Monday, June 07, 2021

Texas' shameful Chapter 313 program is the sort of corporate welfare we don't need

By Michael Taylor of The San Antonio Express-News

This program is costly for all tax payers in Texas and seems to only benefit a few corporations. So why does it persist? Why can't we get rid of it?

It reminds me of something from the sub-field of economics called "Public Choice" which uses economic theories and concepts to study politics. One of its tenets is "concentrated benefits, dispersed costs."

This program in Texas concentrates the benefits of the program in a few people who will lobby very hard to  get it (including campaign contributions). So the politicians listen to them while the costs are dispersed among all the citizens. Since each citizen pays just a small amount for the program it does not pay for any of us to try to get our state senators and representatives to change things. Spending time making phone calls or writing letters or emails will not likely make a difference.

Excerpts from the article:

"Here’s how it works: A private company plans to build a thing in Texas it says will provide jobs. It applies to the local school district where the thing will be built, asking for a limit on the taxable value of the property for 10 years. With a reduced value, the private company can save hundreds of thousands, or even millions, of dollars over the coming decade, depending on the size of the project and the property tax cap.

The local school board nominally has oversight and decision-making authority, but for reasons we’ll see in a moment it almost always agrees to this limit. The company then applies to the Texas Comptroller’s office, which has to review the school district’s decision. The comptroller’s office is supposed to make sure a tax break is necessary to incentivize the new construction, which otherwise might be built somewhere outside of Texas. That’s the key justification for the Chapter 313 tax break — to retain and attract business activity and jobs in the state.

School district tax breaks last 10 years. Over the 10 years, however, school districts do not actually lose any tax revenue because under this program the state promises to reimburse them for lost taxes. The state — that’s all of us taxpayers — ends up paying the school district for forgone taxes.

In a sign the tax breaks are too generous, in most cases the beneficiary companies agree to make a “payment in lieu of taxes” back to school districts. Strangely, the payment occurs outside of the normal school district funding process to an “educational foundation.” That feature itself creates weird incentives for districts to green-light Chapter 313 projects. They lose no revenue but gain flexible funding they wouldn’t get from a normal state educational funding mechanism.

Hearst’s four-part investigation found the following key points:

Many companies announced construction before applying for the tax break. In most cases, it was nearly inevitable they would have built without the tax break, undermining the stated purpose of the incentive.

  The Comptroller’s office always says yes. Fewer than 2.5 percent of Chapter 313 applicants have been turned down, and even some of those initially rejected reapplied and subsequently received the subsidies.

  Thirty companies violated their agreements about promised job creation, but faced no consequences.

  The cost of the program will increase to $1 billion per year by 2023 and is projected to keep growing.

None of that is popular with observers on either side of the political spectrum. The conservative think tank Texas Public Policy Foundation and the progressive think tank Every Texas are united in calling for the Chapter 313 program to be ended." [it might be "Every Texan"]

"Nathan Jensen, a University of Texas at Austin professor of government who studies economic development, wrote a 2017 paper in which he found only 15 percent of firms were swayed to stay in Texas by their Chapter 313 subsidy. By implication, the other 85 percent would have made the same decision to build without the subsidy. But they sure appreciated the free money."

"Supporters of the program inevitably cite “job creation” as the program’s justification. The Hearst investigation cites estimates ranging from $211,000 to $1.1 million per job created. That’s an absurdly high cost, even at the low end. Jensen’s paper found the often-bandied estimates of $350,000 per job created to be too low. “The majority of tax dollars generate zero new jobs and no economic benefit for the state,” he wrote.

As Jensen told me recently, “It’s a complex program and I do feel like some government officials are starting to get the problems with it. But there are tons of supporters lobbying for it and not many lobbying against it.”"

1 comment:

Anonymous said...

Chapter 313 is Tricky at the very least. Companies get incentivized to come to down and don't live up the promise of creating a certain amount of jobs. The school district also still gets paid by the tax payers due to the finesse of the government....I wonder how this can be legal.