Texas
Is Texas losing its edge in the economic development incentives game?
Aerospace manufacturer Bell Textron Inc. revealed last month that it’s ready to invest $429 million in Fort Worth on the condition it wins tax breaks through Texas’ new Jobs, Energy, Technology and Innovation Act.
The acronymic program, pronounced in the incentives business like a Star Wars jedi, kicked in at the start of the year as a replacement for the contentious Chapter 313 tax abatement program.
With the JETI Act, companies can get up to 50% to 75% of property value abated for 10 years if a jobs-bolstering project is located within an opportunity zone. That’s compared to Chapter 313′s 100% abated on school district taxes. The new program also excludes green energy projects.
“The JETI Act is incredibly important in terms of attractiveness for capital-intensive projects moving forward since Texas has a higher property tax burden than a lot of other states,” said Kelley Rendziperis, principal and leader of the economic incentive division of Dallas-based Site Selection Group.
“A lot remains to be seen about how competitive that program will be though,” she said.
Bell, the Fort Worth-based subsidiary of Textron Inc., made it clear in its JETI application to the Texas Comptroller’s office that it is shopping the large-scale advanced manufacturing project in multiple states and that tax abatements are a key component to making it work in Denton County.
Construction could get underway as soon as July on the facility that would be used to produce component parts for aircraft.
It’s the tension between Texas’ high property taxes and the state’s much-discussed business friendliness that becomes a balancing act for those in the economic development game. They consider programs like the JETI Act and the Texas Enterprise Fund vital to compete for major projects bringing jobs and prestigious corporate names to the state.
While the state won Site Selection magazine’s Governor’s Cup distinction for the 12th consecutive year, Texas is facing stiffer competition across the country as other states get more aggressive with incentives. The inter-state rivalry deepened further with the passage of the CHIPS Act, which enticed companies to onshore semiconductor-making operations with tens of billions of dollars in direct subsidies and tax breaks. Contenders have sprung up in the southeast and the Midwest in recent years.
Of the top 94 projects in the U.S. ranked by value of economic incentives tracked by Site Selection Group in its January and February monthly market reports, only two were in Texas. Illinois, Indiana, Iowa, Ohio and Tennessee made frequent appearances.
Site Selection Group, which isn’t affiliated with the magazine, works with companies across the U.S. to identify and secure incentives. It also assists with compliance after incentives are granted.
Rendziperis, along with the company’s CEO and founder King White, watch what companies consider when evaluating where to place an operation and what other states are doing to streamline the incentive process at a national level.
A lot of the office, headquarters and software-development operations that attracted incentives pre-COVID have dissipated significantly post-COVID, White said.
“We’re having to go back in and restructure a lot of those programs we’ve done for clients in Texas, and that’s been a big challenge,” he said.
A report released by Dallas-based commercial real estate services and investment company CBRE Group Inc. showed corporate relocations cooled to 18 through October 2023. That’s compared to the high of 137 in 2021.
Lately, the incentives world has been focused on manufacturing and industrial projects, which is right in line with the hope Texas’ JETI Act will help it tread water alongside its traditional Sunbelt competitors and emerging threats in the Midwest.
Dallas-Fort Worth has an abundance of talent in the manufacturing and industrial space, which is a double-edged sword.
“Now that the metro is so large, it’s become a bit saturated, and it’s about finding those other tertiary markets where you can find specific skill sets,” Rendziperis said.
“There are more cities outside of Texas within the southwest starting to generate their own talent pool,” she said. “That’s more attractive from a site selection perspective because you’re not competing as heavily for jobs.”
Other states also are investing more heavily in establishing mega-sites and even smaller sites ready for development of industrial operations, including data centers, White said.
“In Texas, we don’t have strategies as it relates to that because everything is more developer-controlled, whereas these other states are finding where the companies can buy them,” he said, noting a company wants to own a site with heavy industrial due to the investment.
There are states, such as Kentucky and the Carolinas, that have partnered with utility companies on site readiness, meaning a utility company is actively participating in preemptively preparing attractive sites with adequate infrastructure.
That’s typically a setup you’d find in a state with a more centralized approach to incentives.
Autonomy at a local level in Texas makes sense given the majority of a community’s revenue comes from property and sales taxes. It also means cities have more independence in offering incentives.
States such as Indiana, Ohio and Kentucky have started extending incentives that equate to payroll rebates. While it’s a lucrative benefit, Rendziperis said Texas doesn’t have a state income tax on individuals.
“This is kind of my motto: It’s so important to accurately calculate the cost of doing business in the state before you ever even fold in the value of incentives,” she said.
“So often we’re focused on the value of the incentive package and that’s all we’re looking at, but you have to be looking at the overall picture.”
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