By Tony Bennett and Dale Craymer – Texas Association of Manufacturers, Texas Taxpayers & Research Association
Many have likely heard that Tesla is considering building a vehicle manufacturing plant in the Austin area. Tesla is seeking a limited property tax discount, which will likely be the focus of most headlines, but the project itself offers a textbook study in how tax incentives can provide a win for the potential new taxpayer, but an even bigger win for the community.
Tesla has applied for an agreement with Del Valle ISD under Chapter 313 of the Tax Code. Here’s how the agreement would work.
Del Valle ISD currently levies property tax rates of $0.97 per $100 of value for maintenance and operations (M&O) and another $0.35 per $100 for voter-approved bond debt service. A 313 agreement would allow Tesla a limited, temporary discount against the district’s M&O taxes, but not against debt service taxes.
The land that Tesla is looking to develop is currently on the tax rolls at $5.1 million, generating about $50,000 in annual M&O property taxes for the school district. Tesla seeks a temporary, 10-year cap on the taxable value of their projected facility of $80 million. That means even in a year the incentive is in effect, Tesla will be paying almost $800,000 in school M&O property taxes — a 16-fold increase over the taxes the district currently collects on those properties. Once the incentive expires, Tesla’s facility will be fully taxed, paying roughly $4 million 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 if the land remains largely undeveloped. How many new dollars that may mean for the school district will depend on state aid formulas, but the end result is still higher tax revenues.
But that’s only part of the equation. At current tax rates, Tesla will also pay an additional $42 million in debt service taxes to the school district over the next 25 years.
All totaled, Tesla would pay $108 million in property taxes to Del Valle over the next 25 years. Absent a 313 incentive, Tesla’s tax bill would be $158 million. That $50 million Tesla would save won’t cost Del Valle taxpayers a single penny. And unless the district issues new debt, Tesla’s debt service taxes could allow the school district to reduce the current debt tax, meaning current Del Valle taxpayers would actually save on their bills.
Basically, it’s a binary decision: Offer Tesla a limited tax discount and collect $108 million in net new taxes, or don’t offer Tesla anything. Let them go elsewhere. That passed-over property won’t even generate $2 million in school taxes over the next 25 years.
Let’s set aside the tax numbers and talk about the 5,000 new high-wage jobs at the Tesla plant. (Editor’s note: The average salary at the Tesla factory is expected to be $47,147.) Those numbers substantially underestimate the statewide impact of the project. Tesla will buy materials and services from other businesses to keep their plant running. Those businesses will hire more workers to increase their production. Tesla’s workers will be regulars at Austin restaurants and other businesses, adding to their payrolls. The Bureau of Economic Analysis tells us that every auto manufacturing job creates another 5.8 jobs. Those 5,000 jobs in Del Valle could mean a total of more than 30,000 new jobs statewide.
Offering incentives to successful multi-national businesses can be unpopular on the surface, but in fact, Texas can’t compete for many projects without them. Absent a personal income tax, Texas relies much more heavily on property taxes. Reportedly, Tesla is also looking at Oklahoma, where property taxes are a third lower than they are here. Absent incentives, Texas simply couldn’t compete tax-wise with most other states.
Used correctly, economic incentives work. They don’t mean less money for taxing units, they actually leverage new tax dollars. And they bring new jobs to the entire community and state. That’s a win-win no matter how you keep score.
Tony Bennett is the president and CEO of the Texas Association of Manufacturers. Dale Craymer is the president of the Texas Taxpayers & Research Association.