AN ACT 1-1 relating to defense economic readjustment zones; authorizing the 1-2 issuance of bonds. 1-3 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS: 1-4 SECTION 1. Subtitle G, Title 10, Government Code, is amended 1-5 by adding Chapter 2310 to read as follows: 1-6 CHAPTER 2310. DEFENSE ECONOMIC READJUSTMENT ZONE 1-7 SUBCHAPTER A. GENERAL PROVISIONS 1-8 Sec. 2310.001. DEFINITIONS. In this chapter: 1-9 (1) "Defense worker" means: 1-10 (A) an employee of the United States Department 1-11 of Defense, including a member of the armed forces and a government 1-12 civilian worker; 1-13 (B) an employee of a government agency or 1-14 private business, or an entity providing a department of defense 1-15 related function, who is employed on a defense facility; 1-16 (C) an employee of a business that provides 1-17 direct services or products to the department of defense and whose 1-18 job is directly dependent on defense expenditures; or 1-19 (D) an employee or private contractor employed 1-20 by the United States Department of Energy working on a defense or 1-21 department of energy facility in support of a department of defense 1-22 related project. 1-23 (2) "Defense worker job" means a department of defense 2-1 authorized permanent position or a position held or occupied by one 2-2 or more defense workers for more than 12 months. 2-3 (3) "Department" means the Texas Department of 2-4 Commerce. 2-5 (4) "Nominating body" means the governing body of a 2-6 municipality or county, or a combination of the governing bodies of 2-7 municipalities or counties, that nominates and applies for 2-8 designation of an area as a readjustment zone. 2-9 (5) "Qualified business" means a person certified as a 2-10 qualified business under Section 2310.302. 2-11 (6) "Qualified employee" means a person who: 2-12 (A) works for a qualified business; and 2-13 (B) performs at least 50 percent of the person's 2-14 service for the business in the readjustment zone. 2-15 (7) "Readjustment zone" means an area designated as a 2-16 defense economic readjustment zone under this chapter. 2-17 Sec. 2310.002. JURISDICTION OF MUNICIPALITY. For the 2-18 purposes of this chapter, territory in the extraterritorial 2-19 jurisdiction of a municipality is considered to be in the 2-20 jurisdiction of the municipality. 2-21 (Sections 2310.003-2310.050 reserved for expansion 2-22 SUBCHAPTER B. DEPARTMENT POWERS AND DUTIES RELATING TO ZONES 2-23 Sec. 2310.051. GENERAL POWERS AND DUTIES. (a) The 2-24 department shall administer and monitor the implementation of this 2-25 chapter. 3-1 (b) The department shall establish criteria and procedures 3-2 for designating a qualified area as a readjustment zone and for 3-3 designating a defense readjustment project. 3-4 (c) The department shall adopt rules necessary to carry out 3-5 the purposes of this chapter. 3-6 Sec. 2310.052. EVALUATION; REPORT. (a) The department 3-7 shall conduct a continuing evaluation of the programs of 3-8 readjustment zones. 3-9 (b) On or before December 1 of each year, the department 3-10 shall submit to the governor, the legislature, and the Legislative 3-11 Budget Board a report that: 3-12 (1) evaluates the effectiveness of the readjustment 3-13 zone program; 3-14 (2) describes the use of state and local incentives 3-15 under this chapter and their effect on revenue; and 3-16 (3) suggests legislation, as appropriate. 3-17 Sec. 2310.053. ASSISTANCE. (a) The department shall 3-18 assist: 3-19 (1) a qualified business in obtaining the benefits of 3-20 any state incentive or inducement program provided by law; 3-21 (2) the governing body of a readjustment zone in 3-22 obtaining assistance from another state agency, including job 3-23 training and technical assistance to qualified businesses in a 3-24 zone; and 3-25 (3) the governing body of a readjustment zone in 4-1 encouraging small business development. 4-2 (b) The department shall provide to persons desiring to 4-3 locate and engage in business in a readjustment zone information 4-4 and appropriate assistance relating to the required legal 4-5 authorization, including a state license, permit, certificate, 4-6 approval, registration, or charter, to engage in business in this 4-7 state. 4-8 (c) The department shall publicize existing tax incentives 4-9 and economic development programs in readjustment zones. 4-10 (d) On request the department shall offer to a unit of local 4-11 government having a readjustment zone within its jurisdiction 4-12 technical assistance relating to tax abatement and the development 4-13 of alternative revenue sources. 4-14 Sec. 2310.054. COORDINATION WITH OTHER GOVERNMENTAL 4-15 ENTITIES. (a) In cooperation with the appropriate units of local 4-16 government and other state agencies, the department shall 4-17 coordinate and streamline state business assistance programs and 4-18 permit or license application procedures for businesses in 4-19 readjustment zones. 4-20 (b) The department shall work with the responsible state and 4-21 federal agencies to coordinate readjustment zone programs with 4-22 other programs carried out in a readjustment zone, including 4-23 housing, community and economic development, small business, 4-24 banking, financial assistance, transportation, and employment 4-25 training programs. 5-1 (c) The department shall encourage other state agencies in 5-2 awarding grants, loans, or services to give priority to businesses 5-3 in readjustment zones. 5-4 (Sections 2310.055-2310.100 reserved for expansion 5-5 SUBCHAPTER C. DESIGNATION OF READJUSTMENT ZONE 5-6 Sec. 2310.101. CRITERIA FOR READJUSTMENT ZONE DESIGNATION. 5-7 (a) To be designated as a readjustment zone an area must: 5-8 (1) have a continuous boundary; 5-9 (2) be at least one square mile but not larger than 20 5-10 square miles, excluding lakes, waterways, and transportation 5-11 arteries, of the municipality, county, or combination of 5-12 municipalities or counties nominating the area as a readjustment 5-13 zone; 5-14 (3) be located in an adversely affected 5-15 defense-dependent community; 5-16 (4) have at least 50 percent of its area located in an 5-17 existing or former United States Department of Defense facility; 5-18 and 5-19 (5) be nominated as a readjustment zone by an 5-20 ordinance or order adopted by the nominating body. 5-21 (b) An area is not prohibited from being included in a 5-22 readjustment zone because the area is also included in an 5-23 enterprise zone designated under Chapter 2303. 5-24 Sec. 2310.102. ADVERSELY AFFECTED DEFENSE-DEPENDENT 5-25 COMMUNITY. A municipality or county is an adversely affected 6-1 defense-dependent community if the department determines that: 6-2 (1) the municipality or county requires assistance 6-3 because of: 6-4 (A) the proposed or actual establishment, 6-5 realignment, or closure of a defense facility; 6-6 (B) the cancellation or termination of a United 6-7 States Department of Defense contract or the failure of the 6-8 department of defense to proceed with an approved major weapon 6-9 system program; 6-10 (C) a publicly announced planned major reduction 6-11 in department of defense spending that would directly and adversely 6-12 affect the municipality or county; or 6-13 (D) the closure or a significant reduction of 6-14 the operations of a defense facility as the result of a merger, 6-15 acquisition, or consolidation of a defense contractor operating the 6-16 facility; and 6-17 (2) the municipality or county is expected to 6-18 experience, during the period between the beginning of the federal 6-19 fiscal year during which an event described by Subdivision (1) is 6-20 finally approved and the date that the event is to be substantially 6-21 completed, a direct loss of: 6-22 (A) 2,500 or more defense worker jobs in any 6-23 area of the municipality or county that is located in an urbanized 6-24 area of a metropolitan statistical area; 6-25 (B) 1,000 or more defense worker jobs in any 7-1 area of the municipality or county that is not located in an 7-2 urbanized area of a metropolitan statistical area; or 7-3 (C) one percent of the civilian jobs in the 7-4 municipality or county. 7-5 Sec. 2310.103. NOMINATION OF READJUSTMENT ZONE. (a) The 7-6 governing body of a municipality or county that is an adversely 7-7 affected defense-dependent community, individually or in 7-8 combination with other municipalities or counties that are 7-9 adversely affected defense-dependent communities, by ordinance or 7-10 order, as appropriate, may nominate as a readjustment zone an area 7-11 within its jurisdiction that meets the criteria under Section 7-12 2310.101. 7-13 (b) Unless the nominating body holds a public hearing before 7-14 adopting an ordinance or order under this section, the ordinance or 7-15 order is not valid. 7-16 (c) The governing body of a county may not nominate 7-17 territory in a municipality, including extraterritorial 7-18 jurisdiction of a municipality, to be included in a proposed 7-19 readjustment zone unless the governing body of the municipality 7-20 also nominates the territory and together with the county files a 7-21 joint application under Section 2310.105. 7-22 (d) The governing bodies of a combination of municipalities 7-23 or counties may not jointly nominate an area as a readjustment zone 7-24 unless the governing bodies have entered into a binding agreement 7-25 to administer the zone jointly. 8-1 Sec. 2310.104. NOMINATING ORDINANCE OR ORDER. (a) An 8-2 ordinance or order nominating an area as a readjustment zone must: 8-3 (1) describe precisely the area to be included in the 8-4 zone by a legal description or reference to roadways, lakes, 8-5 waterways, or municipal or county boundaries; 8-6 (2) state a finding that the area meets the 8-7 requirements of this chapter; 8-8 (3) summarize briefly the incentives, including tax 8-9 incentives, that, at the election of the nominating body, apply to 8-10 business enterprises in the area; and 8-11 (4) nominate the area as a readjustment zone. 8-12 (b) At least one of the incentives summarized under 8-13 Subsection (a)(3) must not be offered elsewhere within the 8-14 jurisdiction except within an enterprise zone designated under 8-15 Chapter 2303. 8-16 (c) This section does not prohibit a municipality or county 8-17 from extending additional incentives, including tax incentives, for 8-18 business enterprises in a readjustment zone by a separate ordinance 8-19 or order. 8-20 Sec. 2310.105. APPLICATION FOR DESIGNATION. (a) For an 8-21 area to be designated as a readjustment zone, the nominating body, 8-22 after nominating the area as a readjustment zone, must send to the 8-23 department a written application for designation of the area as a 8-24 readjustment zone. 8-25 (b) The application must include: 9-1 (1) a certified copy of the ordinance or order, as 9-2 appropriate, nominating the area as a readjustment zone; 9-3 (2) a map of the area showing existing streets and 9-4 highways; 9-5 (3) an analysis and appropriate supporting documents 9-6 and statistics demonstrating that the area qualifies for 9-7 designation as a readjustment zone; 9-8 (4) a statement that specifies each tax incentive, 9-9 grant, other financial incentive or benefit, or program to be 9-10 provided by the nominating body to business enterprises in the area 9-11 that is not to be provided throughout the governmental entity or 9-12 entities nominating the area as a readjustment zone; 9-13 (5) a statement of the economic development and 9-14 planning objectives for the area; 9-15 (6) an estimate of the economic impact of the 9-16 designation of the area as a readjustment zone on the revenues of 9-17 the governmental entity or entities nominating the area as a 9-18 readjustment zone, considering all the financial incentives and 9-19 benefits and the programs contemplated; 9-20 (7) a transcript or tape recording of all public 9-21 hearings on the proposed zone; 9-22 (8) if the application is a joint application, a 9-23 description and copy of the agreement between the applicants; 9-24 (9) the procedures for negotiating with residents, 9-25 community groups, and other entities affected by the designation of 10-1 the area as a readjustment zone and with qualified businesses in 10-2 the area; 10-3 (10) a description of the administrative authority, if 10-4 one is to be appointed for the readjustment zone under Section 10-5 2310.202; and 10-6 (11) any additional information the department 10-7 requires. 10-8 (c) Information required by Subsection (b) is for evaluation 10-9 purposes only. 10-10 Sec. 2310.106. REVIEW OF APPLICATION. (a) On receipt of an 10-11 application for the designation of a readjustment zone, the 10-12 department shall review the application to determine if the 10-13 nominated area qualifies for designation as a readjustment zone 10-14 under this chapter. 10-15 (b) The department shall allow an applicant to correct any 10-16 omission or clerical error in the application and to return the 10-17 application to the department on or before the 15th day after the 10-18 date on which the department receives the application. 10-19 Sec. 2310.107. DESIGNATION AGREEMENT. (a) If the 10-20 department determines that a nominated area for which a designation 10-21 application has been received satisfies the criteria under Section 10-22 2310.101, the department shall negotiate with the nominating body 10-23 for a designation agreement. 10-24 (b) A designation agreement must: 10-25 (1) designate the nominated area as a readjustment 11-1 zone; and 11-2 (2) designate the administrative authority, if one is 11-3 to be appointed for the zone under Section 2310.202, and describe 11-4 its functions and duties, which should include decision-making 11-5 authority and the authority to negotiate with affected entities. 11-6 (c) The department shall complete the negotiations and sign 11-7 the agreement not later than the 60th day after the date on which 11-8 the application is received unless the department extends that 11-9 period to the 90th day after the date on which the application was 11-10 received. 11-11 (d) If an agreement is not completed within the 60-day 11-12 period provided by Subsection (c), the department shall provide to 11-13 the nominating body the specific areas of concern and a final 11-14 proposal for the agreement. 11-15 (e) If the agreement is not executed before the 91st day 11-16 after the date on which the application was received, the 11-17 application is considered to be denied. 11-18 Sec. 2310.108. DENIAL OF APPLICATION; NOTICE. (a) The 11-19 department may deny an application for the designation of a 11-20 readjustment zone only if the department determines that the 11-21 nominated area does not satisfy the criteria under Section 11-22 2310.101. 11-23 (b) The department shall inform the nominating body of the 11-24 specific reasons for denial of an application, including denial 11-25 under Section 2310.107(e). 12-1 Sec. 2310.109. PERIOD OF DESIGNATION. An area may be 12-2 designated as a readjustment zone for a maximum of seven years. A 12-3 designation remains in effect until September 1 of the final year 12-4 of the designation. 12-5 Sec. 2310.110. AMENDING BOUNDARIES. (a) The nominating 12-6 body may amend the boundary of a readjustment zone by ordinance or 12-7 order, as appropriate, adopted after a public hearing on the issue. 12-8 (b) The amended boundary: 12-9 (1) must be continuous; 12-10 (2) may not exceed the original size requirement of 12-11 Section 2310.101; and 12-12 (3) may not exclude any area originally included 12-13 within the boundary of the zone as designated. 12-14 (c) The readjustment zone with the amended boundary must 12-15 continue to meet the location requirements of Section 12-16 2310.101(a)(4). 12-17 (d) A nominating body may not make more than one boundary 12-18 amendment annually for a readjustment zone. 12-19 (e) For each amendment of a readjustment zone boundary, the 12-20 nominating body shall pay the department a reasonable fee, in an 12-21 amount specified by the department, not to exceed $500. The 12-22 department may use fees collected under this subsection to 12-23 administer this chapter and for other purposes to advance this 12-24 chapter. 12-25 Sec. 2310.111. REMOVAL OF DESIGNATION. (a) The department 13-1 may remove the designation of an area as a readjustment zone if: 13-2 (1) the area no longer meets the criteria for 13-3 designation under this chapter or by department rule adopted under 13-4 this chapter; or 13-5 (2) the department determines that the governing body 13-6 of the readjustment zone has not complied with commitments made in 13-7 the ordinance or order nominating the area as a readjustment zone. 13-8 (b) The removal of a designation does not affect the 13-9 validity of a tax incentive or regulatory relief granted or accrued 13-10 before the removal. 13-11 (Sections 2310.112-2310.200 reserved for expansion 13-12 SUBCHAPTER D. ADMINISTRATION OF READJUSTMENT ZONES 13-13 Sec. 2310.201. ADMINISTRATION BY GOVERNING BODY. The 13-14 governing body of a readjustment zone is the governing body of the 13-15 municipality or county, or the governing bodies of the combination 13-16 of municipalities or counties, that applied to have the area 13-17 designated as a readjustment zone. 13-18 Sec. 2310.202. ADMINISTRATION BY ADMINISTRATIVE AUTHORITY. 13-19 (a) The governing body of a readjustment zone may delegate its 13-20 administrative duties to an administrative authority appointed by 13-21 the governing body. 13-22 (b) An administrative authority must: 13-23 (1) be composed of 3, 5, 7, 9, 11, or 15 members; 13-24 (2) be a viable and responsive body generally 13-25 representative of all public or private entities that have a stake 14-1 in the development of the zone; and 14-2 (3) if the readjustment zone includes private 14-3 residences, include: 14-4 (A) an elected official representing 14-5 readjustment zone residents and businesses; or 14-6 (B) at least two readjustment zone residents. 14-7 Sec. 2310.203. LIAISON. The governing body of a 14-8 readjustment zone shall designate a liaison to communicate and 14-9 negotiate with: 14-10 (1) the department; 14-11 (2) the administrative authority, if one exists; 14-12 (3) a defense readjustment project; and 14-13 (4) other entities in or affected by the readjustment 14-14 zone. 14-15 Sec. 2310.204. ANNUAL REPORT. (a) Not later than October 1 14-16 of each year, the governing body of a readjustment zone shall 14-17 submit to the department a report in the form required by the 14-18 department. 14-19 (b) The report must be approved by the readjustment zone's 14-20 administrative authority, if one exists. 14-21 (c) The report must include for the year preceding the date 14-22 of the report: 14-23 (1) a list of local incentives for community 14-24 development available in the zone; 14-25 (2) the use of local incentives for which the 15-1 governing body provided in the ordinance or order nominating the 15-2 readjustment zone and the effect of those incentives on revenue; 15-3 (3) the number of businesses assisted, located, and 15-4 retained in the zone since its designation due to the existence of 15-5 the readjustment zone; 15-6 (4) a summary of all industrial revenue bonds issued 15-7 to finance projects located in the zone; and 15-8 (5) a description of all efforts made to attain 15-9 revitalization goals for the zone. 15-10 (Sections 2310.205-2310.300 reserved for expansion 15-11 SUBCHAPTER E. QUALIFIED BUSINESSES AND DEFENSE 15-12 READJUSTMENT PROJECTS 15-13 Sec. 2310.301. DEFINITION. In this subchapter, "new 15-14 permanent job" means a new employment position created by a 15-15 qualified business as described by Section 2310.302 that: 15-16 (1) has provided at least 1,820 hours of employment a 15-17 year to a qualified employee; and 15-18 (2) is intended to exist during the period that the 15-19 qualified business is designated as a defense readjustment project 15-20 under Section 2310.306. 15-21 Sec. 2310.302. QUALIFIED BUSINESS. (a) A person is a 15-22 qualified business if the department, for the purpose of state 15-23 benefits under this chapter, or the governing body of a 15-24 readjustment zone, for the purpose of local benefits, certifies 15-25 that: 16-1 (1) the person is engaged in or has provided 16-2 substantial commitment to initiate the active conduct of a trade or 16-3 business in the readjustment zone; and 16-4 (2) at least 25 percent of the person's new employees 16-5 in the readjustment zone are: 16-6 (A) residents of the governing jurisdiction; 16-7 (B) economically disadvantaged individuals, as 16-8 defined by Section 2303.402(c); or 16-9 (C) dislocated defense workers. 16-10 (b) The governing body of a readjustment zone may certify a 16-11 franchise or subsidiary of a new or existing business as a 16-12 qualified business if the franchise or subsidiary: 16-13 (1) is located entirely in the readjustment zone; and 16-14 (2) maintains separate books and records of the 16-15 business activity conducted in the zone. 16-16 Sec. 2310.303. PROHIBITION ON QUALIFIED BUSINESS 16-17 CERTIFICATION. If the department determines that the governing 16-18 body of a readjustment zone is not complying with this chapter, the 16-19 department shall prohibit the certification of a qualified business 16-20 in the zone until the department determines that the governing body 16-21 is complying with this chapter. The department may not designate 16-22 more than two businesses in a single readjustment zone as defense 16-23 readjustment projects. 16-24 Sec. 2310.304. REQUEST FOR APPLICATION FOR DEFENSE 16-25 READJUSTMENT PROJECT DESIGNATION. A qualified business in a 17-1 readjustment zone may request that the governing body of the 17-2 readjustment zone apply to the department for designation of the 17-3 business as a defense readjustment project. The request must also 17-4 be made to the readjustment zone's administrative authority, if one 17-5 exists. 17-6 Sec. 2310.305. APPLICATION FOR DEFENSE READJUSTMENT PROJECT 17-7 DESIGNATION. (a) If the governing body of a readjustment zone or 17-8 the governing body and administrative authority of a readjustment 17-9 zone, as appropriate, approve a request made under Section 17-10 2310.304, the governing body may apply to the department for the 17-11 designation of the qualified business as a defense readjustment 17-12 project. 17-13 (b) An application must: 17-14 (1) describe the procedures and efforts of the 17-15 governmental entity or entities that applied to have the area 17-16 designated as a readjustment zone to facilitate and encourage 17-17 participation by and negotiation among affected entities in the 17-18 zone in which the qualified business is located; 17-19 (2) contain an economic analysis of the plans of the 17-20 qualified business for expansion, revitalization, or other activity 17-21 in the readjustment zone, including: 17-22 (A) the number of anticipated new permanent jobs 17-23 the business will create; 17-24 (B) the anticipated number of permanent jobs the 17-25 business will retain; 18-1 (C) the amount of investment to be made in the 18-2 zone; and 18-3 (D) other information the department requires; 18-4 and 18-5 (3) describe the local effort made by the governmental 18-6 entity or entities that applied to have the area designated as a 18-7 readjustment zone, the administrative authority, if one exists, the 18-8 qualified business, and other affected entities to develop and 18-9 revitalize the zone. 18-10 (c) For the purposes of this section, local effort to 18-11 develop and revitalize a readjustment zone is: 18-12 (1) the willingness of public entities in the zone to 18-13 provide services, incentives, and regulatory relief authorized by 18-14 this chapter and to negotiate with the qualified business for which 18-15 application is made and with other local groups or businesses to 18-16 achieve the public purposes of this chapter; and 18-17 (2) the effort of the qualified business and other 18-18 affected entities to cooperate in achieving those public purposes. 18-19 (d) Factors to be considered in evaluating the local effort 18-20 of a public entity include: 18-21 (1) tax abatement, deferral, refunds, or other tax 18-22 incentives; 18-23 (2) regulatory relief, including: 18-24 (A) zoning changes or variances; 18-25 (B) exemptions from unnecessary building code 19-1 requirements, impact fees, or inspection fees; and 19-2 (C) streamlined permitting; 19-3 (3) enhanced municipal services, including: 19-4 (A) improved police and fire protection; 19-5 (B) institution of community crime prevention 19-6 programs; and 19-7 (C) special public transportation routes or 19-8 reduced fares; 19-9 (4) improvements in community facilities, including: 19-10 (A) capital improvements in water and sewer 19-11 facilities; 19-12 (B) road repair; and 19-13 (C) creation or improvement of parks; 19-14 (5) improvements to housing, including: 19-15 (A) low-interest loans for housing 19-16 rehabilitation, improvement, or new construction; and 19-17 (B) transfer of abandoned housing to individuals 19-18 or community groups; 19-19 (6) business and industrial development services, 19-20 including: 19-21 (A) low-interest loans for business; 19-22 (B) use of surplus school buildings or other 19-23 underutilized publicly owned facilities as small business 19-24 incubators; 19-25 (C) provision of publicly owned land for 20-1 development purposes, including residential, commercial, or 20-2 industrial development; 20-3 (D) creation of special one-stop permitting and 20-4 problem resolution centers or ombudsmen; and 20-5 (E) promotion and marketing services; and 20-6 (7) job training and employment services, including: 20-7 (A) retraining programs; 20-8 (B) literacy and employment skills programs; 20-9 (C) vocational education; and 20-10 (D) customized job training. 20-11 (e) Factors to be considered in evaluating the local effort 20-12 of a private entity include: 20-13 (1) the willingness to negotiate or cooperate in the 20-14 redevelopment of vacated defense facilities and the creation of 20-15 high-skilled, high wage jobs; 20-16 (2) commitments to hire dislocated defense workers and 20-17 economically disadvantaged workers; 20-18 (3) commitments to hire minority workers and to 20-19 contract with minority-owned businesses; 20-20 (4) provision of technical and vocational job training 20-21 for residents of the nominating body's jurisdiction or economically 20-22 disadvantaged employees; 20-23 (5) provision of child care for employees; 20-24 (6) commitments to implement and contribute to a 20-25 tutoring or mentoring program for area students; 21-1 (7) prevention or reduction of juvenile crime; and 21-2 (8) the willingness to make contributions to the 21-3 well-being of the community, such as job training, or the donation 21-4 of land for parks or other public purposes. 21-5 Sec. 2310.306. DEFENSE READJUSTMENT PROJECT DESIGNATION. 21-6 (a) The department may designate a qualified business as a defense 21-7 readjustment project only if the department determines that: 21-8 (1) the business is a qualified business under Section 21-9 2310.302 that is located in or has made a substantial commitment to 21-10 locate in a defense readjustment zone; 21-11 (2) the governing body of the readjustment zone making 21-12 the application has demonstrated that a high level of cooperation 21-13 exists among public, private, and neighborhood entities in the 21-14 zone; and 21-15 (3) the designation will contribute significantly to 21-16 the achievement of the plans of the governing body making the 21-17 application for development and revitalization of the zone. 21-18 (b) The department shall designate qualified businesses as 21-19 defense readjustment projects on a competitive basis. The 21-20 department shall make its designation decisions using a weighted 21-21 scale in which: 21-22 (1) 50 percent of the evaluation is based on the 21-23 effect of the loss of defense expenditures and employment on the 21-24 community; 21-25 (2) 25 percent of the evaluation depends on the local 22-1 effort to achieve development and revitalization of the 22-2 readjustment zone; and 22-3 (3) 25 percent of the evaluation depends on the 22-4 evaluation criteria as determined by the department, which must 22-5 include: 22-6 (A) the level of cooperation and support the 22-7 project applicant commits to the revitalization goals of the zone; 22-8 and 22-9 (B) the type and wage level of the jobs to be 22-10 created or retained by the business. 22-11 (c) The department may remove a defense readjustment project 22-12 designation if it determines that the business is not complying 22-13 with a requirement for its designation. 22-14 Sec. 2310.307. ALLOCATION OF JOBS ELIGIBLE FOR TAX REFUND. 22-15 When the department designates a business as a defense readjustment 22-16 project, the department shall allocate to the project the maximum 22-17 number of new permanent jobs or retained jobs eligible to be 22-18 included in a computation of a tax refund for the project. The 22-19 number may not exceed 500 or a number equal to 110 percent of the 22-20 number of anticipated new permanent jobs or retained jobs specified 22-21 in the application for designation of the business as a defense 22-22 readjustment project under Section 2310.305, whichever is less. 22-23 Sec. 2310.308. DURATION OF CERTAIN DESIGNATIONS. The 22-24 department's designation of a qualified business as a defense 22-25 readjustment project is effective until the fifth anniversary of 23-1 the date on which the designation is made regardless of whether the 23-2 readjustment zone in which the project is located expires before 23-3 the fifth anniversary of the project. 23-4 (Sections 2310.309-2310.400 reserved for expansion 23-5 SUBCHAPTER F. READJUSTMENT ZONE BENEFITS 23-6 Sec. 2310.401. EXEMPTIONS FROM STATE REGULATION; SUSPENSION 23-7 OF LOCAL REGULATION. (a) A state agency may exempt from its 23-8 regulation a qualified business, qualified employee, or qualified 23-9 property in a readjustment zone if the exemption is consistent 23-10 with: 23-11 (1) the purposes of this chapter; and 23-12 (2) the protection and promotion of the general health 23-13 and welfare. 23-14 (b) A local government may suspend local regulation, 23-15 including an ordinance, rule, or standard, relating to zoning, 23-16 licensing, or building codes in a readjustment zone. 23-17 (c) An exemption from or suspension of regulation under this 23-18 section must be adopted in the same manner that the regulation was 23-19 adopted. 23-20 (d) The authorization provided by Subsection (a) or (b) does 23-21 not apply to regulation: 23-22 (1) that relates to: 23-23 (A) civil rights; 23-24 (B) equal employment; 23-25 (C) equal opportunity; 24-1 (D) fair housing rights; or 24-2 (E) preservation of historical sites or 24-3 historical artifacts; 24-4 (2) the relaxation of which is likely to harm the 24-5 public safety or public health, including environmental health; or 24-6 (3) that is specifically imposed by law. 24-7 (e) For the purposes of this section, property is classified 24-8 as qualified property if the property is: 24-9 (1) tangible personal property located in the 24-10 readjustment zone that was acquired from the federal government by 24-11 lease or deed or: 24-12 (A) acquired by a taxpayer not earlier than the 24-13 90th day before the date on which the area was designated as a 24-14 readjustment zone; and 24-15 (B) used predominantly by the taxpayer in the 24-16 active conduct of a trade or business; 24-17 (2) real property located in the readjustment zone 24-18 that was acquired from the federal government by lease or deed or: 24-19 (A) acquired by a taxpayer not earlier than the 24-20 90th day before the date on which the area was designated as a 24-21 readjustment zone and was used predominantly by the taxpayer in the 24-22 active conduct of a trade or business; or 24-23 (B) the principal residence of the taxpayer on 24-24 the date of the sale or exchange; or 24-25 (3) an interest in an entity that was certified as a 25-1 qualified business under Section 2310.302 for the entity's most 25-2 recent tax year ending before the date of the sale or exchange. 25-3 Sec. 2310.402. REVIEW OF STATE AGENCY RULES; REPORT. (a) A 25-4 state agency by rule may provide, when applicable, encouragements 25-5 and incentives to increase: 25-6 (1) the renovation, improvement, or new construction 25-7 of housing in readjustment zones; and 25-8 (2) the economic viability and profitability of 25-9 business and commerce in readjustment zones. 25-10 (b) The department shall disseminate the reports to the 25-11 governing bodies of readjustment zones and others as necessary to 25-12 advance the purposes of this chapter. 25-13 (c) To contribute to the implementation of this chapter, an 25-14 agency may waive, modify, provide exemptions to, or otherwise 25-15 minimize the adverse effects of the rules it administers on the 25-16 renovation, improvement, or new construction of housing in 25-17 readjustment zones or on the economic viability and profitability 25-18 of business and commerce in readjustment zones. 25-19 Sec. 2310.403. STATE PREFERENCES. (a) A state agency shall 25-20 give preference to the governing body of a readjustment zone or a 25-21 qualified business or qualified employee located in a readjustment 25-22 zone over other eligible applicants for grants, loans, or credit 25-23 enhancements that are administered by the state agency if: 25-24 (1) at least 50 percent of the grant, loan, or credit 25-25 enhancement will be spent for the direct benefit of the 26-1 readjustment zone; and 26-2 (2) the purpose of the grant, loan, or credit 26-3 enhancement is to: 26-4 (A) promote economic development in the 26-5 community; or 26-6 (B) construct, improve, extend, repair, or 26-7 maintain public facilities in the community. 26-8 (b) The comptroller may and is encouraged to deposit state 26-9 money in financial institutions located or doing business in 26-10 readjustment zones. 26-11 (c) A state agency may and is encouraged to contract with 26-12 businesses located in readjustment zones. 26-13 (d) The department or another state agency may give 26-14 preference to readjustment zones in granting economic development 26-15 money or other benefits. 26-16 Sec. 2310.404. STATE TAX REFUNDS AND DEDUCTION; REPORT. 26-17 (a) A defense readjustment project is eligible for: 26-18 (1) a refund of state taxes under Section 151.4291, 26-19 Tax Code; 26-20 (2) a deduction from taxable capital under Section 26-21 171.1016, Tax Code; and 26-22 (3) the exclusion of receipts from service performed 26-23 in a readjustment zone in the determination of gross receipts from 26-24 business done in this state under Sections 171.103 and 171.1032, 26-25 Tax Code. 27-1 (b) Not later than the 60th day after the last day of each 27-2 fiscal year, the comptroller shall report to the department the 27-3 statewide total of the tax refunds made under this section during 27-4 that fiscal year. 27-5 Sec. 2310.405. LOCAL SALES AND USE TAX REFUNDS. (a) To 27-6 encourage the development of areas designated as readjustment 27-7 zones, the governing body of a municipality through a program may 27-8 refund its local sales and use taxes paid by a qualified business 27-9 on: 27-10 (1) the purchase, lease, or rental of equipment or 27-11 machinery for use in a readjustment zone; 27-12 (2) the purchase of material for use in remodeling, 27-13 rehabilitating, or constructing a structure in a readjustment zone; 27-14 (3) labor for remodeling, rehabilitating, or 27-15 constructing a structure in a readjustment zone; and 27-16 (4) electricity and natural gas purchased and consumed 27-17 in the normal course of business in the readjustment zone. 27-18 (b) To promote the public health, safety, or welfare, the 27-19 governing body of a municipality or county through a program may 27-20 refund its local sales and use taxes paid by a qualified business 27-21 or qualified employee. 27-22 (c) The governing body of a municipality or county that is 27-23 the governing body of a readjustment zone may provide for the 27-24 partial or total refund of its local sales and use taxes paid by a 27-25 person making a taxable purchase, lease, or rental for development 28-1 or revitalization in the zone. 28-2 (d) A person eligible for a refund of local sales and use 28-3 taxes under this section shall pay the entire amount of state and 28-4 local sales and use taxes at the time the taxes would be due if an 28-5 agreement for the refund did not exist. 28-6 (e) An agreement to refund local sales and use taxes under 28-7 this section must: 28-8 (1) be written; 28-9 (2) contain an expiration date; and 28-10 (3) require that the person eligible for the refund 28-11 provide to the municipality or county making the refund the 28-12 documentation necessary to support a refund claim. 28-13 (f) The municipality or county shall make the refund 28-14 directly to the person eligible for the refund in the manner 28-15 provided by the agreement. 28-16 Sec. 2310.406. REDUCTION OR ELIMINATION OF LOCAL FEES OR 28-17 TAXES. (a) To promote the public health, safety, or welfare, the 28-18 governing body of a municipality or county through a program may 28-19 reduce or eliminate fees or taxes that it imposes on a qualified 28-20 business or qualified employee. 28-21 (b) This section does not apply to sales and use taxes or 28-22 property taxes. 28-23 Sec. 2310.407. TAX INCREMENT FINANCING AND ABATEMENT. 28-24 Designation of an area as a readjustment zone is also designation 28-25 of the area as a reinvestment zone for: 29-1 (1) tax increment financing under Chapter 311, Tax 29-2 Code; and 29-3 (2) tax abatement under Chapter 312, Tax Code. 29-4 Sec. 2310.408. DEVELOPMENT BONDS. To finance a project in a 29-5 readjustment zone, bonds may be issued under: 29-6 (1) the Act for Development of Employment, Industrial 29-7 and Health Resources of 1971 (Article 5190.1, Vernon's Texas Civil 29-8 Statutes); or 29-9 (2) the Development Corporation Act of 1979 (Article 29-10 5190.6, Vernon's Texas Civil Statutes). 29-11 Sec. 2310.409. OTHER LOCAL INCENTIVES. (a) The governing 29-12 body of a municipality or county that is the governing body of a 29-13 readjustment zone may: 29-14 (1) defer compliance in the zone with the subdivision 29-15 and development ordinances or rules, other than those relating to 29-16 streets and roads or sewer or water services, of the municipality 29-17 or county, as appropriate; 29-18 (2) give priority to the zone for the receipt of: 29-19 (A) community development block grant money; 29-20 (B) industrial revenue bonds; or 29-21 (C) funds received for job training; 29-22 (3) adopt and implement a plan for police protection 29-23 in the zone; 29-24 (4) amend the zoning ordinances of the municipality or 29-25 county, as appropriate, to promote economic development in the 30-1 zone; 30-2 (5) establish permitting preferences for businesses in 30-3 the zone; 30-4 (6) establish simplified, accelerated, or other 30-5 special permit procedures for businesses in the zone; 30-6 (7) waive development fees for projects in the zone; 30-7 (8) create a local readjustment zone fund for funding 30-8 bonds or other programs or activities to develop or revitalize the 30-9 zone; 30-10 (9) for qualified businesses in the zone, reduce rates 30-11 charged by: 30-12 (A) a utility owned by the municipality or 30-13 county, as appropriate; or 30-14 (B) a cooperative corporation or utility owned 30-15 by private investors, subject to the requirements of Subsection 30-16 (b); 30-17 (10) in issuing housing finance bonds, give priority 30-18 to persons or projects in the zone; 30-19 (11) in providing services, give priority to local 30-20 economic development, educational, job training, or transportation 30-21 programs that benefit the zone; or 30-22 (12) sell real property owned by the municipality or 30-23 county, as appropriate, and located in the readjustment zone in 30-24 accordance with Section 2310.410. 30-25 (b) A reduction in utility rates under Subsection (a)(9)(B) 31-1 is subject to the agreement of the affected utility and the 31-2 approval of the appropriate regulatory authority under the Public 31-3 Utility Regulatory Act of 1995 (Article 1446c-0, Vernon's Texas 31-4 Civil Statutes). The rates may be reduced up to but not more than 31-5 five percent below the lowest rate allowable for that customer 31-6 class. In making its determination under this section, the 31-7 regulatory authority shall consider revitalization goals for the 31-8 readjustment zone. In setting the rates of the utility the 31-9 appropriate regulatory authority shall allow the utility to recover 31-10 the amount of the reduction. 31-11 Sec. 2310.410. DISPOSITION OF PUBLIC PROPERTY IN 31-12 READJUSTMENT ZONE. (a) After an area is designated as a 31-13 readjustment zone, the state, a municipality, or a county that owns 31-14 a surplus building or vacant land in the zone may dispose of the 31-15 building or land by: 31-16 (1) selling the building or land at a public auction; 31-17 or 31-18 (2) establishing an urban homestead program described 31-19 by Subsection (c). 31-20 (b) A municipality or county may sell a surplus building or 31-21 vacant land in the readjustment zone at less than fair market value 31-22 if the governing body of the municipality or county by ordinance or 31-23 order, as appropriate, adopts criteria that specify the conditions 31-24 and circumstances under which the sale may occur and the public 31-25 purpose to be achieved by the sale. The building or land may be 32-1 sold to a buyer who is not the highest bidder if the criteria and 32-2 public purpose specified in the ordinance or order are satisfied. 32-3 A copy of the ordinance or order must be filed with the department 32-4 not later than the day on which the sale occurs. 32-5 (c) An urban homestead program must provide that: 32-6 (1) the state, municipality, or county is to sell to 32-7 an individual a residence or part of a residence that it owns for 32-8 an amount not to exceed $100; 32-9 (2) as a condition of the sale, the individual must 32-10 agree by covenant in the deed conveying the residence to live in 32-11 the residence for at least seven years and to renovate or remodel 32-12 the residence to meet the level of maintenance stated in an 32-13 agreement between the individual and the governmental entity; and 32-14 (3) after the individual satisfies the seven-year 32-15 residency and property improvement requirements of the agreement, 32-16 the governmental entity shall assign the residence to the 32-17 individual. 32-18 Sec. 2310.411. WAIVER OF PERFORMANCE BOND. A subcontractor 32-19 is not required to execute a performance bond under Chapter 2253 32-20 if: 32-21 (1) the construction, alteration, repair, or other 32-22 public work to be performed under the contract is entirely in a 32-23 readjustment zone; and 32-24 (2) the amount of the contract does not exceed 32-25 $200,000. 33-1 Sec. 2310.412. LIABILITY OF CONTRACTOR OR ARCHITECT. A 33-2 contractor or architect who constructs or rehabilitates a building 33-3 in a readjustment zone is liable for any structural defect in the 33-4 building only for the period ending on the 10th anniversary of the 33-5 date on which beneficial occupancy of the building begins after the 33-6 construction or rehabilitation, notwithstanding a statute of 33-7 limitations to the contrary. 33-8 SECTION 2. Subchapter I, Chapter 151, Tax Code, is amended 33-9 by adding Section 151.4291 to read as follows: 33-10 Sec. 151.4291. TAX REFUNDS FOR DEFENSE READJUSTMENT 33-11 PROJECTS. (a) A defense readjustment project is eligible for a 33-12 refund in the amount provided by this section of the taxes imposed 33-13 by this chapter on purchases of: 33-14 (1) equipment or machinery sold to a defense 33-15 readjustment project for use in a readjustment zone; 33-16 (2) building materials sold to a defense readjustment 33-17 project for use in remodeling, rehabilitating, or constructing a 33-18 structure in a readjustment zone; 33-19 (3) labor for remodeling, rehabilitating, or 33-20 constructing a structure by a defense readjustment project in a 33-21 readjustment zone; and 33-22 (4) electricity and natural gas purchased and consumed 33-23 in the normal course of business in the readjustment zone. 33-24 (b) Subject to the limitations provided by Subsection (c) of 33-25 this section, a defense readjustment project qualifies for a refund 34-1 of taxes under this section of $2,500 for each new permanent job or 34-2 job that has been retained by the defense readjustment project for 34-3 a qualified employee. 34-4 (c) The total amount of tax refund that a defense 34-5 readjustment project may apply for in a state fiscal year may not 34-6 exceed $250,000. If a defense readjustment project qualifies in a 34-7 state fiscal year for a refund of taxes in an amount in excess of 34-8 the limitation provided by this subsection, it may apply for a 34-9 refund of those taxes in a subsequent year, subject to the $250,000 34-10 limitation for each year. However, a defense readjustment project 34-11 may not apply for a refund under this section after the end of the 34-12 state fiscal year immediately following the state fiscal year in 34-13 which the defense readjustment project's designation as a defense 34-14 readjustment project expires or is removed. The total amount that 34-15 may be refunded to a defense readjustment project under this 34-16 section may not exceed the amount determined by multiplying 34-17 $250,000 by the number of state fiscal years during which the 34-18 defense readjustment project created one or more jobs for qualified 34-19 employees. 34-20 (d) To receive a refund under this section, a defense 34-21 readjustment project must apply to the comptroller for the refund. 34-22 The Texas Department of Commerce shall provide the comptroller with 34-23 the assistance that the comptroller requires in administering this 34-24 section. 34-25 (e) In this section: 35-1 (1) "Defense readjustment project" means a person 35-2 designated by the Texas Department of Commerce as a defense 35-3 readjustment project under Chapter 2310, Government Code. 35-4 (2) "Readjustment zone" and "qualified employee" have 35-5 the meanings assigned to those terms by Section 2310.001, 35-6 Government Code. 35-7 (3) "New permanent job" means a new employment 35-8 position created by a qualified business as described by Section 35-9 2310.302, Government Code, that: 35-10 (A) has provided at least 1,820 hours of 35-11 employment a year to a qualified employee; and 35-12 (B) is intended to exist during the period that 35-13 the qualified business is designated as a defense readjustment 35-14 project under Chapter 2310, Government Code. 35-15 (f) For the purposes of Subsection (a), items bought by a 35-16 project after the date it is designated as a project, or within 90 35-17 days before the date of designation, may be considered eligible for 35-18 a refund. 35-19 (g) The refund provided by this section is conditioned on 35-20 the defense readjustment project maintaining at least the same 35-21 level of employment of qualified employees as existed at the time 35-22 it qualified for a refund for a period of three years from that 35-23 date. The Texas Department of Commerce shall annually certify to 35-24 the comptroller and the Legislative Budget Board whether that level 35-25 of employment of qualified employees has been maintained. On the 36-1 Texas Department of Commerce certifying that such a level has not 36-2 been maintained, the comptroller shall assess that portion of the 36-3 refund attributable to any such decrease in employment, including 36-4 penalty and interest from the date of the refund. 36-5 (h) Notwithstanding Section 171.103 or 171.1032, a receipt 36-6 from a service performed by a defense readjustment project in a 36-7 readjustment zone is not a receipt from business done in this 36-8 state. 36-9 SECTION 3. Subchapter C, Chapter 171, Tax Code, is amended 36-10 by adding Section 171.1016 to read as follows: 36-11 Sec. 171.1016. REDUCTION OF TAXABLE CAPITAL FOR INVESTMENT 36-12 IN A READJUSTMENT ZONE. (a) A corporation that has been 36-13 designated as a defense readjustment project as provided by Chapter 36-14 2310, Government Code, may deduct either: 36-15 (1) from its apportioned taxable capital, 50 percent 36-16 of its capital investment in the readjustment zone in which the 36-17 defense readjustment project is located; or 36-18 (2) from its apportioned taxable earned surplus, five 36-19 percent of its capital investment in the readjustment zone in which 36-20 the defense readjustment project is located. The deduction may be 36-21 taken on each franchise tax report that is based on a corporation's 36-22 fiscal year during all or part of which the corporation is a 36-23 defense readjustment project. 36-24 (b) The deduction authorized by this section is limited to 36-25 the depreciated value of capital equipment or other investment that 37-1 qualifies for depreciation for federal income tax purposes and that 37-2 is placed in service in the zone after designation as a defense 37-3 readjustment project. The depreciated value must be computed by a 37-4 method which is otherwise acceptable for that corporation's 37-5 franchise tax report and must be computed for each report on which 37-6 it is taken by the same method of depreciation. 37-7 (c) To qualify for the deduction authorized by this section, 37-8 an investment must be used in the normal course of business in the 37-9 defense readjustment zone and must not be removed from the defense 37-10 readjustment zone, except for repair or maintenance. Qualifying 37-11 use and presence in the zone must occur during the accounting year 37-12 on which the report is based. 37-13 (d) The deduction authorized by this section may not be used 37-14 to reduce apportioned taxable capital or apportioned taxable earned 37-15 surplus below a zero value, and no carryover of unused deductions 37-16 to a later privileged period is allowed. 37-17 (e) A corporation may elect to make the deduction authorized 37-18 by this section either from apportioned taxable capital or 37-19 apportioned taxable earned surplus for each separate regular annual 37-20 period. An election for an initial period applies to the second 37-21 tax period and to the first regular annual period. 37-22 (f) In this section: 37-23 (1) "Defense readjustment project" means a person 37-24 designated by the Texas Department of Commerce as a defense 37-25 readjustment project under Chapter 2310, Government Code. 38-1 (2) "Readjustment zone" has the meaning assigned to 38-2 that term by Section 2310.001, Government Code. 38-3 (g) Only qualified businesses that have been certified as 38-4 eligible for a tax deduction under this section by the Texas 38-5 Department of Commerce to the comptroller and the Legislative 38-6 Budget Board are entitled to the tax deduction. 38-7 SECTION 4. The legislature intends that the implementation 38-8 of this Act not result in the removal of any property from the ad 38-9 valorem taxation of any taxing entity in which the property is 38-10 located. 38-11 SECTION 5. Before September 1, 2001, the Texas Department of 38-12 Commerce may not designate more than six defense economic 38-13 readjustment zones under Chapter 2310, Government Code, as added by 38-14 this Act. 38-15 SECTION 6. The importance of this legislation and the 38-16 crowded condition of the calendars in both houses create an 38-17 emergency and an imperative public necessity that the 38-18 constitutional rule requiring bills to be read on three several 38-19 days in each house be suspended, and this rule is hereby suspended, 38-20 and that this Act take effect and be in force from and after its 38-21 passage, and it is so enacted. _______________________________ _______________________________ President of the Senate Speaker of the House I hereby certify that S.B. No. 226 passed the Senate on April 16, 1997, by the following vote: Yeas 31, Nays 0. _______________________________ Secretary of the Senate I hereby certify that S.B. No. 226 passed the House on May 2, 1997, by the following vote: Yeas 136, Nays 0, one present not voting. _______________________________ Chief Clerk of the House Approved: _______________________________ Date _______________________________ Governor