The Economist: A missing chapter

Over 20 years ago, the Texas Legislature passed the Texas Economic Development Act, which allows school districts to offer tax incentives for businesses that invest in their communities. The Act, commonly called "Chapter 313" because of its position in the Texas Tax Code, fundamentally improved the economic development landscape. Chapter 313 has been extended several times but is now set to expire December 31, 2022.

Chapter 313 gives school districts a mechanism for allowing 10-year limitations on appraised value for a portion of property taxes. In exchange for the value limitation and reduced liability, the recipient agrees to build or install new facilities and create jobs. The school district is reimbursed by the State. 

I was around and did the studies when Chapter 313 was enacted and implemented. It completely changed the state’s ability to compete for capital-intensive projects, and it remains crucial to encouraging new investment. Our tax system in Texas is not conducive to attracting expensive facilities due to the heavy reliance on property taxes (which, unlike most levies, are incurred irrespective of economic fluctuations and ability to pay). This program provides a way to balance the scales, thus overcoming an otherwise daunting disadvantage.

What is often lost in this discussion is the fact that property taxes on vacant land are very low. In many rural areas (where Chapter 313 has been extremely helpful), the land was previously taxed at its agricultural value. In addition, companies typically make partially offsetting balancing payments and, of course, after 10 years the full value is eligible for taxation. A significant new location can also enhance the tax base in other ways, such as by enhancing demand for housing and other real estate and encouraging collateral activity by suppliers.

It is entirely appropriate to review Chapter 313 and strengthen compliance and oversight (which appears to be the primary concern among lawmakers). Any actual or perceived shortcomings can be addressed. Others have objected that it has been used for renewable energy projects. In truth, we are going to need all types of power to fuel the global economy of the future, and these initiatives have been vital to many small communities.

Given the tax structure in Texas and the intense competition for economic development, this measure is vital. Soon after it was enacted, the state moved from an also-ran to a powerhouse in attracting growth. In fact, Texas has won the coveted “Governors Cup” for the largest number of major locations in the US for an unprecedented nine consecutive years.

In essence, Texas has authored a perennial best-seller on promoting prosperity. It will soon be missing a critical chapter. Let’s hope that it is restored soon, before we spoil the ending. Stay safe!

Dr. M. Ray Perryman is President and Chief Executive Officer of The Perryman Group (www.perrymangroup.com), which has served the needs of over 2,500 clients over the past four decades.