governmentNew Tax Incentive Program Succeeds Chapter 313

The Jobs, Energy, Technology and Innovation Act sets the stage for more investment in Texas

March 2024 | By Trinity Elkins and Spencer Grubbs

The Jobs, Energy, Technology and Innovation Act (JETI) was created by House Bill 5 (88th Legislature, Regular Session) to attract new jobs and investments to Texas. The program incentivizes businesses to locate projects in Texas by offering limits on the taxable value for a school district’s maintenance and operations (M&O) property taxes over 10 years. To qualify, companies must meet minimum local job creation and investment requirements and pay a $30,000 application fee to the school district. The local school district and the office of the Texas governor must approve the project agreement.

JETI succeeds the Texas Economic Development Act, more commonly known as the Chapter 313 tax-incentive program. JETI differs from Chapter 313 by excluding the option to waive the job creation requirement, which occurred frequently under Chapter 313. Applicants also must prove that the JETI program is a compelling factor for competitive site selection in Texas by providing evidence that the investment was made due to the tax incentives offered through the program.

Fiscal Notes sat down with John Villarreal, the manager of the Comptroller’s economic development team that oversees JETI applications, to discuss the program and what’s on the horizon.

Fiscal Notes: What projects qualify for the new JETI program?

Villarreal: Renewable energy projects are excluded from the new program, which represents a significant change because these projects made up the majority of projects in the Chapter 313 program. Under JETI, eligible projects include the construction of a project, or the expansion of an existing facility, related to:

• Manufacturing.
• Provision of utility services, including dispatchable energy.
• Development of natural resources, agriculture/forestry/fishing/hunting, and mining/quarrying/oil and gas extraction.
• Research and development of high-tech equipment or technology.
• Critical infrastructure.

FN: Can you give us an overview of the application approval process and how the rules for the program were decided?

Villarreal: As far as the rulemaking process is concerned, the Comptroller’s office posted rules on Sept. 29, 2023, for companies to review and comment for 30 days. Then, we committed to adopt rules in January so we had to address comments and make any changes in a couple weeks.

After receiving 70 comments, our office made some changes to the initial rules proposal. One of the notable changes we made was to the proposed performance bond requirements. Initially, the rule proposed a required amount for the bond equal to 20 percent of the company’s required investment in a project, but in response to the comments, we changed it to 10 percent of the company’s estimated total tax benefit. 

The Comptroller’s office also clarified JETI’s job wages requirement. The statute is vague on this topic, so our new rules make clear that job wages must match the average industry wages at the local, regional or statewide level, whichever provides the most accurate and current salary information for each locality.

The final rules went into effect on Jan. 16.

As far as the application approval timeline, our office has 60 days after determining an application is complete to review and recommend the application for approval. (See the Comptroller’s JETI timeline (PDF) for details.) However, all applications are sent to the Governor’s office and applicable school district, regardless of whether the Comptroller recommends the application for approval.

FN: What is the compelling factor test?

Villarreal: A JETI agreement must be a compelling factor in a competitive site selection process. Applicants will have to provide proof of the competition between the Texas and non-Texas site locations.

FN: Performance bonds are a requirement in the JETI program. How will they work?

Villarreal: For the purposes of the JETI program, the Legislature added a performance bond requirement as a mechanism to ensure a company receiving JETI benefits for building a project in a Texas community has skin in the game. What I mean by this is a performance bond ensures that a certain amount of money is guaranteed to the state and school district if the company fails to meet its agreed-upon obligations.

FN: Speaking of jobs requirements, what can you tell us about rules that require jobs created by companies under the program be located at the project site?

Villarreal: Jobs have always been required to be at the project site, for the Chapter 313 program and for JETI as well. The JETI rules clarify that employees can telework, but their primary office must be at the Texas facility for which the company is receiving JETI benefits. With jobs required to be local to the community, the rules ensure that the district that entered the agreement will receive the full benefit of the economic activity created by the new jobs.

In addition to direct jobs created by JETI investment, there is the economic benefit of indirect and induced jobs created in other industries to support the economic activity generated by the JETI agreement.

FN: What is the Comptroller’s role in evaluating applications, project jobs and investments under the JETI program?

Villarreal: Our role is to review the applications, which includes review of the jobs and wages committed and required for the agreements. We hired three full-time employees to handle the increased workload between new JETI applications and Chapter 313 agreements still in effect. Although Chapter 313 preceded JETI and is no longer accepting applications, the agreements that are already in place have ongoing reporting and compliance requirements and are valid until the contracts expire.

It’s also important to note that with JETI, agreement holders will submit two years of jobs data in even-numbered years as part of the biennial reporting requirement to the Comptroller. The comprehensive report to the Comptroller will be published on our website. This is similar to what was required in Chapter 313, except all agreement holders under that program had to report data on an annual basis in addition to biennial reporting. I think reporting once every two years for JETI simplifies things.

FN: What are the key differences between the JETI program and the retired Chapter 313 program?

Villarreal: There are a lot of differences between the JETI program and the retired program, but I’d like to draw attention to four of them:

• A company with a JETI agreement will receive a 100 percent school district M&O tax limitation during the construction phase of a project, which might be up to two years, but the limitation drops to 50 percent once the project is online. The old program, on the other hand, did not make a distinction between the construction and operational phases of a project.
• The governor is now a party to agreements with the applicable school district under the new program and must approve and enter into an agreement for each, whereas under the Chapter 313 program, agreements were only between a company and a school district.
• The Chapter 313 program allowed companies to give school districts “payments in lieu of taxes,” which were supplemental payments representing a portion of the tax savings the company would get over the lifetime of the agreement, which could be up to 40 percent. JETI explicitly prohibits these payments.
• Although certain facilities delivering utility services are exempt from the jobs requirement under JETI, the requirement cannot be waived like it often was under the Chapter 313 program. For example, most if not all the renewable energy projects in the Chapter 313 program have jobs requirement waivers, which waive jobs to minimum industrywide employment standards.