Print đź–¨

When the House Committee on Ways & Means met on September 8th among the interim charges they took up during the hearing was conducting a comprehensive review of the impact of not renewing Chapter 313, Tax Code.  Below is a copy of the report HillCo Partners pulled together to spotlight those discussions.

Conduct a comprehensive review of the impact of not renewing Chapter 313, Tax Code. Evaluate tax incentives offered by other states and make recommendations for incentivizing manufacturers and other capital-intensive businesses to locate to Texas. 

Panel 1 

Korry Castillo, Comptroller of Public Accounts 

  • Provides an overview of the Chapter 313 program; is a limitation on appraised value
  • Will expire on December 31, 2022 which will effectively end the program
  • Chair Meyer – Seen an uptick in applications?
    • Yes; uptick was way more than anticipated
  • To manage workload in processing/reviewing provided guidance all applications were due by June 1
  • Chair Meyer – Cannot take applications up to the 31?
    • Correct
  • Also provided guidance we would not process amendments that would expand the scope of a project or to push projects out into the future
  • Had 39 applications in March and May 31 had received 378 applications; are currently at 413
  • As of September 1: 5 were withdrawn, 324 had determined to be complete, 90 certified and around 30 are executing agreements
  • Chair Meyer – Will be able to get through all these applications by December 31?
    • No; have set up a process to maintain if they have met deadlines, will get to them
    • Will depend on the quality of the application when it came in
  • Chair Meyer – Timeline to be certified?
    • 90-day window in statute to complete that process; a lot are hitting that threshold
  • Of 408 active projects 60% are solar, 28% manufacturing, 48 are wind among others
  • Chair Meyer – What type of manufacturing? Looking at economic impact?
    • Variety, can get the committee a break down; some chip manufacturers, oil and gas, wood panel manufacturer
    • When it comes down to it, are looking at size of investment, number of jobs, etc.
  • Thierry – Information on regions that would benefit from this?
    • Can pull that together and a list of all the school districts where they have applied; some companies are negotiating with multiple school districts currently
  • Chair Meyer – Have year-to-year impacts of 313s on the economy?
    • Yes, can get that to you; not going to be able to fully account for the program in January
  • Cole – Why were there so many applications?
    • With the program expiring and no program replacing it, was a desire to “get in under the wire”

 

Panel 2 

Dale Craymer, Texas Taxpayers & Research Association 

  • Texas does not have a personal income tax so we rely more heavily on property and sales taxes
  • Could be more burden on businesses who want to come to the state; taxes distort the free market, not this program
  • Have been critical of aspects of 313s and was supportive of the reforms Rep. Murphy had previously
  • Button – Can breakdown what would happen if we did not have a 313 how many of the 408 applicants will still decide to build here
    • We will be uncompetitive the larger the investment is; for example Intel went to Ohio with a $20b investment
    • American manufacturers are looking to re-shore their operations here; could miss out if we are not able to compete with these projects
  • Rodriguez – How many states without any incentive program? Are they comparable in size/population?
    • 5 states; no
  • Murphy – Previously testified 313s aimed to bring down property tax bill
    • Is chapter 313 and 312 combined; Texas is never the lowest cost tax state, but do not have to be
    • Need to at least get close enough to other states, can beat them on other factors
  • Murphy – Heard Comptroller’s office testify are companies filing applications for multiple school districts; deals are different district to district?
    • Seems to be more of a function of speculative filing and keeping options open
  • Cole – What do you say to critics who say we do not have the resources?
    • Project had to demonstrate tax benefit would outpace taxes it would generate
    • Should look at the cost it would impose on infrastructure/services/etc. and balance with the revenue it would generate

 

Tony Bennett, Texas Association of Manufacturers 

  • Program has a lot to do with the economic development of Texas
  • For every manufacturing project, spins off 5 other jobs; are highly sought-after projects and competition is intensifying
  • Chair Meyer – Speak to how these incentives drive your members?
    • Cannot afford not to entertain other locations; majority of projects that Texas loses out on go to Louisiana with an 80% abatement
    • When Intel went to Ohio got a 30-year tax abatement
    • Ford EV battery plants went to Kentucky and Tennessee worth $11band 11k jobs
  • Texas cannot be out of the game when manufacturing is moving towards the U.S.
    • Especially semiconductor chips
  • Need major incentives in order to have a more reliable grid as well to assure industries they can move back home

 

Todd Staples, Texas Oil & Gas Association 

  • Policy, resources and people-power is what has made Texas great in terms of economic success
  • Most of member activity would not be eligible in the current or future programs
  • Members have noted that they cannot expand their operations because of the issues with the supply chain; need reliable manufacturing here
  • Need to keep these kinds limited tax discounts in order to keep Texas competitive
  • Chair Meyer – Policies in place have brought companies here?
    • Absolutely, including the L&G facilities

 

Spivey Paup, Recurrent Energy 

  • Have built four solar powerplants and have used 313s for each project
  • Solar is unique to the 313 program and is the only one that has a statutorily determined depreciation floor
  • $300m solar plant would depreciate and provide reliable revenue for school districts
  • Solar facilities are seeking out rural communities; unlike other sectors
    • Is low on local services and infrastructure and road usage is non-existent
  • 313 program functions as a driver for increased and diverse investment in this state
  • Request to participate in any successor program to 313s have recommendations for any potential replacement program:
  • Recommend keeping the program simple and standardizing the formula
  • Prioritize overall economic impact in applications
  • Design a program to attract broad and diverse industries

 

Q&A Panel 2

  • Martinez-Fischer – Was a mistake to leave this on the table last session?
    • Bennett – Members noted there were issues with 313s, but are bigger consequences now that there is global change 
  • Martinez-Fischer – Wish we would have at least extended this last session like the House proposed 
    • Bennett – Seems like a problem at the Senate-level
  • Martinez-Fischer – Asks about their members’ feedback?
    • Craymer – Willing to work with the committee on creating a new program; do not know what it will look like, but working with members to put something together
  • Martinez-Fischer – As dire testimony is today, confused that has not heard anything personally on this issue
    • Bennett – Has been a controversial and difficult situation to explain to members/public
  • Martinez-Fischer – Do any of you have proposals today? School districts, local government and others need to be a part of this conversation
    • Staples – Industry has been working to discuss what would be helpful for a new program
    • Bennett – Are working on concepts
    • Craymer – Have been meeting with member companies and have not put anything on paper
  • Martinez-Fischer – Do not understand why there was a modernization/renovation push for companies who are already here
    • Bennett – Push aimed to compare to what most states offer
  • Noble – Assume we’re taking land out of ag use and putting it into solar
    • Paup – Mixture of underutilized land
  • Noble – Abating tax base there, not buying this land
    • Can be either way
  • Noble – Who pays the property taxes when the 313 goes away?
    • Power plant operator, pay on the improvements
  • Murphy – Are other states doing agreements for battery storage?
    • Other states are doing similar things, not sure about battery storage
  • Murphy – Might be something to look at if it moves the needle
    • It would move the needle

 

Panel 3 

Janelle Fritts, Tax Foundation 

  • Texas offers far fewer corporate incentives than other states, which is to the state’s credit; recent evidence shows benefits are short lived and often cost the state more than it gets in return
  • Highlights North Carolina and Dell, Dell closed a plant moved to NC after 4 years; Kansas & Missouri competition also often led to businesses moving back and forth across state lines without profit to the state
  • Studies also often find that tax incentives provide little benefit, often go to businesses that would move to the state anyways and businesses have little staying power
  • Options aside from incentives exist to attract businesses
  • Tax Foundation conducted a study on 8 model firms & calculated the total tax burden for these firms based on different states
  • Texas’ relatively high property and sales taxes do yield high tax burden for new firms, but Texas tends to rank better for more mature firms; TX has 18th lowest burden on mature manufacturers
  • Distribution centers see high property tax burdens and data centers see high sales tax burdens
  • Property taxes are the majority of business taxes in Texas, but this trend exists in other states as well
  • Addressing business inventory could help equalize burden across businesses; issues include inventory taxes are levied regardless of profit, non-neutral towards businesses with large inventories, transparency issues, and in TX taxpayers must compute tax burden themselves
  • Slow phase outs over several years can help mitigate the loss of revenue
  • Would encourage state to consider increasing competitiveness in ways aside from Chapter 313
  • Murphy – 50 is the worst for burden on the chart, Texas is performing worse for many of the categories in your study?
    • Yes, Texas performs poorly for new firms
  • Button – Texas also competes internationally, not just other states
  • Button – Do you have examples of companies attracted to states without any tax incentives?
    • Companies that come to states and get a lot of fanfare are typically the ones that get incentives
    • Most employment comes from small businesses and often move to states without this fanfare or gaining the eco dev money
  • Button – Right about inventory tax; do you have examples of states using the tax to attract high capital industries
    • Don’t have a lot more states at the moment, but there are some
    • Right now inventory tax does disproportionately affect companies with large amounts of inventory
  • Button – But they don’t do much about high capital-intensive companies
    • Texas does exempt machinery, machinery-based companies wouldn’t be affected, but companies with tangible personal property would be affected

 

Dick Lavine, Every Texan 

  • Highlights study looking into whether companies would come to states but for the incentive, conclusion is that between 2%-25% of companies move based on incentives, 75% would make the decision regardless of the incentive
  • Presents list of companies that invested in the state without incentives, incl. Caterpillar, Koch, Mitsubishi, American Spiral Weld Pipe Company, etc.
  • Property taxes are much lower now than they were, perhaps even lower since the studies were done before HB 3
  • Pilot payments were often 50% of the tax incentive; indicates incentive was likely twice as large as it needed to be
  • Need to determine the companies that would be attracted by incentives and tailor the incentive; 313 did not do a good job of determining which companies would take advantage of it
  • Goya moved from Harris to Waller with a 313; county placement shouldn’t be of interest to the state
  • Managing officers should sign statements with specifics on what other opportunities are competing; may have to disclose info, but also trying to claim a large benefit from the state
  • Murphy and Lavine discuss companies coming into the state
  • Murphy – Misconception was that there was a giant loss of revenue through 313, but this didn’t occur
    • Get a lot of questions about how it affects recapture, which isn’t the issue here
  • Highlights fiscal notes projecting into the future losses through the FSP and other ISD-related funding; stems from lost values and ability to perform tax compression for all other taxpayers

 

Glenn Hamer, Texas Association of Business 

  • Lack of capital-intensive tool to replace 313s would be devastating
  • Top issue for member companies of TAB; capital tax abatement tool and workforce development are two top issues for major businesses
  • Important to have incentives if Texas is going to capture supply chain businesses
  • Shares statement highlighting potential fiscal loss with only 1% employment loss per year
  • Lack of incentive affects international competitiveness

 

Panel 4 

Rev. Miles Brandon, Texas Industrial Areas Foundation 

  • Provides overview of Texas IAF, advocates for economic and human development
  • 313s should not be brought back, drains about $1b from the budget per year; 95% of ISDs would receive more funding if it was distributed rather than used for 313s
  • 313s benefit large businesses, but nothing for small businesses or individual home owners
  • Seeing a large number of businesses applying for 313s, over 4x; will cost taxpayers an additional $10b-$20b per year
  • If brought back, incentives should be decoupled from school funding

 

Brett Bennett, Texas Public Policy Foundation 

  • Needs sot be a hard look at cost & benefit of doing this, need to look at the hard to calculate diffuse costs as well
  • Most efficient way to provide property tax relief is rate compression across the board; presented buy down plan for school M&O taxes previously
  • Support Gov. Abbott’s proposal to apply surplus to property tax relief
  • Giving out tax breaks to some corporations detracts from broad goal of tax relief generally
  • 96% of active 313s are energy related, most here because of geography
  • If we’re not building enough power generation, should be doing it through ERCOT market design; any new project should not include energy projects, particularly power generation
  • Any new incentive also needs to consider school boards having input when they don’t bear the full cost
  • Important to have transparency and a clear sunset date for the program
  • Shine – TPPF is opposed to any type of incentive to attract new business or industry to the state? Reinvestment zones, etc.?
    • Opposed to targeted incentives that don’t apply as broadly as possible
    • Incentives applying to everyone is essentially rate compression
  • Shine – Talking about all businesses across the board
    • They have to apply and then would not apply to all

 

Public Comment 

Christy Rome, Texas School Coalition 

  • ISDs and trustees should have a role in economic development in their communities, should have a voice & input into the incentive
  • ISDs will not agree if the agreement is good for the ISD, needs to have local ISD input

 

Mark Gollaby, Self 

  • Part of why 313 fell apart is because the tax burden shift was revealed; corporate welfare program that does not return an investment to the state
  • Residents are being taxed out of their homes, ISD tax discounts for large businesses do not make sense in this context
  • Barber’s Hill and Goose Creek ISD account for 35% of the agreements, good eco dev program should show benefits across the state
  • 313 is lowering property values by significant amounts; 25% across the state

 

Samuel Davis, Texas Land & Liberty Coalition 

  • Paint Rock ISD benefits from 313s, 313 agreements led to large tax support
  • Rural Texas benefits greatly from incentives like this
  • Clean energy investments lead to much larger tax bases for rural communities; 313s give communities the ability to compete
  • Must provide an eco dev framework that makes sense for rural Texas and industries that go there, not just the large industry members
  • Murphy – Heard that there is a 10-year reduction in value then after you’re back up

 

Bill Peacock, Huffines Liberty Foundation 

  • Property tax abatements were illegal in the state previously as they were considered to be theft; Texans narrowly adopted a Constitutional amendment in the 1980s to allow this in narrow circumstances
  • Without renewing 313s, problems with Texas’ high property tax rate becomes more apparent
  • Not renewing 313s will improve grid reliability
  • Eliminating 313s will be a down payment on $4b energy cost due to renewables
  • Not continuing 313s is the right thing to do economically & ethically

 

Lydia Moore, Central Texas Interfaith

  • Average citizens are forced to shoulder burden of high property taxes; companies do not always reach their commitment, nothing holds them accountable & regularly do not meet hiring metrics

 

Everett Lunning, Central Texas Interfaith 

  • 313 has rewarded individual school districts while siphoning funds away from the system statewide; shouldn’t take from the system to pay the richest companies in the world

 

Rickie Harris, West Orange-Cove CISD Superintendent 

  • West Orange-Cove CISD is in process of negotiating 313 agreement, beneficial to West Orange-Cove CISD; bring more resources into the district
  • Seeing jobs moving to the district, anticipation of the 313 has built excitement in the community
  • Legislature should look at allowing districts to hire professionals to help negotiate 313s, e.g. consultants
  • Existing agreements need to exist under the current system, shouldn’t penalize existing agreements

 

Pete Pape, Texas Schools for Economic Development, Mesquite ISD 

  • Support 313s partnerships, increase the tax base for ISDs
  • 313s entities are fully taxable for I&S
  • Support renewal of 313s or an incentive to replace 313s
  • Support process being transparent
  • Support local school boards’ ability to approve, negotiate, and hire consultants