In this article for Austin Business Journal, BLS & Co. Managing Director Joe Lacy details his perspective of Texas' new House Bill 5 and its impact on the site selection industry. Read more below.
The way site selector Joe Lacy sees it, Texas is back in the economic development game as of Sept. 1.
When the clock struck midnight, it was the start of the rule-making process for the state's new school property tax abatement program, known as Chapter 403 for its place in the state code. It will fully go into effect Jan. 1 after the Texas Legislature this year passed House Bill 5 as a replacement for the Chapter 313 incentives that died at the end of 2022.
Sept. 1 also marks the first day that companies considering the Lone Star State for major, capital-intensive projects encounter a friendlier outlook on their projected bottom line.
"When you're looking at a project and a project is considering Texas, when Chapter 313 went away and before HB 5 was approved, there was a significant impact to those projects on their financial analysis," said Lacy, who is managing director and partner at New Jersey-based Biggins Lacy Shapiro and Co. "That was having an effect that was causing those projects to have to look at the Texas locations differently. ... The passage of HB 5 was just critical to the state being able to compete, especially for those projects."
While a lot of questions remain unanswered about how the incentives will work, how they will impact economic development in the Austin region should become clearer soon.
Businesses eager to learn more:
Many companies are closely watching what the state does next.
Williamson County Judge Bill Gravell, who as the highest-ranking elected official in the county north of Austin is involved in economic development discussions, said "a lot of companies" were waiting anxiously for Sept. 1.
Chapter 403 incentives could be tapped in Williamson County. Through the predecessor Chapter 313 program, Samsung secured tax breaks for its factory under construction in Taylor, as well as for another 11 potential fabrication plants in the region, although the company has repeatedly said it has not yet committed to building those fabs.
Gravell said the goal is to have multiple multibillion-dollar projects join Samsung by Jan. 1. The company is expected to bring dozens of suppliers to Williamson County and the wider region.
Criticisms of the Chapter 403 program range from anger about limiting school property tax revenue to general cries of corporate welfare.
Nate Jensen, a University of Texas at Austin professor who studies economic development, was a longtime skeptic of the Chapter 313 tax breaks and is waiting to see what impact the new program might have. He said he could see a scenario where there is not a rush of applications — companies may opt not to use the incentives for a variety of reasons, including the narrower project eligibility and the changing financial benefits. Or, companies may be drawn to other states that offer lucrative incentives packages.
"I don't know if there's going to be that much of a rush of new applications," he said. "I don't know what's going to happen. I don't know what school boards are going to say. ... I think a lot of the big metros, like the Austin school districts, I don't know if they would say yes to these."
Jensen said Texas could still lose companies to concerns around things like infrastructure and water.
"What kind of projects are we worried we're losing? Are we losing corporate offices? Are we losing different types of big services?" he said. "This is such a narrow program for capital-intensive manufacturing, and we've done a really good job of attracting these."
From his site selector's perch, Lacy begged to differ. He said his company does a fair amount of work with businesses looking in Texas and that had used Chapter 313 prior to its expiration. When it comes to site selection, executives consider numerous factors before making a decision, including labor, proximity to clients and proximity to suppliers.
Without these incentive programs, Lacy said other states with lower taxes — Texas has relatively high property taxes to make up for a lack of personal income tax — may be more appealing.
"With large, capital-intensive projects, cost is always going to be a fundamentally important factor," Lacy said. "With a piece of legislation like Chapter 313 and now with HB 5, it provides a state and a community a way to compete."