Incentives for Business Scrutinized in Texas

The billions of dollars in incentives that Texas hands out to businesses each year are set to draw fresh scrutiny this week on the heels of a New York Times series that raised new questions about the practice while also ruffling some feathers.

On December 3, the Times devoted Part 2 of its three-part “United States of Subsidies” series to Texas. The article alleged that the state gives out $19.1 billion a year in business incentives, far more than any other state. (Disclosure: The Texas Tribune has a content partnership with The New York Times.)

The question of whether Texas' incentive programs are effective or too generous has long stirred debate among state lawmakers, some of whom have criticized them as "corporate welfare." After the 2011 legislative session, Lt. Gov. David Dewhurst and House Speaker Joe Straus directed legislative committees to study the programs.

Two committees are scheduled to examine the state’s approach to economic development this week. The Senate Economic Development Committee will hear testimony Tuesday on state programs designed to encourage investment from the state's largest industries. On Wednesday, a select joint committee on economic development, which includes House and Senate members and private citizens, will meet to hear testimony “concerning state and local economic development policy.” Among the committee’s members is George Brint Ryan, an influential Dallas-based tax consultant whose firm helps businesses land incentives in Texas and who was featured prominently in the Times story.

The Times story itself has received scrutiny for how Texas was portrayed, most prominently by the Texas Taxpayers and Research Association, a business-backed nonprofit that counts Ryan as a board member. The group’s president, Dale Craymer, has taken issue with the paper’s calculations of what it found to be the state’s largest incentive: sales tax exemptions and refunds for manufacturers.

According to the database of state incentives program that the Times posted online to accompany the series, manufacturers receive $11.7 billion in sales tax incentives in the state. A February 2011 report by the Texas comptroller's office shows that more than $10 billion of those incentives comes from the sales tax exemption that manufacturers receive for buying materials used in manufacturing.

Most other states offer a similar sales tax exemption on such purchases, but not all of them calculate the lost revenue like Texas does. California, for instance, does not, and so the value of the exemption in that state was not included in the database. Times reporter Louise Story reported in her first part of the series that a full accounting of the incentives offered around the country to businesses was not possible, in part because the value or details of many are not publicly available.

“By the Times’ rankings, we are victims of our transparency because we actually show the numbers,” Craymer said. “The manufacturing exemption in California alone is probably more than $19 billion. I can’t prove that, but neither can the Times prove that we’re the biggest.”

The comptroller’s office echoed Craymer in noting that it doesn’t view that sales tax exemption for manufacturers as an incentive, since nearly every other state offers one.

“I don’t think it’s fair to say that the manufacturing incentive is an incentive tool for economic development because it’s not causing people to come to our state over others,” said Lauren Willis, a spokeswoman for the comptroller's office.

In an email to the Tribune, Story said discounting that sales tax exemption for manufacturers wouldn’t change where Texas fell in the Times' rankings in relation to other states.

“Even without that particular sales tax exemption, Texas comes out with the most expenditures as far as public data shows,” Story explained. “And, keep in mind that Texas's figure is not comprehensive. While some states' figures include local property tax breaks to companies, Texas's figure is lacking in many of those abatements, which would increase the total for Texas even more.”

Dick Lavine, a senior fiscal analyst with the left-leaning Center for Public Policy Priorities in Austin, said the Times' series has helped draw more attention to the breadth of economic development programs in place around the country and could lead to more serious debate about whether the ones offered in Texas are too generous.  

“If there are incentives, they really have to be limited to those very few mega-projects that are really worth it in terms of the nature of the jobs created, local spinoffs, and … if [the companies] have a choice in location,” Lavine said.

But supporters of the current Texas approach, including Gov. Rick Perry, point to the state's economy, which has fared better in recent years than the rest of the nation.

“That’s called competition,” Perry said last week while serving as a guest host on CNBC’s Squawk Box. “In the real world, that’s how you compete for those businesses.”