It started with the nonrenewal of Chapter 313 during the 87th Texas Legislature, which signaled concerns from a broadening coalition about government—in that case school districts—picking winners and losers by granting property tax breaks to select businesses.
Now it seems hesitation is growing at the local level to handing out property tax breaks under Chapter 312—a similar program for counties and municipalities. In September, Navarro County commissioners abstained from creating a reinvestment zone, which is necessary to the process of granting Chapter 312 or 313 tax breaks. More recently, McLennan County commissioners questioned the benefits of granting a specific 312 property tax break. In both cases, the applicant was a solar farm business.
Granting subsidies and preferential tax treatments to select businesses is bad policy across the board, and it should be stopped altogether.
First, business incentives have been found not to be a determinative factor in most businesses’ location choices. For example, there are geographical and logistical reasons why petrochemical companies would locate on the Texas coast near refineries, or why wind farms would pick West Texas where the wind often blows regardless of whether tax breaks were offered.
Second, the argument that tax breaks “can determine a project’s viability” should be a huge red flag. If a business cannot stand on its own merit in the market it picks, why should government prop it up with the backing of taxpayer money—sometimes with taxpayers’ unvoluntary backing?
In some situations, the case against granting subsidies is especially overwhelming.
An industry that has particularly benefited from Texas property tax breaks is the renewable energy industry. It is high time that those who will weigh in on Chapter 313—until it sunsets on Dec. 31, 2022—and Chapter 312 agreements ask two questions: What are the costs? And are they higher than the alleged benefits?
Look at what happened during Winter Storm Uri and the energy crisis currently going on in Europe.
Wind and solar may be renewable, but they are not reliable: When they do blow and shine is not necessarily when we most need them to produce electricity. In a cold winter night, for example, wind turbines will not produce much electricity and solar panels will produce nothing. These resources generated less than 1 GW of the 75 GW of demand during the height of Winter Storm Uri. The grid needs reliable energy that can keep people warm or cool—in a word, safe—in all weather conditions.
The way the subsidies add to the variable generation problem is by distorting the market so much that high subsidies for renewables discouraged the building of new plants of reliable, dispatchable energy—mostly fossil fuels. This phenomenon led to insufficient energy reserves in situations such as the 2021 Texas winter freeze or during hot Texas summers.
In Europe, the cost of the “energy transition” is steep: high prices, shortages, and falling back on less clean energy produced in countries with lax environmental standards. Europeans are the poorer for these policies, with energy poverty sharply increasing. A survey found that 20% of French households found it hard to pay their electricity bill last year and 60% had to reduce heating to lower their bill. France, which uses primarily reliable and low-cost nuclear energy, has seen its electricity prices increase in part due to the cost of transitioning to renewables. In the UK, energy poverty is estimated to cause over 3,000 deaths every winter.
Unfortunately, instead of taking Europe’s march toward energy poverty as a countermodel, some of the proposals currently before Congress would take us on the same path to unreliable and unstable energy grids, energy poverty, and eventually diminished flourishing.
What can Texas do?
Ending Chapter 313 will help limit the damage done, and school districts should scrutinize the claims of businesses that “rush” their applications before the sunset date.
Local governments overseeing the granting of Chapter 312 tax breaks should also be wary of the lure of increased tax revenues that come disguised as a “free lunch”—if there is one thing that subsidizing renewable energy shows, it is that there is no such thing as a no-cost property tax break.