2004 Tax Increment Financing Registry
Tax increment financing is a tool that local governments can use to publicly finance needed structural improvements and enhanced infrastructure within a defined area. These improvements usually are undertaken to promote the viability of existing businesses and to attract new commercial enterprises to the area. The statutes governing tax increment financing are located in Chapter 311 of the Texas Tax Code.
The cost of improvements to the area is repaid by the contribution of future tax revenues by each taxing unit that levies taxes against the property. Specifically, each taxing unit can choose to dedicate all, a portion of, or none of the tax revenue that is attributable to the increase in property values due to the improvements within the reinvestment zone. The additional tax revenue that is received from the affected properties is referred to as the tax increment. Each taxing unit determines what percentage of its tax increment, if any, it will commit to repayment of the cost of financing the public improvements.
Tax increment financing may be initiated only by a city. If a property is located outside of the city limits (within the city’s extraterritorial jurisdiction or beyond), it is not eligible for tax increment financing unless annexed into the city. Once a city has begun the process of establishing a tax increment financing reinvestment zone, counties, school districts and special districts are allowed to consider participating in the tax increment financing agreement.
There are two ways that tax increment financing can be initiated. First, it can be started by petition of the affected property owners. The petition must be submitted by owners of property that constitutes at least 50 percent of the appraised property value within the proposed zone. Special rules regarding zones that are created by petition must be followed.
Tax increment financing may also be initiated by the city council without the need for a petition. If not initiated by petition, an area may be considered for tax increment financing only if it meets at least one of the following three criteria:
- The area’s present condition must substantially impair the city’s growth, retard the provision of housing, or constitute an economic or social liability to the public health, safety, morals or welfare. Further, this condition must exist because of the presence of one or more of the following conditions: a substantial number of substandard or deteriorating structures, inadequate sidewalks or street layout, faulty lot layouts, unsanitary or unsafe conditions, a tax or special assessment delinquency that exceeds the fair market value of the land; defective or unusual conditions of title, or conditions that endanger life or property by fire or other cause; or
- The area is predominately open, and because of obsolete platting, deteriorating structures or other factors, it substantially impairs the growth of the city; or
- The area is in or adjacent to a “federally assisted new community” as defined under Tax Code Section 311.005(b).
Within developed areas of the city, the criterion usually cited to justify a reinvestment zone is that the area’s present condition substantially impairs the city’s growth because of a substantial number of substandard or deteriorating structures. If the area is not developed, the city often cites the criterion that the area is predominately open, and that it substantially impairs the growth of the city because of obsolete platting, deteriorating structures or other factors.
The Tax Code places several further restrictions on the creation of a reinvestment zone for tax increment financing:
- No more than 10 percent of the property within the reinvestment zone (excluding publicly-owned property) may be used for residential purposes. This requirement, however, does not apply if the district is created pursuant to a petition of the landowners.
- A reinvestment zone may not contain property that cumulatively would exceed 15 percent of the total appraised property value within the city and its industrial districts.
- A city also may not create a reinvestment zone or change the boundaries of an existing zone if the zone would contain more than 15 percent of the total appraised value of real property taxable by a county or school district.
Subject to the above limitations, the boundaries of an existing tax increment financing zone may be reduced or enlarged by ordinance or resolution of the city council that created the zone. Any such change is conducted according to the requirements of Section 311.007 of the Tax Code. If the boundaries of a tax increment reinvestment zone are enlarged, a school district is not required to pay into the tax increment fund any of the district’s tax increment produced from property located in the added area.
If an area qualifies for tax increment financing, the process basically involves 10 steps. The 10 steps are as follows:
Step 1. The governing body of the city must prepare a preliminary reinvestment zone financing plan. A copy of the plan must be sent to each local government that levies taxes on real property within the zone.
Step 2. The city must provide 60 days’ written notice of its intent to designate a reinvestment zone and of the hearing on the proposed zone to the other taxing units that levy property taxes within the area. The notice must contain a description of the proposed boundaries of the zone, the tentative plans for the zone’s development, and an estimate of the general impact of the zone on property values and tax revenues.
Step 3. Once the city has provided its 60-day notice of a proposed zone, the other affected taxing units within 15 days must designate a representative to meet with the city to discuss the project plans. With advance notice, the city may call a meeting or meetings of these representatives. The meetings may be called at least 15 days after the city’s 60-day notice of the proposed zone. The meetings may include discussions of the following items:
- The boundaries of the development within the zone;
- The tax increment that each taxing unit will contribute to the tax increment fund;
- Any proposed retention of a portion of its tax increment by a taxing unit;
- The exclusion of particular parcels of property from the zone;
- The board of directors for the zone; and
- Tax collection within the zone.
On the city’s motion, any other relevant matter may also be discussed. All such meetings must be conducted as open meetings as provided by law.
Step 4. In addition to meeting with the other taxing unit representatives, the city must provide a formal presentation to the governing body of each county and school district that levies real property taxes within the proposed zone. The city’s formal presentation must cover the same items that were included in the city’s earlier 60-day notice to the taxing units. Specifically, the presentation must indicate the proposed boundaries of the zone, the tentative plans for development of the zone, and an estimate of the general impact of the zone on property values and tax revenues. Notice of these presentations must be given to all taxing units that tax property within the zone. The presentations should be conducted as open meetings. The city may hold a joint presentation for all of the affected taxing units with the consent of the involved counties and school districts.
The city’s proposed plan for the zone may include expenditures for any of a number of costs as outlined in the definition of the term “project cost” in Tax Code Section 311.002(1). Project costs may also include the cost of professional services and administrative expenses in connection with implementation of a project plan.
Cities are additionally permitted to take most actions that are necessary to carry out tax increment financing. They may acquire real property through purchase or condemnation, enter into necessary agreements, and construct or enhance public works facilities and other public improvements. The city may also make needed improvements to blighted properties. Tax Code Section 311.008(b) provides that these powers prevail over any law or municipal charter to the contrary. However, it is important to note that the Texas Legislature in 1999 amended Section 311.008 to prohibit the use of tax increment financing for improvements to certain educational facilities unless those facilities are located in a reinvestment zone created on or before September 1, 1999.
Step 5. After the city has made its formal presentations to the other taxing units, the city must hold a public hearing on the creation of the reinvestment zone. The public hearing must be preceded by at least seven days’ published notice in a newspaper of general circulation in the city. At the hearing, the governing body of the city must evaluate the proposed benefits of the zone. Any interested person is permitted to speak at the hearing and voice objection to the inclusion of property within a proposed zone.
Step 6. After the public hearing, the governing body of the city may, by ordinance, designate a contiguous area within the city as a reinvestment zone for tax increment financing purposes. The ordinance must be adopted by a simple majority vote of the city's governing body at an open meeting. Home rule cities may have a higher voting contingent required by the city charter. The adopted ordinance should include a finding that development of the area would not occur in the foreseeable future solely through private investment. Tax Code Section 311.004 also contains a number of other mandatory provisions for the reinvestment zone ordinance.
It should be noted that designation of an area as an enterprise zone under the Texas Enterprise Zone Act (Government Code Chapter 2303) would also constitute designation of the area as a reinvestment zone for tax increment financing purposes. Such a designation would eliminate further public hearing requirements other than those provided under the Enterprise Zone Act. Participants would still need to execute the tax increment “project” and “financing” plan according to the requirements contained in Chapter 311 of the Tax Code.
Step 7. After the city has adopted the ordinance creating the zone, the board of directors of the zone must prepare both a “project plan” and a reinvestment zone “financing plan.” The plans must be as consistent as possible with the preliminary plans developed by the city for the zone before the board was created. Specifically, the project plan must include:
- a map showing existing uses of real property within the zone and any proposed improvements;
- any proposed changes to zoning ordinances, the master plan of the city, building codes, or other municipal ordinances;
- a list of estimated non-project costs; and
- a statement of the method for relocating persons who will be displaced as a result of implementation of the plan.
If a zone is created pursuant to petition in a county that has a population in excess of 3.3 million, there are certain special requirements of the project plan involving residential housing that must be observed.
Further, the board must provide a reinvestment zone financing plan. It must contain the following nine items:
- a detailed list of the estimated project costs of the zone, including administrative expenses;
- a list of the kind, number and location of all proposed public works or public improvements within the zone;
- an economic feasibility study;
- the estimated amount of bonded indebtedness to be incurred;
- the timing for incurring costs or monetary obligations;
- the methods for financing all estimated project costs and the expected sources of revenues, including the percentage of tax increment to be derived from the property taxes of each taxing unit that levies taxes on real property within the zone;
- the 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. As provided under Tax Code Section 311.017, a tax increment financing reinvestment zone terminates on the earlier of: the termination date designated in the original or amended ordinance creating the zone, or the date on which all project costs, tax increment bonds, and interest on those bonds have been paid in full.
The financing plan may provide that the city will issue tax increment bonds or notes, the proceeds of which are used to pay project costs for the reinvestment zone. Any such bonds or notes are payable solely from the tax increment fund and must mature within 20 years of the date of issue. Tax increment bonds are issued by ordinance of the city without any additional approval required, other than that of the Public Finance Section of the Attorney General’s Office. The characteristics and treatment of these obligations is covered in detail in Tax Code Section 311.015.
After both the project plan and the reinvestment zone financing plan are approved by the board of directors of the zone, the plans must also be approved by ordinance of the governing body of the city. The ordinance must be adopted at an open meeting by a simple majority vote of the taxing unit's governing body, unless the city is a home rule city and a higher voting contingent is required by the city charter. The city’s ordinance must find that the plans are feasible and conform to the master plan, if any, of the city.
At any time after the zone has been adopted, the board of directors may adopt an amendment to the project plan as provided under Section 311.011 of the Tax Code. The amendment takes effect on approval of the change by ordinance of the city council and in certain cases may require an additional public hearing.
Finally, once a city designates a tax increment financing reinvestment zone or approves a project plan or reinvestment zone financing plan, the city, by April 1 of the year following the year the zone is designated or plan is approved, must deliver to the Comptroller’s office a report containing: a general description of each reinvestment zone; a copy of each project plan or reinvestment zone financing plan adopted; and “any other information required by the comptroller” that helps in the administration of the central registry and tax refund for economic development (Texas Tax Code, Chapter 111, subchapter F).
Step 8. After the project plan and the reinvestment zone have been approved by the board of directors and by the city’s governing body, the other taxing units with property within the zone must contract with the city. The contract includes the percentage of increased tax revenues to be dedicated to the tax increment fund. The tax increment fund is ultimately made up of the contributions by the respective taxing units of a portion of their increased tax revenues collected each year.
The decision as to what percentage of the increased tax revenues to contribute to the tax increment fund is entirely discretionary with the governing body of each taxing unit. 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. Property taxes on personal property are not eligible for contribution.
Payment of the taxing unit’s increment to the fund must be made by the 90th day after the delinquency date for the unit’s property taxes. A delinquent payment incurs a penalty of 5 percent of the amount delinquent and accrues interest at an annual rate of 10 percent. It is important to 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 actually collected.
In lieu of permitting a portion of its tax increment to be paid into the tax increment fund, a taxing unit (other than a city) may elect to offer the owners of taxable real property in the zone an exemption from ad valorem taxation for any increase in the property value as provided under Tax Code Chapter 312. Alternatively, a taxing unit (other than a school district) may both 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 tax increment reinvestment zone 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 entered into by the tax increment zone’s board of directors with regard to 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 tax increment reinvestment zone, 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.
On the other hand, a taxing unit may decide to retain all of the tax increment for itself and not contribute to the tax increment fund. If such a decision is made and the reinvestment zone in question was created before June 19, 1999, the taxing unit must notify the board of directors of the zone in writing within 60 days of the city’s approving the reinvestment zone financing plan. In any reinvestment zone created on or after June 19, 1999, there is no requirement that the taxing unit notify the board of directors of the zone that the unit does not wish to contribute. In such a case, the taxing unit would simply not enter into any agreement to contribute to the tax increment fund. Further, in a tax increment reinvestment zone created on or after June 19, 1999, a taxing unit may enter into an agreement to contribute to the tax increment fund at any time after the zone is created or enlarged. This is also true for any tax increment reinvestment zone that was created at any time pursuant to a petition under the authority of Texas Tax Code Section 311.005 (a) (5) and for the portion of a zone added at any time pursuant to petition under Texas Tax Code Section 311.007 (b).
Step 9. Once the reinvestment zone is established, the board of directors of the reinvestment zone must make recommendations to the governing body of the city on the implementation of the tax increment financing.
By ordinance or resolution, the city may authorize the board of directors of the reinvestment zone to exercise any of the city’s power with respect to the administration, management, or operation of the zone or the implementation of the project plan for the zone. However, the city 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 also 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. Finally, the city, by ordinance or resolution, may choose to restrict any power granted to the board of directors by Chapter 311 of the Tax Code.
Either the board of directors or the city council may enter into agreements that are necessary or convenient to implement the project plan and the reinvestment zone 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.
The board must ensure that bonds have been issued for the zone that the city has acquired property in the zone pursuant to the project plan, and/or that construction of improvements has begun in the zone. If at least one of the above three items has not been accomplished within the first three years of the zone’s existence, the other taxing units are not required to continue payments into the tax increment fund.
The board is also required to implement a plan to enhance the participation of “disadvantaged businesses” in the zone procurement process, as provided under Tax Code Section 311.0101. Finally, the board has other enumerated powers as described in Section 311.010 of the Tax Code.
Step 10. The city must submit an annual report to the chief executive officer of each taxing unit that levies taxes on property within the zone. The report must be provided within 90 days of the end of the city’s fiscal year. The report must include the following items:
- 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 amount of principal and interest due on outstanding bonded indebtedness;
- the tax increment base and current captured appraised value retained by the zone;
- the captured appraised value shared by the city and other taxing units;
- the total amount of tax increments received; and
- any additional information necessary to demonstrate compliance with the tax increment financing plan adopted by the city.
Annual Reporting and Central Registry
A copy of the above report must be sent to the attention of the Public Finance Division in the Office of the Attorney General and to the Texas State Comptroller’s Office. Additionally, cities are now required to submit certain information to the Comptroller’s office. In 2001, the Texas Legislature added section 311.019 to the Tax Code. This section requires the Comptroller to maintain a central registry of:
- reinvestment zones designated under Chapter 311 of the Tax Code;
- project plans and reinvestment zone financing plans adopted pursuant to the Tax Increment Financing Act (Chapter 311 of the Tax Code); and
- annual reports submitted under Section 311.016 of the Tax Code.
A city that designates a reinvestment zone or approves a project plan or reinvestment zone financing plan must deliver to the Comptroller’s office before April 1 of the year following the year the zone is designated or the plan is approved a report containing the following information:
- a general description of each reinvestment zone. This description must include the size of the zone; the types of property located in the zone; the duration of the zone; and the guidelines and criteria established for the zone under Section 311.005 of the Tax Code;
- a copy of each project plan or reinvestment zone financing plan adopted; and
- “any other information required by the comptroller” which helps in the administration of the central registry and tax refund for economic development (Texas Tax Code, Chapter 111, Subchapter F).
Further, a city that amends or modifies a project plan or reinvestment zone financing plan must deliver a copy of the amendment or modifications to the Comptroller before April 1 of the year following the year in which the plan was amended or modified. Additionally, any city that designated a tax increment financing reinvestment zone or approved a project plan or reinvestment zone financing plan before January 1, 2001, was to have delivered by April 1, 2002, to the Comptroller’s office a report containing the same information described above: a general description of each reinvestment zone; a copy of each project plan or reinvestment zone financing plan adopted; and any other information required by the Comptroller.
For information an individual TIRZ; please contact Patricia Bailey, Property Tax Division, by e-mail at firstname.lastname@example.org, or by phone toll free at 1-800-252-9121, extension 3-4416, or direct in Austin at 512/463-4416.
Summary of Reported Data
The following data is a summary of each Tax Increment Reinvestment Zone (TIRZ) by county of annual reports sent to the Comptroller.
Note: The information in the summaries reflects our best interpretation of annual reports, project plans and financial plans provided by the cities. The summary contains only the information reported to us. Some cities may not have reported their TIRZ or reported all the information from the statute.
The files listed below are in PDF format. If you do not already have Adobe Acrobat Reader, you will need to download the latest version to view and print the files.
City of Sealy
City of Beeville
City of Temple
City of San Antonio
City of College Station
City of Plano
City of Dallas
City of Grand Prairie
City of Irving
City of Lewisville
City of Midlothian
Fort Bend County
City of Sugar Land
City of Galveston
City of League City
City of Sherman
City of Houston
City of Beaumont
City of Waco
City of Midland
City of Conroe
City of Corsicana
City of Lindale
City of Tyler
City of Glen Rose
City of Keller
City of Arlington
City of Fort Worth
City of Colleyville
City of Burleson
City of Southlake
City of Wichita Falls