Texas is unique from other states in many ways. In economic development, this distinction is most evident in incentives. In contrast to other states, the majority of incentives are offered at the local level rather than the state level. The following is an overview of economic development incentives and the local incentive programs offered in Schertz.
WHAT ARE INCENTIVES?
According to the International Economic Development Council, “Incentives are tools used to influence business decisions about where new investment will take place . . . incentives can be either financial or non-financial, such as a tax exemptions and credits or workforce training and public infrastructure improvements.” For businesses, incentives are important because they reduce costs associated with expansion, relocation, and startup or operational costs. The value of an incentive is unique to each project and based on the overall value to the community. The amount of incentives offered is determined by the taxing entity providing the incentive. Lastly, because incentives are tools that influence business decisions, a company must secure incentives prior to making the commitment to locate in a specific community.
CITY INCENTIVE PROGRAMS
In May 2017 the City of Schertz and SEDC approved the Schertz Incentive Policy. This policy acts as a guide and helps ensure consistency when providing incentives within the City of Schertz. The Schertz Incentive Policy has three major programs: The Assistance Center, SEDC Performance Agreements, and Chapter 380 Incentives.
(1) The Assistance Center – Knowledge is power and time is money. With this in mind, the SEDC and City of Schertz have created the Assistance Center, a series of resources to help businesses learn about the San Antonio-Austin market, find available Schertz properties, receive City development process assistance, locate information on applicable tax exemptions, and connect to regional partners that have targeted skillsets that can help your company.
(2) SEDC Performance Agreements – Most incentives within the City of Schertz come from the SEDC. All SEDC incentives must be tied back to what the Texas Local Government Code Chapters 501 Subchapter C and 505 Subchapter D authorizes as a qualified project. The SEDC has specifically targeted projects that create/retain Primary Jobs and infrastructure improvements. SEDC incentives can take the form of a cash grant, annual reimbursement, or a loan.
All SEDC incentives must be formalized though a performance agreement and approved by the SEDC Board of Directors and City Council. Under a performance agreement, companies must commit to additional payroll or jobs and a capital investment. Additionally, performance agreements include ‘clawback’ provisions which outline the terms of repayment if a company does not meet its performance requirements.
Although the specific amount of an incentive varies by project, the Schertz Incentive Policy provides additional consideration for existing Schertz businesses, small businesses, and those that make a significant investment within Schertz.
(3) Chapter 380 Agreements – In addition to incentives from the SEDC, the City of Schertz offers incentives to companies that (a) create over $100 million in new taxable value and/or (b) generate retail sales in excess of $35 million each year and are subject to local tax collection. Texas Local Government Code Chapter 380 authorizes cities (including Schertz) to provide loans and grants of city funds, as well as the use of City staff, city facilities or city services, at minimal or no charge. All City incentives must be formalized though an Economic Development Incentive Agreement and approved by the City Council.
COUNTY INCENTIVE PROGRAMS
The City of Schertz is located within three different counties: Guadalupe, Comal, and Bexar. Each of these counties have distinct incentive programs that must be authorized by their respective County Commissioners Court. The SEDC helps companies navigate each county’s specific incentive programs. County incentive programs fall under two major program types: Chapter 381 incentives and Chapter 312 Tax Abatement.
(1) Chapter 381 Agreements – Authorized under Texas Local Government Code Chapter 381, this incentive allows counties to make loans or grants of public money to promote economic development and stimulate, encourage, and develop business locations and commercial activity within the county. Counties may require that a company create a specified number of jobs, pay a specified wage, or meet a minimum capital investment threshold. All Chapter 381 Agreements must be formalized through an agreement and authorized by the county’s Commissioners Court.
(2) Chapter 312 Tax Abatement – Authorized under Texas Tax Code Chapter 312, this incentive allows local governments to exempt all or part of a the increased tax value of real property and/or tangible personal property for a period not to exceed 10 years. Each taxing district has distinct guidelines and criteria for creating a reinvestment zone and authoring a Chapter 312 Tax Abatement. All Chapter 312 Tax Abatements must be formalized through a Tax Abatement Agreement and approved by the local taxing district.
SCHOOL DISTRICT INCENTIVE PROGRAMS
Schools in Texas typically do not participate with incentives; however, Chapter 313 of the Texas Tax Code is a rare exception. Only projects with at least $100 million in qualifying investment may apply for a Chapter 313 incentive.
We aren’t done covering our incentive landscape! Look for our next blog post where we will explore the most common state level incentives like the Texas Enterprise Fund and Skills Development Fund!
If you are interested in having a more in-depth conversation about which incentives are available for your business, contact our office at (210) 619-1070.