TIF is a tool that incentivizes economic development. It is governed by Tax Code, Chapter 311. Cities, alone or in partnership with other taxing units, can use tax increment financing 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. The zone is created when the TIF project begins.
A TIRZ can:
No, TIF does not impose a new tax. Instead, it uses improvements to spur development and raise property values within a zone. Then it funnels some of the tax collected on that increase in value into a fund that pays for the improvements.
Each TIF project requires:
A TIF project jumpstarts development so it can start generating additional tax revenue for the local government. The local governments that participate in a TIF project make an up-front 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. TIF allows the
The tax increment comprises the ad valorem taxes collected from increased value within the zone.
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.
The project plan details the specific improvements that will be made.
The financing plan details how the improvements will be paid for.
For a normal TIRZ, the board of directors must consist of at least five members and usually does not exceed 15.
The zone's board of directors establishes the fund to receive all revenues and make all disbursements for the TIF project.
Any taxing unit that collects ad valorem taxes from property in the TIRZ may participate in a TIF project, but only a city or county can initiate a TIF project and create a TIRZ. The governing body of the city or county that creates the TIRZ is responsible for the TIF project.
TIF projects can be used to pay for:
Yes. The governing body of the city or county that created the TIRZ must send an annual report detailing the TIF project's progress to the chief executive officer of each taxing unit participating in the TIRZ and to the Texas Comptroller of Public Accounts.
Because these questions involving repayments are so fact specific, 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 do not provide specific facts. See Request Letter, supra note 1, at 2. By “reimbursement,” you could mean that the city agreed in advance to pay the private developer for the costs upon completion of the work and that the developer has performed the work and now seeks payment pursuant to the agreement. In that case, the expenditure is permissible if it is authorized by chapter 311 and the agreement to pay for the work was entered into pursuant to competitive bidding requirements, if applicable…. As we have concluded, some tax increment fund expenditures will be subject to competitive bidding under chapter 252 of the Local Government Code… If a municipal expenditure is subject to chapter 252, the city would be precluded from reimbursing a person for costs incurred for work not performed pursuant to a competitively bid contract.”
The applicability of the opinion depends on a local taxing unit’s particular fact situation. As noted in the opinion, the specific facts were not provided so the opinion addressed the concerns in general terms.
As found under Tax Code Section 311.010(h), 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.”
Maybe. The Tax Code says counties can create a TIRZ, but there are questions as to whether the constitution allows it - specifically, the equal and uniform taxation requirement in the Texas Constitution Article VIII, Section 1A may prohibit a county from creating a TIRZ. This is highlighted in Attorney General Opinion No. KP-0004. To date, the Comptroller has not been notified of any TIRZ created by a county. However, counties can participate in a TIF project initiated by a city.
A TIRZ is created when a city passes an ordinance designating it. 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 on the creation of the zone and its suggested benefits.
No later than the seventh day before the date of the hearing, a notice must be published in a newspaper with a general circulation in the city.
Yes, a new public hearing is required if the city wants to adopt an ordinance that will:
The ordinance must:
An area must:
Yes. Property owners can submit a petition 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.
No, a city may not designate a reinvestment zone if:
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.
Yes, but only if the changed boundaries continue to meet the restrictions for the creation of TIRZ, and only with a public hearing and an ordinance describing the new boundaries.
A city may acquire, construct, reconstruct or install public works, facilities or sites or other public improvements, including:
Yes. A city that created a TIRZ can terminate it by approving an ordinance 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.
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.
On Nov. 2, 2021, Texans voted to amend the state Constitution and passed House Joint Resolution 99, and Proposition 2, which allows 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.
For many years, only cities and towns had the authority to fund projects for transportation and infrastructure in underdeveloped areas for years until 2021. The reason why cities exclusively created TIRZs was because of two Attorney General Opinions, GA-1076 and KP-0003 which said if sued, a court could find that a county TIRZ violated the Texas Constitution, Article VIII, Section 1(a).
Yes. (“Tex. Tax Code Ann. §§ 1.04(12) (Vernon Supp. 2006) (See Texas Attorney General Opinion GA-0549) (defining “taxing unit” under the Tax Code), 311.002(4) (defining “taxing unit” for purposes of chapter 311 with reference to section 1.04), 311.013(f) (“A taxing unit is not required to pay into the tax increment fund any of its tax increment produced from property located in a reinvestment zone… unless the taxing unit enters into an agreement to do so with the governing body of the municipality….”).”)
Yes. Per Section 311.013(f), Texas Tax Code, 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.
Chapter 311 of the Texas Tax Code permits modifications of the boundaries of an existing reinvestment zone so long as the restrictions as to residential areas and tax base percentage are observed. See Section 311.007(a), “Subject to the limitations provided by Section 311.006, if applicable, the boundaries of an existing reinvestment zone may be reduced or enlarged by ordinance or resolution of the governing body of the municipality or by order or resolution of the governing body of the county that created the zone.”
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.
The captured appraised value is the total value of all real property that is taxable within the zone minus the tax increment base.
The tax increment base is the total value of all real property that is taxable the year the zone is created.
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.
No. Each participating taxing unit chooses a percentage 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:
The financing plan must include:
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.
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:
A city can:
The city and the other participating taxing units appoint board members. The board is made up of:
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.
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.
The taxing unit that appointed the original director fills the vacancy for the unexpired term.
For a normal reinvestment zone, each board member must be at least 18 years of age and:
Yes. Each year the city appoints one member to serve as chairman for one year beginning on January 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.
The board makes recommendations to the city about administration of the TIF project. The board has the same powers the city has to implement the project and financing plans, except 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 can also restrict the board's power by passing an ordinance or resolution. The governing body may not authorize the board of directors to:
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.
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:
Each participating taxing unit arranges to collect its own taxes.
A taxing unit must make a payment not later than the 90th day after the later of:
A delinquent payment incurs a penalty of 5 percent of the amount delinquent and accrues interest at an annual rate of 10 percent.
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.
No. A city may issue tax increment bonds or notes by passing an ordinance approving the sale.
Money from the fund is used only to satisfy the claims of holders of tax increment bonds or notes by:
The board of directors makes all payments for project costs from the tax increment fund. Project costs can be paid over time as tax increments are collected, or the city can sell tax increment bonds to raise revenue immediately.
Yes. Money in the fund may be temporarily invested if an agreement is reached with the holders of tax increment bonds or notes.
It is the amount of municipal sales and use taxes attributable to the zone for a particular year in excess of the sales tax base.
It is the amount of municipal sales and use taxes attributable to the zone for the year the zone was designated.
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.
The sales tax increment is set in the ordinance the city passes to create the zone or in a subsequent ordinance for the zone.
At the direction of the city, the Comptroller will deposit the sales tax increment directly into the fund.
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.
The repayment portion of Subsection (b) is discussed in the SB 1264 bill analysis from the 80th Regular Session. Per the legislature, “Section 311.014, Tax Code allows money to be disbursed from the tax increment fund to repay obligations incurred by the zone in addition to those payments already authorized by Subsection (b).” It provides that “SB 1264 authorizes taxing units to make loans to a reinvestment zone. The bill additionally authorizes a TIF to use contributed funds to repay any such loans with TIF funds on the terms agreed to by the TIF and the taxing unit. By allowing such loans and repayment, the TIF will be sufficiently funded and able to participate in up-front project costs in accordance with the project plan and financing plan, without the necessity and burden of issuing tax increment bonds or notes.” In this context, repayment of a loan from the TIF under Section 311.014(b) is authorized.
The governing body of the city that created the zone is required to submit the annual report to the chief executive officer of each taxing unit that is participating in the zone and to the Comptroller's office.
The annual report is due on or before the 150th day after the end of the city's fiscal year.
The annual report must include:
The city must electronically provide the following to the Comptroller at email@example.com:
The Comptroller compiles the information about each TIRZ and submits a report to the Legislature and the governor before each legislative session. The Comptroller also keeps a registry of all tax increment reinvestment zones that includes the zone information, project plans, financing plans and annual reports.
Information about each TIRZ is available in the Biennial Registries of Reinvestment Zones for Tax Abatements and Tax Increment Financing. The Comptroller's Data Analysis and Transparency Division can answer questions by phone at 800-531-5441 ext. 5-0664 or by email at firstname.lastname@example.org. Additional information can be obtained by submitting a written request to email@example.com.
Yes, but only with the consent of the board of directors and the governing body of each taxing unit participating in the zone.
Yes. The Comptroller does offer guidance and technical assistance to city's interested in tax increment finance. Just call 800-531-5441 ext. 5-0664 or email at firstname.lastname@example.org to get the assistance needed.
For additional information, contact the Data Analysis and Transparency Division via email or at 844-519-5672, ext. 6-9231.
This information should not be construed as, and is not a substitute for, legal advice.
Property owners and school districts are urged to consult the Attorney General's Economic Development Handbook and their own legal counsel for any questions or interpretations of economic development laws.