This Commentary was published in the Houston Chronicle on October 17, 2022: https://www.houstonchronicle.com/business/texas-inc/article/Comment-Keep-the-Texas-Miracle-alive-by-17500857.php
By Jeffrey Clark, President – Advanced Power Alliance
It’s said that everything old is new again. Dated ideas resurface, and occasionally sound public policies are abandoned because lawmakers fail to remember why they were established in the first place.
While lauding the “Texas Miracle” of strong economic growth, some Texas leaders are now attacking the primary economic development tools that made that miracle possible. This includes allowing a crucial local economic development tool to expire at the end of 2022.
Texas is inherently disadvantaged in its economic development by a tax structure that is heavily dependent on property taxes. Texas competes globally for all types of investment and, with no income tax, we’re often the most attractive location for corporate headquarters.
But, historically, capital-intensive manufacturing, energy, and industrial investments that are critical for economic diversification chose to locate in areas with more competitive tax structures. Understanding the need to overcome this disadvantage, lawmakers created a program to attract these large-scale investments that have now become the backbone of many local property tax bases. In 2001, the Texas Economic Development Act or “Chapter 313 Program” was born, creating a local-option authority that enables school districts to temporarily limit the taxable value of major new investments, thereby drawing those projects to Texas.
A fundamental tenet of the Chapter 313 program has been its local focus, allowing communities to target projects that best suit them. Rather than a state-run program, this relationship between industry and local school districts has encouraged projects in manufacturing and energy to invest where they are most wanted, and to avoid areas where they are not.
Over the years, enhancements to the program have made it even more responsive to taxpayers and local citizens. Among other features, the program now requires that the benefit to taxpayers outweigh the cost of the incentive, wages must be highly competitive, and the incentive must be a deciding factor in locating in Texas. Local communities have benefited as projects have stimulated other industries around them, and the entire state has benefited as more school districts have increased their own tax base instead of relying on state aid.
Chapter 313 has also helped small businesses in the areas of job creation and induced investment, including in suppliers and service industries. A massive semiconductor plant, for example, gives life to vendors and suppliers for that facility, along with housing, retail, restaurants, medical services, and myriad other businesses that contribute to our small-business economy and collective economic success.
Those ecosystems are becoming more pronounced, more diverse, and affect all areas of Texas. In urban Texas, recent investment in auto manufacturing by Tesla has stimulated an influx of other companies that support the industry. Just down the road, traditional truck manufacturers are exploring battery electric and hydrogen-powered heavy vehicles.
In rural communities, the program is ensuring that power for manufacturers remains affordable. General Motors, for example, runs 100 percent of its Arlington Truck Plant on energy from Texas wind farms. Like many others, this power-intensive manufacturing facility is using renewable energy to keep electricity costs affordable and predictable, ensuring that the plant remains competitive and keeping manufacturing jobs in America. These cases make clear that the future of auto manufacturing will have an expanded presence in Texas thanks in part to sound policy decisions made in Texas two decades ago.
Although Texas still lags neighboring states like Oklahoma, Kansas, and Iowa in the percentage of renewable energy serving customers, Chapter 313 has made the state more attractive and more competitive for clean power developers. While critics point to the large number of renewable energy projects in the program, these projects make up only about 27 percent of the tax benefit offered through Chapter 313 and, without renewable energy projects, more than 70 percent of counties currently benefiting from the program would have no use for the Chapter 313 program at all. All of Texas benefits from cleaner, cheaper power made in Texas thanks to Chapter 313.
Chapter 313 diversifies our commercial and industrial base, makes our economy more resilient, and supports job creation and school funding in areas where it is needed most. With the unwise expiration of Chapter 313 looming, it’s urgent that the Texas Legislature enact a replacement incentive program to attract the capital investment that will deliver tomorrow’s economic miracles.
Jeffrey Clark is president and CEO of Advanced Power Alliance, an organization advocating for advanced energy deployment including wind, solar, hydrogen, and energy storage technologies.