Untitled Texas Attorney General Opinion ( 2014 )

ATTORNEY GENERAL OF TEXAS
GREG ABBOTT
August 14, 2014
The Honorable Marco A. Montemayor Opinion No. GA-1076
Webb County Attorney
1110 Washington Street, Suite 301 Re: Constitutional questions related to funding
Laredo, Texas 78040 of County Energy Transportation Reinvestment
Zones (CETRZ) (RQ-1187-GA)
Dear Mr. Montemayor:
On behalf of the Webb County Auditor, your office inquires about recently enacted
Senate Bill 1747, relating to county energy transportation reinvestment zones, 1 and asks whether
the tax increment funding mechanism may be subject to challenge under article VIII, section l(a)
of the Texas Constitution, which requires ad valorem taxation to be equal and uniform. Request
Letter at 1; Parker Cnty. v. Spindletop Oil & Gas Co., 628 S.W.2d 765,767 (Tex. 1982).
Senate Bill 174 7 adds section 222.1071 to the Transportation Code and authorizes the
creation of a county energy transportation reinvestment zone ("CETRZ") to fund transportation
improvements in areas affected by oil and gas exploration activities? A county creates a CETRZ
by designating an affected area, or zone, to promote one or more transportation infrastructure
projects in the area. See TEX. TRANSP. CODE ANN. § 222.107l(b)(l) (West Supp. 2013). The
order designating the zone must create a tax increment account and establish the ad valorem tax
increment base year. See id. § 222.1071(£)(2)-(3); see Tex. Att'y Gen. Op. No. GA-0549 (2007)
at 2-3 (explaining how tax base of total appraised property value in a zone is designated and that
any increase in the tax revenue over taxes due on the base value-the tax increment-is captured
and put into a separate fund). A county pays the tax increment, less specified amounts, into the
tax increment account. See TEX. TRANSP. CODE ANN. § 222.1071(h) (West Supp. 2013). Tax
increment funds may be used for infrastructure projects and to apply for grants from the state
transportation infrastructure fund for zone infrastructure projects. See id. § 222.1071(i); see also
id. §§ 256.101-.1 06 (providing for the Transportation Infrastructure Fund).
1
See Letter from the office of Honorable Marco A. Montemayor, Webb Cnty. Att'y, to Honorable Greg
Abbott, Tex. Att'y Gen. at 1 (Feb. 18, 2014), http://www.texasattomeygeneral.gov/opin ("Request Letter").
2
See Act of May 26, 2013, 83rd Leg., R.S., ch. 1372, §§ 2, 7, 2013 Tex. Gen. Laws 3640, 3642--44, 3645
(providing that it prevails); see also Act of May 17, 2013, 83rd Leg., R.S., ch. 1134, § 1, 2013 Tex. Gen. Laws
2703-05.
The Honorable Marco A. Montemayor - Page 2 (GA-1076)
Your several questions about section 222.1071 are intricate and include multiple aspects.
See Request Letter at 1-2. Yet, the fundamental issue common to the questions is the potential
impact of the constitutional "equal and uniform" limitation on the CETRZ tax increment funding
mechanism. See id Despite the differing emphases of the questions, the analysis under the
equal and uniform provision is the same so we consider them together.
Tax increment financing has been considered in previous attorney general opinions. We
begin with Opinion MW-337. See Tex. Att'y Gen. Op. No. MW-337 (1981). Opinion MW-337
concluded that a statute authorizing a municipal tax increment scheme was invalid under the
equal and uniform requirement absent an enabling constitutional amendment. See id at 5. The
opinion observed that because the tax increment revenue was dedicated to the reinvestment zone,
it was not available for the general support of the municipality. !d. at 4-5. Opinion MW-337
distinguished the impact on property inside the reinvestment zone from the impact on property
outside the reinvestment zone: "[A] parcel of property located in the tax incremental [zone] (if its
value has been enhanced) will not pay the same amount or ratio of taxes for the general support
of the city that will be paid by a parcel of equal value located outside the [zone]." !d. at 5.
Subsequent to Opinion MW-337, the voters adopted article VIII, section 1-g(b) of the
Texas Constitution, which authorizes cities and towns to engage in tax increment financing.
TEX. CoNST. art. VIII,§ 1-g(b); see Tex. Att'y Gen. Op. Nos. JC-0152 (1999) at 5 (characterizing
section 1-g(b) as an exception to the equal and uniform requirement), JC-0141 (1999) at 3
(same). A proposed constitutional amendment to grant similar authority to counties was defeated
by the voters in 2011. See Tex. Att'y Gen. Op. No. GA-0981 (2012) at 3 (noting rejection).
Opinion GA-0981 examined a similar provision, section 222.107 of the Transportation
Code, which authorizes a county to create a transportation reinvestment zone ("TRZ") and to
issue bonds to pay the costs of TRZ transportation projects. See Tex. Att'y Gen. Op. No. GA-
0981 (2012) at 1; TEX. TRANSP. CODE ANN. § 222.107(c) (West Supp. 2013). As considered in
the opinion, section 222.107 authorized a county to use the tax increment derived from the TRZ
to secure the bonds. Tex. Att'y Gen. Op. No. GA-0981 (2012) at 1. This office concluded that a
"county's issuance of tax increment financing bonds secured by a pledge of the county's ad
valorem tax increment would be subject to constitutional challenge as violating the equal and
uniform taxation requirements ... of the Texas Constitution." Id at 3. Key to the determination
of the disparate tax treatment under the equal and uniform provision in both opinions was the
fact that the tax revenue from a portion of the value of property within the zone was diverted
from the general support of the city or county due to the pledge of the tax increment.
As article VIII, section 1-g(b) remedied the equal and uniform concern for only cities and
towns, a dispositive issue in Opinion GA-0981 was the fact that article VIII, section 1-g(b) did
not include counties. See id. at 2 ("The . . . amendment . . . did not extend the Legislature's
enabling authority to counties."). We conclude, as we did in Opinion GA-0981, that absent a
constitutional amendment, section 222.1071 's authorization for counties to pledge tax increments
to the CETRZ could be subject to challenge under the equal and uniform provision.
The Honorable Marco A. Montemayor - Page 3 (GA-1076)
Our conclusion is not altered by the fact that section 222.1071 authorizes a county to
pledge the tax increment to a road utility district. See TEX. TRANSP. CODE ANN.
§§ 222.1071(i)(5) (West Supp. 2013) (authorizing a county to pledge money in the tax increment
account to a road utility district), 222.1071 (n) (authorizing creation of road utility district with
the same boundaries as the CETRZ); Request Letter at 2. Pledging the tax increment to another
entity for use in the CETRZ does not change the fact that the tax increment is dedicated to a use
other than the general support of the county. Your request letter suggests that the constitutional
infirmity in section 222.107, at issue in Opinion GA -0981, was the fact that the tax increment
secured county-issued bonds. See Request Letter at 2; see also Brief from James P. Allison,
Cnty. Judges & Comm'rs Ass'n at 3--4 (Mar. 14, 2014) (on file with Op. Comm.) (asserting that
subsection 222.1071 (j) was enacted to address constitutional concern about county tax
increments being used to service bond debt discussed in Opinion GA-0953). 3 Concern about a
county's issuance of bonds misconstrues Opinion GA-0981. The issue in Opinion GA-0981 was
the tax disparity caused by the pledge of the tax increment to the TRZ: the bonds were merely
the authorized financing method. Cf Tex. Att'y Gen. Op. No. GA-0514 (2007) at 7 (recognizing
in municipal context that tax increment reinvestment zone improvements can be "financed with
bond or note proceeds or by some other method"). Neither the prohibition of the use of bonds
nor the involvement of a road utility district remedies the potential constitutional infirmity here
because neither resolves the disparity between the tax treatment of property located in the
CETRZ and property located outside of the CETRZ. 4
In your remammg query, you ask in essence whether a county may fund the tax
increment account with additional money from the county's general revenues. Request Letter at
2. A county has only that power expressly granted or necessarily implied therefrom. City of San
Antonio v. City of Boerne, 111 S.W.3d 22, 28 (Tex. 2003). Subsection 222.1071(h) expressly
provides that a county "may[,] from taxes collected on property in a zone, pay into the tax
increment account for the zone an amount equal to the tax increment produced by the county less
any amounts" specified. TEX. TRANSP. CODE ANN. § 222.1071(h) (West Supp. 2013). In this
section, the Legislature's specified method of funding a CETRZ does not include funds from a
county's general revenue. Moreover, while county revenue may be spent for a county public
purpose, committing general revenue beyond a year is unconstitutional debt. See TEX. CONST.
art. XI, § 7; Stevenson v. Blake, 113 S.W.2d 525, 527 (Tex. 1938) (defining "debt" by reference
to satisfaction of pecuniary obligations "out of the current revenues for the year"). Accordingly,
a county creating a CETRZ under section 222.1 071 may not place county general revenue funds
into the tax increment account.
3
See Tex. Att'y Gen. Op. No. GA-0953 (2012) at 3; Tex. Att'y Gen. Op. No. GA-0981 (2012) at 2 n.2.
4
Unlike section 222.107, section 222.1071 does not authorize a county to abate ad valorem taxes on
property in the zone or authorize a conterminous road utility district to impose its own taxes in an amount equal to
the abated tax. Cf TEX. TRANSP. CODE ANN.§ 222.107(h)(2}-{3), (h-1), (i), G) (West Supp. 2013).
The Honorable Marco A. Montemayor - Page 4 (GA-l 076)
SUMMARY
A county's use of tax increment financing to fund
transportation projects in a county energy transportation
reinvestment zone could be subject to challenge under the equal
and uniform taxation requirement in article VIII, section l(a) of the
Texas Constitution.
A county creating a county energy transportation
reinvestment zone under section 222.1071 of the Transportation
Code may not place general revenue funds into the tax increment
account.
Very truly yours,
Attorney General ofTexas
DANIEL T. HODGE
First Assistant Attorney General
JAMES D. BLACKLOCK
Deputy Attorney General for Legal Counsel
VIRGINIA K. HOELSCHER
Chair, Opinion Committee
Charlotte M. Harper
Assistant Attorney General, Opinion Committee