How School Districts Have Benefited from Texas Tax Code Chapter 313
Texas Tax Code Chapter 313, officially known as the Texas Economic Development Act, has been a powerful tool that public school districts have used to foster local economic growth while protecting their long-term financial health.
Though the idea of giving up property tax revenue may sound counterintuitive for a school district, the way Chapter 313 was structured has created significant upside—not only in immediate community investment, but also through carefully designed compensations that have kept districts whole or even net positive.
The program ended for new contracts in 2022 and was replaced by the Texas Jobs, Energy, Technology, and Innovation (JETI) program. However, many districts are still feeling the effects of Chapter 313 as older contracts are still in force.
What Was Chapter 313?
Chapter 313 allowed a school district to enter into a value-limitation agreement with a business. In simple terms, a company agreed to build or expand a major project—often in manufacturing, research and development, energy, or data centers—within the district. In return, the school district agreed to limit how much of that property’s appraised value was taxed for its maintenance and operations (M&O) property tax. This limitation typically lasted ten years. The project had to meet certain criteria, as determined by the State Comptroller. For example, the project had to generate a minimum number of jobs and tax revenue sufficient to offset the amount of the abatement.
This arrangement was attractive to businesses because it lowered their tax burden in the short term, giving them cash flow flexibility to invest in growth. For school districts, Chapter 313 incentivized development, fostered job creation, and in many cases, brought in valuable revenue.
How School Districts Have Benefited
One of the clearest benefits for a district was that Chapter 313 projects often yielded substantial investment. When a company builds in a district, it adds to the property tax rolls. Even though the M&O value was limited under the agreement, the district still charged the full property tax for the interest and sinking (I&S) portion of the tax, which covers debt service on bonds. That means the school district gained from the full appraised value for that portion.
State-Backed Compensation
Another crucial feature was additional state aid. Under the Texas Education Code, school districts that granted M&O tax limitations were eligible to apply for state funding to offset the lost local revenue. The Texas Education Agency (TEA) provided a mechanism for requesting this aid, and districts had to submit documentation annually to qualify. Without this state aid, the tax breaks could seriously strain a district’s budget. With it, many districts have managed to offset most or all of their “lost” revenue.
Supplemental Payments from Businesses
In many Chapter 313 agreements, the business didn’t just get a tax break — it had to make supplemental payments to the district. These could take the form of “payments in lieu of taxes” (PILOTs) or similar arrangements. These payments were not subject to recapture and were often structured so that they served as extra, unrestricted revenue for the school district. As a result, the district gained funds it could use more freely, without them being tied to specific tax revenue lines.
Revenue Protection Provisions
Chapter 313 agreements typically included a “revenue protection” clause: The company would agree to compensate the school district for potential losses that could result from reduced state aid tied to its project. This meant that if the district’s funding from the state were to drop because of the tax credit, the company would help make up the difference. That protection reduced risk for the district—they did not have to simply bank on the tax credit to pay for itself without consequences.
Why Districts Chose to Participate
For many school districts, especially ones looking to draw in large-scale industrial or research-focused investment, Chapter 313 offered a strategic lever that could impact the long-term economic trajectory of the community. By partnering with businesses offering meaningful investments, districts have been able to secure job creation in their community, expand their commercial tax base, and strengthen their local economy. Under the legislative intent spelled out in the Tax Code, these agreements were meant to “enhance the local community” and “improve the local public education system.” Moreover, districts often negotiated carefully to make sure the terms aligned with their own goals.
How It Has Played Out
A good illustration of how Chapter 313 has worked in practice comes from Barbers Hill ISD. The district, located in a rapidly industrializing region near Houston, entered into several Chapter 313 agreements tied to major petrochemical and energy-sector expansions. These projects brought hundreds of millions of dollars in new investment to the area.
Under Dr. Poole’s leadership, the district negotiated agreements that included substantial supplemental payments, allowing Barbers Hill ISD to maintain strong financial footing while continuing to invest in academic programs, employee compensation, and modern facilities. The district often highlighted how these agreements supported long-term planning without increasing the tax burden on local residents, and how the additional revenue contributed to maintaining one of the most competitive educational environments in the region.
Even though the program officially expired on December 31, 2022, the impact of existing contracts continues. For districts that took advantage wisely, Chapter 313 has helped turn ambitious development opportunities into real benefits. In the end, when used properly, it offered a way for districts to benefit now and lay the groundwork for long-term growth, without sacrificing their financial stability.