Opinions Issued on Tax Abatements, TIF Question
Attorney General John Cornyn issued four opinions recently addressing tax increment financing (TIF) and property tax abatement questions.TIF questions
In Opinion No. JC-0141, issued Nov. 10, 1999, General Cornyn ruled that a city may not use unexpended tax increment fund money after a tax increment zone's termination to build an improvement outside the zone. He found that a city is not authorized under Tax Code Chapter 311 to undertake or complete a zone project in a manner not consistent with the zone's project and financing plans. Chapter 311 sets out the guidelines for a tax increment financing (TIF) zone and requires a zone's board of directors to adopt both project and financing plans.Tax abatements
The opinion noted that, prior to the zone's termination, the city may build such a improvement if the zone's board of directors agreed to dedicate revenue from the TIF fund to replace areas of public assembly and met Tax Code Section 311.010(b) requirements. Section 311.010(b) requires that constructing such an improvement is a cost of replacing an area of public assembly.
El Paso County Attorney Jose' R. Rodriquez asked about the unexpended monies of an El Paso TIF zone that terminated in 1998.
Cornyn found that neither Subsection (b) nor (d) of Section 311.014 expressly provide for expending monies to complete projects after a TIF zone terminates. The opinion stated Section 311.014(d) requires that, after paying authorized projects costs, bonds and any other agreements, any money remaining in the TIF fund is returned to the participating taxing units on a pro rata basis. He held that a city has authority to expend such monies after a zone's termination for limited purposes based on "any other agreements."
In Opinion No. JC-0152 issued Dec. 8, 1999, Attorney General Cornyn found a city may not designate an area as a TIF reinvestment zone unless the area is "unproductive, underdeveloped, or blighted" as required by Article VII, Section 1-g(b), Texas Constitution.
The opinion also held that deducting the "taxable value" of property located in a Chapter 311 reinvestment zone when determining a school district's taxable wealth for state finance funding does not violate the constitutional mandate that the Texas Legislature establish and maintain an "efficient system of public free schools."
State Representative Kip Averitt, Chair of the Committee on Financial Institutions, and Harris County Attorney Michael Fleming, asked the attorney general to review particularly Section 311.005 for establishing a TIF zone area. The request asked if the phrase "unproductive, underdeveloped, or blighted" may apply to a commercial area with a substantial appraised value, experiencing continued commercial development, and not considered blighted. In that situation, the city believed that greater future development would occur in that area if a TIF zone was created.
Representative Averitt also asked in the request about the constitutionality of Government Code Section 403.302(d) and (e) that defines "taxable value" of school district property for state funding formulas.
Cornyn said that the above commercial situation would not qualify under Section 311.005. He added that a city may not simply designate an area for a TIF zone because of greater future development. He held that a city may not designate an areas as a TIF zone unless the area meets the criteria of Section 311.005. A city must determine that an area is "unproductive, underdeveloped, or blighted." He cautioned that "any decision that a Section 311.005(a)(5) area satisfies such criteria must be made in good faith and in the exercise of reasonable discretion, subject to judicial review."
On Dec. 8, 1999, Opinion No. JC-0155 held Tax Code Chapter 312 does not bar a property owner from being elected and serving on the city council that had granted a tax abatement to the property owner. However, it stated that the elected official's position makes his property ineligible to continue to receive that tax abatement.The opinion also stated that Local Government Code Section 171.004 bars the owner from participating in a vote on the matter involving the property if the owner has a substantial interest in the property or the business that owns the property.
In responding to a question from State Senator Chris Harris, Chair of the Committee on Administration, the attorney general found Section 312.204(d) requires property in a reinvestment zone owned or leased by a member of a city's governing body be excluded from property tax abatement or TIF.
Opinion No. JC-0133, issued Oct. 28, 1999, addressed the length of a tax abatement agreement. The attorney general ruled that a tax abatement agreement under Tax Code Chapter 312 may not exceed 10 years and an entity may not grant an abatement for property that previously received a 10-year abatement.
In order for a property to receive more than 10 years of tax abatement, the opinion stated the agreement must have been made prior to Sept. 1, 1989. In 1989, the Texas Legislature amended Section 312.203 to limit abatement agreements to 10 years. Before Sept. 1, 1989, tax abatement agreements could be made for up to 15 years.
Potter County Attorney Sonya Letson asked about an agreement made in 1988 for an initial term of five years, beginning on Jan. 1, 1989, and "renewable" for two additional periods of five years, for a total of 15 years if the owner met certain employment goals. The goals were met for the second five-year period, but a new owner bought the property and was subject to the agreement as "successor in interest" to the previous owner. In 1998, the city entered into a tax abatement agreement with the new owner for a five-year period. Letson asked if the taxing units may grant a tax abatement to the new owner for property that previously received a 10-year abatement.
The opinion concluded that the units may not. The opinion noted that the supporters of the change from 15 to 10 years argued that the shorter period would more quickly return a property to the tax rolls and would bring Texas in line with a majority of other states with abatement policies. The opinion also held that a taxing unit may not enter into a new 10-year agreement with a new owner of the same property, because it could forestall indefinitely the return of property to the tax rolls.
The opinion did state that whether this particular tax abatement agreement was a 15-year agreement made prior to Sept. 1, 1989, was a fact question. The opinion stated that the attorney general's office neither determines facts nor construes contracts