BILL ANALYSIS S.B. 1642 By: Ratliff Economic Development 4-12-95 Committee Report (Amended) BACKGROUND Section 4A of the Industrial Development Corporation Act was created in 1989 to allow cities in counties of 500,000 or less to vote to collect an additional sales tax to develop new industries in their communities. Section 4B of the Act was created in 1991 to allow cities in larger counties to undertake other types of projects not authorized under Section 4A. During the 73rd Legislature, H.B. 2297 was passed to allow 4A cities the opportunity to create a 4B corporation in order to take advantage of a broader list of projects. Some confusion now exists for cities eligible to create both 4A and 4B corporations. PURPOSE As proposed, S.B. 1642 provides for industrial development corporations created by certain cities and streamlines the process for 4A cities intending to undertake 4B projects or vice versa. 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 Sections 4A and 4B, Article 5190.6, V.T.C.S. (Development Corporation Act of 1979), as follows: Sec. 4A. AUTHORIZATION TO LEVY SALES TAX FOR INDUSTRIAL DEVELOPMENT. (a) ELIGIBLE CITY. Defines "eligible city." (b)(1) CREATION OF CORPORATION. Authorizes an eligible city to create a corporation under this Act governed by this section. Provides that the corporation has the powers and is subject to the limitations of a corporation created under other provisions of this Act. Provides that to the extent of a conflict between this section and another provision of this Act, this section prevails. Requires the articles of incorporation of a corporation to state that the corporation is governed by this section and may include within its name any words and phrases specified by the eligibility. Prohibits a city from creating more than one corporation governed by this section. (2) SPENDING FOR PROMOTION. Provides that a corporation created under this section may spend no more than 10 percent of its revenues for promotional purposes and may contract with other existing private corporations to carry out industrial development programs consistent with the purposes and duties provided by this Act. (3) TRANSFER OF ASSETS FROM CORPORATION CREATED UNDER THIS ACT. Authorizes a corporation created under this Act that is not created under this section to transfer all of its assets to a corporation governed by this section and dissolve as provided by this Act, on approval of the governing body of each unit and corporation involved. (c) BOARD OF DIRECTORS AND GOVERNANCE. Provides that the board of directors of a corporation consists of seven directors who are appointed by the governing body of the eligible city for two-year terms of office. Authorizes a director to be removed by the governing body of the eligible city at any time without cause. Requires each director to be a resident of the eligible city. Requires at least three directors to be persons who are not employees, officers, or members of the governing body of the eligible city. Provides that a majority of the entire membership of the board is a quorum. Requires the board to conduct all meetings within the boundaries of the eligible city. Requires the board to appoint a president, a secretary, and other necessary officers. Requires the corporation's registered agent to be an individual resident of the state and the corporation's registered office to be within the boundaries of the eligible city. Provides that a corporation created before September 1, 1995, that has a board of directors consisting of five directors continues to have a five-member board unless the governing body of the eligible city establishes a seven-member board. (d)(1) AUTHORITY TO LEVY SALES TAX. Authorizes the governing body of an eligible city by ordinance to levy a sales and use tax for the benefit of the corporation if the tax is authorized by a majority of the qualified voters of the eligible city voting at an election called and held for that purpose. Provides that this election requirement is satisfied and another election is not required if the voters of the eligible city approved the levy and collection of an additional one-half cent sales and use tax at an election held before March 28, 1991, under an ordinance calling the election that was published in a newspaper of general circulation within the eligible city at least 14 days in advance of the election and that stated that the election was held in anticipation of the enactment of enabling and implementing legislation without further elections. (2) IMPOSITION AND RATE OF SALES TAX. Provides that 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. Requires the rate of a tax adopted under this section to be one-eighth, one-fourth, three-eighths, or one-half of one percent. Prohibits the rate adopted from resulting in a combined rate of all sales and use taxes imposed by the city and other political subdivisions having territory in the city that exceeds two percent. Provides that an election adopting a rate that exceeds the limit on the combined rate has no effect. Provides that there is also imposed an excise tax on the use, storage, or other consumption within the city of taxable items purchased, leased, or rented from a retailer during the period that the tax is effective within the city. Provides that 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 sales price of the taxable items. (3) APPLICATION OF CHAPTER 321, TAX CODE. Provides that Chapter 321, Tax Code (Municipal Sales and Use Tax Act) governs an election to authorize the imposition of the sales and use tax under this section and governs the imposition, computation, administration, governance, abolition, and use of the tax except as inconsistent with this section. Provides that if an election is held under this section at the same time an election is held to impose or change the rate of the additional municipal sales and use tax, the tax under this section takes effect, at the option of the city and the imposition or change in rate of the additional municipal sales and use tax takes effect as provided by Section 321.102(b), Tax Code. Provides that after the effective date of the taxes imposed under this section, the adoption of a sales and use tax or the attempted adoption of a sales and use tax by the eligible city or any other taxing jurisdiction having territory in the city does not impair the taxes imposed under this section. (e)(1) BALLOT PROPOSITION -- GENERAL. Sets forth the language of the ballot required for voting on the tax under this section. (2) BALLOT PROPOSITION -- TIME LIMIT. Authorizes the city, at an election called and held under Subsection (d) of this section, to allow the voters to vote on a ballot proposition that limits the length of time that a sales and use tax may be imposed. Provides that if a city elects to limit the period the sales and use tax may be imposed, there shall be added language on the ballot proposition. Requires the governing body of the city to set the expiration date of the proposed tax to occur on the appropriate anniversary of the effective date of the tax. Provides that a sales and use tax imposed for a limited period under this subsection expires on the date set by the governing body or on an earlier date if the tax is repealed by a majority of the voters voting in an election held in the city. Provides that if an earlier abolition election is held, Sections 321.102(a) and 321.402(b), Tax Code, apply to the date of repeal. Provides that a tax that is approved without a limit on its period of imposition is effective until repealed by election. Requires the governing body, before 90 days before the tax is to expire, to send a notice to the comptroller stating the expiration date of the tax. Requires revenue collected after the expiration of the tax to be forwarded by the state to the governing body to be used to pay current bonded indebtedness of the municipality. Prohibits a municipality that has imposed a tax under this section from extending the period of the tax's imposition and from reimposing the tax after its expiration date unless the reimposition of the tax is approved by a majority of the qualified voters of the city voting at an election called and held for that purpose. Provides that if a city reduces the rate of an additional sales and use tax under Chapter 321, Tax Code, to impose a tax under this section for a limited period, and does not have an election to change the rate of the additional sales and use tax before the expiration date of the tax, on the expiration date of the tax, the rate of the additional sales and use tax returns, without an election to its previous rate in effect when the tax imposed under this section was adopted. (3) BALLOT PROPOSITION -- REDUCE OR INCREASE TAX RATE. Authorizes a city in which a sales and use tax has been imposed under this section to reduce or increase the tax by majority vote of the qualified voters of the city voting at an election called and held for that purpose in the same manner as an election to impose the tax. Authorizes the rate to be reduced in one or more increments of one-eighth of one percent to a minimum of one-eighth of one percent or increased in one or more increments of one-eighth of one percent to a maximum of one-half of one percent. Requires the governing body of the city, on petition of 10 percent or more of the registered voters of the city requesting an election on the increase or decrease of the tax under this section, to order an election on the issue. Requires the ballot to be printed in the same manner as the ballot under Subdivision (1) of this subsection. (4) BALLOT PROPOSITION -- COMBINE WITH REDUCTION IN PROPERTY TAX. Authorizes a city that is authorized by this section to impose, reduce, increase, or abolish the tax under this section to, at the same time and on the same ballot, impose, reduce, increase, or abolish the additional sales and use tax imposed under Section 321.101(b), Tax Code, if the city is authorized by Chapter 321, Tax Code, to impose, reduce, increase, or abolish the additional sales and use tax. Requires the city, to do so, to follow the procedures of Chapter 321, Tax Code, except that in an election to impose, reduce, increase, or abolish the tax under this section and the additional sales and use tax the ballot shall contain certain language. (f)(1) DISSOLUTION OF CORPORATION. Requires the governing body, by order of the city's governing body, or on petition of 10 percent or more of the registered voters of the city requesting an election on the dissolution of the corporation, to order an election on the dissolution of the corporation at the next available uniform election date that is not less than 45 days after the order is issued or the petition is filed. Requires the election to be conducted according to the applicable provisions of the Election Code. (2) BALLOT PROPOSITION FOR DISSOLUTION ELECTION. Sets forth the language for the ballot for the election. Requires the corporation, if a majority of voters voting on the issue approve the dissolution, to continue operation only as necessary to pay the principal of and interest on its bonds and to meet obligations incurred before the date of the election and, to the extent practicable, to dispose of its assets and apply the proceeds to satisfy those obligations. Provides that the remaining assets of the corporation, when the last of the obligations is satisfied, shall be transferred to the city, and the corporation is dissolved. Prohibits a tax imposed under this section from being collected after the last day of the first calendar quarter beginning after notification to the comptroller by the corporation that the last of its obligations is satisfied. (g)(1) AUTHORIZED USE OF SALES TAX PROCEEDS. Requires the eligible city, on receipt of the proceeds of the sales and use tax imposed under this section from the comptroller, to deliver the proceeds to the corporation. Authorizes tax proceeds to be used to pay the costs of a project authorized by this section. (2) DEFINITION OF AUTHORIZED PROJECT. Defines "project." (3) IMPROVEMENTS ANCILLARY TO PROJECT. Provides that a project includes the cost of transportation facilities, water supply facilities, sewage or solid waste disposal facilities, air or water pollution control facilities, and other improvements ancillary and directly beneficial to a project. Prohibits a corporation from using revenues from the sales tax authorized under this section for a project the primary purpose of which is to provide transportation facilities, water supply facilities, air or water pollution control facilities, or other municipal facilities for the benefit of the general public, except as provided by Section 4B of this Act. (4) PROJECT DEBT SERVICE COSTS. Provides that a project includes any payments toward the principal of, interest on, and other costs relating to bonds or other obligations issued by the corporation to pay the costs of a project or to refund bonds or other obligations issued to pay the cost of a project. Prohibits the bonds or any instrument related to the bonds from giving a bondholder a right to demand payment from tax proceeds in excess of those collected from the tax imposed by this section. (5) AUTHORIZATION LIMITED TO SPECIFIC PROJECT. Authorizes a city, at an election called or held under Subsection (d) of this section, to allow the voters to vote on a ballot proposition that limits the use of the sales and use tax to a specific project authorized by this subsection. Sets forth language for the ballot if a city elects to limit the use to a specific project. Requires the corporation, when the last of its obligations for the specific project have been satisfied, to send a notice to the comptroller stating that the sales and use tax imposed for the specific project may not be collected after the last day of the first calendar quarter beginning after the date of notification. Prohibits a sales and use tax imposed for a specific project from being collected after the last day of the first calendar quarter beginning after the date of notification to the comptroller. Requires revenue collected after the obligations for the specific project have been satisfied to be forwarded by the state to the governing body to be used to pay current bonded indebtedness of the municipality. Authorizes a corporation that has been created to perform a specific project under this subsection to remain in existence and perform other projects approved by the voters of the city under an election called and held under Subsection (d) of this section. (6) ASSUMPTION OF PREEXISTING DEBT. Prohibits a corporation from assuming a debt or making any expenditure to pay principal or interest on a debt, if the debt existed before the date the city created the corporation. (h) EMINENT DOMAIN. Authorizes a corporation to exercise the power of eminent domain only on approval of the action by the governing body of the eligible city. Requires the power to be exercised in accordance with and subject to the laws applicable to the eligible city. (i) GOVERNMENTAL IMMUNITY UNDER TORT CLAIMS ACT. Provides that the corporation, a director of the corporation, the city creating the corporation, a member of the governing body of the city, or an employee of the corporation or city is not liable for damages arising from the performance of a governmental function of the corporation or city. Provides that for the purposes of Chapter 101A, Civil Practice and Remedies Code, the corporation is a governmental unit and its actions are governmental functions. (j) OWNERSHIP OF PROJECTS UNDER TAX CODE. Provides that the legislature finds for all constitutional and statutory purposes that projects undertaken under this section are owned, used, and held for public purposes for and on behalf of the eligible city incorporating the corporation, and Section 23(b) of this Act and Section 25.07(a), Tax Code, do not apply to leasehold or other possessory interests granted by the corporation during the period projects are owned by the corporation on behalf of the eligible city. Provides that projects are exempt from taxation under Section 11.11, Tax Code, for that period. (k) SECTION 24 APPLICABILITY. Provides that Section 24 of this Act does not apply to a corporation under this section. Sec. 4B. AUTHORIZATION TO LEVY SALES TAX FOR OTHER THAN INDUSTRIAL DEVELOPMENT. (a) ELECTION. Authorizes a city that creates a corporation under Section 4A of this Act to submit to the voters of the city, at a separate election or at an election held under another provision of this Act, a ballot proposition that authorizes the corporation to use the sales and use tax for a specific project or for a specific category of projects that does not qualify under Section 4A of this Act but qualifies under the expanded project definition in Subsection (c) of this section. (b) BALLOT PROPOSITION -- SPECIFIC PROJECT OR SPECIFIC CATEGORY OF PROJECTS. Requires a project or category of projects, in the election to authorize the use of the sales or use tax for a specific project or for a specific category of projects not authorized under Section 4A of this Act, to be clearly described on the ballot so that the average voter will be able to discern the limits that will control the expenditure of the proceeds of the tax. Provides that if maintenance and operating costs of an otherwise authorized facility are to be paid from the sales or use tax, the ballot language must clearly state that fact. (c)(1) EXPANDED "PROJECT" DEFINITION. Defines "project" and "category of projects." (2) MUNICIPAL FACILITIES. Provides that municipal facility projects are land, buildings, equipment, facilities, and improvements found by the board of directors to be required or suitable for certain uses. (3) EXPANDED BUSINESS ENTERPRISES. Provides that expanded business enterprise projects are land, buildings, equipment, facilities, and improvements found by the board of directors to promote or develop new or expanded business enterprises. (d) SPECIFIC PROJECT UNDER GENERAL AUTHORITY. Authorizes a corporation, if the corporation has previously held an election authorizing a category of projects, to undertake a project of the general type described by the category unless within 60 days after the first publishing notice of the project the governing body of the city receives a petition signed by more than 10 percent of the registered voters of the city requesting that an election be held before that specific project is undertaken. Authorizes the corporation, if such petition is submitted, to undertake the project only if the specific project is approved at a subsequent election. (e)(1) PREVIOUS ELECTION IN CERTAIN CITIES. Provides that an election under Section 4A(d) of this Act is not required to carry out a project under this section in a city that is located in a county with a population in excess of 750,000 if a sales and use tax was approved under this section at an election held before February 1, 1993. (2) BOND REQUIREMENTS. Authorizes bonds or other obligations, in a city to which Subdivision (1) of this section applies, having a maturity not longer than 30 years and issued to pay the costs of projects of the types authorized by this section to be payable from any source of funds available to the corporation, including the proceeds of a sales and use tax imposed under this section. Prohibits the sum of the principal amount of bonds and other obligations that by their terms are payable in whole or in part from the sales and use tax plus the amount of the costs of the projects, other than interest on bonds and other obligations, for which payment is made in cash directly from the proceeds of the tax from exceeding $135 million. Provides that the bonds or other obligations that by their terms are payable from the tax from being paid in whole or part from property taxes raised by the eligible city, are not a debt of the eligible city, and do not give rise to a claim for payment against the eligible city except as to sales and use tax revenue held by a city and required under this section to be paid over to the corporation. (3) EXPIRATION OF SALES AND USE TAX. Prohibits a sales and use tax imposed for a project under this section, in a city to which Subdivision (1) of this subsection applies, from being 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 the sales and use tax under this section, 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 obligations. Deletes existing Sections 4A and 4B. SECTION 2. INDUSTRIAL DEVELOPMENT SALES TAX ELECTION. Provides that all acts and procedures of a municipality in calling and holding an industrial sales tax election under authority of Section 4B, Article 5190.6, V.T.C.S., on a nonuniform election date before January 1, 1995, declaring the results thereof, and declaring the purpose for which the sales tax proceeds authorized at such an election may be used are validated as of the dates on which they occurred. SECTION 3. (a) Provides that a corporation created before the effective date of this Act under Section 4A or 4B, Article 5190.6, V.T.C.S. (Development Corporation Act of 1979), continues to exist on and after the effective date of this Act as if the corporation were created under Section 4A, Article 5190.6, V.T.C.S., as amended by this Act. Authorizes the city that created the corporation to continue to collect any tax authorized for the benefit of the corporation before the effective date of this Act, and the corporation may continue to undertake any project authorized for the corporation before the effective date of this Act. Subjects the tax and project to the same restriction applicable under Sections 4A and 4B as those sections existed immediately before the effective date of this Act. Provides that a tax authorized for the corporation or project undertaken by the corporation on or after the effective date of this Act is governed by Sections 4A and 4B as those sections are amended by this Act. (b) Requires, before January 1, 1996, the articles of incorporation of a corporation created before the effective date of this Act under Section 4B, Article 5190.6, V.T.C.S., as it existed before amendment by this Act, to be amended to state that the corporation is governed by Section 4A of that Act. SECTION 4. Emergency clause. Effective date: upon passage.