Economic incentives clear Senate committee as negotiations continue

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An economic incentive plan to attract big-money business and development to Texas cleared a major hurdle on Sunday when a key Senate business panel sent a proposal to the full chamber for a vote this week.

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.

That beleaguered 20-year program was allowed to die in December after complaints it was little more than corporate welfare and that it created inequity in public school financing.

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.”

An agreement hinges on whether lawmakers can come together on these key points: how many jobs are required and what benefits would be included, whether companies can make side payments to schools and which companies can participate.

Senate proposal … so far 

The plan approved by Schwertner’s committee on Sunday would relate to Chapter 403 of the tax code and would give a full property tax break to large companies for their first 10 years in the state — but it is significantly different from the old 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 among the most controversial parts of the old program that critics said made the companies vulnerable to abusive agreements and led to inequities because only schools with the deals got the extra cash. Meanwhile, those districts have said the payments were vital to their survival.

The Senate proposal also excludes wind, solar and battery power storage projects from being able to participate — an effort to close a loophole in the House version that some believed would allow renewable energy companies to take advantage of the program against the wishes of conservative state leaders.

Schwertner’s plan passed the committee on Sunday by a vote of 6-2, with the three committee Democrats abstaining from the vote.

Schwertner said he is continuing to work on a plan that would be “palatable” enough for the Senate to pass, and would be considering floor amendments such as cutting the size of the abatement in half and capping the amount of abatements that could be granted each year, among other considerations.

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.

That provision was stronger in earlier versions of the bill, excluding all companies with ESG policies, but it triggered warnings by both Democrats and Republicans — as well as some in the oil and gas industry — that it would inadvertently exclude far too many companies.

The Senate bill includes several provisions that limit which companies can make the deals, including banning those from countries that harbor terrorists or that are anti-Israel of anti-gun rights.

Common ground

The two chambers are starting with some common ground.

Both proposals allow companies to apply for a property tax abatement in exchange for building and creating jobs in the school district that collects those taxes. The state would still pay the school for the taxes it would have collected without the discount. The program would be up for review in 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 that would be allowed in both the House and Senate versions are mainly energy and technology related, such as desalination plants, petrochemical manufacturing, semiconductor fabricating, hydrogen fuel production, natural gas or carbon capture facilities.

In a departure from the House, the Senate version also would include pharmaceutical, automotive and large corporation headquarters — a way to woo Fortune 500 companies — and projects that include emerging and innovative technology, which Schwertner said Sunday could include a wide range of industries such as 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.

“I find this obnoxious, bordering on the ridiculous,” he said, adding that by including any big-money company Texas was “prostrating” before the rich and powerful to offer tax breaks that probably wouldn’t be as much of a factor in their decisions as would educated workforce and access to big cities.

“I think it’s just kind of a piece of political silliness that I’d really like to see out of there,” Johnson said.

Key sticking points  

Chief among the differences between the two chambers is whether companies should be allowed to make direct payments to school districts as part of those deals, on top of the state dollars that supplement the property taxes.

The direct payments were included in the House bill but with limitations on what the schools could demand.

But the Senate version cuts out the companies’ direct payments to schools altogether.

The Senate version requires more jobs be created by eligible corporate participants than the House version does, and stipulates they have to be full-time positions but employees don’t have to be offered health insurance. The House voted to require health insurance and has a higher minimum pay than the Senate plan requires.

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 threading a needle,” he told Schwertner. “I feel for you.”

Todd Staples, president of the Texas Oil and Gas Association that supports the continuance of some sort of abatement program, said Sunday he was glad to see the bill live to see another day and looks forward to further discussion on the details.

“HB 5 is a vital piece of legislation that the Legislature must pass if we want Texas to continue to lead the nation in job growth and investment,” Staples, a former state senator, said. “That was a great bit of discussion today. Hopefully, they will be able to resolve and reconcile the different approaches and come up with a meaningful bill … and keep Texas the leader that it is. Without it, Texas will suffer. It’s all in jeopardy if we’re not competitive with other states and other countries.”

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