By John Colyandro & Tom Aldred
Published by the San Antonio Express-News, March 29, 2013
Texas’ unemployment rate of 6.1 percent is the lowest of the 10 most populous states and is significantly lower than the national average of 7.9 percent. Our state is also home to the second-highest number of Fortune 500 companies in the U.S.
Other states are beginning to catch up to Texas’ fiscal benchmark. Texas is in a head-to-head battle with states such as Louisiana, Wisconsin, Ohio, Kansas, Indiana and even New Jersey to attract jobs and business investment. To stay ahead of the business-friendly reforms and tax-cutting measures that these states (and others) have taken on, Texas must make fundamental tax reform and reduction a priority.
Policymakers must scrutinize the business incentives Texas offers. At times, these programs are controversial, but all states have instituted highly targeted economic incentives. Informed entities will consider the incentives provided not only by this state, but by other states and foreign countries, and operate where the greatest advantage is.
Constant review is necessary to ensure that Texas’ incentives remain effective. The Texas Conservative Coalition Research Institute recently reviewed six of the most prominent economic incentives Texas offers for business expansion or relocation. The programs offer vastly different types of incentives and have similarly different results in terms of job creation, attraction of capital investment and costs to the state and its political subdivisions.
The review found the best job promoter is the Texas Enterprise Zones Act, which allows projects designated by local communities to apply for state sales tax refunds on certain purchases. Enterprise Zone projects create or retain one job for every $649 in state tax refunds. It is also the best at attracting capital investment, having attracted $1,000 for every $5.82 in state tax credit.
The least efficient job creator has been the Texas Economic Development Act, which allows school districts to offer temporary property tax breaks to new investment projects. This incentive has created only one job for every $306,086 in forgone tax revenue.
Renewable energy projects receiving property tax breaks were some of the worst performers. Through 2009, wind farms had only created 572 jobs for an estimated total gross tax benefit of more than $712 million through the length of the agreements — a $1.2 million cost to the state per job created.
The Texas Moving Images Incentive, which offers grants to moving image projects such as film, television, commercial and video game productions, is the least effective program at attracting capital investment. The incentive has generated just $1,000 of direct spending in Texas for every $117 in grants.
Many of Texas’ economic incentives could be improved by additional auditing, data gathering and reporting. An additional benefit of such review is that the provision of more comprehensive economic data will allow state policymakers to more finely tune each incentive. Some incentives could also be improved by narrowing or expanding the programs; abolition is also a consideration.
Alongside regulatory and lawsuit reform, as well as prudent budgeting, economic development incentives have played a role in Texas’ recent economic success. However, as TCCRI’s review shows, there are strengths and weaknesses to each incentive program. Lawmakers should give the highest priority to substantial, across-the-board tax reform and reduction as the best means to keep Texas the nation’s jobs leader. Meanwhile, improving existing economic development programs will ensure that Texas continues to be a leader not just in jobs growth, but also in governance.
John Colyandro is executive director and Tom Aldred is director of policy and research at the Texas Conservative Coalition Research Institute based in Austin.
The Policy White Paper referenced by this opinion-editorial, A Review of Select Texas Economic Incentives, is available at this link.