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- As of September 1: 5 were withdrawn, 324 had determined to be complete, 90 certified and around 30 are executing agreements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
