This month: Chapter 381 Economic Development Agreements for retail development
Partnering for Impact
Counties tap into Chapter 381 Economic Development Agreements to sweeten incentives for development.
Chapter 381 Economic Development Agreement Guidelines
County officials draft Chapter 381 Economic Development Agreements at their discretion. They should consider the following guidelines to protect the interests of county residents:
- Ending date. The agreement should have an ending date based in part on the total investment of the developer.
- Payment limit. Any sales tax grants should have a maximum limit on both the length of time during which payments will be made and the total amount that might be paid through the life of the agreement. For example, the terms of a grant might be for one-half of the sales tax generated by the development for seven years to a maximum of $5 million. They should also be net of all fees and adjustments and not paid until received from the Comptroller.
- Deadlines. There should be milestones and deadlines to assure that the developer completes phases of the project according to the expectations. For example, milestones may be based upon the percentage of completion of property improvements or number of jobs created. The contract should have “claw-backs,” or penalties, which reduce the incentive if the developer fails to meet its contractual obligations.
The Comptroller’s office empowers local governments and communities across the state with the information and tools they need to support economic development and create new jobs for Texans. Look for our special “Partnering for Impact” section in each edition, featuring timely, important information and tips for local governments and economic development corporations.
Cities across Texas use Chapter 380 Economic Development Agreements to provide incentives, particularly for the retail sector, to increase the likelihood of a business locating in a community. Competition, however, may require additional incentives to move a community to the top of a developer’s list of new projects. Business developers frequently seek a combination of incentives involving a partnership among several local government entities to add to the viability of their business plans. To sweeten the incentive pie, developers are more frequently requesting county economic development incentives authorized by Chapter 381 of the Local Government Code.
Known as Chapter 381 Economic Development Agreements, they mimic Chapter 380 Agreements in many respects. They are commonly called “Chapter 380 Agreements for counties.” Key components of such incentives include property tax abatements, commitments for infrastructure such as roads and utilities or payments to the business of an amount equal to a portion of the county sales tax generated by the project.
The primary advantage of using Chapter 381 Agreements over traditional economic development programs, such as Tax Increment Financing (TIF), is their flexibility and quick implementation timeline. Since they are implemented solely by a contract between the business and the county, Chapter 381 Economic Development Agreements let counties avoid the lengthy process of creating a district or zone. The terms of the agreements may be flexible to suit both the needs of the businesses as well as the desire of county officials to promote economic activity in the community through growth of the property tax base or an increase in the number of good jobs. TR
For more information on Chapter 381 Economic Development Agreements, contact the Comptroller’s Local Government Assistance and Economic Development Division at (800) 531-5441, ext. 3-4679, or visit www.window.state.tx.us/taxinfo/proptax/tnt05/part4.html