Untitled Texas Attorney General Opinion ( 1999 )

December 8.1999
The Honorable Rip Averitt Opinion No. JC-0152
Chair, Committee on Financial Institutions
Texas House of Representatives Re: Whether a municipality may designate an
P.O. Box 2910 area as a reinvestment zone under chapter 3 11
Austin, Texas 78768-2910 of the Tax Code if the area is not “unpro-
ductive, underdeveloped, or blighted” within
The Honorable Michael Fleming the meaning of article VIII, section l-g(b) of
Harris County Attorney the Texas Constitution, and related questions
1019 Congress, 15th Floor (RQ-0081-JC)
Houston, Texas 77002-1700
Gentlemen:
You both ask about the authority of a municipality to designate a reinvestment zone under
chapter 3 11 of the Tax Code, the Tax Increment Financing Act, TEX. GOV’T CODE ANN. ch. 3 11
(Vernon 1992 & Supp. 1999) (“chapter 311” or “Act”), and are particularly concerned about the
criteria that a section 311.005(a)(5) reinvestment zone must satisfy. Unlike subsections (a)(l),
(a)(2), and (a)(3) of section 311.005, subsection (a)(5) contains no criteria that a proposed
reinvestment zone must satisfy. Because article VIII, section l-g(b) of the Texas Constitution
authorizes the legislature to enact general law to permit cities to undertake tax increment financing
only in “unproductive, underdeveloped, or blighted” areas, a section 3 11.005(a)(5) reinvestment
zone is not authorized by article VIII, section l-g unless the zone is in an “unproductive,
underdeveloped, or blighted” area. We conclude that a city must determine that a reinvestment zone
proposed under section 311.005(a)(5) is in an area that is “unproductive, underdeveloped, or
blighted” either according to the criteria set forth in subsection (a)( 1), (a)(2), or (a)(3), which reflect
legislative definitions of the constitutional language, or according to similar criteria consistent with
the meaning of article VIII, section l-g(b) developed by the city. The determination whether a
particular area satisfies the criteriaofone ofthese statutory provisions or is otherwise “unproductive,
underdeveloped, or blighted” within the meaning of article VIII, section l-g(b) according to similar
criteria is for the city to make in the first instance, in good faith, exercising reasonable discretion,
subject to judicial review.
Representative Averitt also asks about the constitutionality of subsections (d) and (e) of
section 403.302 of the Government Code. Section 403.302 defines the “taxable value” of school
district property for purposes of funding equalization formulas. Subsections (d) and(e) exclude from
the definition of “taxable value” the value of property located within certain chapter 311
reinvestment zones. We conclude that these provisions do not as a matter of law violate the
The Honorable Kip Aver& - Page 2 (JC-0152)
The Honorable Michael Fleming
constitutional mandate that the legislature establish and maintain an “effkient system ofpublic free
schools.” TEX. CONST. art. VII, 5 1.
I. Designation of Chapter 311 Reinvestment Zones
Before addressing your specific questions about the designation of tax increment financing
reinvestment zones under section 311.005, we examine the purpose, history, and general
requirements of the Act. “Tax increment financing is designed to aid cities and towns in financing
public improvements in blighted or underdeveloped areas.” City @“ElPaso Y. El Paso Community
Colkge Dist., 729 S.W.2d 296,296 (Tex. 1986). Chapter 311 establishes a tax increment financing
scheme in which
the existing tax revenues of each “taxing unit” are frozen; the tax
increment financing bonds are sold; the improvements are
constructed; the “blighted area” is revitalized; property values soar
and ad valorem tax revenues increase. The increased tax revenues
over and above the tax increment base are then used to retire the tax
increment financing obligations.
El Paso Community College Dist. v. City ofEIPaso, 698 S.W.2d 248,250 (Tex. App.-Austin 1985,
writ granted), rev’d on other grounds, 729 S.W.2d 296 (Tex. 1986).
The statutory predecessor to chapter 3 11, the Tax Increment Financing Act of 198 1, was
preceded by a similar provision, former article 1066d of the Revised Civil Statutes, the Tax Incre-
ment Financing Act of 1979. See discussion infra pp. 6-7. In Attorney General Opinion MW-337,
this ofIke concluded that the 1979 provision violated the requirement of article VIII, section 1 that
“[tlaxation shall be equal and uniform,” TEX. CONST. art. VIII, $ l(a), by “causing an unequal
distribution ofthe advalorem tax burden.” Tex. Att’yGen. Op. No. MW-337 (1981) at 5 (“Allother
property would have 100% of its value taxed to meet the ordinary needs of the city, but district
property would have only a part of its value taxed for that purpose, causing an unequal distribution
of the ad valorem tax burden.“) (citations omitted).
The Tax Increment Financing Act of 1981 was enacted to take effect upon the voters’
approval of an amendment to article VIII of the Texas Constitution, section l-g(b),’ which provides
that
[t]he legislature by general law may authorize an incorporated
city or town to issue bonds or notes to finance the development or
redevelopment of an unproductive, underdeveloped, or blighted area
within the city or town and to pledge for repayment of those bonds or
notes increases in ad valorem tax revenues imposed on property in the
area by the city or town and other political subdivisions.
‘See Act of Aug. 9, 1981,67th Leg., 1st C.S., ch. 4, 5 4, 1981 Tex. Gen. Laws 45,52 (Texas Tax Increment
Financing Act of 1981 to take effect upon adoption ofTm. Comr. art. VIII, 5 l-g).
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The Honorable Michael Fleming
TEX. CONST. art. VIII, 5 l-g(b). The adoption of article VIII, section l-g(b) ensured the
constitutionality of the Tax Increment Financing Act of 1981, by providing an exception to the
article VIII, section 1 “equal and uniform” requirement. See City ofE1 Paso, 729 S.W.2d at 296-97
(noting that TEX. CONST. art. VIII, 5 1-g was an enabling amendment to ensure the constitutionality
of the Tax Increment Financing Act of 1981). The Tax Increment Financing Act of 1981 was
repealed and recoditied as chapter 311 of the Tax Code in 1987.*
Chapter 311 imposes numerous requirements that a city must follow before adopting an
ordinance providing for a reinvestment zone. For example, a city must prepare a preliminary
reinvestment zone financing plan and send a copy to each taxing unit that levies real property taxes
in the proposed zone, provide the public notice and an opportunity to be heard, and supply each
taxing unit with a description of the proposed reinvestment zone, a proposed development plan and
an estimate of the general impact of the proposed zone on property values and tax revenues. See
TEX. TAX CODE ANN. $3 11.003(b)-(h) (Vernon 1992).
In addition, a city must make a number of determinations before designating an area as a
reinvestment zone. Section 3 11.003(a) provides that the governing body of a municipality by
ordinance may designate an area within the municipality as a reinvestment zone if the governing
body determines that “development or redevelopment would not occur solely through private
investment in the reasonably foreseeable future.” Id. § 311.003(a). In addition, section 3 11.004
requires that the reinvestment zone ordinance include findings that the “improvements in the zone
will significantly enhance the value of all the taxable real property in the zone and will be of general
benefit to the municipality” and that “the area meets the requirements of Section 3 11.005.” Id.
5 3 11,004(a)(7)(A), (B).
Section 3 11.005(a) establishes criteria for tax increment finance zones by providing that to
be designated as a reinvestment zone, an area must:
(1) substantially arrest or impair the sound growth of the
municipality creating the zone, retard the provision of housing
accommodations, or constitute an economic or social liability and be
a menace to the public health, safety, morals, or welfare in its present
condition and use because of the presence of:
(A) a substantial number of substandard, slum, deteriorated,
or deteriorating structures;
(B) the predominance of defective or inadequate sidewalk
or street layout;
?See Act of May 1, 1987,7Oth Leg., R.S., ch. 191, $5 1 (adding title 3 to Tax Code), 12 (repealing former
article 1066e), 13 (“no substantive change is intended by this Act”), 1987 Tex. Gen. Laws 1410,1466.
The Honorable Kip Averitt - Page 4 (JC-0152)
The Honorable Michael Fleming
(C) faulty lot layout in relation to size, adequacy,
accessibility, or usefulness;
(D) unsanitary or unsafe conditions;
(E) the deterioration of site or other improvements;
(F) tax or special assessment delinquency exceeding the fair
value of the land;
(G) defective or unusual conditions of title; or
(H) conditions that endanger life or property by tire or other
cause;
(2) be predominantly open and, because of obsolete platting,
deterioration of structures or site improvements, or other factors,
substantially impair or arrest the sound growth of the municipality;
or
(3) be in a federally assisted new connnunitys located in the
municipality or in an area immediately adjacent to a federally assisted
new community;
(4) Deleted by Acts 1989, 71st Leg., ch. 1106, $ 27; or
(5) be an area described in a petition requesting that the area be
designated as a reinvestment zone, if the petition is submitted to the
governing body of the municipality by the owners of property
constituting at least 50 percent of the appraised value of the property
in the area according to the most recent certified appraisal roll for the
county in which the area is located.
Id. 5 3 11.005(a) (footnote added). Finally, section 3 11.006 imposes certain limitations on the
authority of a municipality to designate or expand a reinvestment zone. See id. $3 11.006(a)-(d); see
also id. 5 311.006(e) (subsection (a)(l) of section 3 11.006 does not apply to a reinvestment zone
designated under section 311.005(a)(S)).
‘In this section, “federally assisted new community” means a federally assisted area that has received or will
receive assistance in the form of loan guarantees under title X of the National Housing Act, if a portion of the federally
assisted area has received grants under section 107(a)(l) of the Housing and Community Development Act of 1974.
See TEX. TAX CODEANN. 5 311.005(b) (Vernon 1992).
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The Honorable Michael Fleming
You both ask specifically about the criteria that an area must satisfy in order to be designated
as a reinvestment zone. Subsections (a)(l), (a)(2), and (a)(3) of section 311.005 set forth three
alternate sets of criteria that an area must satisfy in order to be designated as a reinvestment zone.
See supra pp. 3-4. Subsection (a)(5), however, contains no such criteria but rather provides a
procedure pursuant to which an area may be designated as a reinvestment zone:
(5) be an area described in a petition requesting that the area be
designated as a reinvestment zone, if the petition is submitted to the
governing body of the municipality by the owners of property
constituting at least 50 percent of the appraised value of the property
in the area according to the most recent certified appraisal roll for the
county in which the area is located.
Id. !j 3 11.005(a)(5).
Mr. Fleming asks if a municipality may designate an area as a reinvestment zone under
section 3 11.005(a)(5) if the area does not satisfy the criteria of subsection (a)(l), (a)(2), or (a)(3) of
that section or is not “unproductive, underdeveloped, or blighted” within the meaning of article VIII,
section l-g. Memoradum Brief from Honorable Michael P. Fleming, Harris County Attorney, to
Honorable John Comyn, Texas Attorney General, at 1 (June 28, 1999) (on file with Opinion
Committee). Representative Averitt asks if a municipality may lawfully designate an area as a
reinvestment zone under section 3 11.005 if the area is not in fact “unproductive, underdeveloped,
or blighted” within the meaning of article VIII, section l-g. Letter from Honorable Rip Averitt,
Chair, Committee on Financial Institutions, Texas House of Representatives, to Honorable John
Comyn, Texas Attorney General, at 1 (Sept. 9,1999) (on file with Opinion Committee) [hereinafter
“Rep. Averitt Request Letter”]. He also asks if the phrase “unproductive, underdeveloped, or
blighted” in article VIII, section l-g may “apply to a commercial area that already has a substantial
appraised value, has experienced and continues to experience substantial continued commercial
development, and that is not ‘blighted,’ within the meaning attributed to that term under relevant
Texas statutes - simply because a municipality contemplates that greater future development would
occur in that area if a tax increment reinvestment zone were created than if it were not created?’ Id.
We begin with some basic principles. As we have discussed, the legislature enacted the
statutory predecessor to chapter 3 11 in 198 1 to implement article VIII, section 1-g(b). See sup-a pp.
2-3. Article VIII, section l-g(b) creates an exception to the article VIII, section 1 “equal and
uniform” requirement, affirmatively authorizing tax increment financing, but only in “unproductive,
underdeveloped, or blighted” areas. See id. When the constitution grants a power, and where the
manner of exercising that power is prescribed, it is implied that the prescribed manner excludes all
others. See Walker Y. Baker, 196 S.W.2d 324,327-28 (Tex. 1946). Thus, tax increment financing
in an area that is not “unproductive, underdeveloped, or blighted” within the meaning of article VIII,
section 1-g(b) is not authorized by the constitution, see id., and, moreover, would violate article VIII,
section 1, see Tex. Att’y Gen. Op. No. MW-337 (1981) at 5.
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The Honorable Michael Fleming
Section 3 11.005(a)(S) appears to authorize a city to designate a reinvestment zone merely
upon the request of the area’s property owners. On its face, it does not require that the area be
unproductive, underdeveloped, or blighted or require the city to make any findings regarding the
area. Unless the area is in fact unproductive, underdeveloped, or blighted within the meaning of
article VIII, section l-g(b), however, such a designation would run afoul of article VIII, section 1.
We must presume that the legislature intended section 3 11,005(a)(5) to comply with the constitution.
See TEX. GOV’T CODE ANN. 4 311.021(l) (Vernon 1998) (“In enacting a statute, it is presumed that
[] compliance with the constitutions ofthis state and the United States is intended.“). Therefore, we
construe section 3 11.005(a)(5) to permit the designation of only those areas that the city determines
are “unproductive, underdeveloped, or blighted” within the meaning of article VIII, section l-g(b).
By what criteria is a city to judge whether an area subject to a section 3 11,005(a)(5) property
owners’ petition is in fact “unproductive, underdeveloped, or blighted” within the meaning of article
VIII, section l-g(b)? When interpreting our state constitution, we rely on its literal text, Edgewood
Indep. Sch. Dist. v. Kirby, 777 S.W.2d 391, 394 (Tex. 1989), and give effect to its plain language,
City ofBeaumont v. Bouillion, 896 S.W.2d 143,148 (Tex. 1995); see also Leander Indep. Sch. Dist.
Y. Cedar Park Water Supply Corp., 479 S.W.2d 908 (Tex. 1972) (“The language ofthe Constitution
must be presumed to have been carefully selected, and the words used are to [be] interpreted as the
people generally understood them.“); Cramer v. Sheppard, 167 S.W.2d 147 (Tex. 1942) (“the
language [ofthe constitution] must be presumed to have been carefully selected, and the words used
are to be interpreted as the people generally understood them”). We also look to the intent of the
legislative framers and the people. City of EI Paso, 729 S.W.2d at 298 (“In construing a constitu-
tional amendment, we look to the intent of the framers and the voters who adopted the
amendment.“); see generally Republican Party of Texas v. Die&, 940 S.W.2d 86, 89 (Tex. 1997)
(court construing constitutional provision may consider, in addition to literal text, “the purpose of
the constitutional provision, the historical context in which it was written, the collective intent, if it
can be ascertained, of the framers and the people who adopted it, [] prior judicial decisions, the
interpretations of analogous constitutional provisions by other jurisdictions, and constitutional
theory”). Legislative definitions are often a useful aid in determining the meaning of constitutional
terms. See Aerospace Optimist Club v. Texas Alcoholic Beverage Comm ‘n, 886 S.W.2d 556,560
(Tex. App.-Austin 1994, no writ) (“The legislature’s practical interpretation of a constitutional term
can be a valuable aid in determining the meaning and intention of that term in cases of doubt.
Legislative construction can be of substantial value in constitutional interpretation.“) (citing Great
S. Lzfe Ins. Co. v. City ofAustin, 243 SW. 778,782 (Tex. 1922), and American Itzdem. Co. v. City
ofAustin, 246 S.W. 1019, 1023 (Tex. 1922)).
The Sixty-seventh Legislature proposed article VIII, section l-g in Senate Joint Resolution
8. See Tex. S.J. Res. 8,67thLeg., 1st C.S., 1981 Tex. Gen. Laws 295. ATexas Legislative Council
analysis of the proposed constitutional amendment indicates that the constitutional amendment was
intended to authorize tax increment financing in “economically distressed” areas4 We are not aware
‘See Analyses of Proposed Constitutional Amendmentr Appearing on November 3. 1981. Ballot, Tex.Leg.
Council, Information Report No. 81-3 (Sept. 1981) [hereinafter “Legislative Council Analysis”] (article VIII, section
(continued...)
The Honorable Rip Averitt - Page 7 (JC-0152)
The Honorable Michael Fleming
of any other legislative history characterizing an unproductive, underdeveloped, or blighted area.s
However, the legislative and Texas Legislative Council analyses of Senate Joint Resolution 8 link
the proposed constitutional amendment to two statutes - former article 1066d, the Tax Increment
Financing Act of 1979, see Act of May 28, 1979, 66th Leg., R.S., ch. 695, 1979 Tex. Gen. Laws
166 1, the constitutionality ofwhich had been questioned in Attorney General Opinion MW-337, and
former article 1066e, the Tax Increment Financing Act of 1981, article VIII, section 1-g(b)‘s
implementing legislation and the statutory predecessor to chapter 3 11 of the Tax Code.6 The criteria
for reinvestment zones set forth in subsections (a)(l) and (a)(2) of section 311.005 date from the
1981 implementing legislation,’ and are almost identical to former article 1066d’s definition ofthe
term “blighted area.” Compare id. 5 1 (adopting former article 1066d, section l(1) defining
“blighted area”) with TEX. TAX CODE ANN. $ 311.005(a)(l), (2) (Vernon 1992) (codification of
provisions originally enacted in former article 1066e). In addition, subsection (a)(3) of section
3 11.005, which extends the definition to areas eligible for certain federal assistance, dates from the
1981 implementing legislation.’ Given that these subsections date from the 1981 implementing
legislation, we believe that subsections (a)( I), (a)(2), and (a)(3) of section 3 11.005 are a valuable aid
in construing the constitutional language and in divining the framers’ and voters’ intent. Cf: City
ofEl Paso, 729 S.W.2d at 298 (construing the term “political subdivisions” in article VIII, section
l-g(b) consistent with 1981 implementing legislation to include school districts because “the reason
for proposing the amendment was to provide a constitutional basis for the Act”).
Accordingly, we conclude that under article VIII, section l-g(b) an “unproductive,
underdeveloped, or blighted area” is an area that is economically distressed, such as an area meeting
the criteria of section 311.005, subsection (a)(l), (a)(2), or (a)(3). However, we do not believe that
subsections (a)(l), (a)(2), and (a)(3) establish the only possible criteria for an “unproductive,
underdeveloped, or blighted area.” We believe that a city governing body may, pursuant to its
authority under section 3 11.003 of the Tax Code to designate a reinvestment zone, determine
whether an area identified by property owners under section 3 11.005(a)(S) is an “unproductive,
‘(...continued)
l-g(b) would authorize the legislature to permit cities “to fmance redevelopment of certain economically distressed
areas by issuing bonds OI notes payable from increases in property tax revenues on property in the areas designated for
redevelopment. Adoption of S. J. R. 8 would authorize the use of tax increment fmancing to encourage the
redevelopment of property in economicaNy distressedareas”) (emphasis added).
WK legislative bill analyses do not defme or elucidate the terms “unproductive,” “underdeveloped,” and
“blighted.” See SENATEFINANCECOMM.,BILL ANALYSIS,Tex. C.S.S.J.R. 8, 67th Leg., 1st C.S. (1981); HOUSECOMM.
ON CONSTITUTTONAL AMEVDMENTS,BILL ANALYSIS,Tex. S.J. Res. 8,67th Leg., 1st C.S. (1981).
%YeeSENATEFINANCECOMM., BILL ANALYSIS,Tex. C.S.S.J.R. 8,67tb Leg., 1st C.S. (1981); HOUSECorn. ON
CONST~NT~ONAL AMENDMENTS, BILL ANALYSIS,Tex. S.J. Res. 8,67th Leg., 1st C.S. (198 1); Legislative Council Analysis
(“The amendment was proposed by the 67th Legislature in response to the attorney general’s opinion that the 1979
tax increment fmancing legislation was unconstitutional.“)
‘See Act of Aug. 9, 1981, 67th Leg., 1st C.S., ch. 1, 5 1, 1981 Tex. Gen. Laws 45,4647 (adopting former
article 1066e, section 3(b)(l), (2)).
%e id. (adopting former article 1066e. section 3(b)(3)).
The Honorable Rip Averitt - Page 8 (X-0152)
The Honorable Michael Fleming
underdeveloped, or blighted area” within article VIII, section l-g(b) of the Texas Constitution. The
city may make this determination either according to the criteria set forth in subsection (a)(l), (a)(2),
or (a)(3), which reflect legislative definitions ofthe constitutional language, or according to similar
criteria consistent with article VIII, section l-g(b) developed by the city. See generally TEX. TAX
CODE 5 3 11.008 (Vernon 1992) (municipality may exercise any power necessary and convenient to
carry out this chapter); see also Tex. Att’y Gen. Op. No. JC-0141 (1999) (concluding that city
generally not authorized to expend funds of terminated reinvestment zone to construct improvement
outside of zone because such use contrary to express provisions ofchapter 3 11). An area subject to
a section 3 11.005(a)(5) petition need not satisfy the specific criteria of either subsection (a)(l),
(a)(2), or (a)(3) if it satisfies the city’s own, similar criteria. Finally, any decision that a section
3 11.005(a)(S) area satisfies such criteriamust be made in good faith and in the exercise ofreasonable
discretion, subject to judicial review.
Thus, in answer to yoUr first two questions, a city may not designate an area as a
reinvestment zone, including an area subject to a petition under section 3 11,005(a)(5), unless the area
is “unproductive, underdeveloped, or blighted” within the meaning of article VIII, section l-g(b).
An area that satisfies the criteria of section 311.005(a)(l), (a)(2), or (a)(3) comports with this
constitutional requirement. A city must determine that an area subject to a petition under section
3 11.005(a)(S) is “unproductive, underdeveloped, or blighted” either according to the criteria set forth
in subsection (a)(l), (a)(2), or (a)(3) or according to its own, similar criteria. In answer to the third
question, an area may not be designated as a reinvestment zone “simply because [the] municipality
contemplates that greater future development would occur in that area if a tax increment zone were
created than if it were not created.” See Rep. Averitt Request Letter, at 1. The city must determine
that the area meets the criteria of subsection (a)(l), (a)(2), or (a)(3) or that it is “unproductive,
underdeveloped, or blighted” within the meaning of article VIII, section l-g(b) according to similar
criteria developed by the city.
Finally, we caution that the determination whether a particular area satisfies the criteria of
either subsection (a)(l), (a)(2), or (a)(3) or is “unproductive, underdeveloped, or blighted” according
to similar criteria is for the city to make in the first instance, in good faith, exercising reasonable
discretion, subject to judicial review. In addition, the city must also determine that any proposed
designation also satisfies all other applicable chapter 3 11 requirements. See, e.g., TEX. TAX CODE
ANN. $5 3 11.003(a), .004, ,006 (Vernon 1992). Such determinations involve questions of fact. This
offtce is unable to make findings of fact in the opinion process, see note 15 infra, and we express
no opinion regarding whether a particular area may be designated as a chapter 3 11 reinvestment
zone.
II. Chapter 311 Reinvestment Zones and School Funding
Finally, Representative Averitt asks about the constitutionality of subsections (d) and (e) of
section 403.302 of the Government Code. Before addressing his question, we begin with a brief
review of the history and purpose of section 403.302. Section 403.302 defines the “taxable value”
of school district property for purposes of funding equalization formulas. Responding to a series of
lawsuits challenging the state’s school-finance system, seegenerully Edgewood Indep. Sch. Dist. Y.
The Honorable Kip Averitt - Page 9 (JC-0152)
The Honorable Michael Fleming
Meno, 917 S.W.2d 717, 726-28 (Tex. 1995) (d escribing history of Edgewood litigation), the
legislature enacted Senate Bill 7 in 1993, which, among other things, provided property-poor
districts with basic state support and imposed a cap on a school district’s taxable property value at
a level of $280,000 per student.9 Under this new school-finance scheme, a property-rich school
district exceeding the “wealth per student” cap must elect one or more of several options to reduce
the value of its taxable property within the cap. See TEX. EDUC. CODE ANN. 5 41.002 (Vernon 1996
& Supp. 1999) (wealth per student cap); 5 41.003 (Vernon 1996) (options to achieve equalized
wealth). Section 403.302 charges the Comptroller with determining the “total taxable value” of all
property in each school district on an annual basis, a figure which is then used to calculate each
district’s “wealthper student.” See id. § 41.001 (Vernon 1996) (defining “wealth per student” as the
taxable value of property determined by the Comptroller divided by the number of students in
weighted average daily attendance). Subsections (d) and (e) of section 403.302 exclude from the
definition of “taxable value” the total dollar amount of any captured appraised value of property
located in certain chapter 3 11 tax increment zones. See TEX. TAX CODE ANN. $3 11.012(b) (Vernon
1992) (“The captured appraised value of real property taxable by a taxing unit for a year is the total
appraised value of all real property taxable by the unit and located in a reinvestment zone for that
year less the tax increment base of the unit.“).
As originally enacted in the Government Code in 1995, section403,302(d) defined the term
“taxable value” to mean market value less “the total dollar amount of any captured appraised value
of property that is located in a reinvestment zone and that is eligible for tax increment financing
under chapter 3 11, Tax Code.“” The effect of this provision was to exclude from “taxable value”
an amount representing the increase in the value of property located in any tax increment financing
reinvestment zone above the property’s value at the time the zone was created. See id.
The legislature subsequently narrowed this exception in both the 1997 and 1999 legislative
sessions. In Senate Bill 1368, adopted as part of the state’s continuing statutory revision program
under chapter 323 ofthe Government Code, ” the Seventy-sixth Legislature reconciled amendments
to section 403.302(d) made by the Seventh-fifth Legislature and reenacted a version of section
403.302(d) that limited the exception from taxable value to property located in reinvestment zones
9Actof May 28, 1993,73d Leg., R.S., ch. 341,1993 Tex. Gen. Laws 1479.
‘OSeeAct of May 21,1995,74th Leg., RX, ch. 260,s 26, 1995 Tex. Gen. Laws 2207,2482-84
“Tex. S.B. 1368, Act ofApr. 23, 1999,76th Leg., R.S., ch. 62, $ 1.01, 1999 Tex. Sess. Law Serv. 127
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The Honorable Michael Fleming
approved before September 1, 1999.” House Bill 2684 of the Seventy-sixth Legislature amended
subsection (d)(3) of section 403.302 to read as follows:
(d) For the purposes of this section, “taxable value” means the
market value of all taxable property less:
(3) subject to Subsection (e), the total dollar amount of any
captured appraised value of property that:
(A) is within a reinvestment zone created on or before
May 3 1,1999, or is proposed to be included within the boundaries of
a reinvestment zone as the boundaries of the zone and the proposed
portion of tax increment paid into the tax increment fund by a school
district are described in a written notification provided by the
municipality or the board of directors of the zone to the governing
bodies of the other taxing units in the manner provided by Section
311.003(e), Tax Code, before May 31, 1999, and within the
boundaries of the zone as those boundaries existed on
September 1, 1999, including subsequent improvements to the
property regardless of when made;
(B) generates taxes paid into a tax increment fund
created under Chapter 311, Tax Code, under a reinvestment zone
financing plan approved under Section 3 11 .Ol l(d), Tax Code, on or
before September 1, 1999; and
(C) is eligible for tax increment financing under Chapter
311, Tax Code.
‘*Senate Bill 1368 reenacted section 403.302 to read in pertinent part as follows:
(a) For the purposes of this section, “taxable value” means the market value
of all taxable property less:
(3) the total dollar mount 0f my capturea appraised value 0f property
that is located in a reinvestment zone on August 31, 1999, generates a tax
increment paid into a tax increment fund, ana is eligible for tax increment facing
unaer chapter 3 11, TV code, under a reinvestment ~0ne fmmcing plan approved
unaer section 311.01 l(d), Tax code, before September 1, 1999.
Tex. S.B. 1368, Act ofApr. 23, 1999,76th Leg., R.S., ch. 62, 5 8.04, 1999 Tex. Sess. Law Serv. 127,307.
The Honorable Rip Averitt - Page 11 (JC-0152)
The Honorable Michael Fleming
H.B. 2684, Act of May 29, 1999, 76th Leg., R.S., ch. 983, 5 9, 1999 Tex. Sess. Law Serv. 3763,
3767. In addition, House Bill 2684 amended subsection (e) of section 403.302 to read as follows:
(e) The total dollar amount deducted in each year as required
by Subsection (d)(3) in a reinvestment zone created after
January 1, 1999, may not exceed the captured appraised value
estimated for that year as required by Section 311 .Ol l(c)(8), Tax
Code, in the reinvestment zone financing plan approved under
Section 311.011(d), Tax Code, before September 1, 1999. The
number of years for which the total dollar amount may be deducted
under Subsection (d)(3) shall for any zone, including those created on
or before January 1, 1999, be limited to the duration of the zone as
specified as required by Section 311.01 l(c)(9), Tax Code, in the
reinvestment zone financing plan approved under Section 3 11 .Ol l(d),
Tax Code, before September 1, 1999. The total dollar amount
deducted under Subsection (d)(3) for any zone, including those
created on or before January 1, 1999, may not be increased by
any reinvestment zone financing plan amendments that occur
after August 31, 1999. The total dollar amount deducted under
Subsection (d)(3) for any zone, including those created on or
before January 1,1999, may not be increased by a change made after
August 3 1, 1999, in the portion of the tax increment retained by the
school district.
Id. 9 9, at 3768. The amendments to section 403.302 made by House Bill 2684 prevail over the non-
substantive recodification of section 403.302 adopted by Senate Bill 1368. See Act of Apr. 23,1999,
76th Leg., RX, ch. 62, 5 1.02(b), 1999 Tex. Sess. Law Serv. 127 (if any provision of Senate Bill
1368 conflicts with a statute enacted by the Seventy-sixth Legislature, Regular Session, the statute
controls). The provisions adopted by House Bill 2684 limit and phase out the exception from
“taxable value” for value of property located in chapter 311 reinvestment zones.
Representative Averitt asks whether subsections (d) and(e) of section403.302 violate article
VII, section 1 of the Texas Constitution, which requires the legislature to establish andmaintain “an
efficient system of public free schools.” TEX. CONST. art. VII, 5 1. Representative Averitt is
concerned about the effect of subsections (d) and (e) on funding equalization formulas, observing
that these subsections “provide that the taxable value ofproperty within a school district for purposes
of calculating benefits due the district under existing state school-finance formulas shall not include
the appraised value of property within a reinvestment zone existing on September 1, 1999,
apparently even if a school district retains financial benefits from incremental taxes generated within
the zone.” Rep. Averitt Request Letter, at l-2. Under section 403.302(d) and (e), a property-rich
school district may lower the total taxable value of its property by participating in a tax increment
zone (and contributing taxes to the tax increment fund), thus reducing both its wealth per student and
the extent to which it must participate in funding equalization, even though the school district may
ultimately benefit from the increased property values as a result of improvements financed by the
The Honorable Kip Averitt - Page 12 (X-0152)
The Honorable Michael Fleming
tax increment fund. For other school districts, participation in a tax increment zone may increase
their entitlement to state support.
Article VII, section 1 of the Texas Constitution recognizes that “[a] general difmsion of
knowledge [is] essential to the preservation of the liberties and rights of the people” and requires the
legislature “to establish and make suitable provision for the support and maintenance of an efficient
system of public free schools.” TEX. CONST.art. VII, 9 1. According to the Texas Supreme Court,
“efficiency” in article VII, section 1 must “be measured against both qualitative and financial
standards.” Edgewood, 917 S.W.2d at 730. “[A]n efficient system does not require equality of
access to revenue at all levels.” Id. at 729. Rather, it requires that “districts must have substantially
equal access to funding up to the legislatively defined level that achieves the constitutional mandate
of a general diffusion of knowledge.” Id. at 730. The court concluded that the legislature
sufficiently fulfilled the mandate of qualitative and financial efficiency in 1993 with the enactment
of Senate Bill 7, which made significant educational reforms, guaranteed sufficient funding for all
school districts to provide a basic program of education that meets accreditation standards, permitted
school districts to supplement the basic program, and imposed a cap on a school district’s taxable
property value at a level of $280,000 per student. See id. at 727-37.
The school-finance reforms of 1993 carried over a provision much like section 403.302 of
the Government Code. Senate Bill 7 amended section 11.86 ofthe Education Code, which directed
the Comptroller to exclude from the total value of all taxable property in each school district “the
total dollar amount of any captured appraised value ofproperty that is located in a reinvestment zone
and that is eligible for tax increment financing under the Tax Increment Financing Act (Chapter 3 11,
Tax Code).“” The section 11.86 exclusion for chapter 3 11 reinvestment zone property was first
enacted in 1981 .I4 Because the school-finance system reviewed and approved by the Texas Supreme
Court in 1995 included a provision quite similar to subsections(d) and(e) of section 403.302 ofthe
Government Code, we cannot conclude as a matter of law that these provisions run afoul of article
VII, section 1.
Furthermore, as is clear from Edgewood, any analysis ofwhether features of the state school
finance system comply with article VII, section 1 standards must be made on a statewide basis and
will be highly fact-intensive in nature. See, e.g., Edgewood, 917 S.W.2d at 731-34 (discussing
nature and constitutional significance ofcertain disparities in funding). The Attorney General cannot
make findings of fact in the opinion process,” and the determination whether the exclusion of the
“Act of May 27,1993,73d Leg., R.S., ch. 347,s 4.01,1993 Tex. Gen. Laws 1479, 1521 (amending section
11.86 of the Education Code).
“See Act of Aug. 10, 1981,67th Leg., 1st C.S., ch. 5, $ 8, 1981 Tex. Gen. Laws 53, 56.
‘%e, e.g., Tex. Att’y Gen. Op. Nos. K-0020 (1999) at 2 (investigation andresolution of fact questions cannot
be done in opinion process); DM-383 (1996) at 2 (questions of fact arc inappropriate for opinion process); DM-98
(1992) at 3 (questions of fact cannot be resolved in opinion process); H-56 (1973) at 3 (improper for Attorney General
to pass judgment onmatterthat wouldbe question forjury ddmnination); M-187 (1968) at 3 (Attorney General cannot
make fachlai fmaings).
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The Honorable Michael Fleming
value of the captured appraised value of property in chapter 3 11 reinvestment zones from “taxable
value” on a statewide basis violates article VII, section 1 as a matter of fact is therefore a question
beyond the purview of an attorney general opinion. In this regard, however, we note that since the
Texas Supreme Court approved the school-financing system in 1995, the legislature has acted to
limit and phase out the exclusion from taxable value for property located within a tax increment
zone. See discussion supra pp. 9-l 1. Thus, we doubt that the exclusion of the value of the captured
appraised value of property in chapter 3 11 reinvestment zones from “taxable value” on a statewide
basis from 1995 to the present has in fact significantly affected the efficiency of our school-finance
system. The ultimate resolution of that question, however, is beyond our purview.
The Honorable Rip Averitt - Page 14 (JC-0152)
The Honorable Michael Fleming
SUMMARY
A city may not designate an area as a tax increment financing
reinvestment zone, including an area subject to a petition under
section 311,005(a)(5) of the Tax Code, unless the area is “unpro-
ductive, underdeveloped, or blighted” within the meaning of article
VIII, section l-g(b) of the Texas Constitution. An area that satisfies
the criteria of section 311.005(a)(l), (a)(2), or (a)(3) comports with
this constitutional requirement. A city must determine that an area
subject to a petition under section 311.005(a)(5) is “unproductive,
underdeveloped, or blighted” either according to the criteria set forth
in subsection (a)(l), (a)(2), or (a)(3) of section 3 11.005 or according
to its own, similar criteria. This determination is for the city to make
in the first instance, in good faith, exercising reasonable discretion,
subject to judicial review.
Section403.302 ofthe Government Code defines the “taxable
value” of school district property for purposes of school-finance
funding equalization formulas. Subsections (d) and (e) of section
403.302, which exclude from the definition of “taxable value” the
value of property located within certain chapter 3 11 reinvestment
zones, do not as a matter of law violate the constitutional mandate
that the legislature establish and maintain an “efficient system of
public free schools,” TEX. CONST. art. VII, 5 1.
JOkN CORNYN
Attorney General of Texas
ANDY TAYLOR
First Assistant Attorney General
CLARK RENT ERVIN
Deputy Attorney General - General Counsel
ELIZABETH ROBINSON
Chair, Opinion Committee
Mary R. Crouter
Assistant Attorney General - Opinion Committee