Focus Report, Volume 87, Number 3, August 2021 Page: 8
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Page8 House Research Organization
This innovative method of financing allows local
governments to pledge a portion of the growth in
property tax revenue over a base level, or "tax increment,"
to the repayment of bonds or notes issued to finance
improvements in designated areas called reinvestment
zones. The financed projects spur economic development
in blighted areas with deteriorating structures or
unsanitary conditions that otherwise would not attract
private investment. This method is not a new tax, but as a
zone is developed, property values increase and the growth
in tax revenue can be captured and used to further benefit
the zone for a period of time. Taxpayers both inside and
outside a reinvestment zone continue to pay taxes at their
normal tax rates, while increasing property values provide
the additional revenue.
Current law establishes procedures for counties to
designate tax increment reinvestment zones (TIRZs) to
develop blighted areas and transportation reinvestment
zones (TRZs) to promote transportation projects.
However, an attorney general opinion from 2015 stated
that courts may conclude that counties are unable to
collect tax increments in a TIRZ or TRZ because the Texas
Constitution expressly grants this authority to cities but
not to counties. Proposition 2 would authorize counties,
like cities, to fully use this tool by pledging the captured
increment of property taxes to fund reinvestment zones.
This would empower counties to finance
improvements that attracted private investment to
develop unproductive areas and strengthen the entire tax
base. It also would empower counties to build needed
transportation projects. Texas is underinvesting in
transportation infrastructure by billions of dollars each
year, and the gap in funding grows as the state's population
grows. To provide for future generations, the state needs
tools to finance infrastructure projects.While some have expressed concerns that the
proposition would increase taxes, allowing counties to use
tax increment financing would not increase local property
tax rates. Financing transportation and infrastructure
projects would allow counties to speed up development
without increasing tax rates and in lieu of a large cash
infusion. Reinvestment zones would benefit the entire
county by providing vital services, generating economic
development in deteriorating areas, reducing the need for
expensive county services in those areas, and increasing
overall property values and tax revenue. Further, becausecounties may designate a TIRZ or TRZ only after holding
a public hearing according to current law, taxpayers would
have an opportunity to become familiar with the county's
financing plans. Proposition 2 also could further expand
partnership opportunities for counties and cities.
Critics say
Proposition 2 could expand taxpayer-backed debt
by allowing counties to use tax increment financing,
contributing to a trend of local governments issuing more
debt and potentially resulting in an increase in local taxes
to cover increasing debt service payments. Texas' local debt
per capita already is too high, ranking third among the 10
most populous states, according to a 2020 Bond Review
Board report. Authorizing counties to further increase local
debt could obligate future funds for debt service payments,
invite higher taxes to cover the growing obligations, risk
local credit rating downgrades, and have a chilling effect
on economic growth and investments.
Expanding the use of tax increment financing could
burden those outside of a reinvestment zone. Once a
reinvestment zone is created, the growth in tax revenue
from that zone - other than revenue used for projects
in the zone - effectively is capped. If costs for other
government services increased, counties could have to
increase taxes across the entire county to make up for
the lack of available funds. That could result in taxpayers
outside a zone facing increases in property tax rates due to
projects that did not directly benefit them.
It also is not clear how effective reinvestment zones are
for developing an area or whether the zones simply redirect
investment from one area to another. Proposition 2 could
incentivize counties to invest in areas that may not needthis kind of government support.
Cities and towns already may use tax increment
financing, and it is unnecessary to expand it to county
governments, which are not as close or well known to the
taxpayers and should not have additional authority to
expand local debt.Page 8
House Research Organization
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Texas. Legislature. House of Representatives. Research Organization. Focus Report, Volume 87, Number 3, August 2021, periodical, August 18, 2021; Austin, Texas. (https://texashistory.unt.edu/ark:/67531/metapth1507623/m1/8/: accessed July 9, 2024), University of North Texas Libraries, The Portal to Texas History, https://texashistory.unt.edu; crediting UNT Libraries Government Documents Department.