An effort to resurrect Texas’ Chapter 313 tax abatement is underway in the Legislature.
With the March 10 deadline for new bills in the Texas Legislature fast approaching, pressure is mounting to come up with a replacement for Chapter 313, a recently expired program that helped oil and gas companies, chip manufacturers and other industries secure billions in tax abatements through local school districts.
Nearly 200 representatives of trade organizations, economic development councils and chambers of commerce are included among the signatories of a Feb. 14 letter to the Legislature calling for “a new, transparent, and accountable economic development policy.” The signatories warned that Texas could lose business if legislators don’t hurry up and create a new tax break program. “Over the last year, Texas lost several multibillion-dollar deals, including Rivian to Georgia, Intel to Ohio, and Micron to New York,” assert the authors of the letter. “Texas stands to lose more jobs, more investments, more tax base and more growth if we don’t restock our economic development toolbox with a new economic development incentive this legislative session.”
Two days later, Gov. Greg Abbott delivered his State of the State address at a rare earth metals manufacturing plant in San Marcos. “To keep Texas the best state for business, our local communities need new economic development tools this session,” he said. That same day, Rep. J.M. Lozano, a Republican from the industry-dense region that includes the north side of Corpus Christi Bay, introduced a bill to simply reauthorize the old Chapter 313 with no substantive changes.
“It’s the same people representing the same interests getting the same tax breaks.”
~ Doug Greco, Central Texas Interfaith
The headliners on the Feb. 14 letter are executives of major industry and business lobbying organizations, including the Texas Oil and Gas Association, Texas Association of Manufacturers, the Texas Taxpayers and Research Association, the Texas Association of Business and the Texas Chemical Council. None of those groups was willing to comment on the record about the Feb. 14 letter, but all of them were formerly part of a coalition called Jobs for Texas, which advocated for reauthorizing Chapter 313 with new language that would exclude renewable energy companies from eligibility. Jobs for Texas disbanded in January, according to a statement from Dale Craymer, president of the Texas Taxpayers and Research Association.
But as the recent letter to the Legislature shows, its members have reassembled with what appears to be essentially the same goal: replacing Chapter 313 with a new program that would offer massive tax breaks in order to recruit companies to Texas or to keep companies that are already in Texas from leaving.
Doug Greco, lead organizer at Central Texas Interfaith, one of the organizations that helped shut down reauthorization of Chapter 313 in the 2021 legislative session, said the letter looks like a rebranding effort. “Jobs for Texas was becoming a detriment to the effort,” Greco said. “Now they’re signing on local chambers and economic development corporations as opposed to having big statewide industry groups be the front of the face of the movement.”
Greco said he thinks activism by groups like his in recent years has raised the profile of Chapter 313 from a little known tax loophole to an emblem of the dysfunctional relationship between industry and government in Texas. As for the new push, he said, “It’s the same people representing the same interests getting the same tax breaks.”
* * *
It’s important to note that the signatories to the Feb. 14 letter are no longer calling for a simple Chapter 313 reauthorization. In fact, their letter to the Legislature does not mention Chapter 313 at all. “The thing we like to remind people over and over is that 313 is dead. That’s not our focus anymore,” said a senior staffer at one of the former Jobs for Texas member organizations, who was authorized to speak only on background. “We’re trying to get a more modern and transparent tool for communities,” the staffer said, clarifying that she was not aware of any draft legislation and had not heard of Rep. Lozano’s bill.
In the last few years of its two-decade lifespan, the Chapter 313 program faced steadily intensifying scrutiny over what critics claimed was insufficient oversight and accountability. For example, beneficiaries were required by statute to create a specified number of jobs and generate a specified dollar amount of economic growth, but were rarely — if ever — required by the state comptroller to demonstrate that they had met their obligations. Numerous Chapter 313 beneficiaries were also able to secure waivers from the comptroller to avoid the minimum job creation requirements altogether.
“Let’s not take the tool out of the toolbox. Let’s make it effective and address the concerns people had about it being abused.”
~ Steve Ahlenius, Greater Beaumont Chamber of Commerce
Steve Ahlenius, president of the Greater Beaumont Chamber of Commerce, said he signed the Feb. 14 letter because he worries about losing business to states that can offer better deal sweeteners. Tax abatements, he said, “are a major component in terms of economic development incentives to attract industries or to have existing industries expand.” The Beaumont-Port Arthur region is home to numerous petrochemical facilities owned by ExxonMobil, Motiva, Enterprise and Valero, among others. In December, the Beaumont Independent School District awarded several last minute Chapter 313 abatements, including one to Enterprise Products worth $395 million.
Ahlenius said he would not support a mere reauthorization bill like the one Rep. Lozano filed. “I think it needs to be redone to address the concerns folks have about the 313 process. It needs more transparent reporting mechanisms,” he said. “Accountability means that the system or program doesn’t get abused, that it’s not cheating school systems in Texas, and that it’s fair and equitable in terms of how it’s used to grow industry.”
Other than Rep. Lozano, no member of the Legislature has yet signaled a willingness to sponsor a new tax incentive bill to replace Chapter 313.
* * *
Rep. Lozano serves as chairman of the House Higher Education Committee. In an email, one of his committee staffers said that conversations with “economic development corporations, cities and other stakeholders across the state” compelled Lozano to file for a simple renewal of Chapter 313. “This filing will allow for a conversation on how we can move forward to solidify Texas’ position as an economic powerhouse in the United States,” the staffer wrote.
“I don’t think you can get it passed as is,” Ahlenius said. “I think change is coming, and let’s make it effective. Let’s not take the tool out of the toolbox. Let’s make it effective and address the concerns people had about it being abused.”
Texas House Speaker Dade Phelan, who represents Beaumont, was a strong supporter of Chapter 313 and has vowed to pursue a replacement in 2023. But Phelan seems to have noticed the tide of opposition. “This session we can have a new program,” he told reporters in a Jan. 12 media briefing. “We can have all that oversight and transparency and accountability and hopefully move forward, just so we can compete with other states.”
Bob Fleming, an organizer with the Houston based nonprofit the Metropolitan Organization, said he thinks the Legislature is a less favorable environment for a simple Chapter 313 reauthorization like Rep. Lozano’s today than back in 2021, when the last reauthorization bill failed. He expects any bill that ties tax abatements to education funding will face similar headwinds. “They can’t escape the connection: Tax breaks for big businesses equals less money for school districts.”
“There is no constitutional obligation to attract business to Texas, but there is one to create fair and efficient schools.”
~ Bob Fleming, The Metropolitan Organization
Fleming said that per capita funding for students in Texas — known officially as the “basic allotment,” which is guaranteed by the state constitution — has never recovered from cuts that were made during the Great Recession. “There is no constitutional obligation to attract business to Texas, but there is one to create fair and efficient schools,” Fleming said. “And if you look at education as a workforce development program, they’re skimping on that. That side of economic development is being short-changed for incentives for big business.”
As for the Feb. 14 letter, Fleming said he was struck by the lack of response to criticisms that tanked Chapter 313 back in 2021. “It doesn’t recognize a single objection that opponents made,” he said. “There’s no mention of PILOT payments and whether they’ll be part of it, no mention of limits to the total amount of money that can be given away, no tightening up of regulations on jobs and what counts for a good proposal, no limitations.” (PILOT payments, or payments in lieu of taxes, were the kickbacks offered to school districts by companies as part of Chapter 313 agreements.)
Mike Culbertson, interim CEO of the Corpus Christi Regional Economic Development Council, and one of the signers of the Feb. 14 letter, said he worries, like Ahlenius in Beaumont, that Texas will lose major capital investments to other states — particularly Louisiana and Oklahoma — without a new tax incentive program “on the school tax side” to replace Chapter 313.
“The choice isn’t that Texas would get 100% of the taxes or 70% of the taxes,” Culbertson said. “It’s that Texas has a chance to get 70% of the new taxes or nothing when the company doesn’t come.”
Asked whether he saw any possibility of a new tax incentive program that did not rely on school property taxes, Culberston said, “A couple of states use general funds that the governor can use for incentives. With the size of Texas that would require the governor to pick winners and losers. If there were only one location in Texas and the Legislature created a specific fund, then maybe it would work.” Culbertson said he had not seen Rep. Lozano’s bill.
Greco and Fleming both said they would oppose any Chapter 313 replacement program that involves school funding. “The Chapter 313 program has taken more money from the public school system than any other factor,” Fleming said, “and that’s where they’re stuck.”
Copyright 2023 Capital & Main