When Tax Incentives End

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Indexes
  1. The Boeing Move to Virginia
  2. Shroud of Secrecy Around Tax Incentives
  3. Film, Eclectic Vehicles, and Data Centers

In 2001, Boeing announced it was moving its headquarters to Chicago after 85 years in Seattle. Now, 20 years later, the company plans to move to the suburbs of Washington, DC. Unsurprisingly the move comes as the company’s tax incentives are ending.

When tax incentives end cities and states are left scrambling to fill the void with renewing the program or risk losing the company. A common playbook among major sports teams as well. But are renewing these tax incentives worth it?

When Amazon launched its HQ2 search several years ago it was granted troves of data and secretive plans to receive tax incentives. In the end, it doubled down on the established NYC metro and the growing Nashville metro (later moving to the DC suburbs after pulling out of NYC). While many saw this as a victory for the two locales, it was a loss for HQ2’s other contenders who had given Amazon everything it wanted.

These tax incentives generally don’t create long-term jobs. They are primarily used to relocate workers from one area to another. Even with the Boeing example it’s not many jobs — only 500 — but the real risk is the marquee loss of a major company’s brand being headquartered in a city.

Chicago losing Boeing, Connecticut losing General Electric, and so on; may cause other firms to question the value of doing business in an area or give a bad impression of its business climate. In all these cases, however, it seems more companies like relocating to major urban areas regardless of the incentives being offered. To Chicago’s credit, however, it has done a remarkable job growing its West Loop and Fulton Market neighborhoods with new tech jobs.

This week we look at the Boeing move, tax incentives, and the Texas Ch. 313 incentive program expiring at the end of the year.

Photo by Ricardo Esquivel on Pexels

IN FOCUS

The Boeing Move to Virginia

Shroud of Secrecy Around Tax Incentives

Film, Eclectic Vehicles, and Data Centers

CHART OF THE WEEK

Texas’ most valuable tax incentive program, Chapter 313, which reduces school district property taxes to attract economic development to the state will sunset on Dec. 31, 2022. The benefits of the program are mixed:

The Texas Public Policy Foundation, a conservative think tank, argues that targeted tax breaks are unfair and increase the burden on everyone else. On the other side of the spectrum, Good Jobs First, a group that mostly aligns with liberal causes, also sees these types of programs as corporate welfare. The Washington-based research center found that 52 mostly low-income districts in Texas lost more than $1,000 in revenue per student in one year because of Chapter 313 agreements.

A map of school districts that have entered into Ch. 313 agreements:

Source: Texas State Comptroller

The program has grown substantially over time. At the time of the Comptroller’s report in 2020, “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.”

Source: Texas State Comptroller

The tax incentives are due for reauthorization by the end of the year — in all likelihood the program, or some form of it, will be reauthorized. The program was instrumental in the state attracting Samsung to build a $17 billion plant in Texas, one of the biggest foreign investments in U.S. history. However, the project comes at a cost.

Ch 313 lasts for about 10 years, taking away needed tax dollars from growing districts. As the chart shows the gross tax benefit over the life of these projects is nearly $11 billion. However, the state makes up some of the loss:

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.

Over the next few months, it will be interesting see what the state does as this tax incentive program ends.

INTERESTING READ

How States Can Direct Economic Development to Places and People in Need Pew Charitable Trusts

The Issue: “Previous research has shown that place-based programs often fail to benefit the places and people they are intended to aid.”

Key Findings:

In most instances, policymakers have not prioritized better job opportunities for residents when selecting industries to receive place-based program incentives. And many major place-based programs are not directed to specific industries in any way.

Regardless of which strategies governments adopt, they should measure the results of their efforts. Unfortunately, although states and localities have not consistently assessed whether place-based programs are aiding the intended locations, they have done even less to collect and analyze data on whether the programs are serving residents.

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