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Schools’ deals with companies spark worries

AUSTIN – In the Barbers Hill school district in Chambers County, Superintendent Greg Poole has awarded $100,000 in teacher “scholarships” in the past three years to encourage innovative teaching initiatives.

One project featured the development of sophisticated software that not only detected plagiarism but helped students develop better writing styles.

At a time of severe state budget cuts, where did Poole find the money? He tapped his school district’s $2 million private foundation, financed mostly through payments from large corporations that have received tax incentives from the Barbers Hill school district.

The partnership with local industry was made possible by a state tax incentive known as “Chapter 313 agreements,” in which school districts award tax incentives – and sometimes receive rich remuneration in return.

“It is so neat that 313s have put businesses and schools together,” Poole said. “It really has fostered a team attitude.”

But now the Legislature is rethinking the economic development tool it created in 2001, fearing that some districts have entered sweetheart deals in which they have waived $2.4 billion in tax revenues, money mostly replaced by state funding formulas.

Under a state law adopted in 2001, school districts can agree to keep the appraised property value of a business artificially low for eight years in return for large-scale capital investments that create jobs and generate tax revenues.

But districts can recoup most of the taxes they give up through state funding, and they are able to negotiate “supplemental payments” – such as the $2 million in the Barbers Hill School Foundation – on the side.

Since the program began, Texas school districts have negotiated $473 million in “supplemental payments” that they will receive in addition to their normal state funding.

From football stadiums to computers to college scholarships, the “supplemental payments” have paid for educational extras without affecting a district’s regular state funding.

The program’s advocates call it an important economic development tool, but a 2010 report by the state comptroller said the state has paid dearly for the jobs produced by the agreements: $306,000 in lost tax revenue for each job over the lifetime of the 171 agreements negotiated.

That number was even higher for the wind power industry: $1.2 million in lost taxes per job created.

This session, the Legislature must vote on whether to extend the program, which key lawmakers suspect has given away too much for too little in return.

“Local entities are deciding and awarding incentives that are paid for by the state,” said House Ways and Means Committee Chairman Harvey Hilderbran. “The state is picking up the cost of this through the school formulas.”

This week, Hilderbran’s committee will hear a proposal that will give the state greater control.

“I don’t think there’s an appetite for just extending it,” said Hilderbran, R-Kerrville. “There are state implications, so the state needs to be playing a leading role. We need to create a system that, regardless of who is in office, there is criteria businesses must meet to qualify.”

Hilderbran is quick to note that the Chapter 313 agreements approved so far will eventually bring $62.4 billion in investments that could have gone to other states.

“Property taxes are the biggest barrier to economic development,” he said. “It’s very important to get existing businesses to invest in the state.”

He credited the program with bringing Toyota’s investment in San Antonio’s Southwest Independent School District.

Toyota will pay the district $2 million directly while the tax break is in place. Bill Atkins, business manager for Southwest ISD, said payments go directly into the district’s general fund for operating expenses. He also noted that the district stands to gain an additional $500 million in property value when the agreement ends in 2018, unless equipment is depreciated. “I imagine they will try to depreciate a lot,” he said.

Hilderbran faults Chapter 313 investments for not creating more jobs. Under the current law, districts can waive job creation targets if a company is investing a certain amount of money.

He also is concerned the agreements are clustered in two areas of the state: Gulf Coast refineries and West Texas wind farms.

A chief critic of the agreements is Dick Lavine, budget analyst for the Center for Public Policy Priorities, which advocates for low-income Texas families at the Texas Capitol.

School districts “are getting paid to sign agreements that cost the state money,” Lavine said. “It completely skews their decision-making.”

After reviewing many of the agreements, Lavine has concluded that many of the businesses likely would have made the investment without the tax incentive.

For example, the application of a gas plant in Kenedy notes that its purpose it to produce industrial gases from the liquid-rich natural gas produced in the Eagle Ford Shale.

To Lavine, it is likely the gas plant would be located somewhere in the Eagle Ford region, making a tax incentive superfluous.