rulemaking duties
    • Giving strong consideration to adding an annual cap on amount of approved abatements, possibly $1.5b or $2b; also a conversation of cutting abatement allocations in half
    • On Pg 16, also considering striking “a” and putting “the” so it becomes “the agreement is the determining factor” further tightens criteria of who we incentivize
  • Schwertner – Has been a lot of discussion, some want more leniency, some none; has been a hard bill for both the Ds and Rs
  • Campbell – Have had 313s and Texas Enterprise Fund before, want to support companies that will bring well-paying jobs and support community, but don’t want to undermine TX values; does bill leave ability for Comptroller to look at ESG, DEI, etc.?
    • Schwertner – Comptroller has a number of roles, does initial check, certain provisions like the 2nd Amendment and ESG will need to be delineated on how it applies; can be done
    • Comptroller makes recommendations to the Gov, Gov then approves, then twice a year the list goes to Legislative Oversight Committee to approve
    • Legislative Oversight Committee also makes recommendations on changes to eligible companies list
  • Campbell – What if a company changes its policies?
    • Schwertner – There is enforcement action that can be taken by AG on fulfillment of agreement
  • Campbell – What happens if we get a less conservative Comptroller, someone who doesn’t agree with the policies?
    • Schwertner – This has been discussed amongst legislators, each office has a role in checks & balances, ISDs also have a check and must take affirmative vote to move forward
  • Campbell – AG could say they are in violation
    • Schwertner- AG does have enforcement action on enforcement of the bill, broad enough to account for company that changes during the agreement
    • 10 year abatement still; full abatement currently, but again I am considering capping by 50%
  • Campbell – Would like to see a cap on the abatement; like the better definition of eligible projects; realize this is a work in progress
    • Schwertner – Comptroller also verifies the economic impact statement, e.g. economic impact is sufficient to offset amount lost by ISD
  • Menendez – Health insurance coverage conditions for the new jobs? 313s required 80% coverage?
    • Schwertner – CS doesn’t speak to this; does get rid of temporary jobs, but independent contractors are part of the CS
    • Specific benefits within jobs and independent contractors are not delineated
  • Menendez – This is a concern; how about penalties for not meeting wage requirements in the bill? Often the penalty is less than the amount would be for the benefits given, if delta is significant could just be cost of adherence
    • Schwertner – Haven’t looked at this in depth, can’t answer right now but staff can look into this; open to ways to make this bill better or more palatable
  • Menendez – Summary says ISDs will not lose money, will be made whole on M&O and I&S will not decrease; Board must approve, ISD is part of the agreement and can terminate the agreement, how does this work?
    • Schwertner – They don’t give an affirmative vote
  • Menendez – Summary says “if the applicant fails to comply,” do they have the ability to look at agreement somewhere along the way, do they get to pull the plug later? Trying to see how you policy jobs and wages req
    • Schwertner – There are audits for 10% of active projects based on risk of noncompliance, also require biennial compliance reports
  • Menendez – Think I missed something, where ISD is signatory and can terminate the agreement, how would the ISD terminate the agreement once it has been signed?
    • Schwertner – They have a period to cure & a penalty recovery in amount of lost ad valorem revenue; methodology would need to be done in rulemaking
  • Menendez – You have left out batteries via excluding electric energy storage facility? If you were to dispatch battery power by flipping a switch, would that not be dispatchable?
    • Schwertner – Might fit some of the dispatchable definition, but specifically excluded later
  • Menendez – This is a problem for me as well
  • Zaffirini – Handout says ISD will not lose money, have heard concerns from ISDs
    • Schwertner – Goal in bill is to make ISDs whole on lost ad valorem revenue
    • There has been discussion on whether or not that is fully accomplished in bill regarding Golden Pennies and other finance mechanism, continuing to work on that aspect
    • Incentive payments and payments in lieu of taxes are not part of the CS, this has been an area of great concern of many Senators
    • ISD Board takes 403 projects in totality of whether or not it is right for them as a community
  • Zaffirini – Group health benefit plans were required under 313s and this has none of that?
    • Schwertner – For the types of eligible corporations, this was too prescriptive
    • Removed temp jobs and construction jobs, low concern that the jobs under bill will not offer benefits
  • Zaffirini – Wage level is now tied to all jobs in the county, whereas before it was tied to industry
    • Schwertner – House version had 6 levels based on size of ISD, changed to size of county instead
  • Zaffirini – Specifically excluded all wind & solar projects, correct?
    • Schwertner – Yes, Pg 4, Ln 9 & 10; non-dispatchable electric generation facilities are excluded & also excluding electric energy storage
  • Zaffirini – This is another problem, previously they accounted for 2/3rds of the projects under 313
    • Schwertner – That is a big problem for the state
  • Zaffirini – On the oversight committee
    • Schwertner – DO you like how I’m bringing in the Legislature?
  • Zaffirini – No, very concerned if members of the oversight committee would be qualified to make the decisions, often people without expertise or interest are appointed
    • Schwertner – Understand, but the is after the process for the Comptroller, ISD, and Gov have approved; oversight committee would be 7 members, has responsibility for approval but also taking input and recommending entities for the eligible list
    • Only way to make this dynamic is to involve the Legislature
  • Zaffirini – Pretty concerned about that, concerned members won’t have expertise or passion for this
    • Schwertner – I have faith the Lt. Gov. and Speaker will appoint people with interest & constituency will hold them accountable
  • Zaffirini – If a company is a subsidiary of a company involved in ESG, would it disqualify the subsidiary?
    • Schwertner – This goes back to SB 19 and SB 13 & ideological statements
  • Zaffirini – What about parent & subsidiary?
    • Schwertner – Parent owns the subsidiary, has duty to subsidiary to make sure they are consistent with parent company’s
  • Zaffirini – Trying to get there, Senator
    • Schwertner – You don’t want an oversight committee?
  • Zaffirini – Always concerned about this, you need members with a passion for this
    • Schwertner – Think we can find 7 with passion for the future of the TX economy
  • Nichols – Know you’re trying to thread a needle, concerned about language on types of industries; you’ve covered a lot, O&G is well protected, but things like steel mills, medical manufacturing, etc. are not; reason for this?
    • Schwertner – Prior 313 was expansive, looking now at what is vital to TX and can expand; industry can fight it out if they are to be included
    • Can also fashion the future of TX by incentivizing certain industries
    • Also considered if this is a jobs act, a future economy of TX act, etc.
    • Should have a cap, diminished M&O abatement and with less of both how restrictive should we be
  • Nichols – What about the code?
    • Schwertner – Purposefully didn’t put the code in, want industry to be on edge honestly
  • Nichols – Would you be open to a list? Medical devices manufacturing?
    • Schwertner – We have pharmaceutical, innovative tech, etc.
  • Nichols – Many aspects of medical devices that aren’t innovative; steel industry is also important
    • Schwertner – Didn’t want to just repackage, wanted to look at what we wanted to incentive with tax dollars
  • Nichols – Lockheed Martin, military devices, etc. Are not on your list
    • Schwertner – This would be emerging & innovative tech, also including aerospace material
  • Nichols – Who decides what is innovative?
    • Schwertner – The Comptroller; Legislative Oversight Committee would also review annually
  • Nichols – Understand you’re trying to thread a needle, but would like to bring a list
    • Schwertner – Would love to look at the list, can look at industries that need to be added or subtracted
    • Want industries to make case to Comptroller that they should be given taxpayer dollars
  • Nichols – Just want to make sure there is a window for them to make their case; need things like steel mills
  • Birdwell – Done a lot of work in a short period of time; you mentioned that tax value abated in 313s was $31b, in my research, state doesn’t backfill, simply providing formula funding
  • Birdwell – What happened in the past was unethical, you had payments in lieu of taxes and those were masked; lawful but unethical when ISDs gave abatements and received payments in lieu of that didn’t count against the formula
  • Birdwell – No pot of money in budget for amount of money given away by ISDs
    • Money abated at local level is backfilled by the state
  • Birdwell – Locals receive formula funding whether they have a 313 or not, not sure what has been backfilling; I think the under the table payments were backfilling
    • Kolkhorst – It was both, you got payment in lieu of taxes, but it was backfilled by the formula and there was no need for a line item
    • What ends up happening is that it spreads across every other taxpayer
    • Schwertner – We do not have payment in lieu of/ancillary payments in the bill at all
  • Birdwell – Wanted to mention that I didn’t find that & it was one of the toxic elements of the previous 313
    • Schwertner – Wanted to recognize your leadership on this
  • Birdwell – Very complementary of what you’ve put together here, a lot of work in a short time
  • Birdwell – On auditing, each year SAO will select 10% of agreement in effect in that year, way this reads is auditors going back to look at 313s as they previously were enacted; does your bill contemplate looking at these under previous 313 rules?
    • Schwertner – Don’t mind if they do, don’t know that “agreements in effect” language means agreements as under this bill
  • Birdwell – Was my intent to not touch 313s until next session so we would have 4 years to evaluate TX without 313s; would be appropriate for auditor to look at previous 313s under previous rules; would like it to say the auditor can look at previous agreements
    • Schwertner – It does also require at least 10% of agreements in effect that year to be audited
  • Birdwell – You have pieces of the 313 and 312 transparency language, but would like to contemplate the localized rules relating to posting, local input, etc.
  • Birdwell – You mentioned in layout that it does not include batteries from solar or wind?
    • Schwertner – Seen by some as potential loophole for wind & solar; there are federal incentives, excluded all of them based on needs of the grid
    • Hydrogen is included, economy changes
  • Birdwell – This is one of the things I appreciate in the bill
  • Birdwell – Would also like to contemplate issues likes in Hamilton County, if you look at an ISD map a number of districts have bulk in one county with a smidgen in another; in Hamilton, 88% of the voting population voted for a project in Comanche when 12% in Comanche didn’t want it there; need some mechanism for the minority county to have input
    • Schwertner – Understand issues with ISDs and county lines
  • Birdwell – Would also like localized job categorization, don’t want projects with 20 jobs for TX and 1k coming from out of state; places burden on grid, utilities; should have some req based on how long the person has been in TX
    • Schwertner – Bill does not specify benefits provided, nor does it say they have to be Texan, or any other state or nationality
  • Birdwell – Need to contemplate some requirement
    • Need to be a TX resident
  • Birdwell – Yes, but it doesn’t specify how long
  • Birdwell – On Pg 6, you list 150 jobs each year, as long as you’re meeting the minimum standard for the first 9, the 10th year is when the overall requirement is needing to be met; based on the way it reads, completion of jobs req is not measured until final year
    • The way I read it is 150 jobs for first tax year & at least an average of that many each year after; average and not additive
  • Birdwell – Way it reads is if you have significant job requirement then the culminating year is when you need to have the req met; mentioning this because under 313s the first month had waiver of job requirements & want to make sure we’re not waiving in the last year; doesn’t compel termination if jobs aren’t met
  • Birdwell – If I’ve gotten the abatement for 9 years, but don’t meet the req, someone can say they aren’t going to penalize me; want to look at this amendment as well
  • Birdwell – You talk about preclusion of payments in lieu of taxes, employees of ISDs cannot be party, etc.
    • Schwertner – Pretty strong provisions
  • Birdwell – Pretty strong as we had that issue with the ISD in Houston that was corrupt
  • Birdwell – I am concerned with moving headquarters, ought to be a headquarters and what it is doing
    • Schwertner – Pg 4, Lns 6-8; there were discussion of changing revenue; bracket includes Fortune 500 companies & should maintain TX’s lead
    • Might be some finer wording and incentivize midcap, etc.
    • Also considering other options, ongoing discussion about how to do the headquarters
  • Birdwell – Will move this bill out of committee based on discussions, but final disposition will depend on what amendments are on it, etc.; appreciate the work done on this
  • Kolkhorst – Program has created inequities in school system; discussion shows how difficult it is to land this bill, if we can; appreciate your openness and discussions in trying to thread a needle; both R & D grassroots want to end 313s and that is not just to rename them 403s
  • Kolkhorst – Pg 3 of the original CS seems to have been removed, the enemy country ineligibility provision
    • Schwertner – Hostile nations are included as listed by the Comptroller, being told by lawyers
  • Kolkhorst – If they could speak to my lawyer, would like this included
  • Kolkhorst – Might should consider health insurance as it was included in 313s in the past
  • Kolkhorst – On the abatement amount, should be the amount of taxes we would’ve received over the last 10 years; would be good to get clarification on this
  • Kolkhorst – You were talking about $1.5b annual cap?
    • Schwertner – Yes, but might need to be adjusted
  • Kolkhorst – Have worked over the past few years in reducing the M&O, have almost cut what we originally created 313s for in half; values have risen, particularly on businesses
    • You mentioned you would continue to discuss this, and need to strongly consider this; removing payment in lieu of taxes helps & makes a more equitable school system, and also moving money into the school funding formula is more fair for all taxpayers; number of students coming into system still has to be paid for, whether it is backfilled by state or otherwise is important to consider
    • On Pg 16, important to change A vs. B determining factor; have heard we can’t get big deals, but certainly getting them in some places
    • Chapter 380s, 312s, we did renew those, & county and city taxes are almost adding up to ISD taxes on M&O; they are getting a huge benefit on 312s; anyone coming here should want to educate the future workforce
    • Not wild about the expansion part, originally to attract businesses that wouldn’t have come to TX otherwise; in many cases once you’re here it is economically to stay and expand, not go somewhere else
    • We’re already the capital of Fortune 500 headquarters & they didn’t have 313s, so why would we offer them 313s?
  • Kolkhorst – Will respectfully be a “no” today
  • Creighton – Spent months talking about new thermal generation, but talking about putting to sleep the various incentives that could allow it to happen
  • Creighton – If we’re going to call this corrupt, need to implicate the Lege in this; complicit in what we’re complaining about; can you walk through the schools not losing money?
    • Schwertner – Not sure it is accomplished; depends on how you look at it, schools could benefit from overall taxable value in a location
    • My goal is to have ISDs who have to vote on an abatement do not lose money because they are backfilled by the state
  • Creighton – Solid goal to pursue, part of 313 discussion is uncoupling from negative effect on school finance; if schools are made whole that is great; if you put a project in place of a rice farm that could be ultimately good for schools in taxable value
    • Schwertner – Can also say this about Samsung, etc., obviously benefits schools more than hurts them
    • Any area with new growth of major industry will be positively affected
  • Creighton – I would think so; cows on a property for 10 years is not as beneficial as an abatement for 10 years and then a change in the community, economy, sales tax revenue, etc.
  • Creighton – Would Tesla, HP, Oracle, Caterpillar, etc. qualify for these?
    • Schwertner – Hard to quantify; would qualify as eligible projects, but not sure on rest of the process versus the old 313s
  • Creighton – Not sure any of us are qualified to look at Fortune 500 decisions; most other companies received $200m each average, nickels & dimes compared to economic benefit brought to communities
    • Creighton – Will find ourselves in more of a conundrum if we boast about jobs and we’re creating lower paying jobs; important to consider when looking at caps, if we need to put it to sleep let’s do that, even if we’ve lost many deals in the last 36 months; many left because Lege chose to end 313s two years ago
    • For things like making sure there is no harm to ISDs, but not for signaling to the world that we’re going to launch a program that is inadequate; this is as important as any other bill dealing with market construct, these are linked and hard to separate
    • Shouldn’t exclude any manufacturing; don’t just want companies that left the US back in the country, want them back in TX
  • Johnson – Echoing thanks on work put into this by Sen. Schwertner; many people have reservations & votes have yet to be determined
    • Johnson – Changing determining factor on Pg 16 seems to be the biggest thing, studies have shown that most companies would’ve come to TX anyways; good qualities of incentives presuppose that companies wouldn’t have come here but for the incentives
    • Discussion of capping the program will also provide some reassurance to people, some people might not get there anyway; think cap makes a lot of sense given the other ways we spend money
    • Question is if this is a jobs program, an economic program, etc. is a good one; there are other industries like steel that we may need, if we opened it up broader and had a cap, we might see competition for companies where the incentive is a determining factor
    • Wages component is most interesting on the job; 313s required 110% of average manufacturing wage, now it’s just average wage in the area; don’t know that I want to provide an incentive to someone offering extremely low wages in impoverished areas
    • Might want to look at a different definition of wages
    • Find it ridiculous to prostrate state to the largest companies on Earth; don’t think the determining factor for these companies is a property tax abatement, they need workforce, access to cities, etc., won’t go to rural areas unless they are natural resource related jobs; would like to see this out of the bill
    • Still concerned about the 25-year break even, would like to see it more serious with 10 years’ time; 25-year bet is too long when talking about public money
    • Trying to understand if the oversight committee has authority or makes recommendations; will bring this up later
    • On the contractor requirement, dilutes well-paying jobs aspect
    • Community involvement, have spoken a lot about how there isn’t a benefit to all ISDs and they are competing against each other, little bit of unfairness there
    • Might should get some community involvement on types of projects; communities would only infrequently say no, but may decide they don’t want to attract certain industries; when question is only with Comptroller, I don’t think that is adequate
    • Concerned that in list of eligible industries, we’re getting into a centralized plan; House’s broader approach might leaver more room for competition
    • Still don’t like the ESG stuff, but see it is consistent when state is saying “we don’t like you;” do appreciate reference back to work Comptroller has already done & not duplicating the process
  • Schwertner – Appreciate discussion & comments
  • Campbell – It’s assumed that every ISD that gives a 313 will need to be made whole; ISDs subject to recapture should only be made whole if abatement exceeds recapture dollars; if a corporation locates in a recapture district, the State would collect less & should be no need to make the ISD whole
    • Schwertner – We’ll look at that
  • Nichols – At the local level, would do many things to bring companies to town, but people who were there were kind of ignored; many states are offering incentives, there’s a lot of competition out there and growth is due to what we’re doing; need to get this across the goal line
  • Johnson – I don’t think there is a lot of disagreement about utility of incentives, but all incentives are not created equal, and mere offering is not prima facie a good idea; need to look at the way it’s done
  • Menendez – 86% of Fortune 500 companies have ESG reports, they would’ve been eligible companies, but ESG reqs might’ve knocked them out
  • Schwertner – Appreciate input from B&C committee, trying to thread the needle & find program that is right for TX; will continue to work to refine, but would like to move bill forward so it has the ability to get across the finish line
  • Schwertner – SB 2627 will be on the House floor, 0% interest loan, so this is another component; this type of abatement does matter, with the right admin, oversight, auditing, enforcement, etc. It is reasonable for TX to continue
  • CS adopted
  • CSHB 5 voted out
    • Ayes – Birdwell, Campbell, Creighton, Nichols, King, Schwertner
    • Nays – Kolkhorst, Middleton,
    • PNV – Johnson, Menendez, Zaffirini

Closing Comments

  • Chair Schwertner – Still have 3 electric bills in committee, HB 1500, HB 1620, and HB 3668; legislative deadline is upcoming, intention is not to hear these in committee no, but waiting on action by those in the House; will act eventually, but it will be tomorrow