TO:	Honorable Morgan Meyer, Chair, House Committee on Ways & Means
FROM:	Jerry McGinty, Director, Legislative Budget Board
IN RE:	HB5012 by Clardy (Relating to the authority of certain municipalities to receive certain tax revenue derived from a hotel and convention center project and to pledge certain tax revenue for the payment of obligations related to the project.), As Introduced

General Revenue-Related Funds, Five- Year Impact:

All Funds, Five-Year Impact:

Fiscal Analysis

The bill would amend Chapter 351 of the Tax Code, relating to the authority of certain municipalities to receive tax revenue derived from a hotel and convention center project and to pledge certain tax revenue for the payment of obligations related to the project.

The bill would amend Section 351.001(12) (Definitions) to add activities described by NAICS code 713 to those engaged in by a “retail establishment” for purposes of determining state tax revenue that a hotel project may be entitled to.

The bill would amend Section 351.152(42) and add Subsections (46-57), to provide for authority for: (42) a municipality with a population of 28,000 or more that is located in a county with a population of 240,000 or more in which is located a portion of the Balcones River and a historic railroad depot and heritage center; (46) a municipality that has a population of 100,000 or more; and is wholly located in, but is not the county seat of, a county with a population of one million or more in which all or part of a municipality with a population of one million or more is located and that is adjacent to a county with a population of 2.5 million or more; (47) a municipality that contains an intersection of Interstates 35E and 35W and at least two public universities; (48) a municipality that is the county seat of a county bordering the Gulf of Mexico and the United Mexican States; (49) a municipality that is bisected by the Guadalupe River and is the county seat of a county with a population of 170,000 or more; (50) a municipality with a population of 70,000 or more but less than 150,000 that borders Joe Pool Lake; (51) a municipality with a population of 115,000 or more that borders the Neches River; (52) a municipality described by Section 351.101(k); (53) a municipality that is the county seat of a county: through which the Brazos River flows; and in which a national monument is located; (54) a municipality that: contains a historical commercial district designated on the National Register of Historic Places and hosts an annual Grapefest event; has a population of 50,000 or more; and is partially located in three counties all of which has a population of 900,000 or more; (55) a municipality with a population of 45,000 or more that: is not the county seat of a county; is located in a single county; and contains a portion of Lake Lewisville; (56) a municipality that has a population of at least 150,000 and is partially located in a county hat contains a portion of Cedar Creek Reservoir and has a population of at least 145,000 (54); and (57) a municipality that: has an institution of higher education designated as an historical black college and university; has a population of 17,400 or more; and is located a county with a population of 145,000 or more that is adjacent to a county with a population of 2.6 million or more, to the list of municipalities that are entitled to receive certain tax revenue derived from a hotel and convention center project and to pledge certain revenue for the payment of obligations related to the project.

The bill would amend Section 351.155 (Pledge or Commitment of Certain Tax Revenue for Obligations for Qualified Project) to add Subsection (f), which applies only to a municipality described by Section 351.152(52), to authorize the municipality to pledge the revenue for the payment of bonds issued for a convention center facility that, at the time the bonds or other obligations were issues, was not a convention center facility.

The bill would amend Section 351.157(b) to add (13), a municipality described by Section 351.152(46) and Section 351.157(c) to add (13) (for a municipality described by (b)(13)), restaurants, bars, and retail establishments.

The bill would add Subchapter D, Section 351.201 of the Tax Code (Extension of Period of Entitlement to Certain Revenue for Certain Municipalities), applicable only to a municipality entitled to receive hotel project rebates during the period beginning March 12, 2020 and ending January 1, 2021, to extend the entitlement period for an additional 24-month period if requested. This subchapter would expire January 1, 2035.

The bill would amend Section 351.1015(a)(4) to define the boundaries of a project finance zone, for a municipality described by Section 351.001(7)(B), as also a contiguous geographic area located wholly within the corporate limits of the designating municipality that, as measured by acres, is equal to or less than the maximum area described by Subparagraph (i) and contains within it the qualified project.

The bill would amend Section 351.1015 to apply to a project located in a municipality with a population of at least 900,000 or a municipality that is described by Section 351.001(7)(b).

Methodology

Adding NAICS code 713 activities (including amusement and theme parks, gambling, golf courses, marinas, fitness and recreational sports centers, and bowling centers) increases the scope of possible tax revenue entitlements as from retail establishment rebates for current and future qualified hotel projects. Based on comparison of sales tax receipts from NAICS 713 businesses to sales tax receipts from retail establishments as currently defined in Section 351.001(12) in metropolitan areas, entitlement to retail establishment tax revenues for projects entitled to receive such revenues under Sections 351.156 and 351.157 would on average be 3.5 percent higher, though for some projects the increase could be substantially higher.

The bill provisions adding authorizations for qualified projects would apply to the cities of Allen (46), Denton (47), Brownsville (48), Seguin (49), Mansfield (50), Beaumont (51), Bastrop (52), Waco (53), Grapevine (54), Little Elm (55), Unknown City (56), and Terrell (57). (42) in current statute is the city of Kyle however; the amendment of the subsection results in ambiguity.

Denton (47), Brownsville (48), Seguin (49), Mansfield (50), Beaumont (51), Bastrop (52), Waco (53), Grapevine (54), Little Elm (55), and Terrell (57) would be eligible to receive funds described in Sections 351.156 (Entitlement to Certain Tax Revenue) which provides, in relevant part, that a municipality to which Section 351.152 applies is entitled to receive from the qualified hotel and each restaurant, bar, and retail establishment located in or connected to the hotel or the related qualified convention center facility, the state sales and use tax and the state hotel occupancy tax. Section 351.158 (Period of Entitlement) would entitle Allen to receive the revenue until the tenth anniversary of the date the qualified hotel to which the entitlement relates is open for initial occupancy.

Allen (46) would be eligible to receive funds described in Sections 351.156 (Entitlement to Certain Tax Revenue) and 351.157 (Additional Entitlement for Certain Municipalities) which provides, in relevant part, that a municipality to which Section 351.152 applies is entitled to receive from the qualified hotel and each restaurant, bar, and retail establishment located in or connected to the hotel or the related qualified convention center facility, the state sales and use tax and the state hotel occupancy tax.  Section 351.157(d) provides, in relevant part, that a municipality to which the section applies is entitled to receive the revenue derived from the state sales and use taxes, and local mixed beverage taxes generated, paid, and collected from a qualified establishment. Section 351.158 (Period of Entitlement) would entitle Denton to receive the revenue until the tenth anniversary of the date the qualified hotel to which the entitlement relates is open for initial occupancy.

The estimate for the added authorizations is based on an assumed opening date of September 1, 2026, or state fiscal year 2027, a comparison and review of revenues paid to the owners of extant qualified hotel projects, and estimated attributes of such prospective hotels.

Section 351.201 would provide the nine cities entitled to receive rebates during the period March 12, 2020 through January 1, 2021 would be entitled to receive an additional 24 months of rebates following the expiration of their current 10 year entitlement.

Language in Section 351.1015(a)(4) would be amended to provide Corpus Christi may designate a project financing zone of any shape provided it is a contiguous geographic area within city limits that as measured by acres is equal to or less than the area of a circle of 3 mile radius. It is assumed a complex polygonal zone could be configured to encompass all extant hotels in Corpus Christi.

Section 351.1015 would be amended to authorize project finance zones for a municipality with a population of at least 900,000 (Austin, Houston, and San Antonio, in addition to Dallas and Fort Worth) or a municipality described by Section 351.001(7)(b). It is assumed the intended reference is to Section 351.001(7)(B), which describes Corpus Christi.

The Cities of Austin, Corpus Christi, Houston, and San Antonio (cities) would be provided authority to receive incremental hotel-associated revenue from all hotels within the zone's boundaries, for a period of up to 30 years, less any amount distributed to a qualified hotel project already within the zone in the year the zone is designated. Hotel-associated revenue includes state sales tax revenue, state hotel tax revenue, state mixed beverage sales tax revenue and state mixed beverage gross receipts tax revenue collected from a hotel and businesses located within a hotel. The incremental revenue would be all such revenue in excess of the amounts from hotels within the zone during the year the project zone is designated by the municipality.

The Comptroller would begin depositing the estimated monthly incremental hotel-associated revenue into Fund 0805 – Incremental Hotel-Associated Revenue Suspense Trust once the hotels, and associated businesses in the hotels, within the zone have been determined by the city and validated by the Comptroller.

As incremental revenue available to finance development of project-associated infrastructure would be maximized by establishing the earliest year possible as base year for the determination of incremental revenue, it is assumed project designations would occur during 2023, the year of the effective date of the bill, with deposits to the project trust accounts beginning in 2024. The estimates are based on hotel tax revenue from hotels currently in operation and identified as within the likely boundaries of the zones, multiplied by a factor to account for associated sales tax and mixed beverage tax revenue based on data for extant hotel projects, extrapolated to future years at an average annual growth rate of six percent as representative of typical hotel tax growth rates prior to the pandemic.

As these estimates for project financing zone rebates are extrapolated from hotels currently in operation, they do not reflect higher payments to a project zone that would occur if the project-associated infrastructure improvements result in capture of market share by the project hotel and other hotels in the project zone from hotels elsewhere in a designating municipality or from other parts of the state. They also do not reflect higher payments as would occur if the project improvements attracted additional tourist visits from outside the state that otherwise would not have occurred anywhere in the state; revenue from such additional tourist visits paid to a project zone would not represent revenue foregone by the state.

Local Government Impact