JJG C.S.H.B. 2001 75(R)BILL ANALYSIS ECONOMIC DEVELOPMENT C.S.H.B. 2001 By: Oliveira 4-15-97 Committee Report (Substituted) BACKGROUND The Texas Enterprise Zone Program allows the state and cities to provide financial, infrastructure and tax incentives to business which locate and create or retain jobs in designated areas. Communities can nominate economically distressed or blighted areas for zone designation, and those areas qualifying are designated as enterprise zones by the Department of Commerce. Communities are allowed a maximum of three enterprise zones. According to Texas Enterprise Zone Program Cost-Benefit Analysis: Fiscal Year 1996, 57,085 jobs and nearly $7.3 billion in capital investments have been created in enterprise zones since 1988. State and local incentive costs have been $324.4 million. Businesses designated as enterprise projects are eligible for state incentives. Since 1988, these businesses have created 6,511 jobs, 154.8 million in capital investment with $20 million in state incentives. Department of Commerce rules allow any community four project designations. If two of the four designations score in the top 25 percent of all projects the community can be eligible for up to 2 bonus projects. The Department can designate up to 65 enterprise projects in a biennium, and state benefits paid to businesses cannot exceed $8 million in a biennium. PURPOSE This bill makes changes in the enterprise zone program to allow for a more effective and efficient attainment of economic development goals. It adds requirements for governmental entities nominating enterprise zones; adds a written agreement as a means by which a county or municipality can extend additional incentives for businesses in an enterprise zone; extends the current cap on the number of projects that may be designated in a biennium to the next two biennia; changes and adds to the requirements a business must meet to be designated as enterprise projects; amends language by which an enterprise project can request a reduction in utility rate; expands the list of purchases eligible for a tax refund; changes the amount of refund from $2,000 to $2,500 that an enterprise project qualifies for with each new permanent job or retained job; deletes the Legislative Budget Board as an entity to which the Texas Department of Commerce must certify that the required level of qualified employees have been maintained by an enterprise project receiving a refund; clarifies which entities may apply for tax refunds and removes the Legislative Budget Board from this application process. 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 2303.052 (d), Government Code, by changing the date on which the department must submit a report to the Legislative Budget Board from December 1 to December 15 of each year. SECTION 2.Amends Section 2303.0525 (a), Government Code, by changing the date on which the department shall prepare a cost-benefit analysis of the enterprise zone program from December 1 to December 15. SECTION 3.Amends Section 2303.104 (b) and (c), Government Code. Subsection (b) is amended to require that three incentives summarized under Subsection (a) 3 must not apply throughout the governmental entity or entities nominating the area as an enterprise zone. SECTION 4.Amends Section 2303.401, Government Code by renumbering and adding a definition. In (2) of this subchapter, "retained job" is defined as a job that existed with a qualified business before designation as an enterprise project and has provided employment of at least 1,820 hours annually to a qualified employee. A "retained job" is also intended to be employment retained during the time the business is designated as an enterprise project in accordance with Chapter 151, Tax Code. SECTION 5.Amends Section 2303.403, Government Code, by applying the restriction on the number of businesses that may be designated as enterprise projects to the biennium beginning September 1, 1997 or September 1, 1999, instead of applying the restriction to any biennium. States that the department may withhold up to five project slots from designation. SECTION 6.Amends Sections 2303.406(a), Government Code, by adding and changing requirements a business must meet before the department may designate the business as an enterprise project. Subsection (a)(1) is renumbered and adds the requirement that in order for a business to be designated as an enterprise project, the department must determine the business has made a commitment to create at least 10 jobs if the company is locating in an enterprise zone with a community population equal to or less than 50,000, or 25 jobs, if the company is locating in an enterprise zone with a community population of more than 50,000. Amends Sec. 2303.406(b) by adding the requirement that the department shall establish a minimum scoring threshold which must be met by a qualified business applying for a project designation. This subsection changes the weighted scale the department uses to make its designation decisions. 35 percent, instead of 50 percent, of the evaluation depends on economic distress. 20 percent, instead of 25 percent, of the evaluation depends on local public effort used for the project to achieve development and revitalization of the enterprise zone. 20 percent, instead of 25 percent, of the evaluation depends on the level of cooperation and support the project applicant commits to the revitalization goals of the zone. Adds that 10 percent of the evaluation depends on the amount of capital investment. 15 percent of the evaluation depends on the type and wage level in relation to the prevailing wage for that occupation in the local labor market area of the jobs to be created or retained by the business. SECTION 7.Amends Section 2303.407, Government Code. Changes from 625 to 500 one limitation on the maximum number of new permanent jobs or retained jobs eligible to be included in a computation of a tax refund for the project. SECTION 8.Amends Section 2303.511(b) so that businesses in an enterprise zone may receive a reduction in utility rates compared to rates "allowable for that customer class" as opposed to the current comparison to other customers located in the enterprise zone. SECTION 9.Amends Sections 151.429(a), (b) and (g), Tax Code. Subsection (a) adds equipment and machinery repairs and rentals to the list of purchases for which an enterprise project may receive a tax refund. Subsection (b) changes from $2,000 to $2,500 the amount of the tax refund an enterprise project qualifies for; the refund is for each new permanent job or job that has been retained by the enterprise project for a qualified employee. Subsection (g) deletes the Legislative Budget Board as an entity to which the Texas Department of Commerce must certify whether the required level of employment of qualified employees has been maintained by an enterprise project receiving a refund. SECTION 10.Amends Section 171.1015 (g), Tax Code. Subsection (g) replaces "qualified businesses" with "enterprise projects". States that only enterprise projects that have been certified to the comptroller by the Texas Department of Commerce as eligible for a tax deduction under this section may apply for the tax deduction. SECTION 11.Repeals Section 2303.110(d), Government Code, which placed limitations on the amending of zone boundaries. SECTION 12.States that enterprise projects designated after August 31, 1997 may not receive a tax refund or reduction before September 1, 1999, and the projects designated after August 31, 1999 may not receive a tax refund or reduction before September 1, 2001. Also states that no more than $8 million per biennium in taxes may be refunded during a biennium beginning September 1, 1997, September 1, 1999, or September 1, 2001. SECTION 13.Effective date. SECTION 14.Emergency clause. COMPARISON OF ORIGINAL TO SUBSTITUTE CSHB 2001 eliminates the reduction in time for which an enteprise zone may be designated from seven to five years as proposed by HB 2001. CSHB 2001 eliminates changes made to the number of projects and bonus projects a community may receive in a biennium as proposed by HB 2001. CSHB 2001 changes the changes in weights for scoring enterprise projects as proposed by HB 2001. The following table shows compares the weights showing current law; changes as proposed by HB 2001, and changes proposed under CSHB 2001. Weights by Scoring Category Weights Current Law H.B. 2001 C.S.H.B. 2001 Economic Distress 50% 20% 35% Public Effort 25% 20% 20% Private Effort 40%* 40% 20% Capital Investment** N/A N/A 10% Job Type and Wage* N/A 20% 15%*Private Effort and Job Type and Wage are one category under current law. **Capital Investment is a new category. CSHB 2001 adds a new section to amend Sec. 2303.511(b) Government Code, so that businesses in an enterprise zone may receive a reduction in utility rates compared to rates "allowable for that customer class" as opposed to the current comparision to other customers located in the enterprise zone. CSHB 2001 adds amendments Sec. 151.429(a) to add equipment and machinery repairs and rentals to the list of purchases for which an enterprise project may receive a tax refund. CSHB 2001 does not repeal Sec. 171.501, Tax Code, as proposed by HB 2001. Sec. 171.501 is a one-time refund of franchise taxes for qualified businesses in