BILL ANALYSIS H.B. 2065 By: Oliveira (Lucio) Economic Development 05-25-95 Senate Committee Report (Unamended) BACKGROUND The 70th Legislature adopted the Texas Enterprise Zone Act which allows the Department of Commerce (department) 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 passed legislation to codify the Texas Enterprise Zone Act, Article 5190.7, into Chapter 2303, Texas Government Code. Legislation was also adopted which reauthorized the department to offer state incentives to businesses in enterprise zones and expanded the purposes of enterprise zones. PURPOSE As proposed, H.B. 2065 provides for incentives to businesses locating or expanding in enterprise zones; and establishes guidelines for program access and requirements. RULEMAKING AUTHORITY It is the committee's opinion that this bill does not grant any additional rulemaking authority to a state officer, institution, or agency. SECTION BY SECTION ANALYSIS SECTION 1. Amends Chapter 2303B, Government Code, by adding and amending Section 2303.0525, as follows: Sec. 2303.0525. COST-BENEFIT ANALYSIS. (a) Requires the Department of Commerce (department), on or before December 1 of each even-numbered year, to prepare a cost-benefit analysis of the enterprise zone program. (b) Requires the department to submit the analysis to the state auditor for review and comment on the methodology and conclusions of the analysis. (c) Requires the state auditor, before the regular session of the legislature convenes, to submit the analysis and the state auditor's comments on the analysis to the governor, the lieutenant governor, and the speaker of the house of representatives. (b) Repealer: Section 25, Chapter 986, Acts of the 73rd Legislature, Regular Session, 1993 (relating to the requirement of the department to prepare an annual cost-benefit analysis of the enterprize zone program and submit it to the state auditor for review). SECTION 2. Amends Section 2303.102, Government Code, as follows: Sec. 2303.102. AREA OF PERVASIVE POVERTY, UNEMPLOYMENT, AND ECONOMIC DISTRESS. (a) Provides that an area is an area of pervasive poverty, unemployment, and economic distress for the purposes of Section 2303.101 if: (1) the average rate of unemployment in the area during the most recent 12-month period for which data are available was at least one and one-half times the state, rather than local or national, average for that period; or (2) the area had a population loss of at least 12, rather than nine, percent during the most recent six-year period or at least four, rather than three, percent during the most recent three-year period; and, among other qualifications, the area has had a substantial increase in the number of individuals younger than 18 years of age arrested due to criminal activity. (b) Sets forth provisions under which labor force and population data are considered current. SECTION 3. Amends Section 2303.109(b), Government Code, to add the areas designated as a federal empowerment zone and a federal enterprise community to the areas that may be designated as an enterprise zone without further qualification for longer than seven years but not longer than the period permitted by federal law. SECTION 4. Amends Section 2303.205(c), Government Code, to add to the list of provisions the report must include, the number of businesses assisted and retained in the zone since its designation due to the existence of the enterprise zone; a summary of, rather than a copy of the report required for, all industrial revenue bonds issued to finance projects located in the zone; and a description of all efforts made to attain revitalization goals for the zone. Deletes existing Subdivision (2). Makes nonsubstantive changes. SECTION 5. Amends Chapter 2303C, Government Code, by adding Section 2303.112, as follows: Sec. 2303.112. EXCEPTION TO LIMIT ON DESIGNATION. Provides that designation as an enterprise zone under this chapter of an area 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 the municipality or county may have designated under this chapter. SECTION 6. Amends Chapter 2303F, Government Code, as follows: SUBCHAPTER F. QUALIFIED BUSINESS AND ENTERPRISE PROJECTS Sec. 2303.401. DEFINITIONS. Defines "new permanent job." Sec. 2303.402. QUALIFIED BUSINESS. Redesignates existing Section 2303.401. Changes the defining provisions of a person who is economically disadvantaged to include an individual who is entering the workplace after being confined in a facility operated by, rather than a unit of, the institutional division of the Texas Department of Criminal Justice or under contract with the Texas Department of Criminal Justice, rather than confined in a correctional facility authorized by Chapter 495; or has been released by the Texas Youth Commission and is on parole, if state law provides for such a person to be on parole. Makes nonsubstantive changes. Sec. 2303.403. Redesignates existing Section 2303.402. PROHIBITION ON QUALIFIED BUSINESS CERTIFICATION. Prohibits the department from designating more than 65 businesses as enterprise projects during any biennium. Sec. 2303.404. REQUEST FOR APPLICATION FOR ENTERPRISE PROJECT DESIGNATION. (a) Authorizes a qualified business in an enterprise zone described by Subsection (b) to request that the governing body of the enterprise zone apply to the department for designation of the business as an enterprise project. Requires the request to also be made to the enterprise zone's administrative authority, if one exists. (b) Authorizes a request to be made under this section only to the governing body of an enterprise zone that has an unemployment rate that is at least one and one-half times the state average; or a certain population loss. Sec. 2303.405. APPLICATION FOR ENTERPRISE PROJECT DESIGNATION. (a) Authorizes a governing body, if the governing body of an enterprise zone or the governing body and administrative authority of an enterprise zone approve a request made under Section 2303.404, to apply to the department for the designation of the qualified business as an enterprise project. (b) Sets forth requirements for an application. (c) Provides that local effort to develop and revitalize an enterprise zone is the willingness of public entities in the zone to provide services, incentives, and regulatory relief authorized by this chapter and to negotiate with the qualified business for which application is made and with neighborhood enterprise associations and other local groups or businesses to achieve the public purposes of this chapter; and the effort of the qualified business and other affected entities to cooperate in achieving those public purposes. (d) Sets forth factors to be considered in evaluating the local effort of a public entity. (e) Sets forth factors to be considered in evaluating the local effort of a private entity. Sec. 2303.406. ENTERPRISE PROJECT DESIGNATION. (a) Authorizes the department to designate a business as an enterprise project only if the department makes certain determinations. (b) Requires the department to designate qualified businesses as enterprise projects on a competitive basis. Sets forth the weighted scale by which the department shall make its designation decisions. (c) Provides that the designation of an enterprise project is effective until the fifth anniversary of the date on which the designation is made. (d) Authorizes the department to remove an enterprise project designation if it determines that the business is not complying with a requirements for its designation. Sec. 2303.408. New heading: DURATION OF CERTAIN DESIGNATIONS. Redesignates existing Section 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 on which the designation is made regardless of whether the enterprise zone in which the project is located expires before the fifth anniversary of the project. Deletes the provision that after August 31, 1993, the department may not designate a business as an enterprise project. Deletes existing Subsection (b). Makes a conforming change. SECTION 7. Amends Section 2303.505(a), Government Code, to add to the provisions on which the governing body of a municipality through a program may refund its local sales and use taxes paid by a qualified business: labor for remodeling, rehabilitating, or constructing a structure in an enterprise zone; and electricity and natural gas purchased and consumed in the normal course of business in the enterprise zone. SECTION 8. Amends Section 2303.511(b), Government Code, to prohibit the rates from being reduced more than five percent below the lowest rate offered to any customer located in the enterprise zone, including economic development rates and standby rates. Authorizes a qualified enterprise project or the governing body of the enterprise zone to petition a regulatory authority to receive a reduced rate under this section, and the regulatory authority may order that rates be reduced. Requires the regulatory authority, in making its determination under this section, to consider revitalization goals for the enterprise zone. SECTION 9. Amends Section 2303.514, Government Code, to provides that a subcontractor, rather than a prime contractor, is not required to execute a performance bond under Chapter 2253 if certain conditions apply. SECTION 10. Amends Section 481.155, Government Code, by adding Subsection (h), to require the executive director, in awarding a grant under this section, to give priority to a project that is located in an enterprise zone as defined by Section 2303.003. SECTION 11. Amends Section 151.429(a), Tax Code, to make conforming changes. SECTION 12. Amends Section 312.203, Tax Code, to provide that the designation of a reinvestment zone for residential or commercial-industrial tax abatement expires five year after the date of the designation and may be renewed for periods not to exceed five years, except that a reinvestment zone that is a state enterprise zone is designated for the same period ass a state enterprise zone as provided by Chapter 2303, Government Code. SECTION 13. Amends Section 312.204, Tax Code, by adding Subsection (f), to provide that the agreements made with owners of property in an enterprise zone that is also designated as a reinvestment zone are not required to contain identical terms for the portion of the value of property that is to be exempt and the duration of the agreement. SECTION 14. Amends Section 312.206, Tax Code, to authorize the governing body of each taxing jurisdiction, if property taxes on property located in an enterprise zone are abated under this chapter, to execute a written agreement with the owner of the property no later than 90 days after the date the municipal or county agreement is executed, whichever is later. Authorizes the agreement to contain terms that are identical to those contained in the agreement with the municipality, county, or both, whichever applies, and the only terms of the agreement that may vary are the portion of the property that is to be exempt from taxation under the agreement and the duration of the agreement. SECTION 15. Amends Section 2(10), Article 5190.6, V.T.C.S. (Development Corporation Act), to redefine "project" to include economically depressed federally designated empowerment zones and enterprise communities designated under Section 1391, Internal Revenue Code of 1986. SECTION 16. Amends Section 21, Article 5190, V.T.C.S., to provide that every unit is hereby authorized to utilize a corporation to issue bonds on its behalf to finance the cost of projects, including projects in federally designated empowerment zones and enterprise communities or enterprise zones designated under the Texas Enterprise Zone Act, to promote and develop new and expanded business, rather than industrial and manufacturing, enterprises to promote and encourage employment and the public welfare. SECTION 17. (a) Prohibits an enterprise project designated under Chapter 2303, Government Code, after August 31, 1995, from receiving a tax refund under Section 151.429, Tax Code, as amended by this Act, or a tax reduction under Section 171.1015, Tax Code, before September 1, 1997. (b) Authorizes not more than $8 million in state sales and use taxes to be refunded to enterprise projects designated during the biennium beginning September 1, 1995. SECTION 18. Requires Sections 5, 6, 7, 8, 9, and 10, Chapter 231, Acts of the 73rd Legislature, Regular Session, 1993, to continue in existence and be applicable to a qualified hotel project. Requires a qualified hotel project to continue to be eligible to receive tax refunds under Section 151.429(h), Tax Code. Authorizes a qualified hotel project to continue to be designated as a qualified business and an enterprise project. Prohibits refunds to a qualified hotel project from affecting the refunds that may be made under the provisions of Section 17 of this Act or affect the number of enterprise projects that the department may approve. SECTION 19. Effective date: September 1, 1995. SECTION 20. Emergency clause.