New economic development
legislation and strong trade with
Mexico are helping lure big business to Texas.

B

ig has always been big in Texas-- big cars, big football, and big oil. What hasn't gone over big in the Lone Star State are massive property tax bills for large manufacturing facilities. In an era where corporate locators are watching every dollar, sites with hefty property tax liabilities suddenly wind up on the bottom of the potential sites list.
      In 1997, Intel was facing a huge local school property tax liability. The firm had begun building a US$1.2 billion semiconductor chip facility at the Alliance industrial development in North Fort Worth, just as the semiconductor market was heading south. Company officials began looking at the bottom line, and much to the distress of local economic development officials in the Fort Worth area, shelved the project. Intel was still in an expansion mode, with projects announced in Oregon and Arizona. Company officials claimed that the local school property tax rate was simply too expensive to continue the project.
      "The property tax rules put a severe strain on businesses that have a high amount of property investment," says John Kelly, Intel's manager of governmental affairs for Arizona and Texas. "We are in a globally competitive market, and the rate we pay in Texas is just too steep in relation to the other states where we are growing and expanding."
      State Rep. Kim Brinner, R- Arlington, took one look at the open field that was the proposed Intel plant in Fort Worth and decided it was time to do something in Austin. Brimmer spearheaded the passage of the Texas Economic Development Act, passed early this summer. The bill enables districts to cap property taxes within Texas school districts for a defined period time, usually within eight to 10 years. Similar bills had been proposed at the state level before, but this year Texas legislators realized that in order to be competitive, the Lone Star State had to put its money where its mouth was.
      Economic development officials noted the state was losing massive manufacturing facilities to other parts of the country. In Texas, roughly 60 percent of a company's property tax bill can go to fund local schools. According to Site Selection's New Plants database, in 1999 Texas announced three large semiconductor facilities, all more than $100 million. In 2000, the Lone Star State scored only one semiconductor investment.
      "Because of the property tax heavy system that we have here in Texas, we are having more and more trouble competing for capital intensive operations," says Mario Hernandez, president of the San Antonio Economic Fund. "Many of these projects, whether they are a semiconductor plant, pharmaceutical manufacturing, or an aviation plant, can cost in the billions of dollars. When you get into that league of project, the tax burden on them is disproportionate to what it is for other companies."
      The Texas Economic Development Act grants poorer school districts the right to offer firms the largest incentives without jeopardizing their share of the state's "Robin Hood" funds. The "Robin Hood" school-funding program requires affluent districts to remit some of their tax wealth to the state level for redistribution to less advantaged districts. To qualify under the Texas Economic Development Act, an investment must create at least 25 new jobs, and construction must be at a new or expanded manufacturing plant, research and development facility, or a renewable electric energy plant. All deals would require the approval of the Texas Comptroller's office.
      The act is not without its critics. Gov. Rick Perry allowed the bill to become law without his signature. "I am concerned," he notes, "that these provisions may have long-term fiscal repercussions, especially with regard to the funding of public schools." Many legislators felt the act targets only Intel and large investments. Economic development officials believe the effect of recruiting several massive projects to the state would have an encouraging effect on the state's financial health.
      "Think of it this way," says Hernandez, "if Texas gets one large Intel project or semiconductor plant, that in itself demands that a bunch of other support industries come into the area as well. Let's land two or three of these huge investments, and the impact will have an overall positive effect on the state's economy."
      Feedback from the passage of the act has been encouraging, and many local officials say the increased tax reductions will help entice business investments. "We've been surprised and pleased with the response," reports Hernandez. "In San Antonio, we've already begun talks with an aviation company, which will invest $330 million. We hope to use this as a tool to entice them above a site they are currently looking at in Alabama."

"The Texas Economic Development Bill better positions Texas when we get to the point of making our next selection for a manufacturing facility."