BILL ANALYSIS Economic Development Committee C.S.H.B. 1706 By: Ramsay May 2, 1995 Committee Report (Substituted) BACKGROUND The Development Corporation Act of 1979 authorized municipalities to issue industrial revenue bonds for the purpose of economic development. In 1989, the Act was amended to allow municipalities with less than 50,000 population, with voter approval, to levy up to a one-half cent sales tax to be used for narrowly-defined industrial development projects only. The Act was amended again in 1991 to allow municipalities in counties with more than 750,000 population, with voter approval, to levy up to a one-half cent sales tax to be used for a broad range of economic development projects. In 1993, the Act was amended yet again to allow municipalities with less than 50,000 population to undertake the same broad range of projects available to larger cities. The result is an Act that contains a number of oversights and omissions that need to be addressed. PURPOSE The purpose is to simplify Section 4B of the Development Corporation Act of 1979 by removing confusing population requirements and allowing any municipality not participating in a mass, metropolitan, or regional transit authority to form an economic development corporation under section 4B of the Act. It will also allow these corporations to spend corporate revenues for promotional purposes, enter into contracts with private corporations, and remain in existence after bond obligations have been satisfied. RULEMAKING AUTHORITY It is the committee's opinion that this bill does not expressly grant any additional rulemaking authority to a state officer, department, agency, or institution. SECTION BY SECTION ANALYSIS SECTION 1. Amends Section 4B, Development Corporation Act of 1979 (Article 5190.6, Vernon's Texas Civil Statute), as amended by Chapters 1022 and 1031, Acts of the 73rd Legislature, Regular Session, 1993, as follows: Sec. 4B. (a)(1) Amends the definition of "eligible city" to mean a city that is not at the time it creates a corporation, and has not previously been, included within the boundaries of an authority under: (A) Chapter 141, Acts of the 63rd Legislature, Regular Session, 1973; (B) Chapter 683, Acts of the 66th Legislature, 1979; or (C) Article 1118z, Revised Statutes. Redesignates (a-1) as (b). Redesignates (a-2) as (c). (d) Adds that a created corporation may spend corporate revenues for promotional purpose. Allows for contracts with private corporations to fulfill industrial development programs allowed for in this Act. Redesignates (b-h) to (e-l). (i) Deletes all the section. Redesignates (j-n) to (m-q). Section 2. Expires Section 1 of this Act September 1, 1997. Section 3. Emergency clause. COMPARISON OF ORIGINAL TO SUBSTITUTE The original bill added to the definition of an eligible city to mean a city that is located in a county with a population of 500,000 or less according to the most recent federal decennial census; or that has a population of less than 50,000 according to the most recent federal decennial census and that is located in two or more counties, one of which has a population of 500,000 or greater according to the most recent federal decennial census; is located within the territorial limits but has not elected to become a part of a metropolitan rapid transit authority that has a principal city with a population less than 1.2 million or more than 750,000 according to the most recent federal decennial census, with such authority being created January 1, 1980. The substitute change the definition of an eligible city to mean a city that is not at the time it creates a corporation, and has not previously been, included within the boundaries of an authority under Chapter 141, Acts of the 63rd Legislature, Regular Session, 1973; Chapter 683, Acts of the 66th Legislature, 1979; or Article 11182, Revised Statutes. The substitute deletes all other definitions for eligible city. The original bill added that a corporation created may spend no more than 25 percent of the corporate revenues for promotional purposes and may contract with other existing private corporations to carry out industrial development programs consistent with the purposes and duties as set out in this bill. The substitute changes it so that a corporation created may spend corporate revenues for promotional purposes and may contract with other existing private corporations to carry out industrial development programs consistent with the purposes and duties as set out by this bill. The substitute adds that each director must be a resident of or owner of real property located in the eligible city. The original bill deleted that the rate of a tax adopted must be one eighth, one fourth, three eighths, or one half of one percent; the ballot proposition at the election held to adopt the tax must specify the rate of the tax to be adopted; a corporation that holds an election to reduce a tax imposed under Section 4A of this Act may in a separate proposition on the same ballot adopt a tax; if an eligible city adopts the tax, a tax is imposed on the receipts from the sale at retail of taxable items within the eligible city at the rate approved at the election; there is also imposed an excise tax on the use, storage, or other consumption within the eligible city of tangible personal property purchased, leased, or rented from a retailer during the period that the tax is effective within the eligible city; and the rate of the excise tax is the same as the rate of the sales tax portion of the tax and is applied to the sale price of the tangible personal property. The substitute replaces this section and leaves it as it currently is in the law. The original bill added on approval of the governing body of each unit and corporation involved, a corporation created under this Act that is not created under this section may transfer all of its assets to a corporation governed by this section and dissolve as provided by this Act. The substitute removed this language from being added to the bill. The substitutes deletes that a sales and use tax that is imposed may not be collected after the last day of the first calendar quarter occurring after notification to the comptroller by the corporation that all bonds or other obligations of the corporation that are payable in whole or in part from the proceeds of sales and use tax, including any refunding bonds or other obligations, have been paid in full or the full amount of money, exclusive of guaranteed interest, necessary to pay in full the bonds and other obligations has been set aside in a trust account dedicated to the payment of the bonds and other obligation. The original bill repealed Section 4A of the Development Corporation Act of 1979. Defined the guidelines for a Section 4A Corporation that was created before the effective date of the original bill to continue as a Section 4B Corporation with all the powers and duties of a 4B Corporation. Explained that a Section 4A Corporation that was created as a Section 4A Corporation before the effective date of the original bill would continue to collect any taxes and undertake any project authorized for the 4A Corporation created. All restriction applicable to 4A taxes and project would have remained the same. Further, any tax or project that begins on or after the original bill took effect was governed by Section 4B. Any taxes authorized as a Section 4A Corporation could only be used to fund a Section 4B Corporation project if there are no restrictions on the tax to conflict with the funding of the project and the project is allowed by Section 4B. The original bill allowed before January 1, 1996 all articles of incorporation of a corporation created under Section 4A must be amended to state that the corporation is governed by Section 4B with the exception of Subsection (b) of this section; and the Board of Directors of a Section 4A Corporation shall be conformed to Section 4B Corporation Board of Director specifications. The substitute removes and does not address this addition of the original bill SUMMARY OF COMMITTEE ACTION H.B. 1706 was considered by the committee in a public hearing on April 24, 1995. The committee considered a complete substitute for H.B. 1706. Testifying in favor of the bill was Joe Hewman, representing the Texas Economic Development Council. H.B. 1706 was left pending in committee. H.B. 1706 was reconsidered by the committee in a formal meeting on April 27, 1995. One amendment was offered to the substitute. The one amendment was adopted without objection. The substitute as amended was adopted without objection. H.B. 1706 was reported favorably as substituted, with the recommendation that it do pass and be printed, by a record vote of 7 ayes, 0 nays, 0 pnv, 2 absent.