More than 20 years ago, the Texas Legislature passed the Texas Economic Development Act, which allows school districts to offer tax incentives to businesses that invest in their communities. The law, commonly known as “Chapter 313” because of its position in the Texas Tax Code, has fundamentally improved the landscape for economic development. Section 313 has been extended several times, but is now scheduled to expire on December 31, 2022.
Chapter 313 gives school districts a mechanism to allow 10-year limitations on the appraised value for a portion of property taxes. In exchange for the value limitation and reduced liability, the beneficiary agrees to build or install new facilities and create jobs. The academy is reimbursed by the state.
I was there and studied when Chapter 313 was promulgated and implemented. It has completely changed the state’s ability to compete for capital-intensive projects, and it remains crucial to encourage new investment. Our Texas tax system is not conducive to attracting expensive facilities due to the heavy reliance on property taxes (which, unlike most levies, are incurred regardless of economic fluctuations and the ability to pay. ). This program provides a way to balance the scales, thus overcoming an otherwise intimidating drawback.
What is often lost in this discussion is the fact that property taxes on vacant lots are very low. In many rural areas (where Chapter 313 was extremely useful) land was previously taxed at its agricultural value. In addition, companies usually make partially compensatory compensatory payments, and of course after 10 years the full value is eligible for tax. A significant new location can also improve the tax base in other ways, for example by increasing demand for housing and other real estate and encouraging collateral activity from providers.
It is entirely appropriate to revisit Chapter 313 and strengthen compliance and oversight (which seems to be the main concern of lawmakers). Any real or perceived deficiency can be corrected. Others objected that it was used for renewable energy projects. The truth is, we will need all types of energy to power the global economy of the future, and these initiatives have been vital for many small communities.
Given Texas’ tax structure and intense competition for economic development, this measure is vital. Shortly after its enactment, the state moved from an equally managed regime to a powerhouse to attract growth. In fact, Texas has won the coveted Governors Cup for the most major venues in the United States for an unprecedented nine straight years.
Essentially, Texas is the author of a perennial bestseller on Promoting Prosperity. A critical chapter will soon be missing. Hopefully he’ll be restored soon, before we spoil the ending. Be careful!