Adopted amidst controversy in 2001, Chapter 313 of the Tax Code – titled the “Texas Economic Development Act” – has grown over the past decade to become a favored carve-out for politically connected businesses. Under the program, big businesses are empowered to negotiate with local school boards for large reductions in the appraised value of their facilities, resulting in a reduction in their property taxes. The districts are then made whole by offsetting payments from the state.

The special tax carve-outs are ostensibly designed to “create jobs” in the local community but have been criticized as ineffective by the state auditor. More critically, because the state offsets the reduction in revenue, the program essentially allows local elected officials to allocate state tax dollars.

Fortunately, Gov. Greg Abbott is signaling that he is skeptical of the Chapter 313 program and its supposed benefits to taxpayers.

In his statement vetoing HB 2826, a bill by State Rep. Jim Murphy (R–Houston) that would have ultimately cost taxpayers $100 million per biennium through an expansion of the tax abatement program, Abbott noted that he has “serious concerns” with the program’s “oversight, transparency, and value to taxpayers.” He referenced a study conducted by the Comptroller in 2013 showing that Chapter 313 cost taxpayers $341,363 for every new job created.

HB 2826 was not the only tax handout stopped by Abbott and his conservative allies in the Texas Senate. Texans for Fiscal Responsibility negatively rated HB 2096 by State Rep. Angie Chen Button (R–Garland) as it passed the Texas House. Button’s bill would have given sales tax exemptions to multiuser data centers and even would have allowed program recipients to receive a refund on taxes paid before the bill would have gone into effect. The bill was reportedly designed to benefit a company that had already decided to locate a data center in Button’s district. After passing the House, HB 2096 was referred to the Senate Finance Committee where it died without a hearing or vote.

A similar bill, HB 2712 by State Rep. Charlie Geren (R–Fort Worth) will provide the same sales tax exemptions for large data centers. In a House committee hearing on the bill and a companion, Geren admitted that the carve-out was brought to him by Facebook and was supported by Microsoft.

However, when the bill reached the Senate, Abbott forced Geren to drop a provision in HB 2712 that would have allowed the data centers to receive both the sales tax exemption and Chapter 313 property tax abatements. With the bill largely rendered an insubstantial change to an existing sales tax exemption program (it effectively extended an existing carve-out from 15 to 20 years and allowed the centers to be spread out across multiple buildings) Abbott signed it into law.

Abbott’s efforts along with the efforts of his allies in the Senate signal that Texas may have finally turned a corner on tax carve-outs for big business. Taxpayers should give Abbott support and encouragement to further rein-in special privileges for the politically connected.

Note: This article has been edited to clarify that Gov. Abbott forced Rep. Charlie Geren to remove the provisions in HB 2712 related to Chapter 313 abatements and that those provisions were removed by the Senate. The bill’s Senate sponsor, State. Sen. Kelly Hancock (R–North Richland Hills) has confirmed that he had consistently opposed the Chapter 313 provisions contained in the bill.

Tony McDonald

Tony McDonald serves as General Counsel to Texas Scorecard. A licensed and practicing attorney, Tony specializes in the areas of civil litigation, legislative lawyering, and non-profit regulatory compliance. Tony resides in Austin with his wife and daughter and attends St. Paul Lutheran Church.