House and Senate differ on how to revive corporate tax incentives

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With Texas boasting more Fortune 500 company headquarters than any other state in the nation, the House and Senate appear motivated to pass an economic-incentive plan to continue attracting business and development to Texas school districts, and to replace a beleaguered 20-year program that expired last year.

The goal is to craft a tax-abatement bill to replace the old Texas Economic Development Act, known informally as Chapter 313, referring 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 program was allowed to die in December after complaints it was little more than corporate welfare and that it created inequity in public school financing.

But the two chambers have 10 days to cut a deal before the end of the legislative session and the death of an incentive plan considered to be a priority for Republican state leaders.

And they are miles away from agreement on even the basics of a new program.

The Senate has yet to take a full vote on House Bill 5, the vehicle for the Chapter 313 replacement program. But the plan they’re considering — released by Senate Business and Commerce Chair Charles Schwertner, R-Georgetown, just minutes before opening public testimony on Thursday morning — differs greatly from the version by House State Affairs Chair Todd Hunter, R-Corpus Christi, that overwhelmingly passed in the lower chamber last week.

An agreement hinges on whether they can come together on these key points: how many jobs are required, how much companies would pay workers, whether companies can make side payments to schools in the agreements and which companies can participate.

If no agreement is reached, the state could go another two years without a tool that many business and political leaders say is vital to keep Texas competitive with other states. But opponents of the programs under consideration insist there is not enough oversight baked in and say the plans lack sufficient labor or environmental standards.

“This has been a divisive issue in the Legislature — amongst members on the left because of the concerns of the prior program causing inequity in our school districts, and on the right because of the concerns of essentially what we term corporate welfare,” Schwertner said. “I think the ears of every member … is open to how we come together with our colleagues in the House to establish an economic incentive program that is appropriate and tailored and a program that is right for Texas.”

Another conservative criticism of the defunct Chapter 313 program is that it was easily abused and gave renewables a leg up in a state that heavily relies on the oil and gas industry.

This session, the fights over the finer points of a new plan are pitting school districts against each other, causing disagreements between members of the same political parties, triggering tense moments between longtime Republican allies and the oil and gas industry, while also riling up the environmentalists and rural schools who support including renewable energy companies.

It was unclear Friday when Schwertner’s committee planned to vote on the measure and send it to the full chamber for a decision. The deadline for bill compromises is May 27.

The two chambers are starting with some common ground.

Both proposals allow companies to apply for a property tax discount in exchange for building and creating jobs in the school district that collects those taxes. The state would still fund the school for the taxes it would have collected without the discount. The program would be up for review in 10 years. Renewable energy companies were a major part of the Chapter 313 program for the past two decades but are cut out of both plans under consideration by lawmakers.

From there, the plans diverge.

The Senate version requires more jobs be created by eligible corporate participants as the House version does, and stipulates they have to be full-time positions but employees don’t have to be offered health insurance. The House voted to require health insurance and has a higher minimum pay than the Senate plan requires.

“We want new jobs, we want to win against other states, but we need to bring jobs that make sense to make the state better and move us forward,” said state Sen. José Menéndez, D-San Antonio.

Payments to schools

Then there’s the disagreement about how companies work with schools. Chief among the sticking points is whether companies should be allowed to make direct payments to schools as part of those deals, on top of the state dollars that supplement the property taxes.

The direct payments were included in the House bill but with limitations on what the schools could demand.

But the Senate version cuts out the companies’ direct payments to schools altogether.

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

Several of those districts, however, say the payments have been or would be 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 Independent School District struck a deal with Samsung to build 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.

“If the state funding adequately allowed us to address teacher compensation and all of our other needs, that would be wonderful,” Padavil said.

Over the next 10 years, the payments from Samsung will total $46 million to the district, he said.

“But more than anything, this is about opportunities for kids,” Padavil told the Senate Business and Commerce Committee on Thursday. “The opportunities that our students have, that they can imagine for themselves, have expanded when a global corporation calls Taylor, Texas, its home.”

But state Sen. Lois Kolkhorst pointed out that 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.

The entire state would have benefited, she said, had that $46 million gone instead into the state’s school finance recapture program, which seeks to redistribute dollars more equitably between districts — but which also has its own critics who believe it is still unfair.

The Brenham Republican helped work on the original tax-discount program when it was created in 2001 but said Thursday that it had deteriorated over the years.

“I cannot believe Texas has not been sued over the inequities” created by the direct payments, she said. “No child in Tyler, Texas, should be worth more than the child in Amarillo, Texas, or the child in Brownsville or the child in Beaumont. …

“It really is good for you, and good for your children,” Kolkhorst told Padavil. “Love that. It’s just not the way the system was supposed to be designed.”

Who gets it 

Many of the changes being considered by the Senate center on which companies would be allowed to take advantage of the abatement. Schwertner said his version of the bill seeks to narrow it to a smaller list of companies that would be eligible, mainly energy and technology related, such as desalination plants and semiconductor manufacturing. He added that an oversight committee created in the bill would be able to monitor the qualifications on an ongoing basis to keep the program “dynamic.”

“The bill as it came over was very, in my opinion, expansive relative to the prior 313 program,” Schwertner said. “It had supply chain, and national security aspects, and manufacturing that was very global, and anything over a billion dollars. So I took the opposite approach in this [version], in the sense that it would be more exclusionary.”

The Senate bill includes several provisions that limit which companies can make the deals, including banning those from countries that harbor terrorists or that are anti-Israel or anti-gun rights.

It also adds a requirement that the companies can’t be committed to environmental, social and governance — known as ESG — strategies that conservatives criticize as part of a leftist “woke” agenda with climate-change conscious policies that threaten the Texas oil and gas industry.

State leaders, in a fight led by Texas Comptroller Glenn Hegar, have railed and created laws against the state doing business with some of those companies.

Meanwhile, the Texas Oil and Gas Association is declining to fight the entry of those companies into the tax abatement program, saying the group prefers an “all the above” approach to energy policy.

State Sen. Robert Nichols, a Jacksonville Republican and a plastics manufacturing engineer, said that not allowing companies that use ESG strategies seemed exclusionary and “kind of hypocritical on our part.”

“If we’re going to prohibit companies that do ESG scores, we’ve pretty much wiped out consideration for everybody in the S&P 500. I think that’s a little too broad,” he said.

He pointed to a measure the Legislature sent to the governor on Thursday that would allow the Texas Parks and Wildlife Department to sell carbon credits through carbon sequestration, which brings dollars into the state but also helps corporations who buy them boost their ESG scores.

“So it’s kind of hypocritical on our part, if we take that approach, and I think it’d be very dangerous,” Nichols said.

The Senate version also closes a loophole in the House bill’s inclusion of grid projects that create more “dispatchable” power, that is power that can be turned on at any time and would include battery storage.

The House version could eventually open the door to wind and solar companies if they one day develop battery technology. But the Senate version specifies that the electric generation by those companies has to be “controlled primarily by forces under human control,” which excludes renewable energy sources like wind and solar.

The House has rejected that adjustment, voting down an effort by state Rep. Matt Schaefer, R-Tyler, to add a similar limitation during the House floor debate last week.

Schwertner defended his efforts to keep the plan from giving renewables an edge over companies that more clearly reflect “Texas values.”

“This is Texas, and Texas is Texas,” Schwertner said. “The ESG policies at various corporations should not interrupt our robust oil and gas economy here in Texas, and the deference to Texas values should be entertained. I stand for Texas. We should stand strong.”

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