San Antonio Express-News (Sunday)
CHAPTER 313
ity are going to land in Texas.”
What’s more, Bakshani said, by the time a fractionator is announced, most or all of the material the unit will produce is typically already under contract with customers — often petrochemical plants planning to use it in specific units nearby.
“A lot of the companies now have such a presence at Mont Belvieu that if they suddenly come out and say they’re building a fractionator in Louisiana, it would be a head-scratcher,” Bakshani said. “Why not take it to all the fractionators you already have that are next to all the facilities you already own?”
The flurry of Chapter 313 activity didn’t go unnoticed by competitors.
In early August 2017, Permico announced its Texas NGL project, an effort to pipe gas liquids from the Permian to a new fractionator in Corpus Christi.
When the company applied for a Chapter 313 subsidy, Permico CEO Jeffrey Beicker learned the comptroller’s office had questions. He was furious. Why didn’t his competitors face the same scrutiny?
“All these other companies have multiple news releases, quarterly reports and annual reports that state their intentions,” Beicker wrote in an email to his consultant. “We refuse to lie to receive the tax abatement. Apparently our competitors do not share this moral dilemma.”
Beicker’s company got the tax break. A Permico executive referred questions to Beicker, who did not respond to requests for comment.
‘Building and building’
More than a third of gas liquids go to petrochemical plants, which pounced on the cheap fuels the shale boom produced by launching a staggering array of projects.
As the compounds flowed from Mont Belvieu and elsewhere to chemical plants along the
coast, in dozens of cases the subsidies followed them.
Some of the biggest Chapter
313 subsidies have been for petrochemical units called “crackers.” These turn ethane — the main material flowing from all the new fractionators — into ethylene, a key building block of plastics.
Chevron Phillips Chemical announced it would build one such unit in Baytown in late 2011 — months before it applied for incentives to do so — then sought tax breaks for another as part of a larger project in Orange in 2019. Combined subsidies: $491 million over 10 years.
LyondellBasell secured three Chapter 313 incentives in 2013 to
increase ethylene production at its Channelview, La Porte and Corpus Christi plants despite announcing all three publicly before applying.
And ExxonMobil was already building an ethylene cracker in Baytown that had gotten Chapter 313 subsidies when it filed more tax break paperwork in 2016 as part of a joint venture with the Saudi firm SABIC.
The companies’ new chemical plant near Corpus Christi includes an ethylene cracker and accompanying units and will get a projected $457 million in subsidies over a decade.
Exxon spokesman Todd Spitler said the company supports “a
business environment that encourages capital investment and job-creating activities,“but he did not comment on its Chapter 313 deals.
Chevron Phillips spokesman Bryce Hallowell said the company’s announcement of its Baytown project was followed by “significant" analysis. Chapter 313 tax breaks were “a key component” of that review before the company made a final decision to build the project, he said.
Lyondell spokesman Chevalier Gray said public policy is among the factors the company considers when considering a new project, adding, “Our projects provide increased tax revenues,
among other economic benefits, across the region for many years after economic incentives expire.”
The windfall of natural gas not only made it a cheap raw material for petrochemical giants, but the materials soon were so abundant that companies sought buyers overseas.
In a five-year span beginning in the summer of 2010, federal regulators approved more than 20 requests from companies to build facilities to load gas liquids onto ships for export.
Among them were seven sites along the Texas coast — four of which were approved for Chapter 313 tax breaks. Some touted their
proximity to the Eagle Ford and the Permian as competitive advantages; all four announced their plans months before seeking subsidies.
“The shale story just kept building and building over the past few years until, finally, we did the engineering and it just made sense,” Freeport LNG CEO Michael Smith said in November 2010, months before his company applied for a tax break to turn its recently opened facility to import gas into a hub for exports.
The projected tax breaks for these export projects are among the program’s largest: $456 million to Freeport LNG; $354 million to Sempra Energy’s docks
near Port Arthur; $857 million to Cheniere’s site near Corpus Christi; and $388 million to Exxon and Qatar Petroleum’s joint venture near Port Arthur.
Freeport LNG spokeswoman Heather Browne stressed that the company provides hundreds of jobs — and thousands more when the facility was under construction — and will pay a projected $2 billion in state and local taxes during the project’s first two decades of operations.
“The Chapter 313 value limitation tax subsidies, approved and entered into prior to Freeport LNG making its final investment decision to construct our facility in 2014, helped our project compete
in the global marketplace for customers, and thereby assisted the company in moving forward with the project in Texas,” Browne said.
The three other Texas projects were in Brownsville. One never sought a Chapter 313 deal, and two — opposed by a coalition of shrimpers, fishermen, environmentalists, Native Americans and others — had their tax-subsidy applications rejected by the Port Isabel school board.
Yet neither spurned company stopped work when their subsidies were denied. Only last month, six years later, did Annova LNG announce it was abandoning the project, blaming
market shifts. The other two companies still plan to build.
At least eight times, in fact, Hearst Newspapers found companies said they needed the subsidies to build, had their applications rejected by a school district or the comptroller’s office or withdrew them under questioning — then proceeded anyway.
Nor do all companies say they need the subsidies. The owners of dozens of gas processing plants, including some just south of the New Mexico border, built without ever filing requests for a tax break.
Nothing for homeowners
There’s simply nothing like Chapter 313 for everyday Texans and small-business owners.
“We don’t think this program should exist,” said Carine Martinez, director of research and publications at the Texas Public Policy Foundation, a conservative research group that has been calling for the repeal of Chapter 313 for years. “We favor a broadbased tax system so we can lower it for everyone instead of favoring some.”
Homeowners are eligible for some protections such as the homestead exemption, which cuts appraised values by $25,000 for taxes owed to school districts. But with the median home value in Texas at $170,000, many owners are still responsible for paying taxes on a large share of their property appraisals.
“I’m one of those people who believe that you should do everything on your own as much as you can, but we keep handing money to these corporations and nothing to the citizens,” said
Mark Varnado, a Mont Belvieu homeowner who owes more than $3,200 in overdue taxes and penalties. “That doesn’t quite make sense to me.”
Varnado acknowledges falling behind on his taxes in 2019 and says he meant to catch up last year. But business from his side gig as a disc jockey dried up during the pandemic, and he had to support a son who lost his job. Now Varnado is falling even deeper in the hole as late fees add up.
The Texas Comptroller’s Office almost never penalizes Chapter 313 companies that fail to meet their job-creation targets. And unlike the homestead exemption, Chapter 313 lets many businesses pretend a large portion of their investments are invisible on tax rolls.
Why are Texas officials approving so many deals, even for projects that might have been built anyway?
The answer is simple: That’s how Chapter 313 was designed.