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HomeMy WebLinkAboutAttorney Letter June 1997SEP -30-98 WED 9:19 CRIBBS & McFARLAND Via Facsimile and regular post FAX NO. 817 275 7810 P. 01 PRIVILEGED AND CONFIDENTIAL June 6, 1997 Mr. Tom Hart, City Manager City of Euless 201 N. Ector Drive Euless, TX 76039 Re: Legislative Enactments Affecting Economic Development Corporations (Sections 4A and 4B Entities Under the Development Corporation Act of 1979) and Tax Increment Financing Districts (created under Chapter 311, Tax Code) Dear Tom: While the original house and senate versions of the tax bill (H)3-4) proposed for school ad valorem property tax reduction would have adversely impacted the amount of school ad valorem taxes to be paid to a TIF, the finally enacted bill provided only an increased homestead exemption for residential property. Therefore, HB -4, as finally adopted and sent to the Governor, should not in anywise affect tax revenue to a TIF. As you will recall interim hearings were held through out the state by the Senate Economic Development Committee with respect to tax abatements and tax increment financing under existing Texas law. The final report of that committee recommended that school districts be prohibited from participation in tax abatements and tax increment financing districts. The Committee's report suggested that because private business is the greatest beneficiary of a well educated work force, education tax dollars should not be deferred to promote private economic development. Under the state's current education financing structure, also, wealthier school districts in establishing tax abatements and tax increment financing are given credit in determining the "wealth of the district" in deducting school ad valorem taxes abated under tax abatement agreements or refunded under tax increment financing agreements. This entitles such school districts to have a lowered "wealth" in determining state aid and obligations to share tax revenues with poorer school districts under the state's "Robin Hood" financing scheme. It also allows such school districts to "double dip" for purposes of certain additional entitlements for special education programa. The interim study served as the genesis for the introduction by Senator David Sibley, Chairman of the Senate Economic Development Committee, of SB -746 and SB -741. Basically these bills would have terminated school districts authority to enter into tax abatement and tax increment financing agreements. While the SEP -30-98 WED 9:20 CRIBBS & McFARLAND Mr. Tom Hart, City Manager City of Euless May 6, 1997 Page 2 FAX NO. 817 275 7810 P.02 legislation grandfathered certain tax abatements and TIF's created before a certain date the proposed legislation prohibited any change in the amount of abatement or participation by a school district with respect to a preexisting TIF and also prohibited any enlargements of the property size of the preexisting TIF. Additional reporting requirements were established that were quite extensive and required a school district to terminate its participation in a preexisting TIF or tax abatement if the benefiting developer failed to meet any of the terms of the TIF or tax abatement agreement, however minimal. This legislation was adopted by the Senate with minimal modification and forwarded to the House for consideration. The House served as the buffer for the Senate's initiative. Representative Rene Oliveira of Brownsville the House Sponsor of SBs 746 and 747 was not of a common mind with Senator Sibley on the bills limitations in school district participation in tax abatements and tax increment financing. Not only had tax abatements and TIFs been used along the Gulf Coast and Mexico border area of Representative Oliveira's district but the Houston Independent School District and certain other area school districts had begun to use tax increment financing to construct educational facilities which had been prevented by local voters rejection of recent bond issues. Apparently these school districts were granting tax abatements and tax increment financing arrangements to private developers under agreements where the developers would utilize a portion of the taxes abated or returned to construct a new school for the district. This brought other Houston area representatives into the fray. Senator Sibley's legislation (SB -746 and SB -747) died in House Committee. Senator Sibley then undertook a gallant effort to add his legislative proposals, by way of amendments, to other bills moving through the legislative process that might be germane to such subject. His proposals, in partial and modified form, were added during Senate consideration to HB -1410, HB --1525, HB -1526 and HB -2001. The House found the amendments as adopted by the Senate to be unacceptable and In each instance required the appointment of a conference committee to modify the Senate initiatives. Representative Oliveira was the House author of HBs -1525, 1526 and 2001. Unfortunately, Senator Sibley was also the Senate Sponsor of these bills. Representative Fred Hill was the author of HB -1410. The Senate Sponsor was Senator Rodney Ellis of Houston. While conference committee reports were being negotiated on these four bills, Senator Sibley working with the Senate Education Committee Chairman proceeded to attempt modification of SB -1873 authored by the Senator Education Chairman. On the very last day for consideration of Conference Committee Reports under Legislative Rules, Conference Committee Reports were adopted on each of these five bills. The final result, however, was legislation quite removed from those initially sought by Senator Sibley. SEP -30-98 WED 9:21 CRIBBS & McFARLAND Mr. Tom Hart, City Manager City of Euless June 6, 1997 Page 3 FAX NO, 817 275 7810 P.03 HB -1410 in its final form contains a provision which requires the board of directors of an economic development corporation establish under Section 4A or 4B of the Development Corporation Act (funded by a local sales tax) to submit an annual report to the Comptroller with respect to the activities of the corporation during the preceding fiscal year which report may "... not exceed one page in length ...". If the corporation fails to file the annual report the Comptroller is required to give written notice of such failure. If the corporation fails to correct the failure before the 31st day after the corporation receives such notice, the Comptroller may impose an administrative penalty of $200.00. In November of each even numbered year the Comptroller must submit a report to the Legislature relative to the use of the sales tax imposed by economic development corporations utilizing Section 4A and 413 of the Development Corporation Act. This bill as finally passed does not affect TIFs. HD -1525, in its final form, authorizes an economic development corporation created under Section 4A of the Development Corporation Act to expand the use of its sales tax proceeds to include all uses authorized under the broader authority of Section 4B of the Act with voter approval for such additional projects. This bill also as finally passed does not affect TIFs, HB -1526, in its final form, transfers from the Texas Department of Commerce to the Comptroller reports pertaining to ad valorem tax abatement agreements and tax increment financing agreements and specifically authorizes the Comptroller as well as the Texas Department of Commerce to provide technical assistance to local governing bodies regarding the designation of reinvestment zones, the adoption of tax abatement guidelines, and the execution of tax abatement agreements. The offending Senate provisions were completely removed from the bill. The bill does not otherwise affect TIFs. HB -2001, in its final form, relates only to state qualified enterprise zone programs and modifies the criteria for qualification as a permitted project under a state qualified project. It does not appear to in anywise affect tax increment financing districts. As has been authorized by the city. The final legislative initiative, SD -1873 does enact provisions affecting tax increment financing agreements with school districts. First this bill clarifies the arguments we advanced and which were adopted by the Comptroller that amounts paid into a tax increment fund by a school district are not included in determining the wealth of the school district. As you will recall, the wealth of the school district determines the amount of state funds to be received by the school district as well as the school district's obligation to share taxable revenues with poorer school districts. However, such credits will not be available to a reinvestment zone financing plan approved by a school district after September 1, 1999 and credits for taxes paid into a tax increment fund created before September 1, 1999 can thereafter be credited only on the amount of any captured appraised value SEP -30-98 WED 9:23 CRIBBS & McFARLAND Mr. Tom Hart, City Manager City of Euless June 6, 1997 Page 4 FAX NO. 817 275 7810 P.04 of property that is located in a reinvestment zone on August 31, 1999, and that generates taxes paid into the tax increment fund. A copy of the new Ianguage is attached. It appears to me that the new language would allow the school district credit, after September 1, 1999, for the captured appraised value of property located in the reinvestment zone as of August 31, 1999, but not for subsequent additions. For example, if the mall project after August 31, 1999, added additional property, e.g.. an addition to the mall project, the enhanced value of the new property may not be available for credit by the school district in determining its wealth, although the school district would be obligated to contribute the increased taxes attributable to the new development under its TIF agreement. The Comptroller will be required, absent legislative clarification, to interpret this provision. CONCLUSION As to the proposed Euless mall, the only legislation adopted by the 75th Legislature would appear to simply change certain reporting information with respect to the half cent sales tax collected for economic development under the Development Corporation Act. TIF agreements entered into prior to September 1, 1999, are grandfathered. Clarification has been made that taxes paid by the school district to the TIF are not included in the calculation of the school districts taxable wealth. The only question presented by the legislation adopted is whether any increases in ad valorem taxes resulting from property added to the TIF project after August 31, 1999 and paid by the school district into the tax increment fund will be subject to credit in determining the school district's total taxable property values. Very truly yours, Bob McFarland MRMkf 5137M