For more than twenty years state revenue has been drained by a program of school property tax abatements known as “Chapter 313,” after its section in the Tax Code. This colossal giveaway strains the rest of General Revenue services – higher education, health and human services, and public safety – to make up for foregone local school taxes. The state budget fills in gaps in school taxes created by these special interest deals by maintaining funding for a district’s state formula aid as if the abated value of the business property did not exist. If the property were instead taxed at its full value, local tax revenue would increase, reducing the need for state aid and allowing limited resources to be redirected to other uses or to increase state support for our schools.
In 2021, the Legislature refused to reauthorize the Chapter 313 tax breaks, but all agreements signed before its expiration at the end of 2022 will continue for the length of each contract, which may not start for years into the future and can run for 13 years or more. These costly and inefficient special treatments are expected to cost the state $2.3 billion in the coming biennium, growing to $2.6 billion in 2026-27. The estimated total cost to the state of all active agreements is an astounding $31 billion!
This session beneficiaries of these lucrative deals are pushing a replacement program – HB 5 by Rep. Todd Hunter. HB 5 is similar in structure to Chapter 313 but promises to be more expensive, with fewer long-term jobs at lower wages, and less accountability. A revised “committee substitute” of the bill started circulating last week. The text will not be available publicly until the bill is voted out of the Ways & Means Committee, but here are the key points of its proposals:
Renewable energy projects are excluded from HB 5.
Wind and solar projects account for two-thirds of all Chapter 313 projects, although only one-quarter of the cost in forgone school property tax revenue. Instead, HB 5 would expand eligibility to “grid reliability projects,” which are defined to exclude renewable energy (except if provided via battery) but includes expansion or extension of existing “dispatchable” power generation and natural gas processing or storage.
Essential job and investment requirements are waived [RL1] for these projects. Importantly, these projects would not be subject to even the weak requirement that the agreement is “a determining factor [RL2] ” in locating the project in Texas, since our exclusive power grid requires power generators to locate in the state regardless of special tax treatment.
Wage and benefit requirements are weaker under HB 5.
Chapter 313 required that at least a minimum number of jobs paid 110 percent of the average manufacturing wage in that county or the multi-county Council of Governments area. HB 5 would lower this to only the average wage for ALL jobs in the county – a much weaker target that includes lower-paid service sector jobs, such as those in fast food outlets. Chapter 313 also required a minimum number of jobs to be covered by a group health benefit plan. HB 5 has no health benefits requirement. In addition, Chapter 313 counted only permanent full-time jobs, while HB 5 credits temporary construction jobs and work by independent contractors.
HB 5 is likely to be even more expensive than Chapter 313.
No fiscal note estimate is available for the proposed committee substitute, but many of its provisions promise to reduce school property tax revenue by more than Chapter 313. A key difference is that, while Chapter 313 was limited to only new buildings, HB 5 would give tax breaks for expansion of existing buildings and fuel storage facilities or increases in capacity of existing electric generation facilities.
Like Chapter 313, HB 5 lacks a “but for test” – that a project would not locate in Texas “but for” a tax break.
The Comptroller must certify only that the special tax treatment is merely one determining factor [RL3] among many. Few, if any, proposed projects failed this test under Chapter 313. An additional requirement that, over the 25 years after a project’s tax break expires, state and local tax revenue from all direct and indirectly induced sources is greater than the forgone school tax revenue over the ten years of the agreement, is similarly insubstantial.
Like Chapter 313, HB 5 lacks an independent audit of job creation and wage requirements.
HB 5 repeats the provision that the State Auditor review three agreements annually. These reviews have been undertaken with a narrow focus [RL4] on correct processing of applications, submission of reports, and disclosure of conflicts of interest. Whether the number of jobs created or the wages paid met statutory requirements is never examined, even though this information could be easily obtained from the Texas Workforce Commission.
HB 5 limits opportunities for public input.
Chapter 313 does not require a school district to consider an application, then gives the district 150 days from the date of filing to make a final decision on the proposal, after receiving the Comptroller’s recommendation. The board must hold a public hearing before acting on an initial application or signing a proposed agreement. In contrast, HB 5 requires a district to forward an application to the Comptroller, then gives the district only 35 days[RL5] to act after getting the Comptroller’s recommendation – too short a period for the public to become informed and respond adequately.
The next required review of HB 5 would not occur until 2036.
The new committee substitute includes a sunset date, which was missing from the earlier versions. It is only because Chapter 313 included an expiration date that it faced the intensive examination in 2021 that led to its demise. HB 5 would not face a similar review until 2036 – 13 years after it went into effect. In contrast, Chapter 313 was created in 2001 and faced sunset review due to expiration dates in 2007, 2011, 2014, and 2022. A more reasonable expiration on the new structure proposed by HB 5 would be 2029, tracking the six-year initial review period for Chapter 313.
[RL1] page 6, lines 1-3
[RL2] page 18, lines 6-8
[RL3] page 18, line 3-5
[RL5] page 19, line 5