Untitled Texas Attorney General Opinion ( 2001 )

OFFICE OF THE ATTORNEY GENERAL - STATE OF TEXAS
JOHN CORNYN
May 1,200l
The Honorable Carole Keeton Rylander Opinion No. JC-0373
Comptroller of Public Accounts
P.O. Box 13528 Re: Whether the value of property subject to a
Austin, Texas 7871 l-3528 tax increment financing agreement under Local
Government Code chapter 374 may be deducted
from a school district’s total taxable value, and
related questions (RQ-0303-JC)
Dear Comptroller Rylander:
You request an opinion concerning the Comptroller’s duty to “determine the total taxable
value of all property in each school district” pursuant to Government Code section 403.302. See
TEX. GOV’T CODE ANN. 9 403.302(a) (Vernon Supp. 2001). The “total taxable value” of such
property is certified to the Commissioner of Education and is used to calculate the state’s support
for school districts and determine the district’s wealth per student under the funding equalization
provisions of the Education Code. See id. 8 403.302(g); seealso TEX. EDUC. CODEANN. $9 41.001,
41.002,42.302(a); Tex. Att’y Gen. Op. No. JC-0152 (1999) at 8-9 (discussing purpose and history
of Government Code section 403.302). The “taxable value” of property in a school district “means
the market value of all taxable property” less the dollar amounts of certain exemptions and
deductions, as provided by Government Code section 403.302(d). See TEX. GOV'T CODE ANN.
0 403.302(d) (Vernon Supp. 2001).
You ask whether Government Code section 403.302(d)(8) requires the deduction from the
market value of the property value subject to a tax increment financing agreement entered into under
the Texas Urban Renewal Law, chapter 374 of the Local Government Code.’ Government Code
section 403.302(d)@) requires the deduction of such market value. See id. 8 403.302(d)@). You
also ask about the authority of a municipality to adopt tax increment financing under Local
Government Code chapter 374, subchapter D, without holding an election, and in connection with
this question, you raise an issue about the constitutionality of these tax increment financing
‘See Letter from Billy C. Hamilton, Deputy Comptroller, Office of the Comptroller of Public Accounts, to
Honorable John Cornyn, Texas Attorney General (Oct. 27,200O) (on file with Opinion Committee) [hereinafter Request
Letter].
The Honorable Carole Keeton Rylander - Page 2 JC-0373
provisions when they were adopted and the possibility that they were subsequently validated.2 The
predecessor of subchapter D was unconstitutional when adopted, and tax increment financing could
not be adopted thereunder whether or not an election was held. The tax increment provisions were
validated when the statute was reenacted in 1987 after the adoption of the constitutional provision
authorizing tax increment financing. See TEX. CONST. art. VIII, 4 l-g. An election is still necessary
for a city to adopt tax increment financing under the Texas Urban Renewal Law. You finally ask
whether a school district action in placing ad valorem tax revenues in the tax increment fund is
optional and not “required by statute” because the city must hold an election to adopt the tax
increment financing provisions .3 In such case, the school district’s action is not optional and is
required by statute.
The tax increment financing provisions of Local Government Code chapter 374 have not
been the subject of any judicial decisions, and only one opinion of this office has addressed them.
See Tex. Att’y Gen. Op. No. H-l 191 (1978) (whether tax increment bonds may be issued without
holding an election). In contrast, the Tax Increment Financing Act found in Tax Code chapter 3 11
has been the subject of judicial decisions and attorney general opinions. See Civ of El Paso v. El
Paso Cmty. Coil. Dist., 729 S.W.2d 296 (Tex. 1986) (constitutionality of Act), Lampson v. City of
Beaumont, 687 S.W.2d 788 (Tex. App.-Beaumont 1985, no writ) (determination of proper year to
figure value of tax increment base); see, e.g., Tex. Att’y Gen. Op. Nos. JC-0152 (1999); JC-0141
(1999); DM-390 (1996); JM-758 (1987). We begin by summarizing the provisions that you inquire
about.
Chapter 374 of the Local Government Code grants municipalities various powers directed
at eliminating slum and blighted areas, and subchapter D of that law authorizes municipalities to
fund urban renewal projects through tax increment financing. See TEX. LOC. GOV’T CODE ANN.
$9 374.001, -002, .035 (Vernon 1999). The provisions authorizing tax increment financing were
adopted in 19774 as amendments to former article 12692-3 of the Revised Civil Statutes, which is
now codified as Local Government Code chapter 374? The analysis of a 1981 bill proposing an
amendment to the tax increment provisions of former article 12691-3 described their operation as
follows:
A city designates an urban renewal area and issues bonds for public
improvements. The bonds are not an obligation of the city, but are
backed solely by future tax increments. Tax increments are any taxes
that result from the increased value of the property in the project area.
City, county, state, school district, and special district tax increments
go into a [tax increment] fund to be used to repay the bonds. The
2See Request Letter, supra note 1.
3See Request Letter, supra note 1.
4See Act of May 28, 1977,65th Leg., R.S., ch. 850, $9 l-3, 1977 Tex. Gen. Laws 2126.
‘See Act of May 1, 1987,7Oth Leg., R-S., ch. 149, $0 1,49(l), 1987 Tex. Gen. Laws 707, 1175, 1306.
The Honorable Carole Keeton Rylander - Page 3 JC-0373
taxes collected by each taxing entity on the original market value of
the district still go [to] the taxing entity. Only taxes on newly added
value go to repay bonds. Once the bonds are repaid, the full value of
the area goes onto each jurisdiction’s tax rolls, to be taxed normally.
HOUSE STUDY GROUP, BILL ANALYSIS, Tex. H.B. 1495,67th Leg., R.S. (1981)!
To engage in urban renewal projects as authorized by Local Government Code chapter 374,
a municipality must designate an “urban renewal area,” defined as “a slum area, blighted area, or a
combination” of such areas that is appropriate for an urban renewal project, and prepare an urban
renewal plan for the area. TEX. LOC. GOV’T CODE ANN. $5 374.003(26), .014 (Vernon 1999). The
municipality “may not use the tax increment method of financing” prescribed under subchapter D
of chapter 374 “unless a majority of the qualified voters of the municipality voting on the question
approve that method of financing in an election held by the municipality,” but “[tlhis referendum
is not required if the constitutional amendment on tax increment financing is approved by the
voters.” Id. 6 374.03 1(a), (d). The legislature that enacted the predecessor to subchapter D of Local
Government Code chapter 374 also proposed an amendment to the Texas Constitution that would
grant the legislature power to authorize cities to issue tax increment bonds for the redevelopment of
blighted areas,7 but “the constitutional amendment on tax increment financing” was not approved
by the voters.*
Upon approval of tax increment financing by the voters of the municipality, the governing
body must establish a “tax increment fund,” which provides security for bonds issued to pay urban
renewal costs in the project area. See id. $8 374.032, .035 (tax increment bonds). After tax
increment financing is implemented in an urban renewal project area, governmental entities that tax
real property in the area must deposit in the tax increment fund any increases in ad valorem tax
revenues, or “tax increments,” from real property within the area. Id. 0 374.034. The increased
market value reflected by the tax increments is defined as the “captured market value.” See id.
8 374.003(6). The taxing entities retain tax revenues generated by the original market value of the
real property in the project area at the time tax increment financing was implemented.
We turn to your first question, whether section 403.302(d)(8) of the Government Code
“requires the deduction of the captured appraised [or market] value of property the school district
is required to contribute to the tax increment fund.“’ We assume for purposes of this question that
the tax increment fund was validly created, and we will consider constitutional issues relevant to the
‘The bill was withdrawn by the author. See H.J. OFTEX., 67thLeg., R.S. 2760; see also HOUSE STUDY GROUP,
BILL ANALYSIS, Tex. S.J. Res. 8, 67th Leg., 1st C.S. (1981).
7See Tex. S.J. Res. 44,65th Leg., R.S., 1977 Tex. Gen. Laws 3365.
*See Table 2: Votes on Proposed Amendments tGthe Texas Constitution, 1875-1978, 1979 Tex. Gen. Laws
3251,3267.
‘Request Letter, supra note 1, at 3.
The Honorable Carole Keeton Rylander - Page 4 JC-0373
tax increment financing provisions of the Texas Urban Renewal Law in addressing your remaining
questions. See generally Tex. Att’y Gen. Op. No. MW-337 (1981); HOUSE STUDY GROUP, BILL
ANALYSIS, Tex. S.J. Res. 8,67th Leg., 1st C.S. (1981).
Government Code chapter 403, subchapter M was adopted to help “ensure equity among
taxpayers in the burden of school district taxes and among school districts in the payment of state
financial aid to schools.” TEX. GOV’T CODE ANN. 8 403.301 (Vernon 1998). As a means of
implementing this policy, section 403.302 requires the Comptroller to conduct annual studies to
determine the total value of taxable property within Texas school districts. See id. 8 403.302
(Vernon Supp. 2001); see also El Paso Indep. Sch. Dist. v. Sharp, 923 S.W.2d 844, 845 (Tex.
App.-Austin 1996, writ denied) (purpose of section 403.302); Tex. Att’y Gen. Op. No. JC-0002
(1999) at 2 (purpose of section 403.302). The Commissioner of Education uses that figure to
calculate the amount of local tax revenue the school district will be able to raise at its current tax rate
and to determine the school district’s “wealth per student” under the Education Code provisions
directed at determining state support for school districts and equalizing wealth among them. See
TEX. EDUC. CODE ANN. $5 41.001, .002 (Vernon Supp. 2001); id. 95 42.252, .302(a); Calhoun
County Indep. Sch. Dist. v. Meno, 902 S.W.2d 748 (Tex. App.-Austin 1995, writ denied) (use of
Comptroller’s determination under Government Code section 403.302 to determine school district
funding). See also Sharp, 923 S.W.2d at 845 (taxable value of property in a school district directly
determines amount of state funding received by the district).
Section 403.302(d) provides that the “taxable value” of property within a school district is
determined by deducting specified amounts from the market value of such property, including:
(8) a portion of the market value of property not otherwise
fully taxable by the district at market value because of action required
by statute or the constitution of this state that, if the tax rate adopted
by the district is applied to it, produces an amount equal to the
difference between the tax that the district would have imposed on the
property if the property were fully taxable at market value and the tax
that the district is actually authorized to impose on the property, if
this subsection does not otherwise require that portion to be deducted.
TEX. GOV’T CODE ANN. 8 403.302(d)(8) (V emon Supp. 2001). We are asked to decide whether
real property subject to tax increment financing under Local Government Code, chapter 374, is
“property not otherwise fully taxable by the district at market value because of action required by
statute or the constitution of this state.” See id.”
You suggest that the property is in fact “fully taxable by the district at market value,” see id.,
because the district imposes taxes on the full value of the property, even though the law does not
“See RequestLetter,supra note 1.
The Honorable Carole Keeton Rylander - Page 5 JC-0373
pert-nit it to retain all of the taxes it collects.* * You also state that “an argument has been made that
because the school district is not permitted by law to retain the taxes paid on the captured appraised
value of this property, the property is not in fact fully taxable by the district.“12
In our opinion, the property is not “fully taxable by the district at market value because of
action required by statute,” see id., specifically, Local Government Code section 374.034, which
requires a school district that taxes real property in the project area to deposit in the tax increment
fund any increases in ad valorem tax revenues from real property within the area. See TEX. LOC.
GOV’T CODE ANN. 4 374.034 (Vernon 1999). The phrase “fully taxable by the district” in
Government Code section 403.302(d)(8) must be read in context and construed according to the rules
of grammar and common usage. See TEX. GOV’T CODE ANN. 5 311.01 l(a) (Vernon 1998). The
property value studies required by subchapter M of chapter 403 of the Government Code are used
to calculate the amount of “local” tax revenue the school district will be able to raise, for the
purpose of making other determinations about school district funding. See generally id. 9 4 403.301-
.304 (Vernon 1998 & Supp. 2001) (subchapter M); TEX. EDUC. CODEANN. $9 42.252, .302 (Vernon
Supp. 2001). Reading section 403.302(d)(8) in light of this purpose, we conclude that “taxable by
the district” means property that generates tax revenues for the district, and not property that the
district taxes as an agent for another entity. See TEX. GOV’T CODE ANN. 6 403.302(d)(8) (Vernon
Supp. 2001). Accordingly, the “captured appraised value” must be subtracted from the market value
of property taxable by a school district subject to tax increment financing under chapter 374. See
id. 8 403.302(d). See also TEX. LOC. GOV’T CODE ANN. 8 374.033(e) (Vernon 1999) (taxing entity
may not consider captured market value for any purpose except to determine the amount to be paid
into the tax increment fund).
You next inquire about the validity of the provisions of Local Government Code chapter 374
authorizing a municipality to use tax increment financing without holding an election.13 You ask
whether these provisions were revived by the adoption of article VIII, section l-g of the Texas
Constitution in 1981 I4 or the 198715 codification of the Urban Renewal Law as chapter 374 of the
Local Government Code. l6
“Request Letter, supra note 1, at 3.
i2Request Letter, supra note 1, at 3. .
13SeeRequest Letter, supra note 1, at 3.
14SeeTex. S.J. Res. 8,67th Leg., 1st C.S., 1981 Tex. Gen. Laws 295 (proposing adoption of article VIII, 0 l-g);
see also Table 2: Votes on Proposed Amendments to the Texas Constitution, 1875-1982, 1983 Tex. Gen. Laws 6739,
6756 (adoption of article VIII, $ l-g).
15See Act of May 1, 1987, 70th Leg., R.S., ch. 149, $6 1, 49, 1987 Tex. Gen. Laws 707, 1176, 1306
(nonsubstantive revision of statutes relating to local government, adopting chapter 374 of the Local Government Code
and repealing article 12691-3, Revised Civil Statutes).
16SeeRequest Letter, supra note 1.
The Honorable Carole Keeton Rylander - Page 6 JC-0373
In our opinion, the provisions of former article 12692-3 of the Revised Civil Statutes
authorizing tax increment financing were unconstitutional when adopted. See Tex. Att’y Gen. Op.
No. MW-337 (198 1) (finding Tax Increment Financing Act of 1979 unconstitutional). Although the
legislature that added the tax increment provisions to article 12691-3 also proposed a constitutional
amendment authorizing tax increment financing, the voters did not adopt the proposed amendment. l7
A tax increment financing plan adopted under unconstitutional provisions of article 12692-3 would
not be valid, with or without voter approval.
Our conclusion is based on Attorney General Opinion MW-337 (198 l), which addressed the
constitutionality of the Tax Increment Financing Act of 197918 (“the 1979 Act”) at the request of a
legislative committee. This office determined that the 1979 Act was facially unconstitutional under
article VIII, section 1(a) of the Texas Constitution, which provides that “[tlaxation shall be equal and
uniform.” TEX. CONST. art. VIII, 8 l(a). Ad valorem taxes were to be collected for the general
support of the municipality, while charges laid to benefit particular property within the municipality
were not “taxes,” but “special assessments.” See Tex. Att’y Gen. Op. No. MW-337 (1981) at 3-5
(citing City of Wichita Falls v. Williams, 26 S.W.2d 910 (Tex. 1930), Taylor v. Boyd, 63 Tex. 533
(1885)). The 1979 Act attempted to limit the use of certain ad valorem tax revenues to improving
property within the tax increment district instead of allocating them to the general support of the city.
See Tex. Att’y Gen. Op. No. MW-337 (1981) at 5. “[T]h e earmarking of tax-increment revenue to
pay for improvements within the tax increment zone meant that property within the zone was not
contributing its fair share to the city’s general fund.” HOUSE STUDY GROUP, BILL ANALYSIS, Tex.
S.J. Res. 8,67th Leg., 1st C.S. (1981). Thus, the Tax Increment Financing Act of 1979 violated the
“equal and uniform” provision of article VIII, section 1(a) of the Texas Constitution.
Attorney General Opinion MW-337 did not address the tax increment financing provisions
of former article 12691-3 of the Revised Civil Statutes, but they would also have been
unconstitutional under its reasoning. See HOUSE STUDY GROUP, BILL ANALYSIS, Tex. S.J. Res. 8,
67th Leg., 1st C.S. (1981) (Attorney General Opinion MW-337 is assumed to apply to the tax-
increment provision of the Urban Renewal Law); Tex. Att’y Gen. Op. No. H-l 191 (1978) at 3
(reserving comment on constitutional issues that might be raised by tax increment financing
provisions of Urban Renewal Law). Moreover, when Attorney General Opinion MW-337 was
issued, former article 12691-3 required the diversion of school district tax revenues to non-
educational purposes in violation of article VII, section 3 of the Texas Constitution. See TEX.
CONST. art. VII, 8 3 (legislature may authorize school district to collect ad valorem taxes for
maintenance of public schools and the construction and equipment of school buildings); HOUSE
STUDY GROUP, BILL ANALYSIS, Tex. S.B. 16, 67th Leg., 1st C.S. (1981) at 4-5; CJ: EZ Paso Cmty.
Coil. Dist., 729 S.W.2d 296 (article VIII, section l-g of Texas Constitution permits school district
ad valorem tax revenues to be used for noneducational purposes pursuant to tax increment financing
17See Tex. S.J. Res. 44, 65th Leg., R.S., 1977 Tex. Gen. Laws 3365; see also Table 2: Votes on Proposed
Amendments to the Texas Constitution, 1875-l 978, 1979 Tex. Gen. Laws 325 1,3267.
‘*See Act of May 28, 1979, 66th Leg., R.S., ch. 695, 1979 Tex. Gen. Laws 1661.
The Honorable Carole Keeton Rylander - Page 7 JC-0373
provisions). We conclude that the provisions of former article 12691-3 of the Revised Civil Statutes
authorizing tax increment financing were unconstitutional when adopted.
After Attorney General Opinion MW-337 ruled that the tax increment law was
unconstitutional, the legislature proposed adding article VIII, section l-g to the constitution to
authorize tax increment financing.19 This provision was adopted by the voters.20 We will consider
whether the adoption of article VIII, section l-g, validated the tax increment provisions of former
article 12691-3 of the Revised Civil Statutes.
A statute unconstitutional when adopted may be revived by the adoption of a constitutional
amendment that cures the constitutional defect. See Beckv. Beck, 8 14 S.W.2d 745,749 (Tex. 1991)
(holding that 1980 amendment to article XVI, section 15 of the Texas Constitution impliedly
validated statute on premarital agreements regarding community property). An invalid statute and
actions taken in reliance on it will be validated by the adoption of a constitutional amendment that
specifically refers to the statute. See id. at 747; see also Hutchinson v. Patching, 129 S.W. 603 (Tex.
1910). An invalid statute may also be impliedly validated by the adoption of a constitutional
amendment to cure it, if there is no impairment of the obligation of a contract or of vested rights.
See Beck, 8 14 S.W.2d at 747.21 An invalid statute will not be impliedly validated by a constitutional
amendment unless it was intended to apply retroactively. See id. at 748.
Article VIII, section l-g of the Texas Constitution did not specifically refer to any statute
and, in consequence, its adoption did not expressly validate any legislation. See id. at 747;
Hutchinson, 129 S.W. 603. The legislature proposed this constitutional amendment with the
understanding that the Tax Increment Financing Act of 1979 was unconstitutional,22 but it did not
attempt to validate that law. Instead, the session of the legislature that proposed amending the
constitution repealed the Tax Increment Financing Act of 1979 and adopted the Tax Increment
Financing Act of 1981 (“the 198 1 Act’y).23 Moreover, the effectiveness of the 198 1 enactment was
expressly contingent on the addition of article VIII, section l-g, to the constitution.24 Despite the
issuance of Attorney General Opinion MW-337, two cities had established tax increment districts
“See Tex. S.J. Res. 8,67th Leg., 1st C.S., 1981 Tex. Gen. Laws 295 (proposing adoption of article VIII, 5 l-g).
20See Table 2: Votes on Proposed Amendments to the Texas Constitution, 1875-1982, 1983 Tex. Gen. Laws
6739,6756 (adoption of article VIII, 0 l-g).
21See also Annotation, Removal or Suspension of ConstitutionaZ Limitation As Aflecting Statute PreviousZy
Enacted, 171 A.L.R. 1070, 1072-73 (1947).
22SeeHOUSE STUDY GROUP, BILL ANALYSIS, Tex. S.J. Res. 8,67th Leg., 1st C.S. (1981).
23See Act of August 10, 1981,67th Leg., 1st C.S., ch. 4, 5 1, sets. 1-14, 1981 Tex. Gen. Laws 45.
24See id. ch. 4,§ 4, 1981 Tex. Gen. Laws 45,52.
The Honorable Carole Keeton Rylander - Page 8 JC-0373
under the 1979 Act.25 The 198 1 Act included a validation provision for such cities, stating that “[a]
tax incremental district approved by a city or town pursuant to [the 1979 Tax Increment Financing
Act] may be designated by ordinance adopted by the governing body of the city or town as a
reinvestment zone under this Act.yy26Thus, the legislature wished existing tax increment districts to
operate under the 198 1 Act, rather than 1979 Act held unconstitutional by Attorney General Opinion
MW-337.
The legislature’s treatment of the 1979 Act and actions taken thereunder displayed an intent
for the constitutional amendment to operate prospectively only, and not to validate tax increment
provisions adopted without constitutional authority. Given this strong legislative preference for
prospective operation of Texas Constitution article VIII, section l-g with respect to the Tax
Increment Financing Act of 198 1, and the absence of any evidence that it wished to validate the tax
increment provisions of the Urban Renewal Law, we conclude that the latter provisions were not
validated by the adoption of the constitutional amendment.
The tax increment financing provisions of the Urban Renewal Law were validated when they
were repealed and reenacted as chapter 374 of the Local Government Code in the 1987
nonsubstantive revision of statutes relating to local govemment.27 When a code is enacted, it
becomes the binding law of the state. See Long v. State, 3 S. W.2d 448,449 (Tex. Crim. App. 1928).
If a statute is unconstitutional when adopted, it will become effective by its inclusion in a code
adopted after the constitution has been amended to authorize legislation of its type. See Carlton
Indep. Sch. Dist. v. Jordon, 25 S.W.2d 610,611 (Tex. Comm. App. 1930, judgm’t adopted); see also
Skaggs v. Grisham-Hunter Corp., 53 S.W.2d 687,688 (Tex. Civ. App.-El Paso 1932, writ ref d).
The Urban Renewal Law was repealed and reenacted in 1987, after the constitutional amendment
authorizing tax increment financing had been adopted. See TEX. CONST. art. VIII, 6 1-g.28 The tax
increment financing provisions of the Urban Renewal Law were constitutional when they became
effective as subchapter D of Local Government Code, chapter 374.29
We point out, however, that a municipality may not use the tax increment method of
financing under subchapter D of chapter 374 “unless a majority of the qualified voters of the
municipality voting on the question approve that method of financing in an election held by the
municipality.” TEX. Lot. GOV’T CODE ANN. 5 374.03 1(a) (Vernon 1999). Subsection 374.03 1(d)
provides that “[tlhis referendum is not required if the constitutional amendment on tax increment
financing is approved by the voters,” id. 8 374.03 l(d), but the voters did not approve the
25See HOUSESTUDYGROUP,BILL ANALYSIS,Tex. S.J. Res. 8, 67th Leg., 1st C.S. (1981).
26Act of August 10, 1981, 67th Leg., 1st C.S., ch. 4, 0 2(b), 1981 Tex. Gen. Laws 45, 52 (emphasis added).
See also id. 0 2(a), 1981 Tex. Gen. Laws 45, 52 (reinvestment zone designated pursuant to this Act may not incur tax
increments before January 1, 1982).
27See Act of May 1, 1987,7Oth Leg., ch. 149, $3 1,49(l), 1987 Tex. Gen. Laws 707, 1175, 1307.
28See supra notes 19,20 (proposal and adoption of article VIII, 9 l-g).
29SeeAct of May 1, 1987,7Oth Leg., ch. 149,s 52, 1987 Tex. Gen. Laws 707, 1308 (effective Sept. 1, 1987).
The Honorable Carole Keeton Rylander - Page 9 JC-0373
constitutional amendment referred to. This provision refers to Senate Joint Resolution 44 of the
Sixty-fifth Legislature, see Tex. Att’y Gen. Op. No. H- 119 1 (1978) at 2, which was defeated by the
voters .3o The provision adopted in 198 1 as article VIII, section 1-g of the Texas Constitution differs
so much from the amendment proposed by Senate Joint Resolution 44 that it cannot be regarded as
“the amendment” referred in subsection 374.03 1(d) and its predecessor. Senate Joint Resolution 44
provided that:
the legislature may, subject to the limitations provided herein,
authorize cities and towns to issue tax increment bonds, the proceeds
of which shall be used to finance the redevelopment of blighted areas,
and the payment of which shall be provided from tax increments, as
such term is defined by the legislature.
Tex. S.J. Res. 44,65th Leg., R.S., 0 1, sec. l-g(a), 1977 Tex. Gen. Laws 3365. Subsection (b) barred
the use of tax revenues, utility revenues, and revenues from municipal or state services to pay any
bonds issued pursuant to the authorization in the proposed amendment. See id. 9 1, sec. 1-g(b).
Article VIII, section l-g, as adopted in 1981, provides as follows:
(a) The legislature by general law may authorize cities, towns,
and other taxing units to grant exemptions or other relief from ad
valorem taxes on property located in a reinvestment zone for the
purpose of encouraging development or redevelopment and
improvement of the property.
(b) The 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.
TEX. CONST. art. VIII, 0 l-g.
Senate Joint Resolution 44 would have authorized legislation granting cities and towns
authority to issue tax increment bonds subject to stated limitations. The bond proceeds could be
used “to finance the redevelopment of blighted areas.” Tex. S.J. Res. 44,65th Leg., R.S., 5 3,1977
Tex. Gen. Laws 3365. Article VIII, section l-g, authorizes a broader range of legislation, including
legislation authorizing taxing units “to grant exemptions or other relief from ad valorem taxes on
property located in a reinvestment zone” to encourage development or redevelopment and
30SeeTable 2: Votes on Proposed Amendments to the Texas Constitution, 1875- 1978,1979 Tex. Gen. Laws
325 1,3267.
The Honorable Carole Keeton Rylander - Page 10 ~~-0373
improvement of the property. TEX. CONST. art. VIII, 8 1-g(a). It also authorizes legislation allowing
cities and towns to issue bonds or notes repayable from tax increments to finance the “development
or redevelopment of an unproductive, underdeveloped, or blighted area within the city or town.” Id.
8 l-g(b). Accordingly, article VIII, section l-g is not “the amendment” that section 374.03 1 refers
to, and a municipality may not use the tax increment method of financing under chapter 374 absent
an election. See TEX. LOC. GOV’T CODE AN-N. 0 374.03 l(a) (Vernon 1999).
You finally ask whether the referendum requirement of Local Government Code section
374.031(a) makes the tax increment financing method optional for the school district, so that the
school’s participation is not “required by statute” within section 403.302(d)(8) of the Governrnent
Code, and the market value of property subject to a tax increment financing agreement is not
deductible under that statute.31
In our opinion, the deposit of ad valorem tax revenues in the tax increment fund is an “action
required by statute,” specifically, section 374.034 of the Local Government Code. See TEX. GOV’T
CODE ANN. § 403.302(d)(8) (V emon Supp. 2001); TEX. LOC. GOV’T CODE ANN. 8 374.034 (Vernon
1999) (deposit of tax increments). The legislature enacted Subchapter D of Local Government Code
chapter 374 and authorized municipalities to accept or reject its benefits. See generaZZy Reynolds
v. Dallas County, 203 S.W.2d 320 (Tex. Civ. App.-Amarillo 1947), certijZed question answered,
207 S.W.2d 362 (Tex. 1948) (legislature may delegate to local authorities power to determine
whether a general statute shall become effective within their respective jurisdictions). While the
governing body of a city or town may not adopt tax increment financing absent the voters’ approval,
it is the statute adopted by the legislature under constitutional authorization, and not any voluntary
act of the school district, that requires the school district to place tax revenues in the tax increment
fund. Although the Education Code vests authority to manage the school district in the board of
trustees, see TEX. EDUC. CODE ANN. 9 11.05 1(a) (Vernon 1996), the school board has no opportunity
to consent or withhold consent for the school district’s participation in the tax increment financing
scheme under subchapter D. See El Paso Cmty. Coil. Dist., 729 S.W.2d 296 (article VIII, section
1-g of the Texas Constitution makes the school board’s consent unnecessary to the school district’s
participation in a tax increment financing plan adopted by a city under 198 1 Act).32 We conclude
that the school district’s deposit of ad valorem tax revenues in the tax increment fund is an “action
required by statute,” under Government Code section 403.302(d)(8) even though the voters of the
municipality approved adoption of tax increment financing under Local Government Code chapter
374, subchapter D. Accordingly, the Comptroller must deduct from the market value of property
taxable by the school district the value subject to a tax increment financing agreement authorized
3’See Request Letter, supra note 1, at 3.
32TheTax Increment Financing Act was subsequently amended to provide that a taxing unit need not pay into
the tax increment fund any of its tax increment produced from property located in a reinvestment zone unless it enters
into an agreement with the governing body of the municipality that created the zone. See TEX. TAX CODE ANN.
9 311.013(f) (V ernon Supp. 2001), adopted by Act of May 24, 1989,71st Leg., R.S., ch. 1137, 0 25, sec. 311.013(g),
1989 Tex. Gen. Laws 4683,4691, relettered by Act of May 29, 1999,76th Leg., R.S., ch. 983, 6 7, sec. 3 11.013(f),
1999 Tex. Gen. Laws 3763,3766.
The Honorable Carole Keeton Rylander - Page 11 ~~-0373
by the Urban Renewal Law, even though that statute requires the voters of the city to approve the
adoption of tax increment financing.
SUMMARY
Section 403.302 of the Government Code requires the
Comptroller to conduct annual studies to determine the total value of
taxable property within Texas school districts. Subsection
403.302(d)(8) of the Government Code requires the Comptroller to
deduct from the market value of property taxable by a school district
any property value that is subject to a tax increment financing
agreement entered into under Local Government Code, chapter 374,
subchapter D. The deduction is not optional, but is required by
statute.
The predecessor of Local Government Code chapter 374,
subchapter D was unconstitutional when adopted. It was not
impliedly validated by the 198 1 adoption of article VIII, section 1-g
of the Texas Constitution authorizing tax increment financing, but it
was validated in 1987 when the predecessor statute was reenacted in
the codification of laws relating to local government. A municipality
may not adopt tax increment financing under Local Government
Code, chapter 374, subchapter D unless it holds an election as
required by section 374.03 l(a) of that statute.
Attorney General of Texas
ANDY TAYLOR
First Assistant Attorney General
SUSAN D. GUSKY
Chair, Opinion Committee
Susan L. Garrison
Assistant Attorney General - Opinion Committee