Commentary: Tesla deal generates tax dollars for Texas

August 21, 2020

The following opinion from Tony Bennett, president and CEO of the Texas Association of Manufacturers and Dale Craymer, president of the Texas Taxpayers & Research Association, originally appeared in the San Antonio Express-News.

Commentary: Tesla deal generates tax dollars for Texas

By Tony Bennett and Dale Craymer

Limited and temporary property tax discounts, known as Chapter 313 agreements, allow Texas communities to attract major industrial projects, keep Texas competitive and grow jobs — and they do not cost taxpayers a dime. Regular critics of these discounts frequently mischaracterize the program by claiming companies receive taxpayer dollars to locate in Texas, which is not true.

The notion that Tesla’s new facility in Travis County’s Del Valle ISD will cost Texas taxpayers “millions of dollars,” as has been reported, is unfounded.

Tesla locating in Texas will generate new tax dollars, and we simply cannot compete for these job-rich and high tax wealth projects without temporary property tax discounts. Texas ranks fourth for most expensive property tax state in the nation. It’s no surprise, then, that Tesla was also considering Oklahoma for its new facility because property taxes are fully one-third lower there than they are here.

Tesla’s selection of Central Texas is good news, and here’s why: The land that Tesla will develop generates only $50,000 in annual maintenance and operations, or M&O, property taxes for the school district. Under the agreement, Tesla will receive a temporary, 10-year cap on the taxable value of its facility. Even with the cap in place, Tesla will pay almost $800,000 in annual school M&O taxes — a 16-fold increase over the taxes the district currently collects from the property.

Once the incentive expires, Tesla’s facility will be fully taxed, paying roughly $4 million in taxes annually. Over the 25 years of the project, Tesla will pay a total of $66 million in school M&O taxes, which amounts to $65 million more than what the district would collect had the land remained largely undeveloped. At the current tax rate, Tesla will also pay an additional $42 million in debt service taxes to the school district over the next 25 years — revenue that will allow the district to lower its debt tax rate.

All told, Tesla will pay $108 million in property taxes to Del Valle schools over the next 25 years. Absent the incentive, Tesla’s tax bill would be $158 million. That $50 million discount won’t cost Del Valle taxpayers a single penny. Taxpayers do not pay Tesla or any industry under such incentive agreements.

Incentive agreements also save the state money on school funding. Tesla’s property taxes will make the school district “wealthier,” meaning the ISD doesn’t require as much state aid under school finance formulas. It’s a myth the state must “make the school district whole.”

Tesla’s plant will also create 5,000 new high-wagejobs. Those numbers substantially underestimate the statewide impact of the project because every manufacturing job in the United States creates another five jobs. In this case, Tesla will attract other vendors and suppliers to the region, and buy materials and services from local businesses that will hire more workers to increase their production. Indeed, those 5,000 jobs in Del Valle could mean a total of more than 30,000 new jobs statewide.

So, put together, Del Valle offers Tesla a temporary discount on its future property tax bill. Tesla then invests hundreds of millions of dollars in Texas. Tesla pays the school district $108 million in property taxes it would not have collected otherwise, plus millions of dollars in other taxes. Residents see school debt taxes decline, and the project puts as many as 30,000 Texans to work in new jobs. There is no downside.

Texas school districts must be able to compete for these projects against other cities, states, counties and countries. Chapter 313 allows them to do just that. Global competition for these major projects with their quality jobs and tremendous tax revenue isn’t going away any time soon. Texans should be proud that our state has economic development tools like this to keep us in the game.

Tony Bennett is the president and CEO of the Texas Association of Manufacturers. Dale Craymer is the president of the Texas Taxpayers & Research Association.