Proposed state bill would hurt cities with industrial contracts

The Texas Legislature is now in session and several bills controlling what cities can do have been introduced, but one especially could seriously affect the city of Orange's income.

State Senator Paul Bettencourt, a Republican from Harris County and a former Harris County tax assessor-collector, has introduced a bill restricting the amount of land that can be included in a city's extraterritorial jurisdiction, or ETJ.

Orange City Manager Mike Kunst said the proposed bill would eliminate the industrial plants along FM 1006, known as Chemical Row. Most of the petrochemical plants lie within Orange's ETJ and since the 1940s, have paid in-lieu-of-taxes money to the city.

Recent city budgets report 24 percent to 33 percent of the city's income coming from the Industrial District Contracts negotiated with the plants to pay in-lieu-of-taxes.

The proposed bill, which if passed could go into effect September 1, "will certainly challenge us," Kunst said.

A similar house bill has been introduced. Kunst said so far, the bills have remained in committee and have not been brought out for a vote. Before it becomes a law, the bill must pass in the Texas Senate and the Texas House of Representatives, and then be signed by Governor Greg Abbott.

The Industrial District Contracts have a long history in Texas, particularly in Southeast Texas, which has many oil refineries and petrochemical plants.

Under an Industrial District Contract, a city negotiates with a plant to not annex the facility and the plant will pay to the city a percentage of the amount of property taxes the plant would pay under full city taxes.

"That understanding goes back decades with city leaders and management," Kunst said. The corporate industries decided "We want a good place for our employees to live and this is the way to do it."

The Industrial District Contracts also allow the city to provide police and fire protection services to the plants. The money helps maintain city streets and services, along with parks and recreation for citizens who work at the plants.

The city's 2022-23 general operations budget has 24 percent of the income from the Industrial District Contracts, 21 percent from regular property taxes for homes and businesses, plus 17 percent from sales taxes, franchise taxes and other miscellaneous taxes. Other money for city operations comes from a variety of resources including grants, fees, and fines.

The city will begin budget workshops in the summer for the 2023-24 fiscal year, which will start October 1. The Texas Legislature meets until the end of May, unless a special session is called. City officials should know by summer whether or not they will have to deal with a loss of income from Industrial District Contracts.

A new, $8.5 billion chemical plant is now under construction by Chevron Phillips. The city of Orange disannexed a large portion of the 2,000-acre site so the corporation could qualify for state economic development incentives. The city worked out a contract with the company that the plant will not pay the city for 10 years and after that, it will have in-lieu-of-taxes payments through an industrial district contract. If the state bill passes, Orange could lose that future income.

DuPont opened the first petrochemical plant in Orange 75 years ago and had agreements with Orange. A new Orange city charter in 1960 forbid the city from annexing an existing plant, however a charter change election in 1996 eliminated that.

In recent years, the city has used a threat of annexation to negotiate tax rate percentages for plants in their extraterritorial jurisdiction. Although most of the city's industrial district contracts are with Chemical Row plants, other industrial sites also pay in-lieu-of-taxes under contracts.

A 1981 dispute between the cities of Bridge City, West Orange, and Orange left most of Chemical Row in the Orange extraterritorial Jurisdiction, but a small part of the old Firestone plant went to the Bridge City ETJ and a small part of the old DuPont plant went to West Orange ETJ.

Southeast Texas cities like Beaumont, Port Neches, and Nederland also have industrial district contracts for plants in their jurisdictions and the proposed legislation could also affect them.