Chapter 313 of the Tax Code allows a school district to offer a temporary 10-year limit on the taxable value of a new investment project for qualifying manufacturing and renewable energy projects. The limitation applies to the M&O taxes levied for school district operations.
Chapter 313 agreements have proven to be a valuable tool and are one of the only means of economic development available to school districts, as property tax rates are largely controlled by the state and subject to equalization (through state aid increases or Robin Hood recapture). Chapter 313 Agreements create partnerships between a school district and a business by providing an incentive — through the limit on M&O property taxes — for the business to operate and create jobs in the district. The state also plays an important role in this partnership by covering the loss for a district that provides this tax incentive through adjustments in the school funding formulas. If these formula adjustments don’t fully offset the school district revenue loss, the standard Chapter 313 agreement calls for the business to make up the difference.
Chapter 313 is subject to expiration December 31, 2022, unless the Legislature acts to continue it. The Chapter could be extended absent any change or it could be extended with changes enacted.
Currently, school districts consult with professionals including legal counsel and school finance experts of their choosing to determine if such an agreement is in the best interest of the district and community. Annual calculations are performed to determine if the District lost revenue by entering into the 313 Agreement and, if so, the company is billed for any such loss incurred, as noted previously.
The mechanisms in place limit risk and protect the interests of school districts and communities, should the state funding formulas not offset the revenue reduction experienced by the school district under the limitation agreement. Without these annual calculations, any such agreement would be a gamble for a school district and for the trustees who serve as fiduciary agents of their districts and have an obligation to be good stewards of public funds.
Proposed in House Bill 1556:
Legislation proposed by Rep. Jim Murphy (HB 1556) would reauthorize Chapter 313, but also make entering into Chapter 313 Agreements riskier and less financially attractive for school districts. It eliminates the provisions that protect school districts when the state formula offsets are insufficient to cover the reduction in M&O taxes experienced by the district. In addition, negotiated supplemental payments to the school district permitted under current law would be prohibited.
The proposed bill would offer a ten-year tax abatement instead of a limit on M&O taxes. Under the current limitation program, a portion of the project value would be taxed on the limitation amounts that reach up to $100 million, based on the district’s tax base and whether it is a rural district. The only benefit to school districts would come in Tier 2 Enrichment “golden pennies” and I&S taxable values, which are levied under the current value limitation. The proposed bill would offer no benefit to a district in Tier 1 of the school finance formulas, which would affect the calculation of a district’s state aid entitlement and/or Robin Hood recapture payments.
School districts need experienced professionals who are looking out for the best interests of the district and taxpayers in their community. These professionals bring a level of expertise that school district trustees and administrators do not typically have, and that expertise works to the benefit of the school district and local citizens. School districts should not have to pay for these professionals to evaluate economic development with public tax dollars that are intended to go toward educating students. Additionally, school districts need the ability to negotiate an arrangement to ensure it best meets the values and interests of their community. Under proposed HB 1556, applications are “take-it-or-leave-it.”
HB 1556 also removes critical protections for school districts and taxpayers by not requiring annual calculations to determine whether the project is delivering its promised value. The bill calls for a one-time assessment of the school finance impact conducted by the State Comptroller’s Office as part of its certificate for the project. Without the annual calculations, Chapter 313 Agreements would become enormously risky for school districts. Without proper guarantees and protections in place, Chapter 313 may as well expire. While the expiration of Chapter 313 would cost the state and local communities a valuable economic development tool, it would simply be too risky for school districts to enter into these proposed abatement agreements without proper protections in place.