Calling business welfare, or crony capitalism, an economic development tool does not change what is happening in such transactions, nor does it make it better policy.
In the 87th Session of the Texas Legislature, in 2021, a wonderful thing happened: Chapter 313 of the Texas Tax Code was allowed to expire without lawmakers renewing it. The program allowed local school boards, which by the way always claim to be broke, to hand huge, long term school property tax breaks to businesses.
I don’t want to rehash all the problems the program but clearly it wasn’t a good thing program given that the respected free market Texas Public Policy Foundation was joined by leftwing groups in opposition to the renewal of the it.
In the 88th Legislature, House Speaker Dade Phelan and Calendars Committee Chairman Dustin Burrows of Lubbock are leading the way to replace Chapter 313 with House Bill 5 by Rep. Todd Hunter of Corpus Christi, which claims to create a “temporary and limited competitive economic incentive” to attract big projects related to critical infrastructure, manufacturing as well as “national and state security and critical domestic supply chain support” industries, according to reporting by the Texas Tribune.
It is no surprise that businesses that are given an advantage over their competitors by politicians in the form of tax breaks want the program, or something similar, re-established. It’s also no surprise that many politicians want such restored because taking our money and handing it over to others buys them power, favors, and campaign donations.
The question I have is why do self-styled conservatives and free market advocates think it a good idea support this form of crony capitalism?
Wikipedia entries are not always trustworthy but the definition found there of crony capitalism is correct: “Crony capitalism, sometimes called cronyism, is an economic system in which businesses thrive not as a result of free enterprise, but rather as a return on money amassed through collusion between a business class and the political class.”
How is it good policy to give big school tax breaks to some companies, while others are forced to carry an even heavier tax burden in the same jurisdictions to make up for the lost revenue to local school districts? That seems a case of robbing Peter to pay Paul. And worse, it punishes proven, existing taxpayers and their businesses to benefit speculative new entrants to their local markets.
Texas already has a very large fund for big business investment in the state, so why do local school districts need also make these deals?
“Texas has other mechanisms to grant publicly funded incentives to corporations as a means of attracting private-sector investment. But the ability to reduce school property taxes under Chapter 313 has been considered particularly critical in luring capital-intensive projects, such as factories, because of Texas’ relatively high property tax burden,” wrote Bob Sechler in the Austin American-Statesman about the issue in December of last year.
If it is true that high property taxes at local school districts make the business climate bad for attracting investment, then that is the problem: high local taxes, not a lack of tax breaks.
Why pervert the market by allowing school boards to get out of having to live with the economic playing field they have created? Those boards have set the high property tax rates that we are told spoil local investment so, let them do without the investment. The loss is a direct consequence of the policies those boards adopt.
Aside from shifting tax burdens onto other citizens and business in these jurisdictions, all we are doing with these tax break programs is removing a big incentive for local school boards to rein in spending and property taxes so that an attractive business climate is maintained.
We don’t need another Chapter 313, even if it is better than the old program by excluding the windmill and solar energy projects.
We do need legislators willing to address a fix to the real problem of investment hindering high property taxes. It’s time to phase out school district maintenance and operation taxes over a decade, as TPPF’s plan can do. That’s a real fix that lets businesses locate where market forces dictate, instead of where they can find politicians ready to give them a special deal.