The House Committee on Ways and Means recently heard nine hours of testimony on two controversial economic development provisions of the Texas Tax Code. Chapters 312 and 313 allow local governments to reduce the amount of property taxes paid by favored businesses that locate or expand within the district’s geographic boundaries. Both programs have significant local implications, but Chapter 313 also throws a wrench in the state’s school finance system.

In Texas, the total taxable value of property in a school district determine whether a district counts as a property-wealthy district (under Chapter 41 of the Texas Education Code) or a property-poor district (under Chapter 42). Chapter 41 districts are subject to the “Robin Hood” rule, under which funds are recaptured and distributed to poorer districts to meet the state’s guarantee of equitable funding for each student.

The Chapter 313 program allows school districts to artificially limit the value of a business’s property, which reduces its taxable burden, and—in theory—encourages local development. Businesses might offer payments in lieu of taxes (PILOTs) and pay expensive application fees in return. These PILOTs and fees don’t show up in the state school finance formulas.

Since its creation, Chapter 313 has generated 509 total value limitation agreements. Of those agreements, 327 (64 percent) involve property-wealthy districts. Wealthy districts negotiated significantly more agreements on average than their property-poor counterparts. The system, as designed, encourages this imbalance. With a Chapter 313 agreement, wealthier districts forfeit fewer dollars to the state while receiving new dollars exempt from the Robin Hood system. The state has fewer funds to send to Chapter 42 districts than it would have without those Chapter 313 agreements.

Property poor districts, while negotiating fewer agreements, have something to gain from the program. These districts retain a funding guarantee even when they willfully limit their tax base under Chapter 313. Like their wealthier counterparts, these districts receive substantial payments in lieu of taxes and hefty application fees that do not influence wealth equalization calculations.

So poorer districts continue to draw from the state despite receiving supplemental payments and making a local decision to reduce the amount of taxes they will collect. This leaves state finances—and wealthier, Robin Hood districts—on the hook for property poor districts’ decisions.

When the Chapter 313 program functions in concert with Robin Hood, it incentivizes local decisions that have negative statewide effects. Lawmakers should allow Chapter 313 to expire as scheduled in 2022. If they must keep it, it should undergo substantial reforms, correcting the flawed systemic logic that allows individual districts to make decisions to the detriment of all Texans.