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A significant milestone was achieved on Sunday as a crucial Senate business panel approved a proposal, clearing the way for a vote in the full chamber this week. This proposal aims to establish an economic incentive plan that will effectively entice high-value business and encourage development in Texas.
House Bill 5 would allow school districts to grant full property tax breaks for certain companies to move to Texas, with the state filling in the district’s resulting gap in funding with state tax dollars. The bill is meant to replace the old Texas Economic Development Act known informally as Chapter 313, referring to the part of the state tax code that gave large businesses moving to Texas a 10-year discount on their school property taxes.
After receiving numerous complaints about its alleged nature as nothing more than corporate welfare and its contribution to disparities in public school funding, the beleaguered 20-year program was finally allowed to come to an end in December.
But while a tax-abatement program is a priority of legislative leaders and Gov. Greg Abbott, and Sunday marked a major milestone for the much-debated bill, neither guarantees it will make it to Abbott’s desk.
The House and Senate are still far apart on an agreement. And the bill’s Senate sponsor isn’t even sure whether he’ll be able to find a way for the program to pass his own chamber and get to the point where negotiations with the House can begin in earnest — much less come up with a compromise to send to Abbott by this weekend.
“There has been vigorous discussion, there has been all sorts of ideas, with some wanting further leniency, others wanting no program at all,” said Senate Business and Commerce Chair Charles Schwertner, R-Georgetown, author of the Senate plan. “It is a difficult bill to move forward in the Senate, I’ll be quite honest. This is a tough, tough bill for people on the left and the right because of the history of this program — but also because of the thoughts on the role of government and how it affects schools and how we should utilize state taxpayer dollars.”
The agreement’s success depends on lawmakers reaching a consensus on several crucial aspects, including: the number of jobs that need to be provided and the benefits to be offered, whether companies can make additional payments to schools, and the eligibility criteria for participating companies.
Senate proposal … so far
The plan, which received approval from Schwertner’s committee on Sunday, pertains to Chapter 403 of the tax code. It proposes granting large companies a complete exemption from property taxes during their initial 10 years in the state. However, it diverges substantially from the previous program.
The Senate’s version includes the most significant proposed change yet to both the old program and the version by Republican House State Affairs Chair Todd Hunter passed by the House earlier this month: Direct payments would not be made to schools as part of the new deals.
The payments were highly contentious in the previous program, with critics arguing that they exposed the companies to exploitative agreements and created inequalities as only schools with such deals received additional funds. However, the districts that benefited from these payments have emphasized their importance for their very existence.
In an attempt to address concerns from conservative state leaders, the Senate proposal aims to prevent wind, solar, and battery power storage projects from participating in the program. This exclusion is intended to rectify a perceived loophole in the House version, which had the potential to enable renewable energy companies to exploit the program.
The plan proposed by Schwertner was approved by the committee on Sunday with a vote of 6-2, while the three committee Democrats chose to abstain from voting.
Schwertner expressed his commitment to developing a plan that the Senate would find acceptable, and mentioned potential floor amendments including reducing the abatement size by 50% and establishing a yearly cap on the number of abatements granted. He also mentioned that other factors would be taken into account during the process.
The Senate bill includes a requirement that the companies are not allowed to participate if they have been identified by the state comptroller as being detrimental to Texas values and business because of their environmental, social and governance, or ESG — strategies that conservatives criticize as part of a leftist “woke” agenda with climate-change-conscious policies that threaten the Texas oil and gas industry.
The previous versions of the bill contained a stricter provision that would have excluded all companies with ESG policies. However, this raised concerns from Democrats, Republicans, and even certain members of the oil and gas industry, as they warned that it would unintentionally result in the exclusion of a significant number of companies.
The Senate bill comprises multiple provisions that impose restrictions on companies eligible to engage in deals. These limitations encompass banning companies from countries that support terrorism, exhibit anti-Israel sentiments, or oppose gun rights.
Common ground
The two chambers are commencing with shared agreement.
Both proposals offer an opportunity for businesses to request a reduction in property taxes if they commit to constructing infrastructure and generating employment within the local school district that receives those taxes. The state would compensate the school district for the tax revenue it would have received without the discount. The effectiveness of this program would be evaluated after a period of 10 years.
Renewable energy companies were a major part of the Chapter 313 program for the past two decades but are cut out of both plans under consideration by lawmakers after complaints by Republican state leaders that they compete with oil and gas companies.
The projects permissible in both the House and Senate versions primarily pertain to energy and technology. These include desalination plants, petrochemical manufacturing, semiconductor fabrication, hydrogen fuel production, as well as natural gas or carbon capture facilities.
The Senate version, unlike the House, would additionally incorporate pharmaceutical, automotive, and major corporate headquarters as a means to attract Fortune 500 companies. It would also encompass projects involving emerging and innovative technology, which Senator Schwertner mentioned on Sunday, encompassing various industries like medical technology and aerospace.
State Sen. Nathan Johnson, D-Dallas, said he’d like to see more community involvement in the decisions, more work on the list of eligible industries, better standards for required jobs and the removal of a new stipulation in the Senate version that the Fortune 500-level companies be allowed in as well.
He expressed his annoyance, almost to the point of absurdity, stating that Texas was essentially bowing down to the wealthy and influential by offering tax incentives to any major corporation. He believed that these tax breaks would likely not have as much influence on their decision-making process as factors such as having a skilled workforce and access to metropolitan areas.
Johnson expressed his desire to remove what he considered to be a trivial and unnecessary element of politics.
Key sticking points
One of the primary distinctions between the two chambers revolves around the question of whether companies should have the permission to directly contribute funds to school districts as part of the agreements, in addition to the state funds that supplement property taxes.
The House bill encompassed direct payments; however, certain restrictions were imposed on the schools regarding their demands.
However, in the Senate version, the companies’ direct payments to schools are completely eliminated.
The Senate version of the proposal mandates that eligible corporate participants must generate a greater number of job opportunities compared to the House version. Additionally, these job positions are required to be full-time, but health insurance coverage is not compulsory for employees. On the other hand, the House has voted in favor of enforcing health insurance coverage and has set a higher minimum wage than what the Senate plan necessitates.
State Sen. Robert Nichols, a Jacksonville Republican on the committee, summed up the challenge ahead for the proposal’s architects in the House and Senate.
“You’re maneuvering through a difficult situation,” he empathized with Schwertner. “I understand the challenges you’re facing.”
On Sunday, Todd Staples, the president of the Texas Oil and Gas Association, expressed his satisfaction with the bill’s survival and expressed anticipation for future deliberations on the specifics. Staples, who advocates for the continuation of some form of abatement program, welcomed the opportunity for further discussions.
According to Staples, a former state senator, passing HB 5 is crucial legislation that the Legislature needs to enact in order for Texas to maintain its position as a front-runner in job growth and investment. He expressed satisfaction with the productive discussion held today and expressed hope that the various approaches can be harmonized to create a significant bill that will preserve Texas’ leadership. Staples emphasized that without this legislation, Texas will face negative consequences and its competitive edge with other states and countries will be at risk.
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