Texas Politicians and Citizens Enable Corporate Theft

It was not that long ago that property tax abatements were illegal in Texas because they were
considered to be theft.

The market’s job was to create jobs and grow the economy. The government’s job was to
ensure a level playing field for all market participants through efficient civil and criminal justice
systems and limited regulation.

Acknowledging the ethical and economic problems with the government giving taxpayer money
to individuals or businesses, the Texas Constitution contained what is known as the Gift Clause,
which prohibited the “grant[ing of] public money or thing of value in aid of, or to any individual,
association or corporation.”

Then in 1987, the Legislature sent a constitutional amendment to Texans allowing the “creation
of programs and the making of loans and grants of public money … for the public purposes of
development and diversification of the economy of the state, the elimination of unemployment
or underemployment in the state.” It passed by the narrow margin of 51.7 percent of the
popular vote.

As a result, Texans decided that the Texas governor, city councilmen, county commissioners, school board trustees, and other various government officials can now give taxpayer money to businesses without worrying about old fashioned concepts like private property and theft.

The Texas Economic Development Act, through which school districts give businesses property tax abatements, is one of these relatively new “economic development” programs. Because of its placement in the Texas Tax Code, the Act is often referred to as Chapter 313.

As of June 2020, there were 509 active Chapter 313 agreements between school districts and businesses. The agreements reduced the taxable value of the property owned by those businesses from $63.7 billion to $16.3 billion. Over the life of those agreements (typically ten years), property taxes for these companies will be reduced by $10.8 billion, and average of $21 million per business.

However, last year, pressure from both progressives and conservatives resulted in the Texas Legislature failing to renew Chapter 313. It will expire at the end of this year. Yet many politicians, led by House Speaker Dade Phelan, are partnering with big business to bring the program back to life when the Legislature convenes next year.

As part of this effort, the Texas House Ways and Means Committee recently held a hearing on “the impact of not renewing Chapter 313.” While business groups like the Texas Taxpayers and Research Association, Texas Oil and Gas Association, and Texas Association of Manufacturers showed up to explain how the sky will fall without Chapter 313, a lot of good will come if the program expires without a replacement. Let me explain.

First, without Chapter 313, the problem of Texas’ high property tax rates becomes more transparent. Texas homeowners face a stacked rate in Texas’ five largest cities of 2.49%. Though the effective rate will be lower because of the homestead exemption, entities like WalletHub rank Texas’ effective rate about 6th highest in the nation.

The average effective property tax rate for businesses in Texas is 2.25%. This is compared to an average rate in other states of 1.88%. The rate of three of Texas’ largest economic competitors are far lower: California’s rate is 1.38% and North Carolina’s is 1.07%. And the rate in Florida, which like Texas does not have an income tax, is only 1.93%. Without relief from Chapter 313, businesses will be forced to shed more light Texas’ excessive property taxes.

Second, without Chapter 313, Texas the reliability of Texas’ electric grid will improve. Since 2005, schools have provided Chapter 313 property tax breaks of at least $1.5 billion to wind and solar generators. This has been a major factor in the rapid growth of unreliable renewable generation in Texas. Renewables have grown from 3% of generation in 2006 to 34% today. And it is getting worse.

In an effort to get abatements approved before Chapter 313 expires, renewable projects make up 71% of the 291 pending 313 applications. Solar projects total 243 applications and 48 are for wind. Eliminating Chapter 313 is the first step to slowing the growth of renewable generation in Texas.

Third, without Chapter 313, we will start down the path of reducing the costs that renewables are imposing of Texas consumers. The cost of subsidies and benefits baked into Texans’ electricity and property tax bills could run as high as $4 billion this year. These include property tax abatements, congestion costs, and regulatory price hikes. The Legislature has for years refused to address the cost and reliability problems caused by renewables; not replacing Chapter 313 would be a great place to start.

Finally, without Chapter 313, Texas will experience increased economic growth as we end the unethical and uneconomic practice of giving tax breaks to politically favored businesses. Moving the focus from rent-seeking businesses to productive businesses will result in many new jobs in Texas.

Allowing Chapter 313 property tax abatements to end is the right thing to do ethically and economically. The Texas Legislature should not renew or replace Chapter 313.