Texas economic development continues to be fueled by taxpayer-funded corporate subsidies. An estimated $1.4 billion in property tax revenue has gone uncollected in Texas from 2005 to 2015 as a result of Chapter 313. These are the findings from the state auditor’s report in October 2016. As Texas Observer detailed last year, the free lunch to corporations doing business in the state of Texas has seen steady growth year after year. The Texas Economic Development Act, or Chapter 313 as it’s known in the tax code, has now racked up an estimated $7 billion cost to the state. Houston area homeowners continue to get buried in property taxes, but surprisingly we see no mention of the Chapter 313 giveaways in any recent property tax reform efforts.
I shared some of my observations on Senate Bill 2, and how it’s likely to produce little in the way of savings for local homeowners, particularly if the largest taxing entity is left out of the equation. Having done copious amounts of research on the subject of local property taxes, I wasn’t expecting much to come out of the latest road show. I think politicians in Austin are continuing to tinker around the edges while Rome burns. The Texas property tax system is beyond broken, and Chapter 313 gives us another glaring example of how large corporate interests continue to game the system at the expense of homeowners.
After years of warnings about the lack of oversight and due due diligence, the tax breaks keep flowing, often to companies that probably don’t need them. This was the inspiring revelation brought about by the residents of Point Isabel, and it was a bit of an accident that Texans even know about it. As it turns out, a lot of those Chapter 13 deals happen near Houston Texas, concentrated around the petrochemical corridor.
Looking at the latest auditor’s report, oversight and monitoring of these deals continues to be an afterthought. While school districts have conflict of interest policies to comply with the statute, those policies are weak at best. Many of the deals which have been approved seem to lack any job-creation monitoring requirements. School districts are charged with monitoring the agreements, but it appears nobody was really checking the information that businesses are submitting, at least not on a continuing basis. Here are some of the key findings from a state auditor’s report on Selected Major Agreements Under the Texas Economic Development Act.
“The agreements did not include provisions that described the agreed-upon qualified investment amount and the number of qualifying jobs to be created.” page 9
“The agreements did not include performance standards or require periodic deliverables to enable the school districts to verify whether the businesses met their commitments.” page 10
“The market values and gross tax savings that the school districts reported on their biennial cost reports did not match the values that their consultant used to calculate revenue protection payments and payments in lieu of taxes.” page 17
The 2017 Report of the Texas Economic Development Act (Chapter 313) you can see a detailed summary of the of the now 311 program recipients listed as active projects. The executive summary of the report suggests that HB3390 (program extension in 2014) has spurred significant changes in terms of increased enforcement of job creation requirements. Apparently one thing that hasn’t improved is the amount of money flowing out of Texas property owners’ pockets into the hands of already wealthy business interests.
On page 3 of the latest report we find that the estimated total gross tax benefit to companies now stands at a whopping $7,118,787,000. The qualifying number of jobs created through 2015 totals 10,818. Apparently Texans are paying $658,050 for each qualifying job in the Chapter 313 program. Even with HB3390’s improved metric on job creation, the 12,321 jobs created equates to a cost of $577,776 per job in the Chapter 313 program.
While our politicians in Austin continue to tout their fiscally conservative values, they seem to be very liberal when it comes to giving away other people’s money. We saw that happen here in Fort Bend County when local city officials patted themselves on the back for giving away millions of tax dollars to a corporate criminal in the name of economic development.
The Texas Public Policy Foundation has an excellent report on Texas’ love affair with taxpayer-funded corporate subsidies. If you are seriously concerned about your property taxes, page 10 (table 4) provides a nice list of the crony capitalism we call economic development. I would also point out that this report came at the end of 2014, just as the shale oil boom was peaking. That means the economic strength of the state was seriously overstated at the time because few people appreciated that our economic & employment bubble was built on the Fed’s balance sheet expansion. A lot of those jobs Texas picked up during the artificial boom were vaporized when the energy bubble collapsed.
I would agree with the Texas Public Policy recommendation that Texans should get to vote on any increase in property tax revenues beyond 4%, or the alternative metric of population growth plus inflation, whichever is less. I can also show you countless examples of why it will never happen by attempting to reform the current version of our crony capitalist Texas system.
To even get close to that 4 percent metric, you need three vitally important ingredients. The first is campaign finance reform. The second (and the proverbial elephant in the room) is school finance reform. School property taxes are eating more and more of the total property tax bill because of the state’s declining contribution to school funding. The third would be mandatory sales price disclosure for tax purposes. Sales price disclosure is an absolute necessity if you want to end the crony capitalist, two-tiered nature of the system. These essential ingredients are anathema to the representatives in Austin who continue their love affair with handouts to their systemically important constituents. As recent history has shown us, Texas still has one of the best property tax systems money can buy.