Texas Chapter 313 and Schools: Correcting the Myths

The Texas Economic Development Act (more commonly known as Chapter 313) is the state’s single most important economic development program.

Chapter 313 allows school districts to offer a temporary, 10-year limitation on a portion of the taxable value of eligible new investment projects. The limit only applies to school maintenance and operations (M&O) taxes—there is no limitation for debt service taxes, nor for business inventories. Current law allows school districts to receive supplemental payments from the project of up to $100 per student. A project also must hold the district harmless from any revenue losses under school finance formulas as well as any extraordinary costs incurred from the project.

Myth: Chapter 313 agreements cost the state money.
Fact: Chapter 313 agreements make money for the state!

For a project to be eligible for a 313 limitation, the State Comptroller must first certify:

  1. The limitation is a determining factor in the decision to invest—no limitation, no project, and
  2. The project will generate more new tax revenue than the amount of tax benefits it receives.

Only then may a school district offer a temporary limitation on the taxable value of the new investment. The limitation allows the project, for a temporary period of time, to write a smaller check to the school district than what it otherwise would have (313 does not “pay” the project). The only tax dollars “lost” are those the district never would have collected because the project would not exist.

Myth: Under school finance formulas the State has to pay school districts that grant a 313 limitation.
Fact: The State cuts aid to a district granting a 313 limitation!

Chapter 313 requires some portion of the investment must go on the school’s tax rolls for maintenance and operations, and ALL of the project’s value must go on the rolls for school debt service taxes. Because there is new value on the school district’s tax rolls, the district is property “wealthier.” Therefore, school finance formulas automatically reduce state aid to the district, saving the state money. When the limitation expires, and the project is taxed at full value, the state reduces aid to the district even further.

Myth: Chapter 313 is not transparent
Fact: Chapter 313 is the most transparent economic development program in the state!

To be considered for a limitation, a project must file an application detailing the scope of the project, its investment, hiring, and the tax benefits it seeks. Each year, the project must file a report which will determine whether it remains eligible for the limitation. Every two years, the project files a separate report on the project’s progress—even after it is operational. All of these reports are open records and are immediately available on the Comptroller’s website. Chapter 313 is the most transparent economic development program in the nation.