December 20, 2010

Combs report says Texas overpays in tax breaks to wind farms based on job creation

Laylan Copelin, Austin American-Statesman, 20 December 2010

Texas is overpaying to lure major economic development projects, particularly wind farms, under a state law that allows school districts to grant tax breaks to recruit capital-intensive industries, a new study by Texas Comptroller Susan Combs concludes.

Granting school property tax breaks has helped Texas attract a number of manufacturing plants with significant employment, Combs wrote, but the program “has increasingly been used to over-incentivize projects that create few or no jobs.”

Almost two-thirds of the 98 projects that have won the tax breaks are wind farms.

The tax breaks awarded to 63 wind farms averaged almost $1.6 million per job, compared with $166,188 for manufacturing projects and $51,249 for research and development, according to the report.

The cost per job is 40 times what the state spends on projects that win grants from the Texas Enterprise Fund, which the governor uses to attract companies and jobs.

And wind farms are getting a disproportionate share of the tax benefits, according to the report. They are projected to receive 38 percent of the tax benefits awarded to the 98 projects but represent only about a fourth of the capital investment and 8 percent of the promised 6,239 jobs.

Future renewable energy agreements should better align the tax benefits with jobs and the company’s capital investment, the report states.

Combs, who submitted her report to state leaders last week, recommended focusing the program on job creation – part of its original intent.

The 2001 law allows districts to grant tax breaks to attract large-scale manufacturing and other projects that meet certain standards for investment, job creation and pay levels.

Faced with a $24 billion shortfall, the Legislature is expected next year to debate the state’s array of economic development incentives, from property tax breaks to grants from the Texas Enterprise Fund and Texas Emerging Technology Fund.

The school property tax breaks alone will cost the state about $400 million over the next two years because the state covers the revenue losses for districts granting the tax breaks.

But once the tax breaks expire, the state also gets the benefit of a growing tax base under its share-the-wealth system of financing public schools.

The debate over incentives raises questions about what a job is worth and whether the state should judge incentives only by the jobs a company creates directly or also by indirect jobs attracted by the new economic activity. The answers are likely to pit regions of the state, as well as industries, against one another.

Combs’ report is just the first volley in that discussion.

“The whole theory is that we’re leaving money on the table. We’re not,” said Sweetwater Mayor Greg Wortham, executive director of the trade group Texas Wind Energy Clearinghouse. “We’re going to be leaving jobs outside of Texas.”

Wortham criticized Combs’ report for not including jobs created indirectly because of the massive wind farms. Industry estimates put that figure at 10,000 jobs statewide.

“These are real Texas jobs – welders and truck drivers – and [royalty] money to farmers and ranchers” where the windmills are built, Wortham said.

State Rep. Lois Kolkhorst, R-Brenham, applauded the report: “The [job] numbers are exactly what I feared.”

But she said the issue is broader than just wind farms.

“I’m all for green jobs, but not at such high costs,” she said. “We have to prove that these green jobs don’t rely too much on taxpayer subsidies.”

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