Business lobbyists and school district officials are working to persuade Texas lawmakers to establish a new corporate welfare program.
House Bill 5 by State Rep. Todd Hunter (R-Corpus Christi) would replace a controversial economic incentive program known as Chapter 313 that expired at the end of last year after lawmakers declined to renew it in 2021.
Although the state is no longer processing applications for the program, there are 897 Chapter 313 agreements in effect throughout the state, around a third of which were finalized just last year, according to a representative from Comptroller Glenn Hegar’s office. These agreements allow businesses that fund new projects meeting certain criteria to receive an abatement—or reduction—of their school district property tax liability for 10 years or more in exchange for bringing jobs to the community where the project is located.
School districts that have negotiated an agreement receive funding from the state in an amount equal to that of the abatement, which can range from $10 to $100 million over a 10-year period. As of February 2023, the total abatement value for active agreements is $27 billion.
At a recent meeting of the Senate Business and Industry Committee, State Sen. Charles Schwertner (R-Georgetown), the Senate sponsor for HB 5, acknowledged that “this has been a divisive issue,” as Chapter 313 has been blamed for contributing to “inequity” in funding public education and criticized as “corporate welfare.”
Still, he argued Texas’ status as an “economic powerhouse” is due in part to Chapter 313, and he said he wanted to “get feedback” on “fashioning an economic incentive program that is right for Texas.”
“My ears are open,” he said.
Despite opposition to Chapter 313-like programs expressed in the platforms of both the Republican Party of Texas and the Democrat Party of Texas, Schwertner said HB 5 “is a priority of the legislature.”
HB 5 passed the House by a vote of 120-24, receiving an explicit endorsement from Speaker Dade Phelan (R-Beaumont).
Whereas Chapter 313 agreements were negotiated directly between school districts and businesses and received only a cursory review by the comptroller’s office, HB 5 would implement an application process that involves the comptroller, governor, and a legislative oversight board. To be eligible for an abatement, an applicant would have to demonstrate that the proposed project would produce a net benefit to the state’s economy in an amount greater than the foregone property taxes within 25 years, and that approval is a “determining factor” in deciding whether to go forward with the project.
Schwertner explained that the oversight board, which would have the final say on whether to approve a project, could prioritize certain categories, such as manufacturing or power generation, or give all types equal consideration.
Since 2007, when the legislature revised Chapter 313 to allow school districts to waive the jobs creation requirement for applicants, the vast majority of new agreements facilitated the development of renewable energy projects like wind farms, which notoriously failed during the 2021 winter storm.
Texas Scorecard previously published an investigative series revealing the corruption associated with Chapter 313 agreements, and recently profiled a report from the Huffines Liberty Foundation evaluating the legislature’s proposed replacement.
Lobbyists from the Texas Association of Business, the Texas Association of Manufacturers, the Texas Chemical Council, the Texas Oil and Gas Association, and the Texas Association of Rural Schools all testified in favor of HB 5.
Williamson County Judge Bill Gravell, Taylor Independent School District Superintendent Devin Padavil, and Aledo ISD Trustee Susan Bone also supported the legislation.
Former state lawmaker and Texas Agriculture Commissioner Todd Staples, now president of the Texas Oil and Gas Association, said Texas needs an economic incentive program to “remain in the game” and be competitive with other states.
Hector Rivero of the Texas Chemical Council said “the competition is fierce, and it is real,” noting that other states are aggressively courting businesses considering expansion or relocation.
Tony Bennett of the Texas Association of Manufacturers said Texas faces “global competition” and that HB 5 is “absolutely critical,” explaining that it has national security implications since most computer chips and pharmaceuticals are manufactured overseas.
Gravell said “the future of Texas is bright, but I fear that some storm clouds are gathering,” apparently referring to skepticism several legislators expressed about the program.
State Sen. Lois Kolkhort (R-Brenham) was one of those lawmakers.
She said Chapter 313 “went off the rails some time ago,” arguing that “corporate America should want to pay for our workforce.”
She pointed out that many businesses that have moved to Texas in recent years didn’t apply for a Chapter 313 agreement, and she explained that payments the state continues to make to certain school districts could benefit more communities if the businesses receiving the abatements didn’t get a tax break.
State Sen. Nathan Johnson (D-Dallas) agreed, reasoning that “if you’re going to build it anyway, we need not give you an incentive to build it.”
“We forget that these tax dollars we’re basically spending in the form of abatements to try to generate more—those are real dollars that come from real people,” he added.
Austin ISD Trustee Ofelia Zapata and Michael Rosen of Dallas Area Interfaith shared these sentiments.
Rosen argued the bill would “defund our schools,” and Zapata said it would “provide unnecessary tax breaks to corporations” like Tesla, creating an even greater burden for homeowners struggling to pay their property taxes.
The version of HB 5 considered during the Senate hearing contained several changes from that passed by the House, one of which is the addition of a 10-year expiration date for the program.
If the Senate passes the bill—which is far from certain—the House would have to agree to any changes or work out their differences with the upper chamber in a conference committee before the legislation can be signed into law.
The 88th Legislative Session ends May 29.
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