At the start of the Texas legislature, an extension of Chapter 313, one of the country’s largest economic incentive programs, seemed like an automatic one. Instead, an unexpected series of events have doomed the renewal of this controversial program. Its demise could be a roadmap for reforming an economic development incentive scam that costs taxpayers billions annually.
Chapter 313 incentivized large corporations to invest in Texas by capping their school wealth taxes for 10 years based on the good faith belief that corporations would bring jobs and new tax revenue. Motivation for the program – a decline in Texas’s competitiveness – was based on a typo, but it quickly turned into a godsend for companies and various consultants and lawyers working on the deal.
Environmental groups advocated the program in the oil and gas industry. And school districts that agreed to the incentives actually made more money from government reimbursements than from taxes. In the past, the only opposition voices have been left- and right-wing think tanks, Every Texan and the Texas Public Policy Foundation.
So what happened
First was the incredible hubris of Chapter 313 followers. Rather than simply extending this program, a bill has been tabled to dramatically increase it and cost a total of $ 44.5 billion over 10 years. Shockingly, this bill made it out of committee but met serious criticism in the Texas home.
Perhaps the special interests did not know how much resistance had grown. More than a decade of investigative reports and a report from the Texas Senate Committee documented the program’s disaster.
Companies that took part in the program were rarely the kind of companies that could set up shop anywhere – think petrochemical companies that had few location options. My own research estimated that at least 85 percent of these companies are coming anyway. Numerous companies admitted in their incentive applications that they were only looking for a location in Texas, and some companies didn’t wait for the incentive to begin construction.
Another report found that most of the companies in the program challenged their property tax assessments at the end of their incentive, leaving Texas taxpayers with very little taxable value. Even more far-reaching was a series from the Houston Chronicle that documented all of the program’s shortcomings, including how easy it is to get an incentive and how most Texas counties have lost money as a result of the program.
The final, and perhaps most important, explanation was the Texas winter storms, which left much of the state, including my home, without power for a week. This led to disputes within the energy industry and the focus on renewable energies in a number of draft laws.
The renewable industry continued to support 313, but there appeared to be less public interest in their renewal. And some traditional proponents of incentives, like Texas Governor Greg Abbott (R), were silent on Chapter 313. Meanwhile, there was an unexpected surge in organized opposition, including a large interfaith group called the Texas Industrial Areas Foundation and the AFL-CIO .
Although the circumstances under which he was killed in Texas are peculiar, it shows that resisting special interests of value is not futile. Cities and states in the United States give up to $ 90 billion each year in tax breaks, grants, subsidized land, etc. These economic development programs are notoriously opaque and have been heavily criticized for being ineffective.
Others are slowly following suit. Large incentive events like Amazon’s search for a second headquarters have mobilized some groups across the country. In states like Wisconsin, incentive deals have led the public to rethink these programs.
These programs harm taxpayers, small businesses and, in this case, Chapter 313 schools in Texas. However, in most states, small business groups that are excluded from these large business subsidies, schools and taxpayers are rare. This is a story that takes place in Texas, but there are lessons from all over the country.
Nathan Jensen is Professor of Political Science at the University of Texas at Austin.