BILL ANALYSIS C.S.H.B. 2065 By: Oliveira April 19, 1995 Committee Report (Substituted) BACKGROUND The 70th Legislature adopted the Texas Enterprise Zone Act which allows the Department of Commerce to designate economically distressed areas, nominated by cities or counties, as state enterprise zones. The Department, along with the Comptroller of Public Accounts, administers state incentives offered to businesses locating or expanding in enterprise zones. Currently, there are 156 enterprise zones designated throughout the State. State incentives are reauthorized by the Legislature each regular session. The 73rd Legislature adopted five bills relating to enterprise zones. The Legislature passed legislation to codify the Texas Enterprise Zone Act, Article 5190.7 into Chapter 2303, Texas Government Code. The Legislature also adopted S.B. 405, which reauthorized the Department of Commerce to offer state incentives to businesses in enterprise zones, and S.B. 1051, H.B. 1872, and H.B. 2282 which expanded the purposes of enterprise zones. PURPOSE The purpose of this bill is to allow the State to continue to offer incentives to businesses locating or expanding in enterprise zones. The bill reauthorizes the Department of Commerce to administer these incentives and has conforming amendments relating to the codification of the Enterprise Zone Act to the Government Code. The bill also seeks to establish guidelines to limit program access and simplify program requirements. 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. Subsection (a) codifies Section 25, Chapter 986, Acts of the 73rd Legislature, to the Government Code, by adding and amending the following: Sec. 2303.0525. COST-BENEFIT ANALYSIS. (a) The Department of Commerce shall prepare a cost-benefit analysis on the enterprise zone program each even-numbered year. (b) The department shall submit the analysis to the state auditor for review and comment. (c) The state auditor shall submit the analysis, before the regular session, to the governor, lieutenant governor, and the speaker of the house of representatives. (b) Repeals Section 25, Chapter 986, Acts of the 73rd Legislature. SECTION 2. Amends and adds to Section 2303.102, Government Code, as follows: (1) the average rate of employment in the area was at least one and one-half times the state average; (2) the area had a population loss of at least 12 percent during a six-year period or at least 4 percent during a three-year period; (v) the area has had a substantial increase in the number of individuals younger than 18 arrested due to criminal activity. (b) Labor force and population data are considered current if they are the most recently published estimates or the application is received by the department before the 61st day after the data is published. SECTION 3. Amends Section 2303.109(b), Government Code, by allowing federal empowerment zones or enterprise communities to be state enterprise zones without further qualification. SECTION 4. Amends Section 2303.205(c), Government Code, by modifying enterprise zone reporting requirements to reflect the number of businesses assisted located or retained in the zone due to the existence of the zone, to summarize bonds issued to finance projects, and to include a description of rehabilitation efforts. SECTION 5. Amends Subchapter C, Chapter 2303, Government Code, by adding Section 2303.112, which adds provisions so that state enterprise zones designated as federal enterprise zones or empowerment communities do not reduce the number of state zones a jurisdiction may have. SECTION 6. Subsection (a) codifies Sections 26 and 27, Chapter 986; Sections 1-3, Chapter 974; and Sections 5 and 8, Chapter 231, Acts of the 73rd Legislature by adding and amending as follows: CHAPTER F. QUALIFIED BUSINESSES AND ENTERPRISE PROJECTS Sec. 2303.401. DEFINITION. Defines "new permanent job." Sec. 2303.402. QUALIFIED BUSINESS. Clarifies language in the definition of an economically disadvantaged individual for those who are entering the workplace after being confined in facility operated by the Texas Department of Criminal Justice or under contract with the Texas Department of Criminal Justice. And adds to the definition an individual who has been released by the Texas Youth Commission and is on parole, if state law provides for such a person to be on parole. Sec. 2303.403. PROHIBITION ON QUALIFIED BUSINESS CERTIFICATION. Redesignates Sec. 2303.402. Provides that the department may not designated more than 65 businesses as enterprise projects during any biennium. Sec. 2303.404. REQUEST FOR APPLICATION FOR ENTERPRISE DESIGNATION. (a) A qualified business in an enterprise zone may request a governing body to ask the department to designate the business as an enterprise project. The request may be made to the enterprise zone's administrative authority, if one exist. (b) Specifies the qualification a zone must meet in order to request a projects designation. Sec. 2303.405. APPLICATION FOR ENTERPRISE PROJECT DESIGNATION. (a) Provides if the governing body of an enterprise zone approve a request, the governing body may apply to the department for the designation of the qualified business as an enterprise project. (b) Provides for how an applicant must apply with the department to request enterprise zone designation. (c) Defines, for purpose of this Section, local effort to develop and revitalize an enterprise zone. (d) Provides for factors to be considered in evaluating the local effort of a public entity. (e) Provides for factors to be considered in evaluating the local effort of a private entity. Sec. 2303.406. ENTERPRISE PROJECT DESIGNATION. (a) Provides for factors to be used by the department to designate a business as an enterprise project. (b) Provides for factors to be used by the department to designate a qualified businesses as enterprise projects on a competitive basis. (c) Designates the effective period on an enterprise project. (d) Provides for the removal of an enterprise project by the department. Sec. 2303.407. ALLOCATION OF JOBS ELIGIBLE FOR TAX REFUND. Provides for the department to allocate the maximum number of new or retained jobs to be included in a computation of a tax refund for the project. Also, specifies specific numbers to be used by the department in their allocations. Sec. 2303.408. DURATION OF CERTAIN DESIGNATIONS. Redesignates Sec. 2303.403. Provides that the department's designation of a qualified business as an enterprise project is effective until the fifth anniversary of the date of the designation, regardless of whether the enterprise zone expires before the project. (b) Repeals Sections 26 and 27, Chapter 986, and Sections 1-3, Chapter 974, Acts of the 73rd Legislature. SECTION 7. Amends Section 2303.505(a), Government Code, to allow for a refund by a municipality of local sales and use taxes and by a qualified business for labor for remodeling or rehabilitating a structure and electricity and natural gas purchased for use in an enterprise zone to an enterprise project. SECTION 8. Amends Section 2303.511(b), Government Code, by adding provisions so that rates may be reduces beyond the lowest rate offered to any customer in the zone, and provides for an appeals process if rates are not reduced. SECTION 9. Amends Section 2303.514, Government Code, by removing the waiver of performance bonds on prime contractors on contracts of $200,000 or less for public works projects in an enterprise zone. Gives subcontractors a waiver of performance bond on contracts of $200,000 or less. SECTION 10. Amends Section 2303.003(3), Government Code, by adding sports facility to the definition of "enterprise zone". SECTION 11. Amends Chapter 2303, Government Code, by adding Subchapter H as follows: SUBCHAPTER H. QUALIFIED SPORTS FACILITY PROJECTS Sec. 2303.601. Defines "local government," qualified sports facility project," "sports authority," "sports facility," and "sports facility enterprise zone." Sec. 2303.601. DESIGNATION OF SPORTS FACILITY ENTERPRISE ZONE. (a) Designates a sports facility enterprise zone. (b) Provides that a local government that designates an area as a reinvestment zone they can also designate the area as a sports facility enterprise zone without further hearing or procedural requirements other than what is required in the tax code. (c) Provides that the governing body of a sports facility enterprise zone in which a qualified sports facility project is located may apply for designation as a sports facility enterprise zone. The department shall designate the sports facility enterprise zone if the department or the governing body certifies that the zone was created in accordance with this subchapter and the Tax Code. (d) Provides so that a sports facility enterprise zone does not reduce the number of enterprise zones the department may designate. Sec. 2303.603. QUALIFIED SPORTS FACILITY PROJECT. (a) Designates for a person as a qualified business, an enterprise project, and a qualified sports facility. (b) Requires a sports facility projects to meet the same criteria of a qualified business and enterprise project. (c) Requires a sports facility enterprise zone in which a qualified sports facility project is located to meet the requirement of this chapter. (d) Provides for determining the number of enterprise projects that the department may approve, and that the department may not consider new permanent jobs or retained jobs created by a qualified sports facility project. SECTION 12. Amends Section 151.429(a), Tax Code, to allow for the refund of sales taxes paid on labor for remodeling or rehabilitating a structure and electricity and natural gas purchased for use in an enterprise zone to an enterprise project. SECTION 13. Amends Section 312.203, Tax Code, so that reinvestment zones in enterprise zones be designated for the same period as the state enterprise zone. SECTION 14. Amends Section 312.204, Tax Code, by adding Subsection (f) which provides that tax abatement agreements in enterprise zones that are also in reinvestment zones are not required to contain identical terms. SECTION 15. Amends Section 312.206, Tax Code, by adding Subsection (e) which provides that property tax abatements may be executed within 90 days of the jurisdiction agreeing. Also states that the abatement agreements offered by entities may vary only in term of the portion of the property that is to be exempt. SECTION 16. Amends Section 2(10), Development Corporation Act of 1979, so that in addition, in blighted or economically depressed areas, development areas, federally designated empowerment zones and enterprise communities designated under Section 1391, Internal Revenue Code of 1986, or federally assisted new communities located within a home-rule city or a federally assisted new communities located within a home-rule city or a federally designated economically depressed county of less than 50,000 persons according to the last federal decennial census, a project may include the land, buildings, equipment, facilities, and improvements (one or more) found by the board of directors to be required or suitable for the promotion of commercial development and expansion and in furtherance of the public purposes of this Act, or for use by commercial enterprises, all as defined in the rules of the department, irrespective of whether in existence or required to be acquired or constructed thereafter. SECTION 17. Amends Section 21, Development Corporation Act of 1979, so that unites may issue bonds to finance projects in federal designated empowerment zones and enterprise communities or enterprise zones designated under the Texas Enterprise Zone Act, to promote and develop new and expanded business enterprises. SECTION 18. Provides for an enterprise project designated under Chapter 2303, Government Code, after August 31, 1995, may not receive tax refunds until September 1, 1997, and that not more than $8 million in sales and use tax may be refunded to the projects designated during this FY 96-97 biennium. SECTION 19. Effective date of September 1, 1995. SECTION 20. Emergency Clause. COMPARISON OF ORIGINAL TO SUBSTITUTE The original bill only allowed two enterprise zones to be designated in an area located in the jurisdiction of the governing body of the municipality or county nominating the area as an enterprise zone. The substitute does not address this section so as to allow the law to remain at 3 designated enterprise zones. The original bill changed unemployment and population loss criteria to qualify for a enterprise zone, and adds for enterprise zone creation based on gang activity if the attorney general certifies the area. The substitute leaves the unemployment and population loss criteria as proposed in the original bill, but removes attorney general certification and inserts a substantial increase in the number of juvenile arrest as a secondary criteria for zone approval. The substitute adds "exception to limit on designation" which provides that an enterprise zone designated as a federal enterprise zone, federal empowerment zone, or federal enterprise community located in a municipality or county does not reduce the number of enterprise zones that they can designate in that municipality or county. The substitute adds to the qualification of an "economically disadvantaged individual" an individual who has been released by the Texas Youth Commission and is on parole, if state law provides for such a person to be on parole. The substitute adds to the factors considered in evaluating the local efforts of a private entity provision by adding provisions of technical and vocational job training for enterprise zone residents or economically disadvantaged employees; provision of child care for employees; commitments to implement and contribute to a tutoring or mentoring programs for area students; and prevention or reeducation of juvenile crime activity. The original bill designated the weight scale used in designation of a qualified business as enterprise projects as (1) 33-1/3 percent on the economic distress of the enterprise zone in which the project is located; (2) 33-1/2 percent on the local effort to achieve development and revitalization of the enterprise zone; and (3) 33-1/3 percent of the evaluation criteria as determined by the department. The substitute changes the weight scale for approving a project as (1) 50 percent depends on the economic distress of the enterprise zone were the proposed project is located and the area within the enterprise zone where the projects is located. (2) 25 percent depends on the local effort to achieve development and revitalization of the enterprise zone; and (3) 25 percent depends on the evaluation as determined by the department which must include the level of cooperation and support the applicant commits to the revitalization goals of the zone and the type and wage lives of the jobs to be created or retained by the business. The original bill encouraged a municipality and allowed the state to refund its local sales and use taxes to a qualified business on electricity and natural gas purchased for use in the enterprise zone. The substitute changes the language so that a qualified business may receive a local sales and use tax refund on electricity and natural gas purchased and consumed in the normal course of business in the enterprise zone. The substitute adds provisions so that rates may be reduced beyond the lowest rate offered to any customer in the zone, and provides for an appeals process if rates are not reduced. The original bill removed "qualified hotel project" from the Texas Enterprise Zone Act. The substitute does not address this section so as to allow "qualified hotel project" to remain in the Texas Enterprise Zone Act. The substitute adds changes to the waiver of performance bond so as to require a prime contractor, but not a subcontractor, to execute a performance bond. The substitute adds a sports facility to the definition of "enterprise zone". The substitute adds Subchapter H to the Government Code which addressees qualified sports facility projects. The substitute adds that tax abatement agreements in enterprise zones that are also in reinvestment zones are not required to contain identical terms. Also adds that property tax abatements may be executed within 90 days of the jurisdiction agreeing. It states that the abatement agreements offered by entities may vary only in term of the portion of the property that is to be exempt. The substitute removes from the original the sections that repealed sections of the Tax Code. The substitute also removes the section that repeals certain sections in Chapter 231, Acts of the 73rd Legislature, 1993. SUMMARY OF COMMITTEE ACTION H.B. 2065 was considered by the committee in a public hearing on April 3, 1995. Testifying on the bill was Dan Wattles, representing the Texas Department of Commerce and Karin Richmond, representing herself, and Owens, Corning Fiberglas, and CITGO. Testifying in favor of the bill was Dane Harris, representing the Texas Association of Business and Chambers of Commerce; Gerald E. Galernik, representing Owens-Corning; Curtis Cleveland, representing himself and the Texas Economic Development Council; and Claudia Mora, representing herself and the City of San Antonio Economic Development. No one testified against the bill. H.B. 2065 was referred to the subcommittee on enterprise zones; a subcommittee consisting of Representatives Yarbrough (Chair), Davis and Shields. H.B. 2065 was considered by the subcommittee in a work session on April 6, 1995. No action was taken in subcommittee. After being recalled from subcommittee, H.B. 2065 was considered by the committee in a public hearing on April 10, 1995. The committee considered a complete substitute to H.B. 2065. One amendment was offered to the substitute. The amendment was adopted without objection. The substitute as amended was adopted without objection. H.B. 2065 was reported favorably as substituted, with the recommendation that it do pass and be printed, by a record vote of 9 ayes, 0 nays, 0 pnv, 0 absent.