Basics of Economic Development
for
Elected Officials Workshop
The Economic Development Tool Box









Economic Development Corporations
Municipal Development Districts
Public Improvement Districts
Neighborhood Empowerment Zones
Tax Abatements
Tax Increment Financing
Development Agreements
Industrial District Agreements
380/381 Agreements
Economic Development
Corporations
ED Corporations
 Type A Sales Tax
 All cities located in a county with a population of less than
500,000 if the combined local sales tax rate will not exceed 2
percent or the city has a population less than 50,000 and is
located within two or more counties one of which is Bexar,
Dallas, El Paso, Harris, Hidalgo, Tarrant or Travis
Type B Sales Tax
 All cities if the combined local sales tax rate will not exceed
2 percent
ED Corporations
Type A Board of Directors
 City’s governing body appoints at least a five
member board
 Each member appointed to a term not to exceed
six years
 Each member serves at the pleasure of the
governing body
ED Corporations
Type B Board of Directors
 City’s governing body appoints seven directors
 Three of the seven cannot be employees,
officers or members of the city’s governing body
 Each member appointed to two year terms
 Each member serves at the pleasure of the
governing body
ED Corporations
Type A Board of Directors
 Directors must be residents of city if population
is over 20,000
 In Cities with population under 20,000 directors
must be residents of the county in which the
majority of the city is located or reside within
10 miles of the city and in a county which
borders the county in which a majority of the
city is located
ED Corporations
Type A Sales Tax
Tax is primarily intended for manufacturing and
industrial development primary job creation and
may be used to acquire or pay for land, buildings
equipment, facilities, expenditures, targeted
infrastructure and improvements for purposes
related to:
ED Corporations
Type A Sales Tax
 Manufacturing and industrial facilities
 Research and development facilities
 Military Facilities
 Transportation Facilities
 Sewage or solid waste disposal facilities
 Recycling Facilities
ED Corporations
Type A Sales Tax
 Air or water pollution control facilities
 Facilities for furnishing water to the public
 Small warehouse facilities
 Regional or national corporate headquarters
 Primary job training for use by higher education
ED Corporations
Type A Sales Tax
 Certain infrastructure improvements that
promote or develop new or expanded
business enterprises
 Maintenance and operating costs associated
with projects
 After an election eligible Type B projects
ED Corporations
Type B Sales Tax
Provides cities with a wider range of uses and
includes projects for quality of life improvements
including economic development that attracts and
retains primary employers
ED Corporations
Type B Sales Tax
Revenue may be used for a wide variety of
projects including land, buildings, equipment,
facilities expenditures and improvements related to
Type A primary job creation projects or found by
the board to be required or suitable for use for:
ED Corporations
Type B Sales Tax
 Professional and amateur sports and athletic
facilities; tourism and entertainment facilities;
convention and public park purposes and events
 Related store, restaurant, concession, parking and
transportation facilities
 Related street, water and sewer facilities
 Affordable housing
ED Corporations
Type B Sales Tax
 Projects related to Business Enterprises that
Create or Retain Primary Jobs
 Certain Sports Venue Projects upon an election
ED Corporations
defined
Primary job means:
A job that is available at a company for which a
majority of the products or services of that
company are ultimately exported to regional,
statewide, national, or international markets
infusing new dollars into the local economy and is
included in one several specific NAICS Sectors
Local Gov’t Code Chapter 377
Municipal Development
Districts
Municipal Development District
A municipal development district (MDD) sales tax is
an optional city sales tax that closely resembles a Type
B economic development sales tax.
It can be levied within a specified area of the city or
its extraterritorial jurisdiction or both.
Municipal Development District
(a) define the boundaries of the proposed
municipal development district
(b) call for an election to be held within those
boundaries for the creation of the district
and the levy of a sales tax at the rate of
one-eighth, one-fourth, three-eights, or
one-half of one percent
Municipal Development District
Appoint the MDD Board

The board must consist of at least 4 members

Directors may be removed by the city council at any
time

Board members must reside in the city or in the
city’s ETJ

City council members, city officers, and city
employees may be members of the board, but may
not have a personal interest in a contact executed by
the district.
Municipal Development District
Establish Development Project Fund.
 The board must pass a resolution
establishing a “development project fund.”
 It is into this fund that the sales tax proceeds
are deposited for expenditure on authorized
MDD projects
Municipal Development District
Type B USES
Those uses allowed under TLGC 505.151-501.158
Municipal Development District
SPECIFIC MDD USES
 A convention center facility, or related
improvements such as a civic center or
auditorium.
 Parking lots for such convention or related
facilities.
 Civic center hotels.
Public Improvement
Districts

Chapter 372 of the Local Government Code.

Public Improvement Districts give municipalities the
authority to levy and collect special assessments
on property that is within the municipality or within
the municipality’s extraterritorial jurisdiction (ETJ).
A PID may be formed to accomplish any of the following
goals:
 water, wastewater or drainage improvements
 Street, sidewalk, Parking and mass transit
improvements
 Library, parks, recreation, art and cultural
improvements
 landscaping and other aesthetic improvements;
 creation of pedestrian malls
 other similar improvements





The governing body of the municipality
initiates or receives a petition
Advisory board appointed to develop
improvement plan and prepare a feasibility
report
Public hearing held on the advisability of the
improvements
Adopt a resolution and begin construction
Levy assessments
 Not property tax but collected like tax
and lien subordinate to tax lien – may be
deducted like tax.
 Assessment is a first and prior lien
against the property and superior to all
other liens except liens for state or local
property taxes.
Cons
 Additional tax
 limited to public improvements
 PID bonds not marketable – city/county issues the
debt
 Statutory notice and public hearing procedure with
annual assessments
Pros
 Deductible if based on value
 Collected like property taxes
Neighborhood
Empowerment
Zones
LGC Section 378.002 allows creation of a NEZ if the creation
of the zone would promote the following within the zone:
 affordable housing (including manufactured housing)
 an increase in economic development
 an increase in the quality of social services, education or
public safety provided to residents
 the rehabilitation of affordable housing
Adoption of a resolution that contains:
 determinations required by LGC § 378.002
 a description of the boundaries of the zone
 a finding that the creation of the zone benefits
and is for the public purpose of increasing the
public health, safety, and welfare of the persons
in the municipality
 a finding that the creation of the zone satisfies
the requirement of § 312.202 of the Tax Code
(Reinvestment Zones)
Upon creation of a NEZ a city is empowered, in
addition to other powers, to
 Waive Building Fees
 Refund Municipal Sales Taxes
 Abate Property Taxes
Tax Abatements


Tax abatements are used by local governmental
entities to attract new business and to encourage
the retention and development of existing
businesses for their area.
Chapter 312 of the Texas Tax Code governs tax
abatements.
Must adopt a resolution indicating intent to
participate in tax abatements.
 General statement of intent to consider
providing tax abatements
 Adopted at an open meeting by a majority vote
 Home rule cities should look to their Charters
for any potential additional requirements.
Must adopt tax abatement guidelines and criteria
setting out conditions and requirements for
eligibility
 Effective for a period of two years
 Must provide for the availability of tax
abatement to both new facilities and structures
and for the expansion or modernization of
existing facilities
 amended or repealed only by a favorable vote
of three-fourths of the members of the
governing body
Must create a reinvestment zone
 Effective for a period of five years
 Before creation must find at a public hearing
that:
 the improvements sought are feasible and
practical and would be a benefit to the zone
after the expiration of the agreement
 that the zone meets one of the applicable
criteria for reinvestment zones
 Real: apply percentage of abatement to the difference
between the value of the real property as of January 1 of
the year in which the agreement is executed, and the
value of the real property as of January 1 of each year of
abatement covered by the agreement.
 Personal: apply percentage of abatement to the value
of the personal property added to the real property
subsequent to the execution of the agreement.
 Local guidelines establish the qualifications, terms
under which taxing unit will consider tax abatement,
percentage of abatement, and the number of years.
 Taxing unit adopts resolution stating that it elects
to participate in tax abatement.
 Taxing unit adopts (if not already done) tax
abatement guidelines.
 Guidelines are critical - taxing unit may not enter
into agreement unless the terms of the agreement
and the property satisfy the guidelines - if project
does not satisfy the guidelines the taxing unit will
be required to amend the guidelines prior to
entering the agreement.
Contract Terms:
 Default termination for breach, bankruptcy,
failure to pay impositions with recapture of all or
portion of abated taxes, interest and penalties.
 Performance
milestones;
minimum taxable
values, jobs, sales tax generation, minimum
occupancy or presence in the jurisdiction.
 Design elements or land use controls.
TIP: Avoid abatement limitations and process and
use Chapter 380/ 381 agreement to provide
equivalent of tax abatement.
TIP: Follow up abatement agreement with Chapter
380/ 381 agreement to provide equivalent of
additional years of abatement.
TIP: Abate inventory and to deal with nonFreeport jurisdictions.
Tax Increment Financing
What is TIF?



A legal tool that can be used to finance public
improvements
TIF can be utilized to promote certain
development in targeted areas
Authorized by Chap. 311 of Texas Tax Code

A Reinvestment Zone must be established by the
City and a TIF Fund put in place
Reinvestment Zone
35

The City and other taxing entities continue to
receive the previously assessed and levied
property taxes from within the Zone
Reinvestment Zone
35

As property values rise in the Zone with new
investment, NEWLY CREATED property taxes
will be collected by the entities
Reinvestment Zone
35

These incremental property taxes will then be
deposited by each entity in a “TIF” Fund”
Reinvestment Zone
35
TIF FUND

The incremental taxes deposited into the
TIF Fund can be used to finance
construction
of
certain
public
improvements in the Reinvestment Zone.
35






Development of Project
plans and designs
Acquisition of property
for public uses
Due Diligence Costs
Financing Costs
Administrative Costs
Site Preparation








Utilities
Streets & Street Lights
Pedestrian Walkways
Parks
Drainage Facilities
Water/Sewer Facilities
Educational Facilities
Parking Facilities



This tool encourages new development in
Reinvestment Zones by providing developers
with a mechanism to reduce or possibly
eliminate public improvement costs associated
with their project
This reduces the total capital costs
Encourages development which would not
otherwise occur
A Reinvestment Zone must be created to make
an area/project eligible for TIF
Reinvestment Zone
35





Created by Ordinance
Must be contiguous
Determination
that
development
or
redevelopment would not occur solely through
private
investment
in
the
reasonably
foreseeable future
A preliminary reinvestment zone financing plan
must be approved before the Zone can be
created
A public hearing must be held

City Council may not create a Reinvestment Zone
if more than 10 percent of the property is used for
residential purposes
Any power necessary and convenient to carry out the
requirements of Chapter 311 including:
 Cause project plans to be prepared and approve and
implement the plans;
 Acquire real property by purchase, condemnation, or
other means to implement project plans, and sell that
property on the terms and conditions and in the manner it
considers advisable;
 The power of condemnation (eminent domain) is
available to a city regardless of the existence of the
TIF.
 Enter into agreements which are necessary or
convenient to implement project plans;
 Acquire , construct reconstruct, or install public works,
facilities, or sites or other public improvements,
including utilities, streets, street lights, water and
sewer facilities, pedestrian malls and walkways, parks,
flood and drainage facilities, or parking facilities




5 to 15 members
Each taxing entity may appoint one member
Two-year appointments.
Eligibility:
 voter of municipality; OR
 adult owner of real property in Zone




Make recommendations to City Council re:
Zone administration;
Enter into agreements to implement plans;
With Council approval, restrict land uses;
All powers delegated by City Council; except
Issue bonds;
 Impose taxes or fees;
 Exercise the power of eminent domain; or
 Give final approval to the project plan

Prepare and adopt:
 Project Plan, and
 Reinvestment Zone Financing Plan.
• Amendments to the plans can be adopted by the
Board at any time
 However, City Council must approve all plans
and amendments thereto



Other taxing entities have the OPTION to
participate in the reinvestment zone.
Other taxing entities determine the amount of
tax increment deposited in the TIF fund
A taxing unit is not required to pay into the TIF
fund unless it enters into an agreement with the
City

After the Project Plan and agreements with other
taxing entities are approved by City Council,
participation by other entities cannot change
Formula
Current Year Value
- Base Year Value
= Captured Value
Captured Value x Tax Rate = Increment

The City may issue TIF bonds or notes to pay for
project costs.
 Does not have to issue bonds



No other local approval is needed.
TIF bonds and notes are payable solely from the
TIF Fund. Not General Obligation
TIF Bonds are tax-exempt


Developers provides up front financing
public improvements; THEN
In future years, based on triggering
proceeds from the TIF Funds will be paid
those developers for reimbursement of
costs and financing
for the
events,
back to
project
Pros
 No Competitive Bidding; Chapter 380 powers.
 Private sale of real property.
 Guaranteed stream of revenue or bonds secured by
TIRZ funds.
Cons
 Limited to public improvements.
 Statutory process, limitations, board.
 Schools won’t participate.
 Condemnation limited.
Types and Authority
Types and Authority



Development Agreements in the ETJ
Developer Participation Agreements
Industrial District Agreements

Local Government Code Section 212.172
• In writing
• Adequate legal description
• Approved by Governing Body
• Filed in real property records






Continuation of ETJ status
• No Longer than 15 years
Extend planning authority
Extend land use and development authority
Provide for infrastructure
Enforcement of environmental regulations
Provide for terms of future annexation
• Uses

Local Government Code Section 212.071
• Pop. of 5,000 or greater
• Public Improvements (NO buildings)
• Participate up to 30 % (100% oversize)
• Participate up to 70 % (Pop. 1.8 million)
• Performance Bond
• No Bidding Requirement


Local Government Code Section
42.044
• Industrial
• Tourist related businesses and
facilities
Guarantee ETJ status for 15 years
 And

any other lawful terms
May provide firefighting services
Chapter 380/381
 City/county
by contract provide incentives
consisting of loans and grants of public funds, use
of personnel, facilities and services with or without
charge for economic development.
 Provides developer with cash, reimbursement or
other consideration.
 May condition incentive on milestones or other
public consideration.
 Express statutory authority for cities/counties to provide incentives
consisting of loans and grants of city funds, use of city personnel,
facilities and services with or without charge for economic
development.
 City/county contracts with the recipient of the grant to condition
the incentive upon the creation of employment, construction of
improvements, certain development, or other public consideration.
 Determine the amount of cash contribution or waiver of
development fees or amount of free services and negotiate a
contract with local government.
 Article III, Section 52-a - constitutional authorization public purpose includes economic development.
 Unlimited – provided public consideration.
 Imagination is the limit.
 Statute and Const. do not specify the kind of incentives.
 Authorization and not a mechanism.
 City/county must have guidelines, policies or programs which
describe the available economic development incentives and the
criteria for eligibility in the same way a city adopts tax abatement
guidelines.
 Program may be general or specific.
 The incentive agreement may constitute the program.
 Loans, guaranty, moving/relocation expenses, waiver/
reduction of impact, development, water, sewer or other
fees.
 Grant equivalent of Freeport exemption, tax abatement,
sales tax refunds.
 Fund and/or construct infrastructure, job training, rent
subsidies, master leases, tenant deposit guarantee.
facilities renovation, residential/commercial Improvement
incentive program.
 City and county may use Chapter 380 & 381 agreements to
provide equivalent of tax increment financing – artificial TIRZ
without the headaches.
 Avoid administrative process, statutory restrictions and
bureaucracy of a TIF.
 Create a zone by contract with developer agree to use incremental
increase in property tax and/or sales tax from the defined area for
contractually defined projects.
 Allen Village and Event Center - reimbursement for infrastructure
for retail shopping center and loan for event center.
Pros
 Imagination is the limit.
 No maximum term.
Cons
 Voter approval of debt.
 General revenue funded.
 Counties unsophisticated.
Contract Considerations
The Economic
Development Tool Box
Its full of wrenches
Throw ‘em and see who
they hit
Questions?
Charles E. Zech charles.zech@rampage-sa.com
Denton, Navarro, Rocha & Bernal P.C.
San Antonio: 2517 N. Main Ave
San Antonio, TX 78212-3111
(210) 227-3243
Austin:
2500 W. William Cannon Dr., Suite 609
Austin, TX 78745-5257
(512) 279-6431