San Antonio Express-News (Sunday)
CHAPTER 313
their applications the right way, records show, they are nearly guaranteed to get the subsidies. Less than 2.5 percent of all Chapter 313 applications have been denied — and nearly a dozen of those reapplied with new phrasing and got approved.
The comptroller’s office declined to make its staff available for an interview, citing the ongoing legislative debate about the program. It said in written responses to the newspaper’s questions that its staff does not track the rate at which applications are denied and has no opinion on the proper rate of rejections.
“Our office works diligently to administer this program in the manner prescribed by the Legislature,” said spokesman Chris Bryan. “Our office remains neutral and tries to answer questions from all parties. Similarly, we make a lot of information available to the public and media so that others have sufficient information from which to make their own informed opinions on the program.”
As Chapter 313 saved billions for businesses, Abbott declined to act on calls from appraisal districts and Texas lawmakers at the beginning of the pandemic to freeze property-tax values at 2019 levels to offer relief to property owners or extend the deadline to pay their tax bills.
“That’s what galls me. They don’t give a damn,” said Steve Tallent, 71, a heavy equipment operator in Mont Belvieu who got behind on his property taxes after falling ill in 2019 and ended up owing more than $4,800 in taxes and penalties on his house.
Tallent hoped to pay his bills with income from a bar he owns — but he was temporarily forced to close it because of the pandemic and couldn’t pay that tax bill on time, either.
The governor’s office did not respond to repeated requests for comment.
Tallent lives in the Chapter 313 capital of Texas. Trustees of the
Barbers Hill Independent School District, which serves Mont Belvieu, have approved more Chapter 313 deals than any other school district in Texas.
The total cost of incentives over the 10-year duration of each deal: nearly $900 million.
“Yes, we do have the most (projects). And they’ve been tremendous,” said Superintendent Greg Poole, an avid supporter of the program who moonlights as a consultant to help other school districts negotiate deals under the law.
Poole and other proponents say Chapter 313 has lured businesses to Texas that would have invested in other states. The law requires the comptroller’s office
to scrutinize every deal, they say, ensuring that tax breaks go only to companies that truly need them.
Some even argue the program costs taxpayers nothing because without the incentives, the companies would have invested elsewhere.
The law has never required such a stringent review. The comptroller’s office is charged only with deciding whether the tax break is “a determining factor” in a firm’s decision to proceed with the project — a low hurdle for companies to clear.
The program’s other gatekeepers — elected members of local school boards — usually have few reasons to turn down an application.
That’s because state education funding formulas ensure that school districts don’t feel the pain from the property tax breaks. And districts stand to bring in millions in extra payments from the very companies seeking the incentives.
“I’ve never seen a beast like 313. It’s essentially free money for big business,” said Nathan Jensen, a professor at the University of Texas at Austin who has long studied the program.
But in scores of cases reviewed by Hearst Newspaper, records show some tax breaks might not even be necessary.
The shale boom
It was early 2011, and the Eagle
Ford Shale boom in South Texas was helping reinvent the American energy industry.
The region’s first successful horizontal fracking well had been drilled in La Salle County more than two years earlier, unlocking enormous deposits of oil and gas trapped in rock formations deep beneath the earth.
All that oil and gas had to go somewhere.
For Texas energy companies, the shale revolution has married ingenuity with good fortune — the geological reality that the state straddles some of the richest oil and gas reserves on the continent.
Yet some of the world’s largest companies have raked in tens of
millions of dollars in state subsidies for doing what simply made sense — building the pipelines, processing plants and petrochemical facilities necessary to profit from this windfall of resources.
Enterprise Products Partners, like its competitors, had begun building a network of new pipelines dedicated to transporting “natural gas liquids” in the Eagle Ford to its processing plants in South Texas.
The Houston-based energy company said enormous demand for its services soon would overwhelm its South Texas plants. But in April 2011, the company sought taxpayers’ help in building a new gas processing plant in Lavaca County by applying for a Chapter 313 incentive for the project.
To prove the project qualified for the tax break, Enterprise told the comptroller’s office that it had a large pipeline network and gas processing plants in four other states, allowing “substantial flexibility in plant location.”
But like so many of its competitors, Enterprise had told its investors a different story.
The company had discussed the plant in public statements dating back 10 months — its location, its capacity, its construction timeline, the length of pipe needed to connect it to the company’s network — and described it as part of a series of projects necessary to “meet the needs of producers” in the Eagle Ford.
If the comptroller’s office was aware of these statements, they were not mentioned in the office’s letter recommending the $41 million in tax incentives be approved.
In all, at least 35 gas plants in Texas received about $380 million in Chapter 313 incentives, almost all of them in the Eagle Ford or West Texas’ Permian Basin.
At least 10 of them were publicly announced before the companies applied for tax breaks, either by name or with the same capacity, construction timeline and region as the plants the companies described in their applications.
Twice, another company, Energy Transfer, not only announced a gas plant before applying but even acknowledged starting construction and site work months before — with $16 million invested at one site and $20 million at the other — yet still got the subsidies.
Energy Transfer spokeswoman Alexis Daniel did not address the timing of the tax incentives but said the company is “proud to be a Texas-based, Fortune 100 company” with many employees in the Houston region.
“In 2020 alone, we paid approximately $218 million in property taxes on our pipelines and facilities in Texas,” she said. “These taxes support schools, hospitals, community centers, roads and various other projects and services that are important to our state.”
Enterprise Products spokesman Rick Rainey, meanwhile, said a Chapter 313 incentive is one of many factors the company considers in evaluating investments.
“The economic viability of a project is analyzed, including the impact of 313,” he said, “and helps determine where a project will be built, or whether it will be built at all.”
Energy analysts, however, said the state’s dozens of gas plants were certain to be built here.
“The processing plants would have had to come up no matter what,” said Ajay Bakshani, an oil and gas analyst with East Daley Capital Advisors. “You need these plants in order to extract value out of the gas that’s coming out of the ground.”
And these plants, said Rusty Braziel, president of the Houston energy analytics firm RBN Energy, are typically no more than 25 miles from the cluster of wells producing the gas in need of processing. Just nine of the 35 gas plants that got Chapter 313 deals are that close to neighboring states.
The subsidies have become so ubiquitous that companies routinely remind the comptroller’s office in their applications that their competitors often have received tax breaks to build comparable projects.
While Craymer, the program supporter, said the review process usually works, he acknowledged some projects destined to build in Texas likely slip through.
“I do think this is an area of discomfort with many, and, quite honestly, we’re willing to work with folks on a better approach,” Craymer said.
Hector Rivero, president of the Texas Chemical Council, agreed.
“Someone that has got a project that’s coming here regardless, that’s an abuse,” he said.
“We want the comptroller to be able to ferret those out.”
Bryan, of the comptroller’s office, said his colleagues weigh public statements as part of their review process, adding, “Our determinations don’t typically rely on a single document or issue.” He gave the same answer when asked about projects that had started construction and still received tax breaks.
A similar pattern can be found in the renewable energy industry. Wind farms are projected to receive $2.1 billion in Chapter 313 tax breaks. Yet West Texas’ bountiful supply of wind and transmission lines already makes it the perfect location for such investments, according to a 2016 state Senate committee report.
In their Chapter 313 applications, both wind and solar farms often acknowledge selecting their sites based on their proximity to state-financed transmission lines but say the incentives are still needed.
Four solar farms in Atascosa and Frio counties are currently receiving Chapter 313 tax breaks.
Wind farms frequently start construction to secure federal tax credits but then seek Chapter 313 subsidies as well. They tell the comptroller’s office that their investments do not commit them to the sites, and they routinely say they cannot compete on price with their competitors who already have received the state subsidies.
In sheer numbers, most Chapter 313 applications are filed by renewable energy companies.
But most of the tax breaks — more than $7.6 billion — are going to more expensive projects in the manufacturing industry that include huge petrochemical firms.
The subsidies can be traced through the entire production process of the Texas shale boom.
When natural gas liquids leave processing plants, they flow mostly through pipelines to facilities called “fractionators” that split them into their separate components — chiefly ethane and propane — which are then sold, exported or refined into fuels and plastics.
In North America, the chief hub for this activity has long been Mont Belvieu, a town 25 miles east of Houston in Chambers County, which sits atop scores of salt caverns — some larger than the Empire State Building — that let companies store massive amounts of oil and gas products.
As these liquids flowed to Mont Belvieu, the tax breaks followed.
Unavoidable projects
Chapter 313 has subsidized at least 36 fractionators in Texas at a combined cost of $770 million, a figure that includes a few other projects that were submitted on the same applications as the fractionators. All are near the
Gulf Coast; 26 of them are in
Mont Belvieu.
At least 15 times, companies announced the fractionators publicly before filing their tax break applications. Ten other times, the companies did not prematurely announce the projects in detail but did indicate they soon would need to add capacity.
Enterprise Products received tax breaks for nine such units in Mont Belvieu, the most of any company. Enterprise announced two of its fractionators were “under construction” weeks before seeking tax breaks to build them — and still got approved.
The projects were inevitable, energy analysts said. Once the newly abundant gas liquids were gathered and processed, they would need to flow through a fractionator to be usable.
In theory, more gas liquids could flow to Louisiana, New Mexico or Kansas, Braziel said. Though Mont Belvieu’s salt caverns put it on the map, the town is the world’s gas liquids hub for another reason: 70 percent of these compounds are exported or sold to petrochemical plants, and both industries are clustered along the Gulf Coast.
There are docks, refineries and petrochemical plants in Louisiana, too, Braziel said — but not enough. The notion that three dozen Texas fractionators would have gone to Louisiana in the absence of tax breaks, he said, is folly.
“Could some? Yes. Could all of them? No,” he said. “The major