Texas Senate Approves Legislation for Substituting the Chapter 313 Economic Incentive Program

The Texas Senate has advanced a plan to replace a struggling mitigation program that expired last year, offering new economic incentives to attract large businesses to the state. However, the senators have cut the amount of tax cuts proposed by the House last month in half, while also providing additional incentives to develop economically disadvantaged areas of Texas. A key House clause that cut direct corporate payments to schools has also been scrapped, disappointing some officials who say these payments are essential for districts’ survival.

The defunct program that the new plan is designed to replace provided tens of billions of dollars in tax relief to participants over two decades, but critics argued it was a welfare program that caused significant inequalities in schools. The challenges now facing both the House and Senate include determining who can participate, how many jobs they should hire, what guardrails to put in place, and the most significant issue: whether to pay benefits.

The Senate’s plan was created with the help of reluctant Democrats and Republicans. The bill, which was submitted from the Senate floor on Wednesday, provides appropriate supervision to adequately protect taxpayers. Businesses can avoid paying school property taxes for ten years under both plans, but the types of companies considered eligible differ slightly between the two proposals. Both plans exclude renewable energy sources, while the Senate’s proposal excludes battery storage projects from participation.

The House bill proposes a 100% reduction in school property taxes, whereas the Senate bill only cuts the tax by 50%, rising to 75% if the project is in a federally designated economically disadvantaged area.

Both plans require companies to create jobs in exchange for tax cuts, but the Senate bill asks for more jobs than the House proposal and does not permit contract jobs to be included in that number. To be eligible, companies must provide health insurance for full-time employees, with the jobs created required to equal the average wage of jobs in the county and its industry or sector.

The Senate version includes more oversight than the House version, including a performance bond that protects districts and states, and an advisory board of legislators with rural Texas legislators designated to certain seats and the comptroller heavily involved in making decisions. The Senate version also requires companies’ applications to hold public hearings within the school district they wish to expand into, and the local public school board must approve the deal before submitting it to the Advisory Board.

State Senator Nathan Johnson expressed reservations about the bill potentially encouraging businesses that already tend to come to Texas. However, senators voted in favor of requiring applicants to demonstrate that tax cuts are a determining factor in deciding to locate in Texas. Senator Judith Zafirini voted for the bill but looks forward to refining the bill further in ongoing negotiations. Meanwhile, Senator Sarah Eckhart raised concerns about including oil and gas exploration in the list of companies that could qualify for mitigation.

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