Late deal sends new economic incentives for businesses to governor

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A new economic incentives package to help lure large companies to the state was approved with overwhelming support by lawmakers in an 11th-hour deal on Sunday night and sent to Gov. Greg Abbott’s desk.

The compromise came amid pressure from the business community and Texas state leaders who said it was vital to create a program that would help the state keep its competitive business edge — and to replace a widely criticized tax abatement that expired last year after two decades on the books.

The new Texas Jobs, Energy, Technology and Innovation Act replaces the old Texas Economic Development Act, which was known informally as Chapter 313, a reference to the part of the state tax code that gave large businesses moving to Texas a 10-year discount on their school property taxes.

The bill cuts the previous abatement in half, adds public input to the process, bumps up the jobs and salary requirements and increases oversight and accountability measures as compared to the older program.

The new plan excludes wind, solar and battery power storage projects from being able to participate. It also strikes out one of the most controversial parts of the old program — direct payments by the companies to the schools that entered into the deals.

The incentive would be found in Chapter 403 of the tax code and would expire in 10 years unless legislators renew it.

The House voted 100-36, with both Democrats and Republicans voting against the bill because they objected to corporate welfare programs or the possibility of taking money from schools, among other reasons. The Senate passed the legislation 26-5, with some critics in the chamber saying they don’t like that the program is still closely tied with school finance.

The arrival at a compromise in the final 24 hours of the legislative session won praise from the state’s powerful oil and gas trade group, which had pushed for a new incentives package to support one of Texas’ essential industries.

“We appreciate the House and Senate working together to develop tools to attract jobs and investment, and look forward to Governor Abbott signing the bill,” said Todd Staples, president of the Texas Oil and Gas Association. “Economic development professionals across the state are ready to go to work to grow their communities.”

The previous Chapter 313 program was allowed to expire in December after complaints that it caused massive inequity in schools and amounted to a corporate welfare program that allowed rich companies to break their promises about job creation.

The new plan, carried by House State Affairs Chair Todd Hunter, a Corpus Christi Republican, offers a 10-year reduction to the property taxes that firms pay to help sustain school district maintenance and operations. In exchange, eligible companies must create a specific number of full-time jobs — either salaried or contracted jobs — with health benefits for the salaried jobs and competitive pay tied to statewide standards for their particular industry sector.

The company has to make a report to the state on its compliance with the agreement every two years.

The state pays the schools from the state’s general revenue fund in order to replace at least part of the tax money they’re losing to the abatement. Budget analysts say they are unclear how much money taxpayers would be spending to give the companies the discount.

The new package limits the companies that can qualify for the program to those that support manufacturing, hydrogen fuel production and carbon capture facilities, the development of natural resources, thermal power generation, technologies like semiconductor chips, and innovation including research and development firms.

That last category could include medicine and other cutting-edge projects, said Senate Business and Commerce Chair Charles Schwertner, R-Georgetown, who shepherded the negotiations through the Senate — a process he likened to threading a needle.

Eligible companies would get a 50% abatement unless the project was located in an economically disadvantaged area that has been federally designated as an “opportunity” zone — in which case the abatement would be bumped up to 75%.

“Those zones are prevalent in Texas, in the Rio Grande Valley and in some rural areas, where there’s not been as much of the Texas economic miracle that other areas, urban and suburban areas, have experienced,” Schwertner said. “If we can make an incentive program that drives investment into those areas, all Texans can flourish.”

Democrats who helped craft the deal said on Sunday that the new plan is more responsible and equitable than the original program and added that they particularly appreciated the emphasis on incentivizing development in the more rural or impoverished areas of the state.

“You’ve done tremendous work to make this happen,” state Sen. José Menéndez, D-San Antonio, told Schwertner during floor discussion. “There are a lot of groups out speaking about this not being necessary and they may or may not be right. But at the end of the day … I think we’ve struck a balance that makes a lot of sense, and I appreciate your hard work.”

Before a new company can take the deal and move into a community in Texas, the school district in the area would host public hearings and decide whether the project should be considered by an oversight committee composed of legislative leaders.

The state comptroller and the governor are also heavily involved in the process under the legislation. The comptroller can set a one-time fee of up to $30,000 that would be paid by the company to cover the costs for the districts to evaluate the program.

Either the governor or the school district can terminate a deal at any time if the company doesn’t comply with the jobs or wage requirements of the incentive, and there’s a mechanism for “clawing back” the money a firm saved through the abatement for violations.

The abatement also could go to projects that seek to build or expand on existing “critical infrastructure” but bans participation by renewable energy companies like wind and solar — which composed a large share of the companies in the last program — from being eligible for the tax break, as well as battery power storage projects.

One conservative criticism of the defunct Chapter 313 program was that it was easily abused by renewable companies, giving them a leg up in a state that heavily relies on the oil and gas industry.

The new plan also does not allow companies to participate if they have been identified by the state comptroller as being detrimental to Texas values and business because of their environmental, social and governance strategies, also referred to as ESG. Conservatives criticize them as part of a leftist “woke” agenda that pushes climate-change-conscious policies and threatens the Texas oil and gas industry.

That provision was stronger in earlier versions of the bill, which excluded all companies with ESG policies, but it triggered warnings by both Democrats and Republicans — as well as some in the oil and gas industry — that it would inadvertently exclude far too many companies.

Participating companies must also be able to show that they would not be building in Texas without the incentives.

“Those are the guardrails, if you will, that we’re not just giving the school dollars away to everyone who shows up asking with their hand out,” Menéndez said. “This will be the deal-making deal, the closing funding to help companies come here with good jobs.”

Payments to schools axed

Perhaps the biggest difference between the old program and new one is the absence of direct payments to schools by the companies.

Known by supporters as “payments in lieu of” taxes and by critics as “bribes” and “kickbacks,” the payments were a feature of Chapter 313 that detractors said created obvious inequities because only the districts lucky enough to win deals with companies could get the windfalls.

Some districts have dozens of those deals, like the 37 deals in the Barber Hill ISD northeast of Houston, while others, like Cuero ISD, have none.

Several that do, however, told lawmakers during hearings on the legislation that the payments have been critical to their survival, particularly those where student population growth is outpacing property values, rendering districts unable to shoulder the costs of growth.

Two years ago, the Taylor ISD struck a deal with Samsung to build a base in its Williamson County district, north of Austin.

Even though the project isn’t up and running yet, the students have already benefited from 60 internships offered in a district where 70% of the student population has income low enough to qualify them for the district’s free lunch program, said Taylor ISD Superintendent Devin Padavil.

The direct payments made through the Samsung deal have already helped pay for facilities upgrades and repairs and teacher salaries without raising the tax rate, he said. Over the next 10 years, the payments from Samsung will total $46 million to the district, he said.

“If the state funding adequately allowed us to address teacher compensation and all of our other needs, that would be wonderful,” Padavil said in a committee hearing. “But more than anything, this is about opportunities for kids. The opportunities that our students have, that they can imagine for themselves, have expanded when a global corporation calls Taylor, Texas, its home.”

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