Netflix’s documentary series “Fear City: New York vs The Mafia” explores the long corrupt tentacles of power multiple crime families in the Big Apple wielded in the 1970s and 1980s. To feed their unending greed, the mafia unjustly reaped massive cash windfalls.
When one thinks of a mafia, images of men in suits gunning others down in the streets fill the imagination. But the mafia didn’t rely solely on violence to enrich themselves or maintain power. According to “Fear City,” one money-producing system they skillfully abused was New York City’s tax abatements—where taxes were reduced for specific projects or areas. Cronyism was marketed and disguised as economic development.
This shouldn’t be confused with cutting taxes. The difference, when done properly, is that tax cuts benefit all taxpayers, not a select few. Tax abatements, on the other hand, are criticized as public officials picking favorites for relief, while the rest must pay up.
In New York’s case, citizens lived in fear while their public servants created and sustained a system that enriched the predators.
That such a corrupt system was created in New York would be of no surprise to most. What may shock most Texans is to know that the Texas Legislature created a similar system here.
“Fear City” described how the New York mafia families set up “The Committee,” a coalition of mafia leaders that decided who got which deals and kept mafia wars to a minimum. Similarly, state lawmakers set up local school boards to act like mafia committees, with meetings shrouded in secrecy, handing out sweet favors to the selected few.
This comparison to criminal families is bolstered by the slew of criminal activities those connected to Texas school districts have been arrested for, like with Prosper Independent School District. Their school board president was recently arrested for indecency with a child.
Just like the oppressed in New York during the mafia years, taxpayers are made to bear the burden of the special favors these school boards are handing out. And lawmakers are actively working to ensure this corrupt system never goes away.
This revival could also open the door to a national security risk if lawmakers aren’t careful.
Texas’ Corrupt System
Taxpayer burdens in Texas have gotten out of control.
According to Texans for Fiscal Responsibility, the overall property tax burden has metastasized from $10.5 billion in 1994 to $71 billion in 2020—more than a 560 percent increase. TFR states this explosion has far outpaced population growth.
Since 2000, the overall property tax burden spiked 216 percent, while the state population grew by only 40 percent.
Such outrageous growth is encouraged by the Texas Legislature having created a tax-hiking cartel of local governments and appraisal districts. Texas Scorecard previously investigated taxpayer complaints against appraisal districts, incidents of the appraisal districts gatekeeping tax exemptions, evidence that local officials control these districts, and how to end this cartel.
“The local property tax poses the single biggest barrier to capital investment,” states a February 2021 paper from the Texas Taxpayers and Research Association. “Of the estimated $83 billion in Texas state and local taxes business paid in 2019, $36 billion, almost 43 percent, were local property taxes levied by school districts, cities, counties and various special purpose districts.”
This has been a problem for a long time. According to Texas Public Policy Foundation’s 2018 paper Money for Nothing, written by Stanley Greer, in 1997 computer chip maker Intel pulled out of finishing a $1.2 billion semiconductor chip factory in north Fort Worth. The reason Intel gave for this about-face was burdensome school property taxes.
This move reportedly sent shockwaves throughout the state, rattling the Texas Legislature itself. But they didn’t solve the problem by targeting and reducing these immoral taxes, the largest portion of which are school district property taxes. Lawmakers in 2001 decided instead to set up school boards as mafia committees, giving property tax breaks to certain businesses in exchange for protection money. This would help keep the tax bills of the favored few low for a period of time, while the majority of Texans continue to be burdened.
Introduced by former State Rep. Kim Brimer (R–Fort Worth), the formalized system of corruption allowed, as Greer writes, “a school district to make an agreement with a private business operating within its boundaries to allow the latter to pay less, often far less, in property taxes than it would ordinarily owe over the course of a decade.” In other words, like the mafia committees of New York, school boards could now decide who gets very special deals.
This system was named Chapter 313 of Texas’ tax code, or the Texas Economic Development Act. It “allows a school district to offer a temporary, 10-year limit (ranging from $10 million to $100 million) on the taxable value of a new investment project in manufacturing, and certain environmentally friendly energy projects,” wrote Texas Taxpayers and Research Association.
It only applies to the school property tax rate that funds payroll and general operations—the Maintenance & Operations Tax Rate—not the tax rate that repays debt—the Interest & Sinking Tax Rate. TTARA’s paper was written in support of this corrupt program. “Property eligible for the limitation includes land, buildings and certain tangible personal property, such as machinery and equipment, but not inventories.”
“Before the school district can approve a limitation, the State Comptroller must issue a certificate of approval that finds the project will generate more tax revenue for the state than the amount of the benefit received by the taxpayer,” the paper explains. “If the school district decides to consider the application, it is forwarded to the Comptroller, who evaluates the application and determines whether it meets certain required criteria.”
Kevin Lyons, spokesman for the Texas Comptroller, confirmed this to Texas Scorecard. “How can you have an agreement if we didn’t certify it?”
However, public policy specialist Bill Peacock said the comptroller was limited as to what it could do. “There was no substantive review by the Comptroller,” he told Texas Scorecard. “The Comptroller’s just there to make sure that the businesses aren’t giving false information to the school districts. If all the information is accurate, and the applications are complete, then the comptroller had no say on it.”
It seems as though these agreements can be extended. “Only the [school] districts can extend the time an agreement can be executed, so long as it’s not past the expiration of the certificate,” the Comptroller’s office stated. This was in response to an open records request seeking extensions of Chapter 313 agreements. “Our agency/Comptroller Hegar does not extend these agreements. The agreements are between the districts and the companies.”
This contradicted a response to another open records request Texas Scorecard sent the Texas comptroller. We requested records of all Chapter 313 agreements extended from May 30, 2021 to present. “These applications cannot be “extended,” but all applications that have gone to agreement from May 30, 2021 to present, with all substantive documents, are available at our website,” was the reply.
Greer’s TPPF paper found, in all, this corrupt system posed no risk to school districts at all. For every school district that made such arrangements with a business, taxpayers statewide would have their money shunted into that district to compensate for that businesses’ lower taxes. “The reason the school district doesn’t lose any revenue is that individuals and businesses located across Texas who pay state sales, franchise, and other taxes have to reimburse the school district for all the revenue it doesn’t collect in property taxes.”
“That makes me even madder,” Craig Hundley, a taxpayer in Johnson County, told Texas Scorecard. He’s dealt with this corrupt system himself, and is disgusted by it. But he wasn’t previously aware of this all reward, no risk aspect.
It gets slightly more complex depending on the area you’re in, however, because of Texas’ school financing system. Peacock said property rich school districts have money taken from them redistributed to property poor districts. “If it’s a property rich district that does this [type of deal], they just get less money taken from them,” he said. “If it’s a property poor district, and they get money from the state every year, then they’ll get more money given to them. They’re made whole, whichever way it goes.”
Texas’ school funding system itself proves how immoral property taxes are. Journalist John Ibbitson summed it up in his 1997 book “Promised Land: Inside the Mike Harris Revolution,” where he covered the citizen-focused Common Sense Revolution in Ontario, Canada. “The property tax was already an inherently flawed means of raising revenue—many people are land-rich but money-poor.”
Tax Cuts for All
Up until now, however, the Republican-controlled Texas Legislature has only utilized this mechanism to empower greedy school districts to sit as mafia dons and decide which few businesses to bequeath favors through lower taxes, while in some cases simultaneously arranging kickbacks, grabbing more from local taxpayers, and cashing in from state taxpayers.
However, Texans for Fiscal Responsibility have proposed flipping this mechanism—flowing state taxpayer dollars to school districts—to benefit many Texans instead of the public education mafia’s favored few. This was discussed in part four of Texas Scorecard’s investigation of the state’s tax-hiking cartel.
The key difference is the source of funds would be the state’s surplus of taxpayer monies collected. As part of their Texas Prosperity Plan, TFR proposes directing the state’s now more than $32 billion tax-collection surplus to school districts to lower property tax bills in the 2023 legislative session. “Using just this and future surpluses, Texas can eliminate the need for school property taxes within the next 10 years, or even less time if lawmakers actually cut government spending simultaneously,” TFR states.
The corrupt 313 system puts school districts in a position to profit through formalized extortion, much like a local mafia.
“School districts commonly require supplemental payments in return for the [value] limitation, which are allowed under the law subject to certain limits,” states the 2021 paper from the Texas Taxpayers and Research Association. “These payments reduce the [business] taxpayer’s net tax savings and are excluded from consideration in state aid formulas [to the school district].”
A 2016 investigative report by The Texas Observer found that school districts, acting like mafia bosses demanding protection money, started squeezing these businesses for more and more cash. These monies would either go to the district directly, or go through what looks like a money laundering process of being washed through a non-profit first, then dispensed to the district. In 2010, the Texas Legislature felt the need to step in and restricted these extortionist “supplemental payments” to $100 per student per year, with a grandfather clause added to protect agreements already in place.
Eliminating this formalized extortion would not be enough. Greer noted in his 2018 Breaking the Bank paper for the Texas Public Policy Foundation that, even if the only result of these tax abatement deals is part of the funding for K-12 public education being uploaded to the state, “accountability in government is undermined.”
James Quintero of the Texas Public Policy Foundation agrees transparency is a problem.
“School districts engage in economic development negotiations behind closed doors, where the public is not allowed to participate or even listen in,” he told Texas Scorecard. “Once the governing body has made a decision to proceed with a 313 agreement, then the period of time that the public has to voice their concern on any sort of agreement is very limited.” Quintero also notes that very often once the school district enacts an agreement, they do not post them online.
Instead, if local taxpayers want to know what deals their local school district has struck, they have to go to the Texas comptroller’s website and sift through the list of agreements to see if their district has one.
What little transparency exists isn’t easily digestible for citizens. “These agreements are drenched in legalese, and the average person isn’t going to be well versed enough in the jargon to be able to decipher exactly what’s happening,” Quintero said. “I think that this whole system has been built in a very anti-taxpayer manner.”
Greer notes in Breaking the Bank that the system set up by the Texas Legislature encourages prosperous school districts to engage this mafia system as a way to counter the effects of “recapture.” Also known as “Robin Hood,” this is another funding system that redistributes taxpayer monies in wealthier districts. Monies made through 313 agreements are exempt. The Texas Tribune previously reported complaints that the formalized extortion collected from businesses aren’t subject to recapture.
The Narrative Is Failing
Arguments have been made that without this mafia like system, businesses will not be incentivized to come to Texas. A 2017 report by Professor Nathan Jenson of the University of Texas at Austin destroys that myth. After studying more than 80 Chapter 313 deals, he concluded that only about 15 percent of businesses that received these types of deals would have made camp somewhere else if they weren’t available to tap.
There are more cracks in the narrative that the mafia 313 helps promote business growth.
Originally, as Greer wrote, in order to qualify for a 313 deal, a business had to promise to create at least 25 jobs, or 10 if in a rural district. After potential investors—most associated with the unreliable wind energy market—complained, state lawmakers in 2007 gave school districts the ability to waive the jobs requirement. The Texas Observer later found in their 2016 investigative report that in nearly half of the 313 agreements at that time (more than 150), businesses weren’t promising to create even as little as ten jobs. In seven agreements, companies promised none.
As was later discovered, unreliable wind energy farms came and cashed in on these crony deals. A February 2013 report from the Texas Conservative Coalition Research Institute (TCCRI) found that, after lawmakers gave school districts the job waiver tool, 87 percent of the Chapter 313 deals were with unreliable power generation (wind, solar, etc.) companies. At the time, the TCCRI report also found that unreliable power “represented 37 percent of gross tax benefits” under 313, but only “eight percent of job commitment[s].”
A 2021 paper by Carine Martinez of the Texas Public Policy Foundation pointed to 313 incentivizing deals with unreliable energy producing companies as a contributing factor to the February 2021 power blackout.
Also, according to Greer’s report, until 2013, this mafia system made school districts functionally into the ultimate arbiters of whether or not these corrupt deals were the “determining factor” of these deals. Basically, state lawmakers had created a system with a formalized conflict of interest.
Their attempted fix—giving the Texas comptroller joint oversight of 313 with school districts—did little. As noted in The Texas Observer’s 2016 investigative report, the comptroller had only not signed seven of the 337 applications it got since 2010. Of those seven, three were approved after reapplying.
Quintero pointed out there is another conflict of interest that remains. He points to Barbers Hill ISD, “one of the most prolific 313 abusers in the state,” whose superintendent runs a consulting firm on the side that helps guide businesses through the corrupt 313 process. “You would expect that the wolf shouldn’t be guarding the hen house,” Quintero said. “It’s a very clear conflict of interest in my mind that is permitted under the status quo, and at a minimum needs to be addressed in the next legislative session.”
Time for Sunshine
The February 2021 winter blackout exposed how overly reliant Texas had become on unreliable power generation sources like wind and solar farms. That crisis occurred in a year when the mafia system of Chapter 313 was up for renewal. In that climate of anger over how the power went out for so long, the Texas Legislature decided to let the formalized corruption expire at the end of 2022.
Rumblings have pulsated since lawmakers and the Texas comptroller are aiming to revive and rebrand the corrupt 313. Quintero made clear that is not his ideal outcome, and that his preference for growing the economy is cultivating a free market system, as opposed to shadowy deals where biased school officials pick winners and losers, while negotiating kickbacks of protection money. “My hope is that if and when the legislature entertains the idea to reauthorize the program, they will eliminate school districts from this arena altogether. School districts have no business handing out government goodies in the name of economic development.”
Such a move does not appear yet to be in the energy of lawmakers at present.
When it comes to winning public trust with previously ruptured brands, few paths exist. The most positive response from the public is when maximum sunlight is allowed to shine and disinfect. As “Fear City” showed, when the New York mafia was brought into the light, they collapsed and New York’s reputation began being cleaned up.
Elon Musk has provided one of the best modern examples of this after his purchase of the once formerly pro-statist Twitter. Rather than hiding evidence of collusion with the government to suppress free speech, Musk chose to expose Twitter’s bad actions, conducted behind closed doors, to the world. “We’re just gonna put all the information out there to try and get a clean slate, and then work iteratively in the future to provide the most accurate and timely information to the people,” Musk said in a December 3, 2022, livestream discussion.
The reaction to Musk’s move from the grassroots appears to be highly positive. Substantial increased Twitter usage was reported after the first batch of transparency reports were released.
It appears that there is bipartisan concern about transparency regarding Texas’ mafia system in the state legislature. Records obtained by Texas Scorecard, through an open records request to the Texas comptroller, reveal state senators expressing concern about amendments to ostensibly reduce what transparency exists in Chapter 313. “While I understand and support the need for efficient and conservative government practices in our agencies, I must also stress the consistent need for taxpayers to have readily available access to information surrounding Chapter 313 agreements,” State Sen. Brian Birdwell (R–Granbury) wrote in a January 2022 letter to Comptroller Glenn Hegar’s office.
“I am concerned the proposals aim to reduce transparency to avoid the level of scrutiny the program experienced this past regular session,” State Sen. Juan “Chuy” Hinojosa (D–McAllen) wrote in a December 2021 email to Hegar. A December 2021 letter from 43 Democrats in the Texas House was also found among the records received.
For lawmakers not wanting to be viewed as collaborators in a statewide mafia-like scheme, a path for transparency does exist for lawmakers. That path requires delivering maximum transparency, and easily digestible information for the average citizen.
This involves eliminating the loophole that allows public school officials to negotiate economic development deals in the shadows. “If a district is going to negotiate a deal with a business prospect, it should be done out in the open, and those details be subject to disclosure,” Quintero stated.
Nor is it enough for the Texas comptroller to have all such agreements online. Quintero recommends the legislature require all school districts to post all existing and prospective agreements online. “The public ought to have a database that they can easily navigate to understand how their money has been committed,” he said.
All relevant details related to any sort of economic development agreement ought to be publicly disclosed. There should be no wiggle room here about how much money has been committed, and how much benefit that a district is gaining either in a formal way, or in an informal fashion, like through your PILOT payments.
Quintero also recommends state lawmakers extend the timeline for citizens to comment on such deals at their school districts. “Right now the process is fairly rushed, and it doesn’t allow the public a good chance to both learn about the agreement, digest it, and then come forward with their thoughts and ideas on any such prospect,” he said. “In the ideal, I would like to see the legislature install at least a 30-day requirement from the time that an agreement is first disclosed to the time that it is then allowed to be approved.”
Maximum transparency will mean little if what is transparent might as well be written in a foreign language, which is how most government documents appear. “Maybe, thinking forward, the governing body should create some sort of easily digestible brief that can be put in front of the public with all of the pertinent details,” Quintero said.
Barring this, lawmakers would be positioning themselves as continuing to formalize this corrupt mafia system they originally created.
There could also be a potential national security concern if the legislature is not careful with their effort to revive and rebrand this corruption. An internal email from Robert Wood, formerly of Special Projects at the Texas Comptroller, wrote in February 7, 2022, that special protections previously enacted to keep unreliable wind farms 25 miles away from military installations would expire along with Chapter 313 at the end of 2022. “There is a lot of interest in replacing Chapter 313, so the military flight communities will want to monitor that closely over the next few legislative sessions.”
Texas Scorecard previously examined the threat of land a retired Chinese general purchased near a U.S. military installation in Texas.
Currently, legislation has been filed in the Texas Senate to ban the purchase of or acquisition of real property in Texas by hostile countries like China, Iran, North Korea, and Russia. The bill also extends to companies headquartered in those countries or owned by individuals who are citizens of those countries. It has Gov. Abbott’s support, but if it fails to pass, and the corrupt mafia system is revived and rebranded without protections addressing this, the door could be opened to a national security risk.
The most current data shows that there are still a huge number of Chapter 313 agreements in effect across the state. According to the Texas comptroller’s website, as of June 30, 2022 there are currently 633 active Chapter 313 agreements with school districts across the state. As of June 20, 2022, there are 315 inactive agreements. Thus, of all the Chapter 313 agreements on record with the comptroller in June of last year, 66 percent were active at that time.
Of the 315 inactive ones, 183 were terminated, 37 weren’t executed, and eight were denied. Only four received a negative recommendation. Texas Scorecard asked Lyons of the Texas comptroller’s office how many such agreements had been approved since last June, and how many would ordinarily be certified in a six month period in prior years (2017, 2018, 2019)?
“We won’t have the entire universe of approved 313 agreements until this spring. And we don’t have a list of Ch. 313 applicants for six month time periods,” he replied. “We did receive 416 applications in 2022, which is more than we have ever received in any calendar year.”
In Part 2 of this series, Texas Scorecard will expose what this opaque and encrypted corruption has wrought.
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