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Government Financial Subsidies for Energy

For many years, federal, state and local governments have provided subsidies to energy producers and purchasers to encourage the development and production of various fuels. Governments provide financial energy subsidies through tax incentives; direct spending for government services; the assumption of certain types of liability or risk by the government; government ownership of energy production; access to resources on government-owned lands; tariffs; and homeowner incentives.

Exhibit 17

A Simple Formula: Taxpayer Energy Subsidies plus Consumer Energy Spending equals Total Energy Spending.

Source: Texas Comptroller of Public Accounts

As a result of this complex web of subsidies, Texans – as both energy consumers and federal, state and local taxpayers – pay more for some energy sources than is reflected in their electric bills or the price at the gas pump.

The Comptroller’s office estimates that the total amount of federal energy subsidies for 2006 was $13.6 billion. In addition, Texas state and local energy subsidies totaled $1.4 billion in 2006.

The Comptroller’s study focuses on identifying the total energy spending on different types of fuels through a relatively simple formula (Exhibit 17).

Government subsidies for energy vary widely; for hydroelectric power, for instance, federal subsidies accounted for just 0.5 percent of total spending in 2006, while federal subsidies accounted for 26.5 percent of ethanol spending in that year (Exhibit 18).

Chapter 313 Property Value Limitations

It is important to note that Exhibit 18 does not reflect changes in federal, state and local subsidies that occurred after 2006. One notable change is the rising trend in Texas property tax value subsidies, such as Chapter 313 property value limitations, which have a significant impact on the Texas budget.

Exhibit 18

Estimated Subsidies and Consumer Spendingas a Percentage of  Total Expenditures in 2006.

View Exhibit 18: Estimated Subsidies and Consumer Spending as a Percentage of Total Expenditures, in Table Format.

Under Chapter 313 of the Texas Tax Code, school districts may provide Property Value Limitations to businesses by offering a tax credit and an eight-year limitation on the appraised value of a property, for the maintenance and operations portion of the school district property tax. In exchange for the value limitation and tax credit, the property owner must enter into an agreement with the school district to create a specific number of jobs and build or install specified types of real and personal property worth a certain amount.283 The 2007 Legislature required the Comptroller to provide a report before the beginning of each regular legislative session assessing the progress of each agreement made under Chapter 313.284 Exhibit 19 illustrates the projected increase in the Chapter 313 incentive. Based on data collected for the legislatively mandated study, these estimates may be revised later in 2008.

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