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.”
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.”
Russell Smith, executive director of the Texas Renewable Energy Industries Association, said his group favors the current law.
“If they are going to change the law in a way that hurts renewable energy, we’re not going to be happy,” he said.
Property taxes are among the biggest operating expenses for many large, capital-intensive companies, whether they are refineries on the Gulf Coast or windmills in West Texas. And school taxes are the biggest portion of a company’s property tax bill.
To help make Texas more competitive in recruiting such projects, legislators in 2001 authorized school districts to grant property tax breaks and set an eight-year limit on increases to the appraised value of property for companies that qualify.
The program is called Chapter 313, after the section of the law that created it.
Sweetwater, population 11,000, has become a center for the wind farm industry.
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.
Wortham personifies the changes to this West Texas community near Abilene.
He had been a lawyer running a business in New York until 2004, when he returned to his hometown to be part of the growing industry of wind farms that generate electricity.
Over the past five years, Wortham said his county’s tax base has increased five-fold to $2.5 billion, several business have located there, the town’s once-vacant buildings are all full and there’s new construction because of nearby wind farms.
“These are real Texas jobs – welders and truck drivers – and (royalty) money to farmers and ranchers” where the windmills are built, Wortham said.
Combs’ report also addressed a provision of the law that allowed side deals between companies and the school districts.
In most instances, companies have negotiated to share their tax savings with the local districts.
Most wind-farm developers have typically returned up to 40 percent of the tax break to districts, although the agreements can vary from a few thousand dollars to millions.
Those deals have been negligible in Central Texas. Hewlett-Packard Co. paid Austin schools $204,874 and Round Rock $28,500 after winning tax breaks for a data center. The largest local payment is the $1.5 million that Samsung Austin Semiconductor paid the Manor district when it built a chip plant there.
By comparison, five wind farms are paying the tiny Blackwell Independent School District, near Abilene, about $25 million over several years.
Combs recommended eliminating the side deals altogether, because she said the money sometimes causes school district officials to enter into incentive agreements that aren’t always in the best interest of the state.
Last year, the Legislature tried to eliminate the windfalls for individual districts by capping the side payments at $100 per student.
Kolkhorst said she fought to cap the payments out of fairness.
Citing million-dollar windfalls for individual school districts, she said, “A child in West Texas shouldn’t be worth twice what a child is worth in East Texas.”
Her opponents say that ending the payments to school districts only helps the companies.
“It’s going back in the pockets of the company, and you are not saving the state any money,” said Kevin O’Hanlon, an Austin lawyer who advises school districts in Chapter 313 negotiations. “The ($100) limitation just reduced the ability of the school district to drive a hard bargain.”
Dick Lavine with the Center for Public Policy Priorities disagrees.
“The companies were essentially paying school districts to give them the tax breaks,” he said.
Wortham said capping the money to school districts is dampening enthusiasm for doing more deals. Without that extra money, Wortham said school districts are more reluctant to negotiate the tax breaks.
“If they are going to get a new school out of it, you betcha, the school superintendent will spend four months negotiating a deal,” he said. “If you take away the incentive, you take away economic development.”
Despite the change in the law, some school districts have found a way around the $100-per-student cap. According to the comptroller’s report, companies in some instances are paying money above the limit to foundations controlled by the school districts.
In the end, the debate over incentives might boil down to whether a company or, in the case wind farms, an industry would have come to Texas without the tax breaks.
Rep. Joe Heflin, a Democrat from the Panhandle, said he believes Texas already is losing projects to other countries, let alone other states.
“This is the next oil boom,” he said. “We’re sorry you are not getting it in Austin, but you don’t put up with the wind.”
|Wind Watch relies entirely
on User Funding