The regular session of the 87th Texas Legislature has ended, and time has come to take stock of the changes that will follow. In terms of economic development, the Legislature ended one program, created a new one, and passed bills that will increase transparency.
The biggest transformation relates to the Texas Economic Development Act, better known as Chapter 313. The Legislature did not pass any bill that would have renewed it beyond its current sunset date of December 31, 2022. Chapter 313 allows school districts to enter into tax abatement agreements with select businesses, allowing these businesses to pay less in taxes than they would without such an agreement while negotiating additional, side payments for the school districts that are not reintegrated into the public school finance system.
While supporters claimed the program was essential to bringing capital-intensive businesses to Texas, many flaws in the program were found over the years, including doubts about the number of businesses that actually needed the incentives to come or the fact that school districts were allowed to waive the requirement that a business create a minimum number of jobs, one of the main goals of the program.
Arguments in support proved unpersuasive as one bill that would have expanded the program and renewed it for 10 years died on the House floor. A second one that would have simply renewed the program for two years did pass the House but was not brought up on the Senate floor. Absent any plan to put the renewal of the program as an item of a special session, Chapter 313 will expire next year.
In a different area of economic development, the Legislature created a new program aimed at helping music venues in Texas: the Texas music incubator rebate program. The new program will give “rebates” from a newly created account made up of monies from the sales tax and the mixed beverage gross receipts tax to qualifying music venues and promoters. The program will start in September 2022.
Another important change concerns transparency. Two bills the Legislature passed will bring added transparency to local economic development.
One bill requires the creation of a database of local economic development program agreements (under Chapters 380 & 381 of the Local Government Code), and another requires counties to report rates of and revenues raised from any county hotel occupancy tax (HOT). The centralization of this information is important because without it, disclosure and its quality can vary greatly. Having access in one location to more detailed information allows for a quick and easy way to know how many of these agreements exist and how much is raised in HOT, where these are mostly used, and for which purposes. When researchers, taxpayers, and lawmakers can more easily access this information, they can more properly analyze the effects—benefits and costs—of these programs.
Transparency is a way for government to be accountable to the people it represents. And in that area, a lot of work remains. Access to information on economic development negotiations is still restricted in Texas. Under the Texas Open Meetings Act (Government Code Section 551.087) and the Texas Public Information Act (Government Code Section 552.131), economic development negotiations are excluded from the open government statutes, resulting in taxpayers being effectively shut out of what government units negotiate and offer select businesses with taxpayer money only to be too often presented with a done deal.
Some studies estimate that the annual amount of state and local spending on targeted economic development subsidies has reached $95 billion, increasing enormously the past 30 years. This creates a race to incentives that generates a vicious circle of government offering increasingly more and businesses asking for ever bigger incentives, to the detriment of taxpayers and non-subsidized businesses.
As long as these programs exist, they should be completely transparent and submitted to regular audits and cost-benefit analyses. And like Chapter 313, they should be terminated if they are proven to benefit only a few at the expense of others.