Comptroller moves to limit incentives data
Texas corporate tax breaks program expiring, but over 100 deals likely to still get approval
Texas Comptroller Glenn Hegar is proposing to reduce the information his office collects on the state’s largest corporate incentive program, hindering lawmakers and the public from understanding the value of the tax breaks and the program’s future cost to the state.
Hegar’s office said limiting reporting related to Chapter 313, a provision of the state tax code that gives manufacturing and energy companies deep discounts on school property taxes, is a natural result of the Legislature not renewing the law earlier this year. The program, which was the subject of a Houston Chronicle investigation, will expire at the end of 2022.
Much of the program’s cost to taxpayers, however, is still to come. Companies with active deals in early 2020 were projected to receive $10.8 billion over the 10-year life of their agreements.
More than 76 percent of that cost was projected to come after 2019.
And the cost will only grow in the months to come: The comptroller is on pace to get a near-record 140 applications this year, with most submitted after it was clear lawmakers would let the program expire. Nearly all of these requests will likely be approved — the Chronicle investigation found the comptroller’s office denied less than 2.5 percent of all applications.
“We know there’s going to be a flood of applications between now and the end of next year,” said Dick Lavine, senior fiscal analyst for the progressive nonprofit Every Texan. “What we know now is probably just the tip of the future iceberg. It’s going to be draining property tax revenue for years and years to come.”
The comptroller’s proposal, on
which the public can comment until Dec. 19, would reduce the information companies must report on forms that are filed every other year and posted on the office’s website.
The new forms would collect only investment, appraisal and tax data from the prior two years, rather than including comprehensive information from the start of the agreement and projections extending beyond the end of the tax breaks.
The revisions would remove the total value of the companies’ tax breaks and the deals’ future costs and reduce information about jobs and wages at each project.
The comptroller’s proposal would make it entirely or practically impossible to replicate key findings from the Chronicle’s investigation. Among them: The program’s projected $10.8 billion cost; that Texas is paying $211,600 in tax incentives for each job created; and the projects that had returned fully to the tax rolls by 2019 did so at just 41 percent of their peak values.
Comptroller spokesman Chris Bryan also said the agency plans to stop producing a spreadsheet that was the only source of centralized data on the agreements, and on which analysts and journalists relied to evaluate the program.
Companies would still submit two annual forms with some additional details on jobs and wages, one to the comptroller and one to school districts. The comptroller views the former as confidential, however, and proposes to stop collecting and posting the latter, forcing the public to request records from scores of districts to gather the same data that is now available online. Bryan said this change seeks to end the “duplicative requirement of maintaining the information in multiple places.”
Carine Martinez, research director of the conservative Texas Public Policy Foundation, disagreed.
“That would make it very burdensome for people looking into the data — whether it’s researchers, legislative staff, think tanks — to see the impact of the program,” she said.
Bryan said the information left after the proposed changes would still exceed the minimum required by law and the data available on other Texas incentive programs.
“Producing the estimates is time consuming, costly and challenging for districts and companies due to ever-changing market and economic conditions, and the distant projections likely do not represent the future program conditions,” Bryan said.
The point of gathering that data, Bryan said, “was to evaluate the impact of proposed legislative changes each session. With the expiration of the program, there is no longer a need to estimate the impact of legislative changes to a program.”
The comptroller’s office still will estimate the program’s future cost in a biennial report tallying the value of Texas tax exemptions, Bryan said. The most recent report estimated Chapter 313’s cost at $6.1 billion from 2021 through 2026.
Bryan also cast the changes as a way to lessen administrative burdens for comptroller staff and the companies, given that “the proposed rule replaces the paperbased reporting system with an online system.” The forms the rule change would replace, however, must already be submitted electronically, according to the comptroller website; paper forms are “no longer accepted.” Bryan later clarified that the office’s “overall effort” seeks to reduce the use of electronic copies of paper forms.
At a recent conference of the Texas Taxpayers and Research Association, many of whose members have Chapter 313 agreements, senior comptroller aide Robert Wood said he anticipates a surge of applications. He added that the proposed reduction in reporting is partly “so we have staff in order to process as many of these applications through 2022 as we can.”
Sen. José Menéndez, D-San Antonio, said this concerns him.
“Transparency and accountability to taxpayers is paramount, and I’m sure if the comptroller needed additional staff to keep up with the applications that he would get that, knowing that we need to have the data to make sure people truly qualify for this incentive, that it wasn’t just something that was being given, that we couldn’t justify the investment,” Menendez said.
Sen. Lois Kolkhorst, R-Brenham, who has repeatedly filed bills to improve Chapter 313 data, echoed that point.
“While modernization and efficiency in government is required, the new rules need to ensure that taxpayers continue to have access to the data,” Kolkhorst said. “Taxpayers deserve to see the size and impact of these types of incentives.”
Lawmakers have found value in some of the data the comptroller’s proposal would eliminate or make more difficult to analyze.
The comptroller’s office this year used existing program data to estimate that a bill to extend Chapter 313 by a decade would have cost Texas an additional $45 billion through 2049, a “huge” figure that one lawmaker called a “lightbulb moment.” The program’s price tag was one reason why the Legislature let Chapter 313 die this year.
And Gov. Greg Abbott cited the program’s cost per job as a reason for vetoing a 2015 bill that would have expanded it.
2023 resurrection?
The proposed changes do not remove the need for companies or the comptroller to make detailed financial projections.
Companies in their applications routinely reference their own financial analyses in arguing that the tax break would be “a determining factor” in their decision to build the project in Texas, as the law requires. The law also requires the comptroller to determine that each project will generate more tax revenue in the 15 years following the end of its tax breaks than it would save during the 10-year abatement. The agency publishes these projections in the packets it issues on each deal, but does not make the data available in spreadsheet format nor in a central database.
Still, the changes would lessen administrative headaches over the life of each agreement, said Dale Craymer, who runs the tax research group to which Wood spoke.
“Companies do a long-term forecast as they’re evaluating sites, but once a site is chosen and the company locates there they’re not doing a constant re-estimate,” Craymer said. “What the proposal would eliminate is the requirement that the company do revised projections specific to that facility. That’s not something that’s commonly done.”
Craymer also argued the projections were of limited use because they had large margins of error, and said the jobs data has always been incomplete because it omits construction jobs.
“I’m not seeing where somehow we’re cloaking the program in the dark,” he said.
State Sen. Drew Springer, RMuenster, also questioned the accuracy of long-term financial projections.
But if the death of Chapter 313 prompted state officials to reduce the program’s reporting requirements, that rationale could prove to be short-lived. Springer predicts lawmakers will resurrect an altered version of the policy during the next legislative session in 2023.
“There are some people who just don’t like any 313s,” he said. “The problem is, we’re not only competing with 49 other states, we’re competing with the rest of the world.”