Report proposes overhaul of property tax breaks for companies 

The Texas comptroller, not local school districts, should be in charge of negotiating school property tax breaks to businesses to attract large-scale investments such as manufacturing plants or wind farms, a new report by the Legislative Budget Board recommends.

The recommendation, if adopted by the Legislature, would end the decade-long practice of businesses negotiating tax breaks with school districts, not the state.

Under current law, school boards negotiate and approve the deals, which the state then reviews. The recommendation would reverse that process, putting the state in charge of making the deals and giving school districts, in effect, a veto.

The report also raised the prospect of creating a separate incentive program for renewable energy projects because they create fewer jobs than manufacturing or research projects do.

The Legislature passed the Texas Economic Development Act in 2001 because the state’s heavy reliance on property taxes was making it difficult to attract large industrial projects, for which property taxes are a major expense.

The program is just one of several economic incentives that lawmakers will re-examine in the face of a budget shortfall projected at more than $24 billion.

The budget board, a powerful arm of the Legislature that is overseen by a panel of legislative leaders, noted that school taxes account for the largest part of property taxes, but the report concludes: “School districts should not be made responsible for economic development.”

It also questioned whether school officials are verifying that companies meet the job and wage standards required under the law.

To protect districts, the report said the comptroller should not be able to negotiate a business relocation without agreement of local school officials.

Dick Lavine , senior fiscal analyst with the Center for Public Policy Priorities, said the report is a step toward ensuring that tax breaks go only to projects that wouldn’t come to Texas without the incentives.

“In the past, the school district decided, and the state paid,” he said.

Under the law, the state reimburses the districts for lost revenue attributed to the tax breaks, which last eight years. After that point, the facility goes on the tax rolls at full value.

Both school officials and advocates of wind farms criticized the report.

“We’re leery of the big-government idea that the comptroller is going to know better than local officials,” said Dominic Giarratani , assistant director of government relations for the Texas Association of School Boards. “Local officials are in the best position to decide what the community needs.”

Paul Sadler , executive director of the Wind Coalition, argued that the state constitution doesn’t give the comptroller the authority contemplated in the report.

“In essence, it sets the comptroller up to approve or disapprove local tax decisions,” Sadler said. The current system already protects the state from bad deals, he said.

Comptroller Susan Combs reviews each project. If she rejects one, a school board can continue with the project only with a two-thirds vote, and the state doesn’t have to reimburse the school district for the lost tax revenue, Sadler said.

“That’s a pretty good hammer already,” he said.

The report focused on the cost of the tax breaks. The state reimbursed school districts $158 million from 2003 to 2009 for tax breaks they gave to companies. But the state is responsible for $1.9 billion over the next two decades. The report said the state’s liabilities could be “limitless” under the current system.

Dale Craymer, president of the Texas Taxpayers and Research Association, which includes the state’s largest manufacturers, said the program only delays the point at which projects must pay full property taxes.

“The state of Texas and the school district are better off with the investment,” he said. “It’s not like anyone loses money.” He said without the tax breaks, Texas wouldn’t win projects like a refinery or a Toyota plant and the jobs they create.

The report also singled out renewable energy projects, particularly wind farms, because they create fewer jobs than manufacturing or research. It suggested that renewable energy should have its own incentives.

Another sore point in the debate over tax breaks is whether to count only direct jobs created by a project or include other broader economic benefits, such as indirect jobs created by a plant or wind farm.

The budget board report repeated the comptroller’s estimate that wind projects that received incentives can only count 572 “direct jobs,” while the industry claims 10,000 indirect jobs.

Sadler noted that a state website controlled by Combs, who has supported giving $250 million in tax money over 10 years to Austin organizers of a proposed Formula One car race, last month touted the economic benefits of the event.

The state Web page listed 3,770 direct jobs, and 1,075 jobs from indirect and “induced” effects of the three-day F1 race. Induced jobs are those created as the result of indirect jobs attributable to the event.

“She counted all the way down to the taxi cab drivers,” Sadler said. “For wind, she counted 500 statewide. Let’s at least be fair.”

The comptroller’s staff removed the information after an American-Statesman reporter asked about it, and the agency said it was not claiming F1 would create that many jobs.

Monday, the agency was closed for the holidays, and officials could not be reached for comment.