Economic Development Options for Texas School Districts Dan Casey, Bob Popinski, Chris Grammer, and Dr. Tom Alvis Moak Casey & Associates Moak, Kevin O’Hanlon, Mali Hanley, and Annabel Canchola O’Hanlon, McCollom & Demerath TASA/TASB Annual Meeting Austin Texas Austin, September 28, 2012

Economic Development Programs and P bli Ed Public Education ti y Two options available to school districts to participate in

economic development through tax reductions: y Texas Economic Development Act: Chapter 313 property value

limitations y Freeport exemptions for goods in-transit y Abilityy to grant g Chapter p 312 tax abatements like cities and

counties ended in 2001 y Tax Increment Reinvestment Zones (TIF or TIRZ) created after 1999 are no longer eligible for state property value study deduction 2

September 2012

Texas Economic Development Act: Chapter 313 of the Tax Code

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September 2012

Texas Economic Development Act: Chapter 313 Property P t V Value l Li Limitations it ti y Limited to school districts—established in 2001 under HB 1200 y First projects approved in late 2002 y 135 active projects y Another A th 30+ projects j t are under d consideration id ti for f 2013 y Approximately $40 billion in new investment covered by these

agreements g y Major legislative changes made in 2009, potentially more during the 2013 Legislative Session due to 2014 expiration date of program

4

September 2012

Chapter 313 Basics y Eligible projects include: y Manufacturing y Research and development y Renewable R bl electric l t i generation ti y Clean coal y Nuclear energy gy y Computer center primarily used in connection with one or more activities listed above y Company makes

application to school district for each

eligible project 5

September 2012

Chapter 313 Basics (cont.) (cont ) y District may offer minimum property value limitation

from $1 million to $100 million y Depends on size of tax base, rural status y Look L k att Comptroller’s C t ll ’ website b it ffor list li t off limitation li it ti values l

(recently updated) y Property is fully taxed first two years (or longer) y Value limitation applies for eight years for M&O taxes y Largely g y subsidized byy the state through g additional state aid or reduced recapture y Full project value available for debt service on bonds 6

September 2012

Chapter 313 Basics (cont.) (cont ) y 150-dayy review process identified in law y Comptroller has 91 days to make

recommendation and ppresent economic analysis y from the time they have “complete” information in hand y Board must adopt findings and approve agreement g between district and the company p y y Company pays an application fee to cover costs of consultants and legal help for the district 7

September 2012

Items of Note y $100/ADA/Year limit on benefits that may be

negotiated on behalf of districts y Comptroller’s rule calls for company to submit copy of the h agreement to their h office ff prior to School h l Boardd action y Extraordinary E t di educational d ti l expenses can bbe considered id d outside of the limit

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September 2012

Tax Credit Issues Company must file tax credit application with the district

y y y

Currently, agreements with first qualifying year of 2009 or earlier are eligible If company is eligible for tax credits in 2012 an application must be filed with school district, with reimbursement payments due in 2013

District must reimburse company

y y y

Typically the district provides a check to the company in the form of a refund Discussions with TEA on alternative approach have been had

Di i to bbe reimbursed District i b d by b TEA

y y y

This requires an annual application by the district to TEA, including a copy of the check to prove the reimbursement has been made Th reimbursement The i b t comes iin the th form f off adjustment dj t t to t the th district di t i t’s Summary S of Finance (on ASATR report)

*O’Hanlon, Hanlon McCollom & Demerath will provide districts with assistance on this issue 9

September 2012

Comptroller Reporting Requirements y Under Comptroller rules, companies and districts are required to submit

three new forms on an annual or biennial basis: 1. Annual Eligibility Report (form 50-772) 2. Biennial Progress Report (form 50-773) y

Districts are responsible for verifying any value, job and wage data provided by company

3. Biennial School District Cost Request y Must project revenue loss and benefit for entire term of agreement y Must M provide id information i f i on any additional ddi i l bbenefit fi the h di district i received i d outside id off agreement

y The companies must return the annual and biennial progress reports to the

district di t i t by b May M 15 off eachh year y The district must return company biennial progress form and district cost request to the Comptroller by June 15 of each even numbered year 10

September 2012

Interim Study y HB 2785 by Davis/Shapiro creates a Select Committee on

Economic Development, p , which is to evaluate state and local incentives (including Chapter 313 value limitations). y The 12-member select committee includes four public members

appointed by the governor, two public members appointed by the lt. ggovernor,, two senators appointed pp byy the lt. ggovernor,, two public members appointed by the speaker, two house members appointed by the speaker.. y Report is due by January 2013

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September 2012

Select Committee Governor

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Lt. Governor

Speaker

Morris Foster, Chair Stagecoach/Millcreek R Resort

Sen. Jackson

Rep. J. Davis

Stacy Wimbish Gillman Companies

Sen. Shapiro

Rep. Button

Maher Maso Mayor of Frisco

Brint Ryan Ryan

Charles Matthews ExxonMobil

Carlton Schwab Texas Economic Development Council

Drayton McLane McLane Group

Andrew Card Bush School of Government

September 2012

P t ti l R Potential Recommendations d ti on 313 y Extend program permanently y Begin the limitation in year one, no tax credit years y Simplify the application and reporting process y Simplify value limitation amounts y Establish reasonable evaluation criteria y Consider extending the program to other “target” industries y Review the wage and health benefit requirements

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September 2012

Where We Stand Today y Chapter 313 value limitations remain a valuable tool for

economic development y Potential community benefits need to be evaluated y Effects Eff on tax base b for f ddebt b service, i local l l job j b creation, i etc.

y $100 per ADA annual limit hinders negotiations in tough

economic times, times especially for small school districts y Future state budget constraints could make the program a target, g although g less likelyy with current revenue outlook y Current program expires (for new applications) on December 31, 2014 14

September 2012

Freeport Exemption

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September 2012

Freeport Exemption Freeport Exemption: Applied to goods that are acquired in or imported into this state to be forwarded outside the state no later than 175 days after acquired

y

y y y

Super Freeport: Applied to goods that reside temporarily in warehouses within a city while awaiting shipment to other locations within or outside of Texas

y

y

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173 districts granted exemption for a total of $22 billion in freeport value in tax yyear 2011 Due to Target Revenue System, the revenue impact to most districts was minimal, but now that 600+ districts are on formula the loss could be more substantial Districts can negotiate g with companies p for hold-harmless ppayment y on anyy M&O or I&S revenue loss

3 districts granted the exemption for a total of $50.5 million in super freeport value in tax year 2011

September 2012

Districts with Freeport Exemptions 2011 Exemptions,

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September 2012

512-485-7878 Dan Casey, [email protected] Bob Popinski, [email protected] Chris Grammer, [email protected] Dr. Tom Alvis, [email protected]

512-494-9949 Kevin O’Hanlon, [email protected] Mali Hanley, [email protected] Annabel Canchola, [email protected]

September 2012