Frequently Asked QuestionsChapter 311

TIF is a tool that incentivizes economic development. Cities, alone or in partnership with other taxing units, can use tax increment financing (Tax Code, Chapter 311) to pay for improvements to a zone so it will attract new development.

A TIRZ is the real property that is taxed to fund the TIF project (SEC. 311.003). The zone is created when the TIF project begins.

A TIRZ can:

• construct needed public infrastructure in areas with little development or lacking adequate development to attract businesses;
• encourage development, thereby increasing property values and long-term property tax collections; and
• reduce the cost of private development by providing reimbursement for eligible public improvements.

No, TIF does not impose a new tax. Instead, it uses improvements to spur development and raise property values within a zone. It then funnels some of the tax collected on that increased value into a fund that pays for the improvements.

Each TIF project requires:

• a TIRZ that includes taxable real property;
• a project plan that describes the improvements that will be made;
• a financing plan that describes how the improvements will be paid for;
• a board of directors to manage the project; and
• a tax increment fund to collect revenue and make payments.

A TIF project jumpstarts development so it can start generating additional tax revenue for the local government. Local governments that participate in a TIF project make an upfront commitment to creating public improvements within the zone. These improvements encourage private investment in the zone, such as new business growth, that increases property values and generates new tax revenues.

The tax increment comprises the ad valorem taxes collected from increased value within the zone (SEC. 311.012). Ad valorem taxes, also known as property taxes, are locally assessed taxes.

The county appraisal district appraises property located in the county, while local taxing units set tax rates and collect property taxes based on those values. Property taxes provide tax dollars for local services — helping pay for parks, city streets, county roads, police, fire protection, emergency medical service and many other services.

TIF projects can be used to fund:

• roads, sidewalks and other public infrastructure;
• demolition;
• building facade preservation;
• remediation of contamination;
• affordable housing;
• railroad and transit facilities;
• public buildings;
• school buildings; and
• other projects.

A city may acquire, construct, reconstruct or install public works, facilities or sites or other public improvements (SEC. 311.008), including:

• utilities;
• streets;
• street lights;
• water and sewer facilities;
• pedestrian malls and walkways;
• parks;
• flood and drainage facilities; and
• parking facilities.

Yes. The governing body of the city or county that created the TIRZ must submit annual report detailing a TIF project's progress SEC. 311.016 to the chief executive officer of each taxing unit participating in the TIRZ and to the Comptroller's office.

Reports must be filed using eSystems. U.S. mail and emailed documents will not be accepted.

A definitive answer is not always available. According to the OAG Opinion,GA-0305, a city may use a TIF to pay a private developer for “project costs” within the scope of section 311.002(1).

This opinion is based on the old language of section 311.014(b) of the Tax Code, providing that money may be disbursed from the tax increment fund “only to satisfy claims of holders of tax increment bonds or notes issued for the zone, to pay project costs for the zone, or to make payments pursuant to an agreement made under Section 311.010(b) dedicating revenue from the tax increment fund.” This language was later amended to add “or to repay other obligations incurred for the zone.”

The opinion provides that a city's authority to reimburse a private developer for “project costs,” but does not provide specific facts. See Request Letter, supra note 1, at 2.If the city agrees in advance to pay the private developer for the costs upon completion of the work, the developer performs the work, and then seeks payment pursuant to the agreement, the expenditure is permissible.

However, some tax increment fund expenditures will be subject to competitive bidding (Local Government Code, Chapter 252). If the contract was not competitively bid, or if the work is not authorized by Chapter 311, the city cannot use TIF for the reimbursement.

The applicability of the opinion depends on a local taxing unit’s particular situation.

A local government plan “may establish and provide for the administration of one or more programs for the public purposes of developing and diversifying the economy of the zone, eliminating unemployment and underemployment in the zone and developing or expanding transportation, business, and commercial activity in the zone, including programs to make grants and loans.

See purpose of projects SEC. 311.010(h).

Any taxing unit that collects ad valorem taxes from property in the TIRZ may participate in a TIF project.

See See procedure for creating reinvestment zone SEC. 311.003(a)..

Yes. Texans amended the state Constitution which allowed the legislature to authorize a county to finance the development or redevelopment of transportation or infrastructure in unproductive, underdeveloped, or blighted areas in the county. The governing body that creates the TIRZ is responsible for the TIF project.

A TIRZ is created when a city passes an ordinance designating it (SEC. 311.003). The zone may only be created if the governing body of the city determines that development or redevelopment of the area would not occur through private investment in the foreseeable future.

The governing body of a city must prepare a preliminary financing plan and hold a public hearing (SEC. 311.003) on the creation of the zone and its suggested benefits.

A notice must be published in a newspaper with a general circulation in the city no later than the seventh day before the date of the hearing (SEC. 311.003).

A new public hearing is required if the city wants to adopt an ordinance that will:

• change the boundaries of the zone (SEC. 311.007);
• extend the term of all or a portion of the zone;
• increase the amount of bond indebtedness the project will incur;
• change the percentage of a tax increment;
• increase the total estimated project costs; or
• designate additional property within the zone to be acquired.

The ordinance must:

• describe the boundaries of the zone;
• create a board of directors for the reinvestment zone and specify the number of directors on the board;
• provide that the zone takes immediate effect upon passage of the ordinance;
• provide the date when the zone is to be terminated;
• assign a name to the zone. Refer to TIRZ Naming Standard;
• establish a tax increment fund for the zone;
• contain findings that improvements in the zone will significantly enhance the value of all the taxable real property in the zone and will be of general benefit to the city; and
• list the criteria the area meets for creating a reinvestment zone.

See ordinance requirements (SEC. 311.004).

An area must:

• substantially arrest or impair the growth of a municipality, retarding the provision of housing, constituting an economic liability, and be a menace to the public health, safety, morals or welfare in its present condition and use because of:
  • a substantial number of substandard, slum, deteriorated or deteriorating structures;
  • the predominance of defective or inadequate sidewalks or streets;
  • faulty size, adequacy, accessibility or usefulness of lots;
  • unsanitary or unsafe conditions;
  • the deterioration of site or other improvements;
  • tax or special assessment delinquency exceeding the fair value of the land;
  • defective or unusual conditions of title;
  • conditions that endanger life or property by fire or other cause; or
  • structures, other than single-family residential structures, less than 10 percent of the square footage of which has been used for commercial, industrial or residential purposes during the last 12 years, if the city has a population or 100,000 or more;
• be predominantly open or undeveloped and, because of obsolete platting, deterioration of structures or site improvements, substantially impair the sound growth of the city; or
• be in a federally assisted new community located in the city or in an area immediately adjacent to a federally assisted new community.

A city may not designate a reinvestment zone if:

• more than 30 percent of the property in the proposed zone, excluding property that is publicly owned, is used for residential purposes; or
• the total appraised value of taxable real property in the proposed zone and in all other existing reinvestment zones exceeds:
  • 25 percent of the total appraised value of taxable real property in the city and in the industrial districts created by the city, if the city has a population of 100,000 or more; or
  • 50 percent of the total appraised value of taxable real property in the city and in the industrial districts created by the city, if the city has a population of less than 100,000.
• Property is used for residential purposes if it is occupied by a house with fewer than five living units, and the appraised value is determined according to the most recent appraisal rolls for the city.

See TIRZ criteria (SEC. 311.005, 006).

Yes. Property owners can submit a petition (SEC. 311.005) requesting an area be designated as a TIF zone if they own at least 50 percent of the appraised value of the property in a requested zone. The laws governing TIRZ created by petition differ from regular TIF projects.

Yes, but only if the changed boundaries (increased or reduced in size) continue to meet the restrictions (311.007) for the creation of TIRZ, and only with a public hearing and an order or ordinance describing the new boundaries.

Chapter 311 of the Texas Tax Code permits modifying the boundaries of an existing reinvestment zone as long as the restrictions to the residential areas and tax base percentage are observed. See SEC. 311.007(a)., and SEC. 311.006.

Changes must be reported using eSystems. Select “Modified Tax Increment Reinvestment Zones.”

Yes. A city that created a TIRZ can terminate it by approving an ordinance (SEC. 311.017) that designates a termination date. Termination also occurs when all project costs, tax increment bonds and interest on those bonds, and other obligations have been paid in full.

Termination of a TIRZ must be reported using eSystems. Use the “Modified TIRZ” option.

See terminating a TIRZ (SEC. 311.017).

No. A taxing unit that did not create the TIRZ but participates in the zone is not required to pay any of its tax increment into the tax increment fund after the termination date designated in the ordinance unless the participating taxing unit's governing body enters into an agreement to do so with the governing body of the city that created the zone.

See terminating a TIRZ (SEC. 311.017).

After all project costs and other obligations have been paid, any money remaining in the fund is disbursed back to the participating taxing units in proportion to each jurisdiction's share of the total tax increments collected.

See Tax increment fund (SEC. 311.014).

Yes.

Yes. The taxing unit may enter into an agreement with the city or county that designated the zone any time before or after the zone is designated or enlarged (311.013(f)).

Each taxing unit's tax increment is the amount of ad valorem tax assessed or collected on the captured appraised value of property within the zone.

See determination of tax increment amount (SEC. 311.012).

The captured appraised value is the total value of all real property that is taxable within the zone minus the tax increment base.

See determination of tax increment amount (SEC. 311.012).

The tax increment base is the total value of all real property that is taxable the year the zone is created.

See determination of tax increment amount (SEC. 311.012).

Each year the appraisal district assigns a value to the taxable real property within the zone. The year the zone is created, that value is the tax increment base. Every following year, that value is the captured appraised value. The captured appraised value minus the tax increment base is the tax increment.

See determination of tax increment amount (SEC. 311.012).

No. Each participating taxing unit chooses a percentage (SEC. 311.013) of its tax increment that will be deposited in the tax increment fund. If a taxing unit does not set the percentage when the zone is created or when it joins the TIF project, it defaults to 100 percent of the tax increment.

The project plan must include:

• a description and map showing existing uses and conditions of real property in the zone and proposed uses of that property;
• proposed changes of zoning ordinances, the master plan of the municipality, building codes, other municipal ordinances, and subdivision rules and regulations, if any, of the county, if applicable;
• a list of estimated non-project costs; and
• a method of relocating persons to be displaced, if any, as a result of implementing the plan.

See Project and Financing plans (SEC. 311.011).

The financing plan must include:

• a detailed list describing the estimated project costs of the zone, including administrative expenses;
• a statement listing the proposed kind, number and location of all public works or public improvements to be financed by the zone;
• a finding that the plan is economically feasible and an economic feasibility study;
• the estimated amount of bonded indebtedness to be incurred;
• the estimated time when related costs or monetary obligations are to be incurred;
• a description of the methods of financing all estimated project costs and the expected sources of revenue to finance or pay the project costs;
• the percentage of tax increment to be derived from the property taxes of each taxing unit anticipated to contribute to the zone;
• a current total appraised value of taxable real property in the zone;
• the estimated captured appraised value of the zone during each year of its existence; and
• the duration of the zone.

See Project and Financing plans (SEC. 311.011).

The board of directors of the zone must prepare and adopt the plans and submit them to the governing body of the city that created the zone. The governing body must approve the plans by ordinance.

See Project and Financing plans (SEC. 311.011).

Yes. The plans can be amended if the amendments are adopted by the board of directors and approved by the governing body of the city that created the zone. Before approving the amended plans, the governing body must hold a public hearing and approve the amendments by ordinance if the amendment:

• changes the size of the zone;
• increases the debt that will be incurred;
• changes the tax increment that a participating taxing unit contributes;
• increases the project costs; or
• requires the purchase of new property.

See Project and Financing plans (SEC. 311.011).

A city can:

• prepare, approve and implement the project and financing plans;
• acquire and sell real property as needed;
• enter into agreements necessary to implement the project plans;
• preserve historic sites;
• provide public works or public facilities; or
• make public improvements.

See powers of municipality or county (SEC. 311.008).

The city and the other participating taxing units appoint board members. The board is made up of:

• up to 10 directors appointed by the city; and
• one director appointed by every other taxing unit that is contributing to the project.

If other taxing units appoint fewer than five directors, then the city that created the zone may appoint additional directors as long as the board does not consist of more than 15 members.

Note: If the city creating the zone has a population greater than 1.1 million or the zone is being created by petition, the membership of the board may differ.

See board of directors composition (SEC. 311.009).

Members serve two-year terms. Those terms may be staggered at the discretion of the governing body that created the zone. Members may be reappointed.

See board of directors composition (SEC. 311.009).

The taxing unit that appointed the original director fills the vacancy for the unexpired term.

See board of directors composition (SEC. 311.009).

For a normal reinvestment zone, each board member must be at least 18 years of age and:

• be a resident of the county in which the zone is located or a county adjacent to that county; or
• own real property in the zone.

See board of directors composition (SEC. 311.009).

Yes. Each year the city appoints a member to serve as chairman for one year beginning on Jan. 1. The board may elect a vice-chairman and other officers as it considers appropriate. The vice-chairman will preside over the board when the chairman is absent.

See board of directors composition (SEC. 311.009).

The board makes recommendations to the city about administration of the TIF project. The board has the same powers the city to implement the project and financing plans, but the board needs the city's consent to acquire or sell real property. With city approval, the board has zoning authority within the zone.

The city, by ordinance or resolution, may authorize the board to use most of the city's powers to administer the zone and implement the project plan. The city also can restrict the board's power by passing an ordinance or resolution. The governing body may not authorize the board of directors to:

• issue bonds
;
• impose taxes or fees
;
• exercise the power of eminent domain; or
• give final approval to the project plan.

See duties and powers of the board (SEC. 311.010).

Yes, with city approval. The board and the governing body of the city may enter into agreements with other entities to implement the project plan and the financing plan.

See duties and powers of the board (SEC. 311.010).

The tax increments from all the taxing units participating in the TIF project are deposited into the fund. The zone board may collect other revenues and deposit them into the fund, including:

• all revenues from the sale of tax increment bonds or notes;
• revenues from the sale of any property acquired as part of the tax increment financing plan;
• a sales tax increment; and
• loans made to the zone by the city that created it.

See tax increment fund (SEC. 311.014).

Each participating taxing unit arranges to collect its own taxes.

See collection and deposit of tax increments (SEC. 311.013).

A taxing unit must make a payment not later than the 90th day after the later of:

• the delinquency date for the unit's property taxes; or
• the date the city that created the zone submits an invoice to the taxing unit.

See collection and deposit of tax increments (SEC. 311.013).

A delinquent payment incurs a penalty of 5 percent of the amount delinquent and accrues interest at an annual rate of 10 percent.

See collection and deposit of tax increments (SEC. 311.013).

No.

See collection and deposit of tax increments (SEC. 311.013).

Yes. The city can sell tax increment bonds or notes to raise revenue to pay for project costs. The principal and interest from tax increment bonds and notes may only be paid from money in the tax increment fund.

See tax increment bonds and notes (SEC. 311.015).

No. A city may issue tax increment bonds or notes by passing an ordinance approving the sale.

See tax increment bonds and notes (SEC. 311.015).

The board of directors makes all payments for project costs from the TIF. Project costs can be paid as tax increments are collected, tax increments can be pledged, engage in public-private partnerships, or the lead taxing unit can sell tax increment bonds to raise revenue immediately.

The fund is used only to satisfy the claims of holders of tax increment bonds or notes by:

• paying project costs;
• making payments for contracts related to the project; or
• repaying other obligations incurred in the zone.

See tax increment fund (SEC. 311.014).

Yes. Money in the fund may be temporarily invested if an agreement is reached with the holders of tax increment bonds or notes.

See tax increment fund (SEC. 311.014).

Municipal sales and use taxes attributable to the zone for a year are dedicated to the tax increment fund. This amount is determined by:

• the percentage of the tax increment set by the taxing unit;
• the assessed value of sales and use taxes collected; and
• the tax rate.

Taxes owed are determined by dividing $100 into the base increment value and multiplying that by the tax rate. This total is directed into the taxing unit’s general fund account.

The “captured appraised value” is determined by subtracting the tax base value of sales and use taxes from the total appraised value of sales and use taxes collected.

Determine the “captured appraised value,” divide by “$100” and multiply by the tax rate valuation to determine the “tax increment.” This total is divided by the dedicated “tax increment percentage,” resulting in an amount to be directed to the tax increment fund, and if applicable, any remaining portion of the “tax increment total” would be directed to the taxing unit’s general revenue account.

See sales tax increment (SEC. 311.0123).

All municipal sales and use taxes attributable to the zone for the year the zone was designated.

See sales tax increment (SEC. 311.0123).

No. The city sets the portion of the sales tax increment that it wants to deposit. The city can choose to deposit all, some or none of the sales tax increment.

See sales tax increment (SEC. 311.0123).

The sales tax increment is set in the ordinance the city passes to create the zone or in a subsequent ordinance for the zone.

See sales tax increment (SEC. 311.0123).

At the direction of the city, the Comptroller will deposit the sales tax increment directly into the fund.

Tax Code allows money to be disbursed from the TIF to repay obligations incurred by the zone. Taxing units are authorized to make loans to a reinvestment zone. A TIF can use contributed funds to repay any loans on the terms agreed to by the TIF and the taxing unit. By allowing loans and repayment, the TIF will be sufficiently funded and able to participate in upfront project costs in the project and financing plans without the burden of issuing tax increment bonds or notes.

See tax increment fund (SEC. 311.014).

The Comptroller is statutorily required to compile information about new zones, project plans, financing plans and annual reports into a Central Registry about each TIRZ. The Comptroller also is required to submit a Biennial Report to the Legislature and the governor before each legislative session.

See annual report by comptroller (SEC. 311.0163), and central registry (SEC. 311.019).

All TIRZ data (New TIRZ, Modified TIRZ And Annual Report) submitted, will be made available to the public within 24 hours.

Information about each TIRZ is available in the Biennial Registries of Reinvestment Zones for Tax Abatements and Tax Increment Financing, TIRZ Annual Reports and Tax Increment Reinvestment Zone Reports.

The Comptroller's Data Analysis and Transparency Division can answer questions by phone at 800-531-5441 ext. 5-0664 or by email. Additional information can be obtained by contacting open records.

View the TIRZ annual reports and the TIRZ zone reports.

Yes, but only with the consent of the board of directors and the governing body of each taxing unit participating in the zone.

See tax abatement agreements (SEC. 311.0125).

Yes. The Comptroller offers guidance and technical assistance to cities interested in tax increment finance. Call 800-531-5441 ext. 5-0664 or send email for assistance.

Yes. For each school year, a school district is entitled to state aid under the Texas Education Code (TEC), Section 48.253, in an amount equal to the amount the district is required to pay into the Tax Increment Fund (TIF) for a reinvestment zone under Section 311.013(n), Tax Code. The payment (based on a 100% TIF participation level) using a school district's current captured appraised value as defined by Tax Code, Section 311.012(b), is the difference between tax collections for the TIRZ in the current school year based on the 2005 maintenance and operations (M&O) tax rate and the tax collections for the TIRZ in the current school year based on the current M&O tax rate.

For more information on this and reporting requirements, go to the Texas Education Agency (TEA) webpage for details.