Bigger Boondoggles in Texas
Beware business interests selling old giveaways as a new coronavirus response.
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Everything is bigger in Texas, the saying goes. And it’s certainly true of Texas’ corporate tax giveaway programs, one of which is going to get bigger and badder if state legislators have their way.
The real kicker, though, is that they’re doing so under the guise of coronavirus relief, joining a trend taxpayers everywhere need to beware.
The Texas Economic Development Act — better known as Chapter 313, as that’s where it sits in the Texas tax code — is a program that allows local school districts to give property tax breaks to corporations that locate within the district, under the theory that those corporations will bring in new jobs and investment. It was created back in 2001, and Texas lawmakers are debating whether or not to reauthorize it for another 10 years, as it is scheduled to expire in 2022. This is the program that, in part, enabled Elon Musk to complete his latest big taxpayer grift by sending a new Tesla plant to Austin.
Now, usually when school districts get involved in corporate incentive discussions, it’s a positive thing, as they’re loath to lose property tax revenue, which funds school budgets. But Texas is different, because Chapter 313 requires the state to make school districts that approve property tax giveaways whole — in effect, immunizing districts from the downsides of development choices that don’t pan out.
Instead, taxpayers the whole state over pay for the experiments of each individual school district. And it’s actually worse than that, because school districts can negotiate side agreements with corporations to pay some percentage of the exempted property taxes anyway. So schools are made whole by the state, and then receive a bonus payment on top of it.
The incentive, then, is to approve property tax breaks and bigger side payments whenever a corporation asks, not ascertain whether a particular project actually makes sense from an economic standpoint.
Now, what does any of this have to do with coronavirus recovery? Nothing. Chapter 313 is a 20-year-old program that was scheduled to expire next year long before there was a pandemic to think about. But state legislators and big business groups are trying to claim that the state will be at a disadvantage post-pandemic if it doesn’t have Chapter 313 (and other corporate incentive programs) at its disposal.
This isn’t chump change we’re talking about here. Texas is projected to spend $1 billion on Chapter 313 giveaways by next year. The program has no cap, so in theory it can grow indefinitely. And contrary to the sales pitch lawmakers and business lobbyists are making, Texas is not getting very much for the money.
Prof. Nathan Jensen at the University of Texas at Austin found that 85 percent of firms that were “incentivized” to locate in Texas due to the program would have done so anyway. “The majority of these projects, and incentive dollars, were allocated to firms already committed to investing in Texas,” he found. Companies consistently receive Chapter 313 incentives even when they’ve indicated they’re coming to Texas no matter what.
Overall, somewhere between 75 and 98 percent of corporate location decisions have nothing to do with taxes or other incentives, so Texas’ experience checks out. The Lone Star State’s other corporate incentive programs suffer from the same problems; in my book, I describe how Toyota executives gladly pocketed $40 million in incentives to move a headquarters there, then freely admitted the move made sense for several business reasons that didn’t involve taxes.
Texas is certainly not the first place in which business interests and their allies have promoted old corporate giveaway programs as the hot new thing to help with pandemic recovery. It happened in Louisiana. New Jersey’s terrible rewrite of its corporate incentive programs was pegged to recovery from the virus. This week, Michigan Gov. Gretchen Whitmer made an ineffective corporate tax break program one of the key pieces of the next phase of that state’s pandemic response.
As I’ve been warning, this is a dynamic local voters need to watch: Business interests are going to portray the same old largesse they’ve consistently received from the public as suddenly vital to emerging from the economic doldrums of the pandemic. They’ll claim new and bigger giveaways are the only way states and cities can compete for economic opportunities or climb out from pandemic-related budget holes.
That corporate incentives are a positive for local budgets or economies isn’t true even at normal times, and these are decidedly not normal times. There’s no certainty regarding what the post-pandemic work landscape is going to look like, particularly for white-collar workers who may have decided that coming to a corporate headquarters or massive office building every day isn’t something that interests them anymore. So throwing money at the status quo is even worse than normal.
Now, I don’t have much hope that Texas will do the right thing regarding Chapter 313, which is to let it expire. The pro-giveaway mindset in the legislature there is too strong. But let it serve as a warning to taxpayers elsewhere: This sales tactic is coming to your community, and with states and cities facing a long slog even when the pandemic is behind us, lawmakers are going to feel pressure to cave to big business. Don’t let them.
ONE MORE THING: Following reports that Japan is considering canceling the now-2021 Summer Olympics that were postponed last year due to the pandemic, Florida’s chief financial officer offered to host the games in the Sunshine State. He added that he believes “Florida can successfully deliver an Olympic event to the world for little-to-no cost.”
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— Pat Garofalo