This is a prelude to a full debate and a vote in the Texas House of Representatives for this economic development bill, which aims to create a program for offering state tax credits to private sector investors who put up equity for business projects in economically distressed areas in Texas.
The bill, sponsored by State Rep. Jim Murphy, was introduced in Feb 2013 and has already made its way through the House Committee on Economic and Small Business Development, followed by a public hearing, and has now been placed on the calendar.
The program will work pretty much in the same way that the federal New Market Tax Credits (NMTC) program works, but there are a few important differences. Texas has no income tax, so the tax credits are instead being offered to insurance companies who can get credits against the taxes they have to pay on policy premiums.
Secondly, the program won’t be providing tax credits for real estate development projects. The only construction projects that may qualify are those undertaken by business owners themselves.
The intention of the program is solely to encourage investments into low-income community businesses that can create jobs. The investments will be made through a qualified community development entity (CDE), same as the NMTC program.
The state tax credits would be taken by CDEs already certified as eligible to receive federal tax credits under the NMTC program by the federal CDFI Fund and the Texas Economic Development and Tourism Office. This way, project investors would qualify for both federal and state tax credits.
The bill caps the amount of qualified equity investments to a maximum of $750 million. This would cost the state $292.5 million in insurance premium tax credits, starting with $52.5 million in FY 2016 and $60 million each year thereafter from 2017-20.
The state tax credit program is likely to attract additional private investments under the federal NMTC program too. This would combine with the $750 million cap set by the state to add up to more than $1.2 billion in new private investments attributed to this bill over the next seven years.
They expect this scale of investment will create thousands of new jobs in economically distressed areas in Texas and will generate additional state tax revenues worth millions.