On Jan. 1, 2024, Texas will launch a new tax break program for companies that want to build industrial facilities in the state. Billed as a necessary measure to stimulate economic development and keep the so-called Texas miracle going, the new incentive — Chapter 403 — will give massive tax breaks and other incentives to major oil and gas corporations, fossil fuel power generators and semiconductor fabricators, among other large-scale manufacturing projects. Critics say this is nothing more than a thinly veiled replacement for Chapter 313, a similar program that expired last year amid controversy over tens of billions of dollars in tax breaks spent to “attract” enormously profitable corporations that would have located in Texas without an incentive. Now that the new program is law, those same critics warn that loopholes in Chapter 403 will lead to exploitation — especially by oil and gas companies — and that the climate, the environment and Texas schoolchildren will pay the price.
Activists have reason to be concerned. Chapter 313 was rife with wasteful loopholes that were exploited for decades — right from its very inception. In what must count among the costliest copy-editing failures in history, the original sales pitch to Texas legislators in 2001 drew on panic over a Site Selection Magazine article that claimed Texas was 37th in the nation for new manufacturing plants. But the article was wrong. A decade and a half later, a 2016 Texas Senate investigation traced the mistaken ranking to a typo. Turns out Texas had been eighth, not 37th. “What if Texas blew billions of dollars because someone misread an obscure business report 15 years ago?” Patrick Michels asked in the Texas Observer at the time. At that point, in 2016, the total value of Chapter 313 abatements was $7.1 billion, but the discovery of the error didn’t lead to its repeal or reforms. The program continued unchanged for another six years, eventually racking up a staggering final price tag of $31 billion.
Chapter 313 funded massive tax breaks for major corporations by offering near-total abatements on school taxes for qualifying projects. About two-thirds of the deals went to wind and solar projects, but almost 75% of the dollar value of the benefits went to fossil fuel-related industries. By 2021, when Chapter 313 came up for renewal, it had attracted negative attention from activist groups and politicians on both sides of the aisle who argued that the program was a drain on state school funds. The reauthorization effort failed, and the Chapter 313 program expired in December 2022, though some recipients will continue to benefit from incentives until the 2050s. Despite the terrible reputation of the old program, House Speaker Dade Phelan vowed to push through a replacement this year. On May 28, a bill to replace Chapter 313 — House Bill 5 — passed both chambers. Gov. Greg Abbott signed HB 5 into law on June 9, approving creation of Chapter 403.
Ostensibly, Chapter 403 was created to address some of the old legislation’s most egregious problems.
At its inception in 2001, the Chapter 313 program was packaged and sold as a necessary economic development tool to lure out-of-state businesses to Texas, but it quickly morphed into a rubber stamp giveaway for legacy companies that were already in Texas, or for companies bound to locate there regardless of incentives. After the program died, industry lobbyists and their allies in economic development offices and chambers of commerce began warning that the Lone Star State could lose business to foreign countries and to states with booming fossil fuel and manufacturing industries and lax regulatory structures to rival those in Texas. Chapter 403 was sold as a necessary replacement, to make sure that industry didn’t pack its bags and move away.
“Louisiana is 70 miles down the road,” said Steve Ahlenius, president and CEO of the Greater Beaumont Chamber of Commerce, in Speaker Phelan’s hometown. “They offer a lot more advantages, and it puts Texas at a disadvantage in terms of recruiting new deals or helping existing industries expand.” Beaumont is home to dense concentrations of oil and gas facilities that have benefited from hundreds of millions of dollars in Chapter 313 tax breaks. Ahlenius was one of about 200 signatories to an industry-touted letter in February calling for a Chapter 313 replacement.
Although Chapter 403 eliminates some of Chapter 313’s most controversial aspects — including industry kickbacks to individual school districts — the new program will allow facility expansions to qualify for tax breaks, formalizing a loophole from the old program that numerous companies abused to the tune of billions in tax savings. This is despite the fact that Chapter 313 was never meant to help “existing industries expand,” as Ahlenius suggested.
According to the authorizing statute, expansions were not technically eligible. In practice, though, they regularly got approved, as last-minute deals in 2022 between liquid natural gas giant Cheniere Energy and Gregory-Portland Independent School District (ISD) revealed. Under the new program, companies that want to make an “expansion of an existing building, including a permanent, nonremovable component of a building,” will be eligible. Sen. Charles Schwertner, a Republican from Georgetown, authored the Senate version of HB 5, which includes the expansion language that appears in the final bill.
By formally including expansions, HB 5 does away with even the pretense that corporate welfare might be a necessary evil, a tool to seduce companies that might be tempted by a sweeter deal in another state or country. “It’s going to balloon now,” said Doug Greco, lead organizer with Central Texas Interfaith, part of an alliance of grassroots nonprofits that fought Chapter 313 and HB 5. “This will just be a way for petrochemical companies and manufacturing to use it for expansion.”
According to University of Texas at Austin government professor Nathan Jensen — co-author of Incentives to Pander — the claim that incentives are necessary to attract investments has always been dubious, in Texas and around the world. Jensen’s research shows that about 85% of Chapter 313 recipients would have come to Texas without an abatement. “States that have oil have a lot of power,” Jensen said. “We have all these rich natural resources. We should not have to abate for people to come and access and manufacture. They should be competing for access, and Texas should be able to negotiate terms. Texas is basically just a bad negotiator.”
The major attractions for investors are workforce, infrastructure and proximity to things like suppliers and related industries, Jensen said. This is especially true, he explained, in “geographically constrained” industries like oil and gas, in which underground fossil fuel reserves are physically connected to pipelines, salt domes, downstream refineries, petrochemical manufacturing facilities and storage tanks, not to mention ports that take decades and hundreds of billions of dollars to build and concentrations of adjacent businesses and personnel, from engineers to attorneys and skilled laborers.
Cheniere’s new liquified natural gas (LNG) trains, which received three Chapter 313 abatements from Gregory-Portland ISD in December 2022, offer a stark example of how an incentive program that was supposed to bring nascent and novel industries to Texas ended up padding corporate profits by reducing the cost of expansions. Its planned LNG trains are going right next to existing trains and will hook into the same pipeline network that feeds them, and to Cheniere’s export terminal, which is a stone’s throw away on Corpus Christi Bay. “No coastal project would have gone to Oklahoma,” Dick Lavine, a senior fiscal analyst with the watchdog group Every Texan, wrote back in 2021.
In its applications to the school district, Cheniere cited “the impact of high Texas property taxes” as a deterrent and threatened to build the project at another one of its complexes in Louisiana. “Without this appraised value limitation Cheniere would have to strongly consider making this investment at a site outside of Texas,” the company claimed. The feint was obvious to anyone with a basic sense of geography, of where Cheniere’s feedstocks come from and of how they get to the company’s LNG plant in San Patricio County.
Was Cheniere really considering bypassing its own humongous facility and export terminal to pipe gas from the Permian and the Eagle Ford all the way to Louisiana? If so, why had it also been planning to build a new gas pipeline linking Permian gas sources to the Corpus Christi complex — a plan that was so far advanced that Cheniere announced its intention to move forward on it months before the Chapter 313s were approved? According to Lavine, those kinds of capital investments and public announcements should have made it clear to the comptroller’s office and school district that Cheniere was planning to come with or without an incentive, but three Chapter 313s worth $172 million got approved by the comptroller and Gregory-Portland ISD anyway.
Jensen said the Legislature missed a major opportunity to rein in wasteful subsidies and address climate change and environmental justice by failing to exclude fossil fuel projects from eligibility under Chapter 403. “They should have limited it to companies that actually need the abatement and promise something extraordinary and novel,” Jensen said — like semiconductor and electric vehicle plants — “not more crappy jobs in a dying industry.”
