Could the death of a corporate handout in Texas be a turning point?
At the start of the Texas legislative session, an extension of Chapter 313, one of the country’s biggest economic incentive programs, seemed like an automatic. Instead, an unexpected series of events doomed the renewal of this controversial program. Its demise could be a road map for reforming an economic development incentive scam that is costing taxpayers billions a year.
Chapter 313 incentivized large businesses to invest in Texas by limiting their school property taxes for 10 years based on good faith that businesses would bring jobs and new tax revenue. The motivation for the program — a drop in Texas’ competitiveness — was based on a typo, but it quickly became a windfall for companies and different consultants and lawyers working on the deal.
Environmental groups lobbied with the oil and gas industry for the program. And school districts that agreed to the incentives actually made more from state reimbursements than from taxes. In the past, the lone voices of opposition were left- and right-leaning think tanks, Every Texan and the Texas Public Policy Foundation.
So, what happened?
First was incredible hubris by Chapter 313 supporters. Rather than simply extending this program, a bill was introduced to dramatically increase it, costing a total of $44.5 billion over 10 years. Shockingly, this bill made it out of committee but was met with serious criticism on the Texas House floor.
Perhaps the special interests didn’t realize how much opposition had grown. More than a decade of investigative reports, and a Texas Senate committee report, documented the disaster of the program.
Companies that joined the program were rarely the types of businesses that could locate anywhere — think, petrochemical companies that had few location options. My own research estimated that at least 85 percent of these companies were coming anyway. Numerous companies admitted on their incentive applications that they were looking at Texas only for a location, and some companies didn’t wait for the incentive to start building.
Another report found that most of the companies in the program challenged their property tax evaluations at the end of their incentive, leaving Texas taxpayers with very little value to tax. Even more sweeping was a series from the Houston Chronicle that documented all of the flaws in the program, including how easy it is to receive an incentive and how most districts in Texas lost money due to this program.
The final, and perhaps most pivotal, explanation was the winter storms in Texas that left much of the state, including my house, without power for a week. This led to frays within the energy industry and the targeting of renewable energy in a number of bills.
The renewable industry remained supportive of 313, but there seemed to be less of a public push for its renewal. And some traditional supporters of incentives, such as Texas Gov. Greg Abbott (R), were silent about Chapter 313. All the while, there was an unexpected increase in organized opposition, including a major interfaith group called the Texas Industrial Areas Foundation and the AFL-CIO.
Although the conditions of how it got killed in Texas are idiosyncratic, it shows that resistance against moneyed special interests is not futile. Cities and states in the United States hand out as much as $90 billion to companies every year in tax abatements, grants, subsidized land, etc. These economic development incentive programs are notoriously nontransparent and have been heavily criticized as ineffective.
Slowly, others are catching on. Major incentive events, such as Amazon’s search for a second headquarters, have mobilized some groups across the country. In states like Wisconsin, incentive deal disasters have led to a public rethinking of these programs.
These programs hurt taxpayers, small businesses, and in this case of Chapter 313, schools in Texas. Yet in most states, small business groups left out of these big business subsidies, schools, and taxpayers rarely stand up. This is a story set in Texas, but there are lessons from across the country.
Nathan Jensen is a professor of government at The University of Texas at Austin.