Implementing a TIRZChapter 311

The governing body must prepare a preliminary reinvestment zone financing plan Tax Code Section, 311.003(b).

Once the preliminary reinvestment zone financing plan is complete, a public hearing is required. The governing body must provide a realistic chance for the property owner to protest the property’s inclusion in a proposed reinvestment zone.

The governing body must publish notice of the hearing in a newspaper with general circulation within the city. This must be done seven days before the hearing.

The public hearing must include:

• a discussion on the concept of a tax increment fund (TIF);
• an opportunity for all interested persons to speak for or against the designation of a reinvestment zone;
• an address of the boundaries of the zone; and
• a discussion on the benefits to the municipality and to property in the proposed zone.

Refer to Tax Code, Sections 311.003(c)

If creating a reinvestment zone by city ordinance or county order, the governing body defines the area and creates the board of directors for the new reinvestment zone.

A majority vote at an open meeting of the governing body is required to approve the ordinance or order. The adopted ordinance or order should include a finding that growth in the area is unlikely solely through private investment in the near future. Based on Tax Code, Section 311.004, the ordinance or order must contain other provisions including:

• a designation of the zone’s board of directors;
• the zone will take effect immediately on passage of the ordinance;
• a description of the zone boundaries with enough detail to identify the territory within the zone;
• findings that the improvements within the zone will significantly enhance the value of the taxable property within the zone and will be of general benefit to the city or county;
• a name for the zone as provided under Tax Code, Section 311.004(a)(5);
• establishment of a tax increment fund for the zone;
• the zone termination date; and
• a finding that the area meets the criteria for designation of a reinvestment zone under Tax Code, Section 311.005.

If creating a reinvestment zone in reply to a petition of the property owners, the city or county must specify in its ordinance or order that the reinvestment zone is created under Tax Code, Section 311.005(a)(4).

Soon after the local taxing unit approves the creation of the TIRZ, the entity is required to send Comptroller Form 50-807. The entity must also send an annual report (Comptroller Form 50-806) every year until the zone expires or is terminated.

After the city or county has approved the ordinance or order creating the zone, the zone’s board of directors must prepare both a project plan and a financing plan. The plans must be consistent with the preliminary plans the city developed for the zone before the board was created. The board of directors must get the approval of the governing body for the project and financing plans, as well as any plan amendments according to Tax Code, Section 311.011(a), (d), and (e).

Project Plan

As set forth in Tax Code, Section 311.011(b), the project plan must include:

• any proposed changes to zoning ordinances, the master plan of the city, building codes or other municipal ordinances;
• a description and map showing existing uses and conditions of real property within the zone and any proposed uses of that property;
• a statement of the method for relocating persons who will be displaced as a result of implementing the plan; and
• a list of estimated non-project costs.

In a zone designated pursuant to Tax Code, Section 311.005(a)(4) that is located in a county with a population of 3.3 million or more, the project plan must provide at least one-third of the tax increment of the zone to be used for affordable housing purposes during the term of the zone.

Financing Plan

According to Tax Code, Section 311.011(c), the financing plan must include:

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

The financing plan may provide that the city will issue tax increment bonds or notes, using the proceeds to pay project costs for the reinvestment zone. Tax increment bonds are issued by city ordinance; no additional approval is required other than that of the Public Finance Section of the Office of the Attorney General. The criteria and treatment of these obligations are detailed in Tax Code, Section 311.015.

Approval

After the zone’s board of directors approves both the project plan and the financing plan, the plans must also be approved by ordinance or order of the governing body that created the zone. The ordinance or order must be adopted at an open meeting by a simple majority vote of the governing body, unless the city is a home rule city whose charter requires a greater majority threshold for adoption. The ordinance or order must find that the plans are feasible and conform to the city’s master plan (if any).

Amendments

At any time after the zone is adopted, the board of directors may adopt an amendment to the project plan and/or financing plan. The amendment takes effect when a change is approved by ordinance or order of the city that created the zone. In certain cases, it may require an additional public hearing.

If a municipal governing body passes an amendment to a project and/or financing plan, a school district that participates in the reinvestment zone is not required to increase its tax increment or issue additional tax increment bonds or notes.

Once a city or county designates a TIRZ and approves or amends a project plan or financing plan, the city or county must deliver a report to the Comptroller’s office containing:

• a general description of each reinvestment zone;
• a copy of each project plan or financing plan adopted; and
• any other information the Comptroller’s office requires to administer the central registry.

The report must be sent by April 1 of the year following the year the zone is created or the plan is approved.

In Tax Code, Section 311.013, after the board of directors and the local governing body has approved the project plan and the reinvestment zone, the other taxing units with property within the zone set the percentage of their increased tax that will be dedicated to the tax increment fund.

Taxing units contribute a portion of their increased tax revenues collected each year under the plan to the tax increment fund. The taxing units can determine the amount of their yearly tax increment either by:

• the amount of property taxes the unit levied and assessed for that year on the captured appraised value of real property that is taxable and located in the reinvestment zone; or
• the amount of property taxes the unit levied and collected for that year on the captured appraised value of real property taxable and located in the reinvestment zone.

In practice, taxing units generally commit, in early negotiations with the city, to the portion of the tax increment they will contribute to the tax increment fund for the zone.

Any agreement to contribute must indicate the portion of the tax increment to be paid into the fund and the years for which the tax increment will be paid. The agreement may also include other conditions for payment of the tax increment. Only property taxes attributable to real property within the zone are eligible for contribution to the tax increment fund (Tax Code, Section 311.012). Property taxes on personal property are not eligible for contribution into the tax increment plan. Cities are allowed to deposit the amount of sales tax attributable to the reinvestment zone into the tax increment fund. This amount will be an increment of the sales taxes collected above the base amount of sales tax attributable to the zone in the year the zone was created.

The taxing unit must pay its increment to the fund “by the 90th day after the later of: (1) the delinquency date for the unit's property taxes; or (2) the date the municipality or county that created the zone submits to the taxing unit an invoice specifying the tax increment produced by the taxing unit and the amount the taxing unit is required to pay into the tax increment fund for the zone (Tax Code, Section 311.013(c)).” A delinquent payment incurs a penalty of 5 percent of the amount of delinquent funds and accrues interest at an annual rate of 10 percent. Note, however, that a taxing unit is not required to pay into the tax increment fund the portion of a tax increment that is attributable to delinquent taxes until those taxes are collected.

In lieu of permitting a portion of its tax increment to be paid into the tax increment fund, a taxing unit including a city may elect to offer the owners of taxable real property in the zone an exemption from ad valorem taxation for any property value increase as provided under the Property Redevelopment and Tax Abatement Act (Tax Code Chapter 312). Alternatively, a taxing unit, other than a school district, may offer a tax abatement to the property owners in the zone and enter into an agreement to contribute a tax increment into the fund. In either case, any agreement to abate taxes on real property within a TIRZ must be approved both by the board of directors of the zone and by the governing body of each taxing unit that agrees to deposit any of its tax increment into the tax increment fund.

In any contract a tax increment zone’s board of directors enters into regarding bonds or other obligations, the board may promise not to approve any such tax abatement agreement. If a taxing unit enters into a tax abatement agreement within a TIRZ, the taxes that are abated will not be considered in calculating the tax increment of the abating taxing unit or that taxing unit’s deposit into the tax increment fund.

When a reinvestment zone is created, the zone’s board of directors must make recommendations to the city’s or county’s governing body on executing the TIF as stated in Tax Code, Section 311.010(a). Once the city or county, by ordinance or order has created the reinvestment zone, the board of directors may exercise any power granted to them by the Tax Increment Financing Act. By ordinance, resolution or order, the city or county may allow the board of directors to exercise any of the local taxing unit’s powers with respect to the administration, management or operation of the zone or the implementation of the project plan for the zone. However, the city or county 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. The board of directors may exercise any of the powers granted to the city under Tax Code, Section 311.008, except that the city council must approve any acquisition of real property. Also, the city, by ordinance or resolution or order may choose to restrict any power granted to the board of directors by Tax Code, Chapter 311.

The board of directors and the city or county can contract with a local government corporation created under the Texas Transportation Corporation Act (Transportation Code Ch. 431, Subchapter D) or with a political subdivision to manage the reinvestment zone and/or implement the project or financing plans. The board, the local government corporation or the political subdivision administering the zone can contract with the local taxing unit to pay for city/county services in the zone out of the portion of the tax increment fund the city/county produces, regardless of whether the services or their costs are identified in the project or financing plan.

Either the board of directors or the local taxing unit may enter into agreements that are necessary or convenient to implement the project plan and the financing plan. Such agreements can pledge or provide for the use of revenue from the tax increment fund and/or provide for the regulation or restriction of land use. These agreements are not subject to the competitive bidding requirements in Local Government Code Chapter 252. If the zone was created by petition, the board, with the approval of the city, may impose certain zoning restrictions within the zone.

With the approval of the city or county that created the reinvestment zone, the board of directors may establish and provide for the administration of programs for a public purpose of developing and diversifying the economy, eliminating unemployment and underemployment, and developing or expanding transportation, business, and commercial activity in the zone. This authority includes programs to make grants and loans from the tax increment fund. Once the board has city approval, the board has all the powers of a city under Local Government Code Chapter 380. If the board is pursuing a project to construct public rights-of-way or infrastructure within the zone, the board may enter into an agreement to pledge tax increment fund revenue to pay for land and easements located outside the zone if:

• the land or the rights or easements on the land are acquired for the purpose of preserving the land in its natural or undeveloped condition;
• the land is in the county in which the zone is located; and
• the zone is or will be served by a rail transportation or bus rapid transit project.

In a zone created by petition, the board of directors is required to implement a program to enhance the participation of disadvantaged businesses in the procurement process. The program shall make information concerning the procurement process and the opportunities within the zone available to disadvantaged businesses. The board is required to compile an annual report listing the numbers and dollar amounts of contracts awarded to disadvantaged businesses during the previous year, as well as the total number and dollar amount of all contracts awarded (see Tax Code, Section 311.0101(c)).

Within 150 days of the end of the fiscal year, the governing body of a city or county must submit an annual report to the chief executive officer of each taxing unit that levies taxes on property within the zone (Tax Code, Section 311.016(a) and (b)). A copy of this report must be provided to the Comptroller’s office and include the following items:

• The amount of principal and interest due on outstanding bonded indebtedness.
• The amount and source of revenue in the tax increment fund established for the zone.
• The amount and purpose of expenditures from the fund.
• The captured appraised value shared by the city or county and other taxing units.
• The total amount of tax increments received.
• The tax increment base and current captured appraised value retained by the zone.
• Any additional information needed to show compliance with the city or county adopted TIF plan.