BILL ANALYSIS

Senate Research Center	S.B. 2565
89R15906 JBD-F	By: West
	Economic Development
	5/5/2025
	As Filed

AUTHOR'S / SPONSOR'S STATEMENT OF INTENT

The Qualified Hotel Project (QHP) program, established through the "Brimer Bill" in 1999 and codified in 2003 as Tax Code �351.152, provides economic development tools for cities like Dallas, Fort Worth, Houston, and San Antonio to develop convention center hotels. By allowing eligible cities to receive rebated state hotel occupancy tax (six percent) and state sales tax (6.25 percent) generated by qualified projects, the program supports major infrastructure developments that would otherwise be financially unfeasible. Since its inception, the program has expanded through bracketed population and geographic criteria in 2009, 2011, 2015, 2019 (H.B. 4347), and most recently in 2023 (H.B. 5012), which added 18 cities and implemented a clawback mechanism for underperforming projects.

Despite these expansions, Garland remains excluded due to narrow eligibility criteria. Garland, with over 240,000 residents across multiple counties and adjacent to Lake Ray Hubbard�a man-made lake covering more than 20,000 acres�meets all other qualifications for the QHP program. However, existing statutory criteria often focus on smaller or rapidly growing cities, overlooking Garland's unique potential for tourism-driven economic growth.

According to the Legislative Budget Board's Fiscal Note on H.B. 5012 (88R), similar provisions were estimated to cost the state $6.2 million for the 2024�25 biennium, growing to $52.2 million by FY 2028. However, the Comptroller of Public Accounts of the State of Texas (comptroller) reported that only a few major cities utilized the program between 2012 and 2017, receiving a combined $81.5 million in state rebates. These projects spur development that private investors may not undertake alone due to high costs and risk. Additionally, a 2020 House Ways & Means Interim Report found that existing QHP projects supported more than 6,300 jobs and generated over $2 billion in capital investment. The Texas Economic Development & Tourism Office reported that travel and tourism generated $82.9 billion in spending and $4.7 billion in state tax revenue in 2019.

Several major cities have already demonstrated the effectiveness of the QHP program. Projects enabled by the program, such as the Dallas Omni Hotel, generated an estimated $2.6 billion in economic impact, created 500 permanent jobs, and revitalized urban areas. San Antonio's Grand Hyatt Hotel, constructed under the QHP framework in 2008, similarly generated 500 permanent jobs and over $280 million in investment.

Garland seeks to use the QHP program to turn Lake Ray Hubbard into a tourism and conference destination, promoting local economic growth through tourism, job creation, and increased revenue. S.B. 2565 addresses Garland's exclusion from the program by tailoring eligibility criteria to include Garland's unique characteristics, providing the city with the same economic development tools available to other successful Texas cities.

S.B. 2565 seeks to provide the City of Garland with the financial tools necessary to develop a QHP under Subchapter B of Chapter 351 of the Texas Tax Code. Specifically, the bill amends Section 351.152 to establish a tailored population bracket for Garland, defining eligible cities as those with a population of 240,000 or more, located in two or more counties, and adjacent to a man-made lake of at least 20,000 acres. This amendment allows Garland to utilize hotel occupancy tax (HOT) and state sales tax revenues derived from a newly developed hotel and convention center project to fund construction, debt servicing, and related infrastructure.

Additionally, the 20-year clawback provision ensures fiscal responsibility by requiring Garland to reimburse the state through redirected local HOT revenue if the project does not generate sufficient tax revenue within 20 years. This safeguard guarantees that the state's investment is eventually recouped, even if the project underperforms. The comptroller's approval process further ensures accountability by confirming that only qualified projects receive benefits, with ongoing revenue monitoring to confirm compliance with statutory requirements.

S.B. 2565 also introduces new statutory language under �351.101(j) to allow the use of HOT revenues for certain off-site sports-related developments under specific conditions. The bill creates an exception for cities located entirely within counties of over 1.5 million population, allowing them to utilize HOT revenue for sporting-related facilities outside their city limits if they adopt a resolution declaring the project's tourism benefit, secure consent from the host city, enter into an interlocal revenue-sharing agreement, and ensure the facility does not negatively affect existing HOT-supported venues.

The goal of S.B. 2565 is to allow Garland to use the QHP program to generate revenue, create jobs, and boost tourism like other Texas cities. It addresses a disparity in eligibility that currently prevents Garland from leveraging the QHP program despite meeting other relevant criteria. Importantly, the bill achieves these goals without raising taxes or redirecting general revenue, instead allowing cities to reinvest revenues generated by tourists, rather than local taxpayers, into economic development projects. Garland plans to use Lake Ray Hubbard as a tourism and conference hub, following a strategy successfully used by other Texas cities through the QHP program.

As proposed, S.B. 2565 amends current law relating to the authority of certain municipalities to receive certain tax revenue derived from a hotel and convention center project and to pledge certain tax revenue for the payment of obligations related to the project.

RULEMAKING AUTHORITY

This bill does not expressly grant any additional rulemaking authority to a state officer, institution, or agency.

SECTION BY SECTION ANALYSIS

SECTION 1. Amends Section 351.152, Tax Code, as follows:

Sec. 351.152. APPLICABILITY. Provides that Subchapter C (Municipal Hotel and Convention Center Projects) applies only to a municipality that meets certain criteria, including a municipality with a population of 240,000 or more that borders a man-made lake that has a surface area of more than 20,000 acres. Makes nonsubstantive changes.

SECTION 2. Amends Section 351.157(b), Tax Code, to provide that Section 351.157 (Additional Entitlement for Certain Municipalities) applies only to a municipality that meets certain criteria, including a municipality described by Section 351.152(65) (relating to a municipality with a population of 240,000 or more that borders a man-made lake that has a surface area of more than 20,000 acres), and to make nonsubstantive changes.

SECTION 3. Effective date: upon passage or September 1, 2025.