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Glenn Hegar
Texas Comptroller of Public Accounts
Glenn Hegar
Texas Comptroller of Public Accounts
Glenn Hegar
Texas Comptroller of Public Accounts

Chapter 313: Trading Tax Limitations for Development THE TEXAS ECONOMIC DEVELOPMENT ACT AND THE INDUSTRIES THAT BENEFIT FROM IT

by Spencer Grubbs, Shannon Halbrook and Bruce Wright Published November 2020

In July, the electric carmaker Tesla inked a deal with Travis County to build a $1.1 billion factory called Giga Texas in the community of Del Valle near Austin. The factory, slated to build electric SUVs and car batteries as well as the company’s new “Cybertruck,” is expected to bring about 5,000 new jobs to the Austin area (PDF) by the end of 2023, many of them relatively well-paid positions not requiring a college degree. Tesla also said it would invest at least $100.9 million in the site in 2020 and nearly $1.1 billion within five years, providing a continuing benefit for construction companies and other vendors in the area.

As with all modern deals of this nature, local officials agreed to provide significant tax incentives in return. The largest of these was a 10-year agreement estimated at $46.4 million provided by Del Valle Independent School District (ISD), authorized by a Texas law commonly known as Chapter 313.

Unless it’s renewed by legislative action, Chapter 313 will expire on Dec. 31, 2022, so the program is likely to be a topic of discussion when the Legislature meets in January 2021.

Chapter 313 Basics

The state of Texas offers several incentive programs to encourage business investment and economic development. One of the most widely used is the 2001 Texas Economic Development Act, created to give Texas a competitive edge in business location decisions and codified as Chapter 313 of the Texas Tax Code.

Chapter 313 allows school districts to temporarily limit a property’s appraised value to encourage business investment within their borders. The property owner agrees to create a certain number of permanent, full-time jobs, called “qualifying jobs,” (Exhibit 1) and to build or install property in the school district. In exchange, the maintenance and operations (M&O) portion of the property’s taxable value is capped at a certain amount for 10 years.

Exhibit 1: Chapter 313 Job Requirements

To be counted as a “qualifying job” created in a Chapter 313 project, the position must meet the following qualifications set in statute.

“Qualifying job” means a permanent, full-time job that:

  • (A) requires at least 1,600 hours of work a year;
  • (B) is not transferred from one area in this state to another area in this state;
  • (C) is not created to replace a previous employee;
  • (D) is covered by a group health benefit plan for which the business offers to pay at least 80 percent of the premiums or other charges assessed for employee-only coverage under the plan, regardless of whether an employee may voluntarily waive the coverage; and
  • (E) pays at least 110 percent of the county average weekly wage for manufacturing jobs in the county where the job is located.

Source: Texas Tax Code Chapter 313


The Texas Taxpayers and Research Association (TTARA) (PDF) has called the program “the state’s single most important economic development tool,” stating that it helps to “ease the sting” of Texas’ relatively high property tax rates for companies considering new construction or expansion.

According to a December 2016 (PDF) report by the nonprofit Council on State Taxation, property taxes are the largest single element of the state and local tax burden on businesses, accounting for nearly 37 percent of the total nationally — and more than 42 percent in Texas. TTARA estimates the average Chapter 313 agreement saves each project 31.8 percent of its school tax bill.

School districts report Chapter 313 property value reductions to the Comptroller’s office. These are reflected in the Texas Education Agency’s (TEA’s) school finance formulas that determine the amounts and distribution of state public education funding. State revenue used to make up for local school district revenue reductions due to Chapter 313 agreements is substantial and is likely to exceed $1 billion in 2023 alone. Any reductions not compensated for by state aid are made up by companies through so-called revenue protection payments.

In addition, school districts often receive “supplemental” payments from the businesses. Under Chapter 313, these supplemental payments are capped at either $100 per student or $50,000 annually; these can begin in the year before the first complete year of the qualifying period and continue through the third year after the limitation ends (effectively, for 13 to 17 years).

According to TTARA, school districts typically attempt to recover 40 percent of the tax benefit granted for each project through these payments. A 2017 study (PDF) by a University of Texas at Austin professor argued that these supplemental payments are a powerful inducement for school districts to participate, and that such payments tend to be higher in cases in which the company has less ability to locate elsewhere, as in the case of expansions of existing facilities or oil and gas projects along the Gulf Coast.

The Comptroller’s Role

The Texas Comptroller’s office must approve all Chapter 313 agreements, and all applicants must meet the following criteria:

  • within 25 years, the project proposed must be reasonably likely to generate enough tax revenue to offset the property tax revenue lost as a result of the agreement; and
  • the agreement must be a determining factor in the applicant’s decision to invest capital and build the project in Texas.

In practice, however, assessing applicants based on these criteria is challenging. Predicting the economic impacts of any business for 25 years is difficult, and the Comptroller’s office relies on estimates submitted by the applicant. No matter how much “good-faith effort” a company puts into its estimates, the resulting assessment is simply a best guess as to circumstances over two decades in the future.

The “determining factor” criterion is similarly difficult to assess. Business location decisions typically are based on a number of factors, such as regulatory environment, workforce availability, location, markets, transportation and incentives — and the mix of factors used to make a decision may be different for each company. It’s generally impossible to determine the factors that ultimately cause a company to make a final decision, but it’s plausible to assume that the availability of a large tax break is often a determining factor, if one of many.

Indeed, Chapter 313 agreements have become so common that some companies report their lenders won’t approve financing unless they enter into a 313 agreement.

Rural Districts and Strategic Investment Areas

Chapter 313 has been particularly beneficial to rural school districts. Often, these districts are considered “property poor” due to relatively low real estate values and a lack of commercial development. Chapter 313 specifies lower eligibility thresholds for investment and qualifying jobs in districts with comparatively low populations.

Under TEA’s district classification system, 230 of the state’s 509 active Chapter 313 agreements are in rural districts. They account for 25.8 percent of total investments, 26.9 percent of the gross tax benefit awarded, 19.0 percent of supplemental payments provided and 12.5 percent of qualified jobs created.

Chapter 313 also offers these lower thresholds to districts with territory in a county designated by the Comptroller as a Strategic Investment Area (SIA) — essentially an area with higher-than-average unemployment and lower-than-average income. At this writing, 88 Texas counties — some rural, some urban — are designated as SIAs.

The threshold provision has been useful in directing investment to rural and disadvantaged communities. Nearly 90 percent of active Chapter 313 projects are subject to the lower thresholds. These projects have generated roughly $182 billion in investments (83.7 percent of the active project total), $9.2 billion in gross tax benefit (85.8 percent) and $1.2 billion in supplemental payments to school districts (75.2 percent) — and created about 6,300 qualified jobs, or 68.7 percent of the total.

Exhibit 2 shows Texas school districts that have had a Chapter 313 agreement, 294 in all, concentrated primarily in rural areas of West Texas, the High Plains and the Gulf Coast.

Exhibit 2: Texas School Districts That Have Entered into Chapter 313 Agreements

map shows school districts that have entered into chapter 313 agreements

(Includes both active and completed agreements)

Source: Texas Comptroller of Public Accounts


At this writing, 222 districts have a total of 509 active agreements. About half of these districts have only one or two active agreements, but 22 have five or more; one district near Houston has 36 active Chapter 313 agreements.

The program has grown considerably over time, according to data collected for the Comptroller’s biennial Chapter 313 progress reports. Though the data collected in 2020 are still preliminary, steady increases in number of agreements, investments, gross tax benefits and qualified jobs mostly continue (Exhibit 3).

Exhibit 3: Chapter 313 Historical Trends, 2012-2020

2012 2014 2016 2018 2020 (EST.)
ACTIVE PROJECTS 128 259 311 389 509
INVESTMENT $62.4 Billion $123.0 Billion $146.1 Billion $183.7 Billion $217.0 Billion
GROSS TAX BENEFIT
(LIFE OF PROJECTS)
$2.4 Billion $5.5 Billion $7.1 Billion $9.7 Billion $10.8 Billion
QUALIFIED JOBS CREATED 6,994 8,943 10,841 12,498 9,116
(Through 2019)

Notes: Exhibit reflects self-reported data from active agreement holders; 2020 data are preliminary and subject to change.
Source: Texas Comptroller of Public Accounts


Eligible Projects

Under Chapter 313, nine project categories are eligible for its tax limitations (Exhibit 4).

In practice, however, nearly all active projects fall in just two of these categories: renewable energy electric generation (REEG) and manufacturing (Exhibit 5), primarily chemical manufacturing.

Exhibit 4: Projects Eligible for Chapter 313 Tax Limitations

  1. Manufacturing
  2. Research and development
  3. A clean coal project as defined by Section 5.001 of the Texas Water Code
  4. An advanced clean energy project as defined by Section 382.003 of the Texas Health and Safety Code
  5. Renewable energy electric generation
  6. Electric power generation using integrated gasification combined cycle technology
  7. Nuclear electric power generation
  8. A computer center primarily used in connection with one or more activities described by Subdivisions (1) through (7) conducted by the entity
  9. “Texas priority projects” — those with a qualified investment commitment of more than $1 billion

Source: Texas Tax Code Chapter 313


Exhibit 5: Active Chapter 313 Projects as of June 1, 2020

Total Share of Total
Manufacturing Renewable Energy Electric Generation Other
Active projects 509 37.9% 61.3% 0.8%
Estimated investment $217.0 billion 70.8% 28.8% 0.4%
Estimated gross tax benefit $10.8 billion 72.9 % 26.9% 0.2%
Estimated qualified jobs created (through 2019) 9,116 81.0% 13.1% 6.0%

Notes: Exhibit reflects self-reported data from active agreement holders. Data are preliminary and subject to change; totals may not add due to rounding.
Source: Texas Comptroller of Public Accounts


Renewable Energy Electric Generation

Reliable renewable energy production depends heavily on location and landscape. Texas is fortunate to have ample wind and solar resources. Program incentives for REEG projects encourage clean energy and tend to boost rural economic development, since most of these projects are based in relatively isolated areas. The REEG industry accounts for more than 61 percent of active projects under Chapter 313, with about 300 under way. For about $2.9 billion in gross tax benefits, they’ve attracted about $62 billion in investments and created more than 1,193 jobs, while generating $526.3 million in supplemental payments to school districts.

Wind power projects are the most common subjects of REEG agreements. Texas has more installed wind power capacity than any other state, and produced about 28 percent of all U.S. wind-powered electricity in 2019. According to the U.S. Department of Energy, wind power is responsible for an estimated 17.6 percent of production on Texas’ energy grid. In 2019, the industry added about $1.1 billion to Texas’ gross domestic product (GDP). From 2010 to 2020, its Texas employment rose by 14.5 percent, nearly five times the national increase.

In addition to its natural wind resources, Texas is a competitive location for REEG projects for another important reason: The state has addressed a major concern for developers — transmission. Many states lack the infrastructure to distribute electricity produced by growing numbers of REEG projects, which typically are located in rural areas away from traditional electric generation projects already connected to the power grid. Texas, however, has helped defray transmission costs for REEG project developers.

In 2005, the Texas Legislature required the Public Utility Commission of Texas to designate competitive renewable energy zones (CREZs) for the purpose of integrating REEG projects with traditional electric generation projects and providing open access to the Electric Reliability Council of Texas (ERCOT), which manages most of the state’s electric power grid. The $6.8 billion project, which included 3,500 miles of transmission lines, was completed in January 2014.

The solar power generation industry has a much smaller economic footprint in Texas, adding $76.8 million to the state’s GDP in 2019 — less than 1 percent of the total. From 2010 to 2020, Texas industry employment increased by 1.9 percent, compared to a national increase of 13.6 percent. But Texas solar electric power is on the rise; in 2020, Texas ranked fifth in the nation for total installed solar capacity. In the last few years, solar has more than doubled its share of REEG projects, from 35 accounting for 15.8 percent of the total in 2018 to 103 or 32.7 percent in 2020. Solar power also will benefit from the additional transmission capacity generated by CREZ spending.

Historically, capital costs (primarily for construction) for REEG projects are higher than those for traditional electricity generation, but costs have dropped significantly in recent years, largely because of advances in technology and cheaper components such as wind turbine blades and solar panels. According to the U.S. Energy Information Administration (EIA), construction costs for solar power fell by 50 percent between 2013 and 2018, while costs for wind fell by 27 percent, a trend suggesting that REEG projects will become more financially viable in the long term.

Chemical Manufacturing

Manufacturing accounts for nearly 38 percent of all active Chapter 313 projects, and more than three-quarters of those involve chemical manufacturing, a broad category including Texas’ huge petrochemical and plastics industries.

Texas isn’t merely competitive in chemical manufacturing; it dominates the field in the U.S., and its status as a global leader naturally encourages investment here. In 2019, chemical manufacturing added $59 billion to Texas’ GDP. The industry’s economic contribution here has risen by an average of 7 percent annually during the last 10 years, compared to 3.2 percent for the nation, and its employment in Texas has risen more than twice as fast as in the nation.

The 152 active chemical manufacturing projects far outweigh all other Chapter 313 manufacturing projects in size and value, exceeding $108 billion in investment (49.8 percent of the total) for $6.2 billion in gross tax benefits (57.4 percent). Those agreements also channeled a total of $781 million in supplemental payments to school districts, or 50.2 percent of all such payments.

Among these projects, three of the most significant subcategories are petrochemical manufacturing, industrial gas manufacturing and plastics and resin manufacturing. (The categorization of these vast projects is somewhat inexact, so the data discussed here are approximate.)

Petrochemicals: Hundreds of useful chemicals can be manufactured from hydrocarbons, including oil as well as natural gas, primarily methane, and “natural gas liquids” (NGL) such as ethane, butane and propane.

Texas is home to more than 72 percent of the nation’s petrochemical manufacturing, which contributes $15.5 billion to the state’s GDP. The sector employs more than 18,000 Texans, with an employment concentration almost eight times the U.S. average. The 44 active Chapter 313 projects in this category attracted $24.8 billion in investment, are collecting $1.3 billion in gross tax benefits, have distributed $201 million in supplemental payments to districts and created 832 qualified jobs.

Despite the pandemic-spurred recession and a profound drop in oil demand and production, the EIA sees demand for petrochemicals and NGL continuing to grow.

Industrial Gas: The federal government defines industrial gas as both “organic and inorganic gases in compressed, liquid and solid forms.” In Texas, much of the industrial gas manufactured is methane from natural gas, also called “dry gas,” or methane compressed into liquefied natural gas (LNG), generally for export.

Texas’ industrial gas manufacturing subsector produces more than a fourth of the national total, adding about $2.6 billion to Texas GDP in 2019. About 3,300 Texans are employed in this industry, which has benefited greatly from Chapter 313. One active Chapter 313 agreement for an LNG facility south of Houston provided a $30 million tax limitation in exchange for a minimum commitment of nearly $1.3 billion in investment and 70 jobs; by the end of 2019, the partner company had made nearly $2.2 billion in actual investments and created 88 jobs paying a median annual wage of more than $98,600.

In all, 76 active industrial gas manufacturing projects have attracted $58.3 billion in investment and produced a gross tax benefit of $3.4 billion, $390 million in supplemental payments to school districts and 928 qualified jobs. In the long run, industrial gas manufacturing in Texas is expected to remain robust due to growing demand, ample supply, expanding export capacity and, as aging coal plants are retired, greater use of natural gas for electric power generation in the U.S. and Mexico.

Plastics and Resin: Plastics are derived from both natural gas and crude oil, making Texas a prime location for manufacturers of plastics and resin, the basic building block of plastic.

In 2019, plastics and resin manufacturing produced $8.6 billion in GDP for Texas. Its GDP contributions have risen by an average of 8.3 percent annually during the last 10 years, nearly twice its 4.4 percent rise in the nation as a whole. From 2010 to 2020, industry employment in Texas rose by an average 2.9 percent annually, versus 1.3 percent nationally. In 2020, the industry’s employment was nearly twice as concentrated in Texas as in the nation.

Chapter 313 has helped incentivize seven active plastics and resin manufacturing projects in Texas. These projects are receiving an estimated gross tax benefit of nearly $165 million under the program for their M&O tax bases levied by Texas school districts. In return, the projects invested more than $4 billion in the economy, created 201 qualified jobs, paid $14.7 million in total wages and provided $36.8 million in supplemental payments to the school districts.

Other Manufacturing

Several other types of manufacturers benefit from Chapter 313.

Transportation Equipment: In 2019, the transportation equipment manufacturing subsector contributed about $33 billion to Texas GDP. Texas’ proximity to Mexico is particularly beneficial for this industry because auto factories depend on parts from that nation to assemble vehicles. Mexico also provides the industry with a significant market.

In 2019, transportation equipment was Texas’ fifth-largest export category in total value, at nearly $28.4 billion — more than any other state, including Michigan. Texas’ industry is expected to benefit from the new United States-Mexico-Canada Agreement, which provides more incentives for automotive production in North America than the previous agreement it replaced.

The Chapter 313 program has supported two transportation equipment manufacturing projects in Texas, one of them no longer active. These projects received an estimated gross tax benefit of nearly $40 million under the program. In return, they invested nearly $2.1 billion in the economy, created more than 2,782 qualified jobs, paid $312.2 million in total wages and provided $2 million in supplemental payments to school districts.

Computer and Electronic Products: The Texas electronics industry has a rich history dating at least to the 1951 founding of Texas Instruments. Our state provides the electronics industry with access to a skilled workforce, nationally renowned research universities and customers in related industries. In 2019, computer and electronic products represented Texas’ third-largest export category by total value, at nearly $49.4 billion — more than any other state, including California.

In 2019, computer and electronic product manufacturers produced about $37 billion in GDP for Texas. From 2010 to 2020, their employment in Texas declined slightly, by 0.2 percent, on par with a similar decrease nationally. The Chapter 313 program currently includes two active computer and electronic product manufacturing projects that are estimated to receive a lifetime gross tax benefit of more than $239 million. In return, the projects invested nearly $11.5 billion in the economy, created 274 qualified jobs, paid $36.3 million in total wages and provided more than $28 million in supplemental payments to the school districts.

Chapter 313 has provided a significant boost to economic development in Texas since its inception, particularly in rural communities. The program’s rapid growth has received much attention and prompted some controversy, since Texas already has many natural advantages in the competition for commercial development. Yet today, and particularly in the face of international economic turmoil, the program still may have an important role to play in encouraging investment — particularly in areas of the state that need it most. The Legislature will weigh this issue in 2021. FN

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