We end our Economic Development Week “disaster stories” series on a hopeful note. Sure, it’s a disaster, but it’s one that now has an end date: It’s Texas’s massive Chapter 313 subsidy program.
Named for its location in the Texas Tax Code, Chapter 313 is a subsidy program created in 2001 that limits the property taxes that subsidized companies have to pay in property taxes to fund local school districts. The state government largely reimburses the school districts for the lost taxes out of its general revenues, increasing the burden on other taxpayers and decreasing the amount of money available in the state budget for other public services.
In 2020, a state comptroller’s report found that more than 500 companies were in line to receive roughly $10.8 billion in Chapter 313 tax breaks over the next decade.
A multi-part investigative series by the Houston Chronicle in 2021 titled “Unfair Burden” created a groundswell of opposition to Chapter 313 as legislators, taxpayers and other stakeholders came to understand the size, cost and flaws of the program.
For instance, the Chronicle’s investigation uncovered that each job “created” by Chapter 313 cost at least $211,600 in tax incentives, as potentially as much as $1.1 million per job. It also found that “nearly two-thirds of projects get minimum job-creation rules waived and a fifth keep their subsidies despite paying workers less than the local prevailing wage.”
The Chronicle investigation also found that far from making the difference in attracting companies to Texas, many companies had gone so far as to start construction on their projects before applying for the tax breaks.
Just to add insult to injury, it turned out that the Chapter 313 program was originally created thanks, at least in part, to a typo. A 2000 Site Selection Magazine survey found that Texas had lured only three manufacturing companies to the state that year, causing panic in the Legislature and accelerating the push for a new subsidy program to “remain competitive.” The only problem? Thanks to a typographical error, that “3” should have been a “73.” Instead of ranking 37th of the 50 states, Texas actually ranked eighth. Even if subsidies did make a state more competitive – which evidence says they don’t – Texas was still clearly competitive without them.
Legislators took notice, and despite the overwhelming majority of Chapter 313 projects being connected to the state’s politically powerful oil and gas industry, they also took action. “I think that this program has run amok,” said State Sen. Lois Kokhorst, a member of the committee responsible for economic development. Rather than renewing it as planned in 2021, the Legislature instead set an end date of December 2022.
Texas taxpayers are still on the hook for the deals that are already on the books under Chapter 313, and the state’s economic development industry is pushing hard to replace it with another giant subsidy program. But thanks to a mammoth undertaking of investigative journalism and support from a bipartisan coalition of good-government advocates this one disaster story, at least for the moment, has a happy ending.