Articles for August 2017

What is Chapter 313?

Chapter 313 was part of the Texas Economic Development Act of 2001. It provides the means for school districts across the state of Texas to grant property tax abatements to companies within their school district who commit to developing new jobs. Its original intent was to provide an economic inducement for companies choosing between establishing a business in Texas or some other state. Initially it was to target new business entities locating to Texas, but now it has been applied to new projects by a company already established in Texas or even existing plant expansions. In fact, it seems it is only up to the imagination and discretion of the school district with little oversight from the state.

Upon granting the tax abatements the school district is eligible to have the foregone taxes reimbursed from the general funds of the Texas State Treasury.

The chapter further allows a district to negotiate PILOTS “Payment in Lieu of Taxes” with the company getting the abatement. These are additional payments, less than the property taxes they would pay on the unabated property the company negotiates with the school district.

As the appraised property value has been abated, the school district’s appraised value for that property will remain the same for the duration of the abatement. This allows the school district to under report their property values to the state for recapture purposes AKA Robin Hood Taxes.

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How much of the Texas treasury has been spent?

The State of Texas has appropriated over $8,000,000,000 that is $8 Billion. The money has been spent on everything from windmills to refineries; from new construction to plant expansions. Though the money is primarily for the use of attracting new industry to the state, it is left to the discretion of the school district.

Each legislative session will begin with the monumental issue of a school funding crisis! But much of that funding shortfall can be attributed to the state requirement to reimburse school districts on tax abatements the very same school district has granted. When there are discussions on school districts funding needs, the reimbursement to school districts for these tax abatements is a big part of the shortfall.

The State Comptroller is the only agency with any oversight over the disbursements of the funds and that role is confined only to insuring the proper documents are provided and filled out appropriately.

No state authority to validate the application of the school district, evaluate the legitimacy of the business purpose, insure that the business would have been established with or without the tax abatement and no follow up to insure that the additional jobs and economic benefits were ever realized by the district or the state.

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Are school districts being coerced into a role in economic developement?

As one of the largest single property tax bills a company may have to pay, school districts are being somewhat compelled to provide relief to certain companies and industries. However, to the detriment of their responsibility for student development a school district gains 3 primary inducements to play a role in economic development.

  1. Reimbursement from the state treasury for the abatement they allow
  2. Through Payments in Lieu of Taxes (PILOTS) the district is still able to get money from the company receiving the abatement
  3. The ability to underreport their property values within their district to the state to avoid court ordered recapture rules for poorer district

Schools are actively engaged in the area’s economic development possibly forsaking their only real responsibility, student development. Across the state of Texas are multiple Economic Development Councils, Chambers of Commerce of every form imaginable, County Commissions and City Halls. It is these entities whose primary if not single role is economic development. What justification is there for burdening school districts with this task?

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What can be done?

The joint cooperation of governing institutions with private enterprise has been a part of our country’s economic engine from the Erie Canal, to the building the railroads and even the Houston Ship Channel. But to rely on tax abatements from local school districts to achieve such economic development is completely counterproductive to the very reason to have the economic development in the first place.

Chapter 313 since it is only in the property tax code for school districts, should be repealed. Texas State Senator Konni Burton bravely introduced just such legislation in the last (85th) legislative session. It did not make it to Governor Abbott to be signed into law so it is an opportunity to get something ready for the 86th Legislature.

If Chapter 313 cannot be repealed and the state of Texas insists that our schools subjugate their primary role of education to subsidize economic development than the burden of subsidizing school property taxes should be placed on the locality which will more directly benefit from the abatement. A higher level of oversight and accountability from the State to assure that the effort will truly be a benefit statewide and the result of the abatement will provide some relief to the established taxpayer base already residing in the district.

  1. Local Participation in the reimbursement – As the local community stands to get the most direct and greatest economic benefit from the granting of these abatements, the local county and city should be willing to participate equally with the state in reimbursing the school district. In situations where districts cross county lines or city limits, an apportionment of the local participation can be derived. Such apportionment can be structured locally as the State of Texas will only be contributing half to the district. The school districts and governing bodies can develop the allocation of their portion
  2. Higher Levels of Oversight – As it is currently, the state comptroller is mandated to reimburse the school district. Other than verifying compliance with the guidelines set forth in the law, no state agency has oversight to insure the economic benefits are truly statewide. If funds are to come from the Texas State Treasury, it is the state’s fiduciary responsibility that all Texans will derive some benefit.
  3. Sharing the return with the State – As the school district can still receive tax payments in the form of PiLOTS (Payment in Lieu of Taxes) an equal share of these payments should be remitted back to the state’s general fund or a special fund for other school districts to bring some level of equitable school funding across the state. If the state is to share in the investment, it should be able to share in the return on that investment.

Share your comments of suggestions at chapter313@reagan.com