Text Of Slide Presentation.
Type A & B Slide 1: (Economic Development Sales Tax Type A & B)
Thank you for your interest in Type A and Type B sales tax for economic development. The following presentation will be an overview of the economic development corporation, the process for adopting the economic development sales tax and the basic functions and operations of Type A and Type B corporations.
Slide 2: (Presented by)
The Local Government Assistance and Economic Development division of the State Comptroller's Office exists to facilitate interactions between local governments and the Comptroller and to assist local governments in their economic development endeavors. We provide education on tax issues and state programs that assist economic development efforts at the local level. We also serve as a turn- ‐key information center for local governments, providing education and direct assistance that allows them to operate more effectively and efficiently, with an emphasis on promoting best practices and regional governance.
Slide 3: (Table of Contents)
We will discuss various aspects of the sales tax for economic development, beginning with background and legislative history, followed by the elections process, creating the corporation, the project approval process and the difference between Type A and B projects. We will also cover various project limitations and review reporting requirements.
Slide 4: (Background)
To gain a better understanding of the purpose behind economic development sales tax, let's review the legislative history of Type A and Type B sales tax.
Slide 5: (Legislative History)
The economic development corporation was first authorized by the legislature in 1979 with the passage of the Development Corporation Act. Ten years later, cities were given the option to fund EDCs with sales tax revenue, creating the 4A corporation. In 1991, the Legislature set increments for the sales tax and created the 4B corporation to expand eligible projects. Finally, in 2009, the act was recodified in Local Government Code, Chapters 501, 504 and 505. This resulted in changing the names from 4A and 4B to Type A and Type B. To date, cities have created more than 675 Type A and B Economic Development Corporations. Together they generate more than $500 million dollars per year, the largest single source of revenue for local economic development in Texas. Sales Tax Presentation Script
Slide 6: (Sales Tax)
Type A and B economic development corporations are funded by sales tax. The tax can be imposed in one-‐eighth increments up to one-‐half of 1 percent. To reiterate, the allowable tax rates are one-‐eighth, one-‐fourth, three-‐eighths, and one-‐half of 1 percent. It is important to remember that the total combined local sales tax in any area cannot exceed two percent. This is the total combination of all local sales tax from all entities in the jurisdiction. If you are unsure what the local sales tax rate is in your area, you can look it up online with the tax rate locator on the Comptroller・s website.
Slide 7: (Election)
As with all sales taxes, an election is required by statute before the tax can be imposed and the economic development corporation can be created. The following section will discuss the steps involved in the election process.
Slide 8: (Pre-Election)
Before the election to impose the sales tax, there are several steps a city must complete. First, the city council will need to establish an ordinance that must be passed at least 62 days prior to the election date using the ballot language found in the Attorney General・s Economic Development Handbook available on the Attorney General・s website. The election must also be submitted for pre- ‐clearance to the U.S. Department of Justice. This step can be completed online by visiting the Department of Justice website. The statute also requires the city to publish a notice of the election at least once in a newspaper of general circulation in the city 10 to 30 days before the election. The election to impose the sales tax can only be held on the uniform election dates, which are the second Saturday in May or the first Tuesday after the first Monday in November. No other election dates are permissible.
Slide 9: (Post-Election)
Slide 9: (Post-Election)
After a successful election, the city council must enter the results into the meeting minutes 8 to 11 days after the election. The results should include the date of the election, the ballot language, the number of votes for, number of votes against and the number of votes by which it passed. The city secretary will then send the election results, along with a city boundary map, by certified mail addressed to the Revenue Accounting division, Tax Allocation section at the Texas Comptroller・s office. If the election fails, the city must wait a full year before bringing the issue to voters again.
Slide 10: (Implementation Timeline)
If the election is successful and held on the first Saturday in May, the city will need to notify the Comptroller・s office by June 30. Tax collection would begin on Oct. 1, and the city would receive its first sales tax payment in December and each month thereafter. If the election is held on the first Tuesday after the first Monday in November and the city notifies the Comptroller・s office of the election results by Dec. 31, the sales tax would go into effect on April 1. The city would receive its first payment in June.
Slide 11: (The Corporation)
Once the election is over, the city will create the Type A or Type B corporation. The following slides describe the necessary steps related to creating the corporation and board requirements specific to Type A and Type B corporations.
Slide 12: (Board Members A)
For Type A corporations, the city council appoints at least five members to the board of directors. The board members serve at the pleasure of the city council and can be removed at any time. Board members are appointed for terms up to six years, and they may be reappointed. There are no qualifying criteria for a person to serve as a director, nor are there any residency requirements for Type A board members to live in the surrounding community, county or the state.
Slide 13: (Board Members B)
For Type B corporations, the city council appoints 7 board members. The board serves at the pleasure of the city council, and members can be removed at any time. Board members are appointed for 2-‐year terms and may be reappointed. Unlike Type A corporations, Type B board of directors are subject to certain qualifying criteria. State law limits the number of city officers or city employees to four of the seven Type B board positions. Board members must also be city residents, except for cities with a population less than 20,000. In the case of a city where the population is less than 20,000, the board member may be: a resident of the city, a resident of the county in which the major part of the city is located, or reside within 10 miles of the city・s boundaries and in a county bordering the county in which a major portion of the city is located.
Slide 14-17: (Map)
For example, the city of Evant・s population is less than 20,000, and the majority of the city is located in Coryell County. So in this example, a Type B board member for Evant could live in the Evant, in Coryell County, or within 10 miles of the city limits in a county adjacent to Coryell. As you can see, the city of
Star is within the 10 mile radius, but Mills County is not adjacent to Coryell County. No one living in Mills County could be on Evant・s Type B EDC board.
Star is within the 10 mile radius, but Mills County is not adjacent to Coryell County. No one living in Mills County could be on Evant・s Type B EDC board.
Slide 18: (Incorporation)
Once the board members have been selected by the city council, there are several steps that a new economic development corporation board must do before starting work on eligible projects. First, the board will need to select a name for the corporation, adopt bylaws and seek city council approval. Then the board will need to file the certificate of formation with the Texas Secretary of State and file form AP-‐204 with the State Comptroller・s tax exempt organizations section. This notifies the Comptroller・s office that the economic development corporation is a tax exempt entity.
Slide 19: (Board Training)
All Type A and Type B board of directors are required to obtain Open Meetings and Texas Public Information training. This training is only available through the Attorney General・s office and may be downloaded from their website. Both classes are 1 hour in length and are required within 90 days of appointment to the board of directors.
Slide 20: (Staff Training)
Economic development training is also required every 24 months for the EDC executive director and one of the following: the city attorney, the city administrator or city clerk. This training is titled economic development sales tax workshop and is administered by the Texas Economic Development Council.
Slide 21: (Project Approval Process)
Each EDC project must follow an approval process outlined by the Development Corporation Act before the project can begin. These required procedures are often preceded by informal meetings between the executive director and the board prior to ・going public・ with the project. Once the board is ready to proceed, the approval process begins.
Slide 22: (Type A Approvals)
For Type A corporations, the board must receive approval for each project from the city council. EDCs may pursue projects outside the city limits if they obtain approval from the governing body of that jurisdiction. If the project is in a county, approval would be sought from the county commissioner・s court. If it's in an adjacent city, approval would come from the appropriate city council. Type A corporations are allowed to undertake Type B projects if they receive voter approval in an election.
Slide 23: (Type B Approvals)
The Type B project approval process begins just like Type A corporations. The board must receive approval from the city council before beginning a project and if the project is outside the city limits, the board will need approval from the county commissioner's court or the appropriate city council. Before spending money on a project, Type B corporations must hold a public hearing on the project, unless the EDC is planning a Type A project and the city has a population less than 20,000. At least 60 days before beginning a project, the corporation must provide public notice. The public then has 60 days to present the city council with a petition requesting a referendum on the project. If there is a petition signed by 10 percent of the registered voters, the city must hold an election before proceeding with the project, unless the project type has been approved by voters at a prior election.
Slide 24: (Type A & B)
There are two sets of projects available to economic development corporations. There is a great deal of overlap between the two, but, to simplify, we separate the projects by corporation type.
Slide 25: (Eligible Economic Development Projects)
State law defines projects to include land, buildings, equipment, facilities, expenditures, targeted infrastructure and improvements suitable for the development of business or other eligible activity. This applies to Type A and Type B projects. The differences in Type A and B projects are in the activities that are allowed.
Slide 26-30: (Developing Industries)
Type A corporations typically use sales tax revenues to fund projects that develop industry. The list of eligible activities is outlined in Chapter 501 of the Local Government Code. These are a few examples: •manufacturing and industrial facilities; •research and development laboratories, such as biomedical or aerospace; •warehouses and distribution centers, this can be a local parts supplier or a regional shipping hub for a company; and •corporate headquarters, this can be regional headquarters or national or even international headquarters.
Slide 31-36: (Cultivating Communities)
Type B corporations can undertake all of the Type A projects, but they also have an additional set of activities that enhance the community in an effort to attract businesses and tourists. This list of activities is located in Chapter 505 of the Local Government Code, and these are some examples: •public parks and open space improvements;
•concert halls, auditoriums, and amphitheaters; •stadiums, ballparks, and athletic fields, from professional teams down to children・s sports; •tourist, convention, and visitor centers; and •for cities with a population of 20,000 or less, retail incentives. This includes any of the regular project expenditures, plus cash incentives.
•concert halls, auditoriums, and amphitheaters; •stadiums, ballparks, and athletic fields, from professional teams down to children・s sports; •tourist, convention, and visitor centers; and •for cities with a population of 20,000 or less, retail incentives. This includes any of the regular project expenditures, plus cash incentives.
Slide 37: (Project Limitations)
As you can see, there is a wide variety of projects and eligible activities EDCs may undertake, but there are some limitations.
Slide 38: (Infrastructure)
Regardless of the activity the EDC wants to support, targeted infrastructure improvements are limited to the following: •streets and roads, •rail spurs, •natural gas utilities, •electric utilities, •water and sewer utilities, •drainage, •site improvements, •telecommunications and Internet improvements; and •beach remediation along the Gulf of Mexico.
Slide 39: (Primary Jobs)
In 2003, the Legislature amended the definition of authorized projects to require certain projects to result in the creation or retention of primary jobs. A primary job is defined as a job that is available at a company for which a majority of the products or services of that company are ultimately exported to markets outside the local region, infusing new dollars into the local economy. Primary jobs are further limited to specific industry sectors such as agriculture, mining, manufacturing and scientific research and development. Those industry limitations can be found in Local Government Code, Chapter 501. The main requirement is that the businesses bring new money into the community.
Slide 40: (Allowable Costs)
Once the corporation decides on an eligible project, there are also limitations on the expenditure of sales tax revenues. Under the Economic Development Act, the allowed costs of a project include the following: •acquisition of land, •machinery and equipment, •construction costs, •planning and professional services related to the project, •financial transactions and reserve funds, •administrative and other necessary expenditures.
Slide 41-42: (Reporting Requirements)
Economic development corporations are required by statute to submit a financial report to the Texas Comptroller each year. The Economic Development Report details the corporation's revenues and expenditures for the previous fiscal year. The report is submitted online and is due by Feb. 1. This information is compiled into a biennial report prepared by the Comptroller's office and submitted to the legislature each legislative session. Failure to submit the report may result in exclusion from the Comptroller・s biennial economic development corporation report.
Slide 43-45:
The first section of the report asks for administrative information such as your corporation name, contact person and e-‐mail address. The next section of the report asks for the corporation's fiscal year, its primary economic development objectives, year- ‐end fund balance and revenues. The third and final section of the report shows expenditures and the corporation・s capital assets.
Slide 49:
If you have questions or need additional information, please contact the Local Government Assistance and Economic Development division at the Comptroller・s office at (800) 531- ‐5441, ext. 3-‐4679, or by e-‐mail at local.govt@cpa.state.tx.us. For additional resources on Type A/Type B and economic development, please visit our website at www.texasahead.org. This concludes the presentation on Type A and Type B economic development corporations.
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