A state program that offers 10 years of tax breaks, called Chapter 313, is expiring soon, and that has led to a flood of applications as companies try to lock in these tax breaks before it is too late.
This should serve as an example to Texas taxpayers of how savvy companies are manipulating these programs, and how our lawmakers know it.
Texas has long offered breaks to companies to attract investment. These economic development incentives, sometimes referred to as corporate welfare, are both commonplace across states and becoming controversial. One summary of 30 studies on incentives found that on average, between 2% and 25% of companies receiving state or local support were swung by the deals.
In other words, between 75% and 98% of companies were given money, but it served little in factoring into their decisions to locate to certain areas.
States and cities increasingly are using detailed contracts with companies in exchange for tax breaks or cash subsidies. In Austin, known for striking tough deals with many conditions on incentives, companies seem to have come up with a winning strategy. The flagship Texas state incentive program, the Texas Enterprise Fund, requires a company to get a local incentive to unlock state incentives. You need local dollars to get more state dollars.
So what if the city of Austin asks too much in return? Companies sign incentive agreements, get access to state money and then quietly pull out of the city’s agreement. Companies leave some Austin incentive money on the table, but they get big state payouts without fulfilling their original promises to the city. This is bad for cities and their taxpayers because they are knowingly allowing companies to manipulate applications to access state money.
The gaming by these companies is troubling, but it gets worse.
Chapter 313 is set to expire at the end of the year, but companies figured out a loophole. Although the program ends in January, the comptroller has allowed for applications to be considered until Aug. 1. Companies can put in an application and lock incentives 10 years into the future for an expiring program. Or even longer. Much, much longer into the future.
For example, Samsung just put in 11 applications for two Austin-area locations that would total almost $200 billion in investment. Does this mean Samsung is investing in Texas? No. What it means is that they now have a contract in place that locks in lucrative tax breaks should they decide to build. The last of these projects would be built in 2043. That means, starting in 2043, Samsung would get an additional 10 years of tax incentives from a controversial Texas program that died in 2022.
Does that seem fair to the taxpayer?
It’s not just in Austin. Companies around the state are playing the same game. Texas Instruments put in five applications in Sherman. Occidental Petroleum has 13 across the state. A California venture capital firm is even locking in incentives for a possible renewable energy project in Silverton, in the Panhandle.
These don’t necessarily represent real investment plans by companies, but it does show how great company lawyers and their consultants are manipulating Texas economic development programs to lock in tax breaks 20 or 30 years into the future.
As special interests lobby for new Texas incentive programs, including a replacement for Chapter 313, policymakers should learn from the past. The decisions made in the upcoming legislative session could waste billions of taxpayer dollars, and in the case of Chapter 313, pull badly needed resources from other areas, like Texas schools. Legislators need to resist calls for an immediate re-creation of Chapter 313 and demand a full and independent evaluation of the overall Texas economic development program.
The same special interests that manipulated our programs in the past should not be trusted to shape Texas’ economic development future.
Nathan Jensen is a professor of government at The University of Texas at Austin.
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