A state tax break program is ending, but Texans could still be paying for it years from now
In documents recently filed with the state comptrollers’ office, electronics giant Samsung laid out a possible plan for major expansion in Central Texas. The documents show that the South Korean company may build 11 new facilities in the region — an investment that would cost hundreds of billions of dollars.
Samsung laid out these plans out in applications for Chapter 313 School Value Limitation Agreements. But the program is about to expire — leading to a rush of companies trying to take advantage of the incentives before the deadline.
Nathan Jensen, a government professor at the University of Texas at Austin who studies economic development, spoke to Texas Standard about the long-term effects of the program. Listen to the interview above or read the transcript below.
This transcript has been edited lightly for clarity:
Texas Standard: In Texas, the incentives we’re talking about go by “313” — that refers to Chapter 313 School Value Limitation Agreements. How are these different from other kinds of economic incentives that local and state officials hold out for would-be investors?
Nathan Jensen: Yeah, it’s a program that is complicated because it sounds like a local incentive. You’re forgiven part of your taxes to your local school district, but it’s paid for by the state, which has made it actually quite controversial because often school districts make more money if they give a tax break than if they actually tax the company. So this is what has made it so controversial and part of why it hasn’t been reauthorized.
Well, is it that clear that districts do make a whole lot more money by providing these incentives? Quite often we see local governments upside down with some of these attempts to bait companies.
Yeah, it’s a program where, I mean, school finance formula is designed in such a way that they actually do benefit more from offering this incentive. And this is what consultants tell them when the school boards are voting on these meetings. So NXP in Austin is a recent one where literally they said, you know, you make more money if you vote yes on this than if you vote no.
So do these tax break applications represent a real commitment by the company to build these facilities or no?
No – and no’s the short answer. And especially, you know, Samsung, for example, has projects that they’re proposing all the way to 2043. So 2043 is when the project would be built, and then it would be given 10 years of tax breaks. I don’t think anyone takes seriously that Samsung has planned out that far, but it does lock in the state to offer these incentives to the companies. So it’s kind of this perfect option contract for companies to lock in these incentives.
I’ll say. I mean, especially given that there might be someone else who’s actually more prepared to spend that money instead of just sort of hold their own place in line.
Yeah. You know, and it’s a great deal for the companies because if Texas passes a better deal, they can take it. They can use it against other states saying, ‘hey, in Texas, we have locked in 11 of these agreements.’ But also the company, if they don’t do anything, there’s no penalty to not building.
So from a strategic standpoint, it’s smart for a company to try to preserve these Chapter 313 agreements. But at the same time, maybe some of these school districts end up holding the short end of the stick when those developments don’t actually materialize.
Yeah. And, you know, you’re locking in future, you know, companies, elected officials, taxpayers, you know, people decades from now are going to be paying for this if, in fact, Samsung builds. So that’s the other problem with this program. I mean, it’s controversial and wasn’t reauthorized for a reason. But yet, you know, we’re going to have decades of these payments in the future.
What’s your take on this? Does discontinuing these Chapter 313 incentives put Texas at a disadvantage when it comes to economic development, or is it better to keep them coming?
You know, almost all the academic research suggests that most of these companies were coming anyways. So it is really a giveaway to most companies. And, you know, we have other programs in place. But in particular, 313 was seen as one of the most egregious examples of an incentive program that mostly just costs money and provides few benefits to Texas.
Are there other examples of companies doing similar things? How widespread is this?
So it’s really widespread in the sense that there’s hundreds of these brand-new applications that have come in and including some from California VC companies literally just locking in incentives to sell these projects to other companies – this has been in renewable energy, tech, oil and gas. So, yeah, there’s a there’s hundreds of these applications sitting out again, which, if they materialize, will be decades of tax payments.
When is the deadline? When do these expire?
Well, that’s the complicated part. The applications are all supposed to be in. So I think the original idea was immediate projects could put in. But companies have been really clever about this. So they’ve put in applications for decades and decades, you know, a series of incentives. So the application window is closed, but again, if you are creative enough to put a far-enough deadline out – you know, again, 2043 I think is the latest one that I’ve seen in the application.
One of the big reasons that local officials are eager to lock these in is because companies argue they’re going to bring in dozens, if not hundreds, of jobs for some of these major projects. That’s got to be good for the economy unto itself, no?
Sure, job creation is great. The problem with this program is companies only have to commit to a very small number of jobs. So I think Samsung, we’ve heard the number floated around 10,000 jobs. But if you actually add up their applications, what are they promising to create? I think it’s 275 jobs is the total amount of jobs. So these programs, you know, don’t commit companies to creating a lot of jobs. They might, but they’re not required to.
And they keep local officials on the hook.
That’s right. So they’ve locked in the money, but they promise very few jobs.
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