Texas Senate makes changes to Chapter 313 replacement plan

Interest groups packed the meeting room in the Texas Capitol’s extension ahead of the much-anticipated hearing on a replacement to the Chapter 313 property tax abatement program.

Hours of testimony were heard, and afterward, the bill was left pending — standard committee procedure.

The legislation in question, House Bill (HB) 5, would establish a new incentive program for school districts to grant companies a decade-long break in their property tax payments in exchange for relocation to their area. 

Its predecessor — Chapter 313 — was in existence for 20 years before a legislative stalemate last session led to its expiration at the end of 2022; legislators found the program to have been abused, especially by renewable generators, which made up two-thirds of the approved abatement agreements and frequently had their job requirements waived.

Renewables are excluded entirely from HB 5 and the Senate cemented that red line even more, writing out battery storage from eligibility — something the House included in its list of eligible projects.

That version passed the lower chamber two weeks ago and had stagnated in the Senate Business & Commerce Committee until Thursday.

Upon convening Thursday, Business & Commerce Chair Charles Schwertner (R-Georgetown) unveiled his substitute for the bill with multiple changes on top of the battery exclusion.

Those include: 

A more tailored list of what qualifies as an eligible project to only dispatchable energy facilities, petrochemical plants, semiconductor manufacturers, desalination plants, liquefied natural gas export terminal, hydrogen fuel producer, or a carbon capture facility.

The introduction of specific anti-Environmental, Social, and Governance prohibition for any company receiving the abatement.

Establishment of a seven-person legislative committee that may accept or reject applications along with the governor, rather than the House’s version that place all that authority in the Comptroller of Public Accounts.

And an expansion of the required annual state audit of the program from three agreements to 10 percent of the active abatements.

The Senate’s version also adds a fourth tier to the job requirement and minimum investment standards, and increases them substantially. Companies associated with any country designated a national security risk by the U.S. Director of National Intelligence are prohibited from receiving an abatement under this chapter.

One unchanged aspect is the five-tiered abatement amount based on the property’s value; it ranges from $100 million taxable value for companies whose property is valued at or above $10 billion to a $5 million taxable value for a company with property valued below $100 million. Another is a prohibition against a lawyer or consultant providing advisory services to both sides, the company and the school district, of a prospective abatement.

That means a company in the highest bracket will pay taxes on just $100 million of property valued more than $10 billion — a 99 percent taxable value reduction — for a decade.

While laying out the bill, Schwertner said the legislative committee will consist of an annually alternating total of four state senators and three state representatives, then vice versa the next year, nominated by the lieutenant governor and speaker of the House. That committee would be able to add to or subtract from the definition of eligible projects.

To top it all off, the Senate version requires that the abatement is a major factor in the company choosing the Texas school district in which to build its operations — a major criticism of the Chapter 313 program, which opponents said was in most cases immaterial in the decision to build operations in Texas.

Like under 313, the agreements themselves are between the company and the school district, the latter of whom may terminate the agreement at any time if the company does not comply with requirements. If a company fails to comply with the job or wage requirements, it may be penalized by the state.

The comptroller is tasked with ministerial duties of the program, fielding the applications and compiling paperwork. 

The bill has a 2033 sunset provision, the same as what came out of the House.

Replacing Chapter 313 is a top priority of Speaker Dade Phelan (R-Beaumont) and the House; Gov. Greg Abbott has also expressed support provided that renewables are excluded.

Back in January, Lt. Gov. Dan Patrick claimed credit for extinguishing the Chapter 313 renewal bill and has been the most opposed to a replacement of the top three state officials. However, he has been amenable contingent upon it being more tailored and giving the state a more active role in approving or rejecting agreements.

Being such a high House priority, the Senate has kept the bill in its back pocket as leverage to ensure its own priorities — some of which have tenuous at best support in the lower chamber — get across the finish line.

But now movement is happening, and on Friday, Patrick and Phelan joined together in the Senate and announced they “had a very good meeting.” Chips are now on the table, and HB 5 is a very large one.