Tax abatement subsidies for energy companies might not be an effective or beneficial tool for economic growth in Texas, according to a new study.
“Most of these energy operations were coming to Texas even without Chapter 313,” said Nathan Jensen, author of the Washington Center for Equitable Growth report. “In some cases, they had started building before getting the abatement or they admitted in the application they were already building.”
The study, titled "Exit Options in Firm-Government Negotiations: An Evaluation of the Texas Chapter 313 Program," found that only 15 percent of tax abatement subsidy recipients would have moved their projects out of Texas had they not not received incentives for their renewable energy projects.
“Incentives are effective in attracting renewable energy investment but the renewable energy investment in Texas is not eliminating fossil fuels,” said Stan Greer, author of a Texas Public Policy Foundation (TPPF) white paper called "Local Tax Abatements and the Texas Wind Industry: How Chapters 312 & 313 Are Scarring Rural Texas." “The problem with renewables is they work sometimes but they're not reliable at least with current technologies. So there always has to be a backup.”
Chapter 312 allows for agreements with landowners to improve the property in exchange for abatement of estimated value of property taxes, according to JD Supra, while Chapter 313 is a tax limitation program that operates like an abatement except that it forgives large amounts of levies on the firm’s property.
“What’s troubling is that this is a 10-year tax limitation with the promise that in year 11 these investments come on the tax rolls but they depreciate so fast that there is almost nothing left to tax,” said Jensen, a professor of government at the University of Texas at Austin.
Despite the disadvantages, Texas continues to use Chapters 312 and 313 to incentivize renewable energy due to its appeal to both oil and gas as well as renewable energy companies, according to Jensen.
“Money creates strange bedfellows,” Jensen told Texas Business Coalition. “The program is complicated enough that there are tons of lawyers and consultants that make tons of money from these programs.”
School districts offering the tax benefit stand to gain financially as well.
“These school districts are made whole by the state, so the money they forgive they get back from the state,” Jensen said in an interview. “Energy companies add supplemental payments on top. So school districts, ironically, make more money handing out the abatement than if they taxed it at full value.”
The study further found that in more than 80 projects it was an open secret that companies had already committed to their investment locations prior to receiving the incentive, which implies that the structure of the program encourages the overuse of incentives.
“Neither Chapter 312 nor Chapter 313 were especially enacted to promote renewable energy but it's turned out that in recent decades it's been disproportionately renewable energy companies that have taken advantage of it,” Greer told Texas Business Coalition. “These programs allow a school board to furnish the tax incentive for a business and then the state taxpayers cover the costs. There's no direct accountability for what the school board did since local taxpayers are not responsible for making up the revenue lost as a consequence of the deal. It’s taxpayers all across the state who are required to make up the revenue lost.”