Estimated Time to Read: 16 minutes
Corporate welfare, often referred to as economic incentives by lawmakers and local government officials, has been a cornerstone of Texas’s economic strategy for decades. The state has used various tax breaks and incentives to attract and retain businesses, fueling its reputation as a ‘business-friendly environment’. This approach, while beneficial for economic growth, has sparked significant debate regarding its fairness and effectiveness to those who do not qualify or cannot take advantage of such incentives.
In this explainer, we will attempt to explore the history of corporate welfare in Texas, providing examples of the various tax breaks and incentives the state has offered to private businesses throughout the years and both sides of the debate on its efficacy.
The Beginning
Texas’ Founding to 1987
From the founding of the state of Texas to 1987 (151 years), using taxpayer money to give gifts to private entities was not allowed. In the 70th Legislative Session (1987), lawmakers passed House Joint Resolution 5, authored by then-State Rep. Ashley Smith (R-Houston), which Texas voters narrowly approved of on the November 1987 ballot by voting 51.65% in favor and 48.25% in opposition. Ultimately, the new constitutional amendment allowed the Texas Legislature to create programs that use taxpayer money to provide for economic development through loans and grants.
Economic Development Act of 2001
The modern era of corporate welfare in Texas can be traced back to the Economic Development Act of 2001. In the 77th Legislative Session (2001), lawmakers passed House Bill 1200, authored by then-State Rep. Kim Brimer (R-Fort Worth), which allowed school districts in Texas to negotiate limitations on the appraised values of property for the maintenance and operations (M&O) portion of the levied property tax for qualifying manufacturing and research and development companies. The Texas Economic Development Act generally became known as ‘Chapter 313’ relating to where it is located in the Texas Tax Code.
Expansion
In the 83rd Legislative Session (2013), lawmakers renewed the Texas Economic Development Act and expanded its reach, by passing House Bill 3390, authored by then-State Rep. Harvey Hilderbran (R-Kerrville). The legislation expanded the qualifying time from that of 8 years to 10 years of an approved application for property tax reduction, repealed specific provisions requiring specific wage minimums, as well as add additional qualifiers for applicants.
Under Chapter 313, companies could receive significant reductions in their property tax bills, sometimes amounting to tens of millions of dollars over a ten-year period. In return, these companies were supposed to create jobs and boost local economies. While the program had attracted major investments from companies like Samsung, Apple, and Tesla, critics argue that it often benefitted wealthy corporations at the expense of individual taxpayers who received no tax offset, especially as the seldom spending cut by the local government which provides the exemption in the first place.
Chapter 313 Defunct & Later Revived
In the 87th Legislative Session (2021) the Chapter 313 program was up for renewal by the state legislature. Ultimately, the legislature as a whole chose not to renew the program, though legislation, authored by State Rep. Morgan Meyer (R-Dallas), which sought to extend the program for an additional two years did pass the overall Texas House of Representatives by a vote of 112 in favor to 29 in opposition and the Texas Senate Natural Resources and Economic Development Committee, it was never considered by the overall Texas Senate, leaving the program to expire on December 31, 2022. Similarly, legislation, authored by then-State Rep. Jim Murphy (R-Houston) seeking to extend the program an additional 10 years failed to pass the overall Texas House of Representatives altogether.
In the most recent legislative session (88th, 2023), lawmakers sought fit to revive the defunct Chapter 313 program, contrary to the position of the majority political party platform. House Bill 5, authored by State Rep. Todd Hunter (R-Corpus Christi), created a new economic development program that ultimately provides a property tax abatement of up to 50 percent to qualifying companies for 10 years. Also known as the Jobs, Energy, Technology and Innovaction Act (JETI), supporters of the legislation insisted that despite its similarities to the now-defunct Chapter 313 tax abatement program, this new program ushered in accountability and transparency in how applications for such tax abatements are approved. The legislation passed by a vote of 120 in favor to only 25 in opposition in the Texas House of Representatives and by a vote of 27 in favor to only 4 in opposition in the Texas Senate.
How this program functions can be found here.
It is worth noting here that these economic incentives are provided with no simultaneous requirement that the school district provide the tax offset cut spending, meaning they will seek the revenue elsewhere, or put another way, from the individual taxpayer who receives no such incentive.
Other Significant Corporate Welfare Programs
Chapter 312, the Tax Abatement Act
Another corporate welfare incentive program under the guise of economic development is that of the Texas Abatement Act or Chapter 312 of the Texas Tax Code. Originally created in 1987, the Texas Legislature chose to renew the program during the 86th Legislative Session (2019). House Bill 3143, authored by then State Rep. Jim Murphy (R-Houston), extended the program for an additional 10 years, through September 1, 2029. It passed the Texas House of Representatives unanimously and the Texas Senate by a vote of 30 in favor to only 1 in opposition.
Ultimately, the Chapter 312 program allows local governments to offer property tax abatements to businesses as an incentive to encourage investment and job creation in their jurisdictions. The abatements apply to the increase in the value of the property resulting from improvements or new developments, not to the pre-existing value of the property itself. Its renewal in 2019 not only extended the program but also added some additional transparency requirements by mandating that local governments publicly post their tax abatement guidelines and criteria online and hold public hearings before adopting, amending, or renewing those guidelines. It also required that the chief appraiser report the appraised values of properties given such abatements for the first 2 years after the agreements expire in an attempt to increase visibility and accountability.
Texas Enterprise Fund
Established in 2003 under Governor Rick Perry (R), the Texas Enterprise Fund (TEF) is another major tool for corporate welfare. The TEF provides financial incentives to companies that choose to establish operations in Texas, with the goal of creating jobs and stimulating economic growth. The Texas Legislature passed Senate Bill 1771, authored by then-State Sen. Kim Brimer (R-Fort Worth), who previously as a State Representative just one legislative session earlier had shepherded through the Economic Development Act of 2001 (mentioned above). This legislation passed the Texas House of Representatives unanimously and passed the Texas Senate via voice vote with only two State Senators registering votes in opposition.
Ultimately, the TEF allows the state to provide what are known as “deal-closing” grants, to businesses considering Texas as a location for new projects. The grants are performance-based and require companies to meet specific job creation and investment thresholds to recieve the grant funds. The fund is overseen by the office of the Governor, the Lieutenance Governor, and the Speaker of the House, who all must unanimously agree on the distribution of the grants.
The fund has been used to attract numerous high-profile companies, including Toyota, Facebook, and SpaceX. While supporters claim the TEF has been instrumental in making Texas a top destination for business, opponents argue that it lacks transparency and accountability, with funds sometimes going to companies that fail to deliver on their job creation promises.
Lawmakers have continued to renew the TEF’s existence via appropriations since its inception.
The Texas Moving Image Industry Incentive Program and Others
In the 80th Legislative Session (2007), the Texas Legislature passed House Bill 1634, authored by then-State Rep. Dawnna Dukes (D-Pflugerville), which created the Texas Moving Image Industry Incentive Program (TMIIIP). This program was designed to offer financial incentives in the form of cash grants on a percentage of a project’s eligible in-state expenditures, with specific requirements for local spending and employment. The program is administered by the Texas Film Commission under the Economic Development and Tourism Division of the Office of the Governor, and offers the grants to qualifying film, television, commercial, animation, visual effects, video game, and extended reality (XR) productions.
The TMIIIP has been credited with bringing numerous high-profile productions to the state, including “Friday Night Lights,” “The Texas Chainsaw Massacre,” and “Fear the Walking Dead.” However, like other corporate welfare programs, it has faced criticism for favoring large production companies while providing limited benefits to smaller, independent filmmakers.
In addition to the TMIIIP, Texas offers other incentives in support of the moving image industry:
- Media Production Development Zone Program (MPDZ): This program provides a sales and use tax exemption for the construction or renovation of permanent moving image production sites.
- Sales Tax Exemptions and Refunds: These include exemptions on most items rented or purchased for direct use in production and refunds on the state occupancy tax for hotel rooms occupied for more than 30 consecutive days and on fuel taxes for off-road use.
Though it ultimately failed, in the most recent legislative session (88th, 2023), lawmakers considered House Bill 3600, authored by State Rep. Four Price (R-Amarillo), which would have established the Texas Multimedia Production Program (TMPP) and provided tax credits to production companies that could be sold on a secondary market. The TMPP would have included productions that spent over $15 million, covering film, television, national or multistate commercials, and educational and instructional videos. It would have excluded video game, animation, and visual effects projects. It also proposed lowering the residency requirement for cast and crew of productions that qualified from the TMIIIP’s 70 percent to 25 percent, and similarly, the requirement that 60 percent of the production take place in Texas to that of only 25 percent. Though the legislation was never considered by the overall Texas House of Representatives, it did pass out of the House Culture, Recreation and Tourism Committee, and was placed on a general calendar for consideration. Ultimately, the legislation was postponed beyond a key deadline. Its companion legislation, Senate Bill 1613, authored by State Sen. Charles Perry (R-Lubbock) was left pending in the Senate Natural Resources and Economic Development Committee and thereby never considered by the overall Texas Senate.
Renewable Energy Incentives
Texas also provides incentives for “renewable energy”, offering various incentives to companies in the wind and solar industries. The Renewable Energy Systems Property Tax Exemption, for example, allows companies to exclude the value of their renewable energy installations from property taxes. First instituted by the Texas Legislature in the 67th Legislative Session (1981), the legislation is codified under Section 11.27 of the Texas Tax Code and was designed to encourage the adoption of renewable energy by allowing property owners to exclude the added value of their renewable energy systems from their property tax assessments. This exemption was updated in the 87th Legislative Session (2021) by Senate Bill 63, authored by then-State Sen. Jane Nelson (R-Flower Mound), to allow for the exemption to the solar or wind-powered energy device regardless of whether the person owns the property the device(s) is built on.
Major Events Reimbursement Program
Originally known as the Major Events Trust Fund, House Bill 26, authored by State Rep. Angie Chen Button (R-Garland), renamed the incentive program to the Major Events Reimbursement Program (MERP), among a litany of other provisions in the 84th Legislative Session (2015).
The MERP aims to attract major events to Texas by reimbursing eligible expenses. It supports a wide array of events, including major sports championships, political conventions, and large-scale cultural events. Some examples include the National Football League’s Super Bowl, the NCAA Final Four, and the Formula 1 U.S. Grand Prix. Ultimately, local governments submit applications along with an economic impact study that estimates the number of out-of-state visitors and their expected spending and the program matches local contributions to the trust fund with state funds (i.e. taxpayer money) at a ratio of $6.25 for every $1 contributed by the local government.
The MERP faces criticism for the accuracy of its economic impact estimates and the need for better oversight and transparency. Reports, such as this one from the Texas Public Policy Foundation, highlight issues with the validation of attendance figures and the economic modeling used to calculate tax revenues.
Every legislative session efforts are made to expand the events that qualify for such incentives or reimbursement to a varying degree of success.
Texas Emerging Technologies Fund
Though the Texas Emerging Technologies Fund (TETF) was phased out in 2015 during the 84th Legislative Session by the aforementioned House Bill 26, authored by State Rep. Angie Chen Button (R-Garland), it stands as an example of a corporate welfare program with varying results of economic development. The TETF was established in 2005 under the leadership of Governor Rick Perry (R) to provide financial support to innovative technology startups and fostering the commercialization of emerging technologies within the state. Ultimately, the fund’s stated goal was to stimulate economic growth, create high-tech jobs, and position Texas as a leader in technological innovation.
The TETF would award matching grants to companies in critical stages of product development and commercialization to encourage private investment and grants were awarded to Texas universities to attract top researchers and build centers of excellence in emerging technology fields. These centers were named Regional Centers of Innovation and Commercialization (RCICs) to provide support and oversight for TETF-funded projects within specific regions of Texas.
Final approval of such grants was granted by the Governor, Lieutenant Governor, and Speaker of the House, based on recommendations from advisory committees and the RCICs. Over its tenure, the TETF invested approximately $220 million in over 150 early-stage companies and university research projects.
The TETF was phased out in 2015 due to concerns about the effectiveness and management of the fund itself.
Governor’s University Research Initiative
As an offshoot of the defunct TETF, and as a result of the passage of the aforementioned House Bill 26, authored by State Rep. Angie Chen Button (R-Garland), the Texas Legislature created the Governor’s University Research Initiative (GURI), with the goal of attracting top-tier researchers and faculty to Texas universities.
Ultimately, GURI provides matching grants to Texas universities to recruit distinguished researchers and faculty which are intended to cover the costs associated with the recruitment, such as salaries, laboratory equipment, and research facilities, emphasizing the recruitment of specific researchers who have the potential to secure substantial federal (taxpayer money) and private research funding that contributed to economic development through the commercialization of that research.
Critics of the GURI question the overall effectiveness of the initiative in terms of long-term impact on the state’s economy and research landscape, arguing that while high-profile researchers can bring prestige and funding, the tangible benefits to the broader academic community and state economy are harder to quantify.
Controversies and Criticisms
While corporate welfare programs have undoubtedly attracted businesses to Texas and contributed to economic growth, they have not been without controversy. Critics argue that these incentives often benefit large corporations at the expense of small businesses and taxpayers. They also point to instances where companies have failed to deliver on their job creation promises, yet still received substantial financial benefits.
Current Landscape
Of the two leading political parties in the state of Texas, both have varying stated positions on the issue of corporate welfare.
The Republican Party of Texas 2024 Platform states,
78. No Corporate Welfare: We encourage government to divest its ownership of all businesses that should be run in the private sector. We oppose all bailouts of and subsidies to domestic and foreign government entities, states, and for all businsses, public and private. We agree with the Texas Constitution’s requirement for fair and uniform taxation and oppose special treatment or tax breaks for favored industries or companies. We call for repeal or sunset of existing subsidy or special-interest tax exemptions, including the Special Events Trust Fund program, the Texas Enterprise Fund, Moving Image Industry Incentive Program, and lab-grown meat incentives, and now request repeal of Chapter 403.601 of the Texas Tax Code. Tax dollars shall not be used to fund the building of stadiums for professional or semi-professional sports teams, unless otherwise approved by a two-thirds (2/3) majority of those voting and only if 20% of all registered voters in the district cast ballots.”
2024 RPT Platform, Plank 78
Similarly, the Democratic Party of Texas 2024 Platform states, “Prohibit “corporate welfare” incentives that pit states and communities against each other.”
The Future of Corporate Welfare in Texas
The debate over corporate welfare in Texas continues, with proponents arguing that these incentives are essential for maintaining the state’s competitive edge, while opponents call for greater transparency and accountability. As the state grapples with evolving economic challenges, the future of these programs remains uncertain.
In recent years, there have been calls to reform or eliminate some of these incentives with mixed results.
Conclusion
Corporate welfare has played a significant role in shaping Texas’s economic landscape. From the Economic Development approach that started in 1987 to the various tax breaks and incentives offered today, these programs have attracted major investments and contributed to the state’s growth. However, the ongoing debate highlights the need for a balanced approach that ensures both economic competitiveness and accountability.
As Texas continues to navigate the complexities of economic development, it will be crucial to find ways to support businesses while also safeguarding the interests of taxpayers and small businesses. The challenge lies in striking the right balance between encouraging investment and ensuring that the benefits of economic growth are widely shared across the state.
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