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Chapter 311 Tax Increment Financing Executive Summary 2024Introduction
On Sept. 1, 1997, the Comptroller’s office became responsible for the state’s biennial Central Registry of Reinvestment Zones and Ad Valorem Tax Abatement Agreements, which was previously managed by the Texas Department of Commerce. On June 11, 2001, the state Legislature passed legislation formally requiring the Comptroller’s office to maintain the state’s Central Registry of Tax Increment Reinvestment Zones.
Tax Code Section 311.0163 requires the Comptroller to submit a report to the Legislature and the Governor every two years on the Central Registries of Reinvestment Zones for Tax Abatements and Tax Increment Financing (TIF).
Although the Tax Increment Financing Act applies to cities and counties, Texas Constitution Article VIII Section 1-g(b), as added in 1981, does not authorize counties to engage in tax increment financing. Two attorney general opinions (GA-1076 and KP-0004) highlighted this constitutional issue and concluded that a county-created Tax Increment Reinvestment Zone (TIRZ) is likely a violation of the equal and uniform taxation requirement in Article VIII Section l(a) of the Texas Constitution.
This uncertainty surrounding a county’s ability to create a TIRZ was addressed in 2021 when Texas passed House Joint Resolution (HJR) 99 to put this issue on the ballot for the voters to consider. The resolution known as Ballot Proposition 2 passed in the November 2021 election.
What is a TIF
Tax increment financing (TIF) is not a new tax. A TIF is a financing method that local governments can use to pay for improvements to draw private investments to a targeted area. TIFs redirect some of the ad valorem tax, and sometimes sales taxes, collected by businesses to be used as tax increments (as approved by the local government) from property in a geographic area designated as a TIRZ to pay for public project improvements in the zone. A TIF project can jumpstart development a bit faster and, as a result, produce additional tax revenue.
Reporting Requirements
The Tax Increment Financing Act mandates all cities or counties that create a TIRZ to submit an annual report containing particular information on the TIF to the Comptroller’s office. We have implemented a new online system (eSystem) for submitting this information. The chief executive officers of each taxing unit that imposes property taxes on real property in the reinvestment zones may use our eSystem for reporting the information. The annual report must be sent on or before the 150th day after the end of the governing body’s fiscal year and must include the following:
- the amount and purpose of expenditures from the fund;
- the amount and source of revenue in the tax increment fund established for the zone;
- the tax increment base and current captured appraised value retained by the zone;
- the amount of principal and interest due on outstanding bonded indebtedness;
- the captured appraised value shared by the municipality or county and other taxing units, the total amount of tax increments received, and any additional information necessary to demonstrate compliance with the TIF plan adopted by the governing body of the municipality or county; and
- the captured appraised value shared by the municipality or county and other taxing units, the total amount of tax increments received, and any additional information necessary to demonstrate compliance with the TIF plan adopted by the governing body of the municipality or county (Tax Code Section 311.016(a)(5)).
Summary of Chapter 311 Tax Increment Financing Data Reported in Fiscal 2022-2023
The summary data below reflect the TIRZs reporting to the Comptroller’s office during 2022 and 2023. TIRZ data can be found on the Comptroller’s website in a tabular format and as a CSV file. Moreover, these data have been compiled into Biennial Reports and published in even-numbered years as statutorily required going back to 2012.
Tax Increment Reinvestment Zones
Cities and counties are permitted by statute to create a TIRZ if they determine it is economically feasible to create a TIRZ for the purpose of improving a section of the community that is dilapidated, unsanitary, unsafe, upside down in value where more is owed on the property than what it is worth or if the property is poorly platted, to name a few possible reasons. TIRZs can last for varied periods of time and end early or extend beyond their original termination date as determined by the lead taxing units. The status of a TIRZ can be active, inactive or expired, depending on the TIRZ type.
In 2023 there were 477 active TIRZ zones created by 205 cities across the state. TIRZs come in all shapes and sizes; they are created by small and big cities with a focus on different types of public project improvements. In 2023, the combined size of the 457 TIRZs was 521,855 acres an average size of 1,141.9 acres. The three smallest TIRZs in Texas were: Tyler TIRZ #1 (1 acre); Trophy Club TIRZ (5 acres); and Austin Downtown/CSC TIRZ #15 (5 acres). The three largest TIRZs in Texas were: Temple TIRZ #1 (15,014 acres); Ennis TIRZ #3 (14,239 acres); and Waco TIRZ #4 (11,136 acres)
In fiscal years 2022-2023, there were 477 active (a zone for which an expiration date has not been reached or required paperwork received if being terminated and having received an annual report), 28 inactive (a zone in which an expiration date has not arrived nor has an annual report been received) and four expired (an approved or amended expiration date that has passed) TIRZ zones.
The number of expired TIRZs is a small percentage of the total number of TIRZs in the state, three expired in 2022 and six expired in 2023. In comparison, there were 35 new TIRZs reported in 2022 and 31 new TIRZs reported in 2023.
TIRZ Public Projects and Property Types
Lead taxing units can do public project improvements in a TIRZ on an annual basis provided that they are appropriate, financially feasible and allowed under Tax Code Section 311.002(1)(A). Such projects undertaken may include public buildings, infrastructure, affordable housing, transit, water/sewer/drainage, facade renovation, parking, historical preservation, economic development and other public projects (Exhibit 1).
Public project properties can be composed of, in whole or in part, commercial, industrial, residential or all types of properties listed in the exhibit. Fiscal 2022 had a greater economic development impact on public project improvements. Each category had a larger number of improvements in fiscal 2022 versus 2023. Roadwork projects were the most undertaken projects by 282 TIRZs in 2022; in 2023, 271 TIRZs undertook roadwork projects. Transit was least initiated project by 17 TIRZs reported in 2022; in 2023, there were four TIRZs launching infrastructure projects. The largest decline in 2023 saw a 96 percent decrease in TIRZs reporting work on infrastructure as compared to 2022 (Exhibit 1).
Source: Texas Comptroller of Public Accounts
Properties within the boundaries of a TIRZ can be composed of, in whole or in part, commercial, industrial, residential or all types of properties. For Comptroller reporting purposes, the terms industrial and commercial have been merged to form a single category: industrial/commercial. The Comptroller uses the term “both” to describe two categories: residential and industrial/commercial
Properties within the boundaries of a TIRZ can be composed of commercial/industrial, residential or both (commercial/industrial, residential) types of properties. In 2023, both property types were significantly higher than each individual type, with 268 TIRZs reporting this option — nearly 70 percent higher than the next highest property type of industrial/commercial category. A small number of TIRZs didn’t respond to this question (Exhibit 2).
Source: Texas Comptroller of Public Accounts
TIF Fund Balances, Revenues, Expenditures and Debt
After a TIRZ is created and reported to the Comptroller, the lead taxing unit is required to submit an annual report highlighting the year-end TIF Fund Balance, total revenue collected, total expenditures paid and total debt owed. The varied sources of revenue collected can include tax increments received (ad valorem taxes), sales tax increments, loans, sale of bonds, sale of property and other funds of revenue. The various bills or expenditures a TIRZ can pay are administrative, property purchased, public improvements, façade renovation, parking, historic preservation, transit, affordable housing, economic development programs and other expenditures. Lastly, total debt as reported is composed of two elements: total principal due and total interest due.
Combined revenues, expenditures and debt of all TIRZs increased from fiscal 2022 to 2023. In 2023, all TIRZs throughout Texas reported a TIF Fund Balance of $33.4 billion, or a 100.1 percent increase; nearly $8.3 billion in revenue generated, or a 98.7 percent increase; $711.9 million in expenditures, or a 100 percent increase; and $21 billion in debt, or a 99.1 percent increase (Exhibit 3).
Source: Texas Comptroller of Public Accounts
Tax Increment Value, Captured Appraised Value and Total Appraised Value
The value of all these properties combined in the TIRZ is known as the “Tax Increment Base Value.” This value cannot be changed unless the lead taxing unit reduces or increases the boundaries of the TIRZ at some point thereafter.
As the TIRZ makes public project improvements over time, property values may increase. Specific reasons for the increased property values within the boundaries of the TIRZ may be a result of one or more of these reasons: abatements or other economic development incentives given to draw businesses to move within the TIRZ boundaries; public project improvements; zoning/rezoning properties; market growth; and/or inflation. These factors may combine to increase the captured appraised value of the property. This is the growth in the property’s value over time that is above the base value of the property when the TIRZ was created.
The tax increment base value plus the captured appraised value is the total appraised value of the property for each reported year.
Any time the boundaries of a TIRZ are expanded, this increased acreage needs to be accounted for; the additional property is referred to as a subzone that comprises a part of the TIRZ. Each subzone within a TIRZ is to report the tax increment base value, captured appraised value and total appraised value of this additional acreage for each reporting year.
The tax increment base value, captured appraised value and total appraised value for all properties contained within all the TIRZs in Texas were higher in fiscal 2022 than in 2023. In fiscal 2023, the tax increment base value for all TIRZs was $29.5 billion, or a 29.8 percent decrease; the captured appraised value was $91.3 billion, or a 7 percent decrease; and the total appraised value of all TIRZs combined was $120.8 billion, or a 25.4 percent decrease (Exhibit 4).
Source: Texas Comptroller of Public Accounts
Note: The summary of tables, charts and graphs throughout this Biennial Report reflects the Comptroller’s best understanding of the tax increment reinvestment zone related information as submitted by the local taxing units using the abatement forms. Some local taxing units may not have reported a TIRZ zone form, a modified TIRZ form and/or an annual report form because of (a) limited personnel or resources to make the submission, (b) lack of awareness of the legal requirement to make such a submission, (c) making a submission via mail that was lost or (d) data received by the Comptroller’s office many years ago via hard copy paper forms that had one or more fields left blank, thereby leaving fields in the electronic database incomplete.