Honorable Phil King, Chair, Senate Committee on Economic Development
FROM:
Jerry McGinty, Director, Legislative Budget Board
IN RE:
HB2313 by Tepper (relating to the authority of certain municipalities to use certain
tax revenue for certain qualified projects.), Committee Report 2nd House, Substituted
Estimated Two-year Net Impact to General Revenue Related Funds for HB2313, Committee Report 2nd House, Substituted: a negative impact of ($2,200,000) through the biennium ending August 31, 2027.
However, there would be a negative impact of ($5,400,000) in the biennium ending August 31, 2029.
Fiscal implications would grow significantly after 2030, with total revenue foregone by the state by fiscal year 2054 estimated to be $83,400,000 greater than what would be foregone if the city of Corpus Christi kept its currently designated zone.
Similar fiscal implications would continue after 2030, with total revenue foregone by the state to the project finance zone in Lubbock estimated to total $121,700,000 by fiscal year 2055.
General Revenue-Related Funds, Five- Year Impact:
Fiscal Year
Probable Net Positive/(Negative) Impact to General Revenue Related Funds
2026
($800,000)
2027
($1,400,000)
2028
($2,300,000)
2029
($3,100,000)
2030
($3,900,000)
All Funds, Five-Year Impact:
Fiscal Year
Probable Revenue Gain/(Loss) from General Revenue Fund 1
2026
($800,000)
2027
($1,400,000)
2028
($2,300,000)
2029
($3,100,000)
2030
($3,900,000)
Fiscal Analysis
The bill would amend Section 351.1015 (a)(4) of the Tax Code to allow for a municipality described by Section 351.001(7) (B) to designate a contiguous geographic area, the total area of which is less than or equal to the maximum area allowed under Section 351.1015 (a) (4) (B) that contains the qualified project, a Project Finance Zone if a zone had already been designated on or before December 31, 2024.
The bill would amend Section 351.1015(b) of the Tax Code to apply to municipalities described by Section 351.152(14) with a population of more than 250,000.
Methodology
The of Section 351.1015(a)(4) of the Tax Code would affect the city of Corpus Christi.
The city of Corpus Christi designated a Project Finance Zone on December 11, 2024, but Section 351.1015 would be amended to authorize the city of Corpus Christi to redesignate a contiguous geographic area that's total area is less than or equal to the maximum area allowed by the existing 3-mile radius around a qualified project as described by 351.1015(a) (4) (B) as a Project Finance Zone. Corpus Christi would be provided authority to receive incremental hotel-associated revenue from all hotels within the zone's boundaries, for a period of up to 30 years, less any amount distributed to a qualified hotel project already within the zone in the year the zone is designated. This estimate is based on proposed boundaries provided by the city of Corpus Christi.
Hotel-associated revenue includes state sales tax revenue, state hotel tax revenue, state mixed beverage sales tax revenue and state mixed beverage gross receipts tax revenue collected from a hotel and businesses located within a hotel. The incremental revenue would be sum of all revenue in excess of the amounts from hotels within the zone during the year the project zone is designated by the municipality.
The Comptroller would begin depositing the estimated monthly incremental hotel-associated revenue into a suspense account to be held in trust outside the state treasury once the hotels, and associated businesses in the hotels, within the zone have been determined by the city and validated by the Comptroller.
The city of Corpus Christi would be allowed to keep their current base year, 2024, with deposits to the project trust account beginning in 2025. However, the city of Corpus Christi would be required to retroactively update the list of hotels that would count towards their base year for their project finance zone once their new boundary, as described by the provisions of this bill, is established.
The estimates are based on the difference between hotel tax revenue from hotels currently in operation and identified as within the boundary of Corpus Christi's current designated zone and their new proposed zone that would be allowed under the provisions of this bill, multiplied by a factor to account for associated sales tax and mixed beverage tax revenue based on data for extant hotel projects, extrapolated to future years at an average annual growth rate of four percent as representative of typical hotel tax growth rates in Corpus Christi.
As this estimate for project financing zone rebates is extrapolated from hotels currently in operation, it does not reflect higher payments to a project zone that would occur if the project-associated infrastructure improvements result in capture of market share by the project hotel and other hotels in the project zone from hotels elsewhere in a designating municipality or from other parts of the state. It also does not reflect higher payments as would occur if the project improvements attracted additional tourist visits from outside the state that otherwise would not have occurred anywhere in the state; revenue from such additional tourist visits paid to a project zone would not represent revenue foregone by the state.
For the first five years after new zone designation, this bill would result in increase in the estimated entitlement to state tax revenue by almost 90 percent compared with the current zone, from $6,700,000 to $12,700,000. Over the 30-year life of the zone, the increase in estimated entitlement to state tax revenue would be from $94,100,000 to $177,500,000.
The amendment to Section 351.1015(b) of the Tax Code would affect the city of Lubbock.
Section 351.1015 would be amended to authorize a project finance zone for the city of Lubbock. Lubbock would be provided authority to receive incremental hotel-associated revenue from all hotels within the zone's boundaries, for a period of up to 30 years, less any amount distributed to a qualified hotel project already within the zone in the year the zone is designated.
Hotel-associated revenue includes state sales tax revenue, state hotel tax revenue, state mixed beverage sales tax revenue and state mixed beverage gross receipts tax revenue collected from a hotel and businesses located within a hotel. The incremental revenue would be the sum of all revenue in excess of the amounts from hotels within the zone during the year the project zone is designated by the municipality.
The Comptroller would begin depositing the estimated monthly incremental hotel-associated revenue into Fund 0905 – Qualified Hotel Project Trust Fund once the hotels, and associated businesses in the hotels, within the zone have been determined by the city and validated by the Comptroller.
As incremental revenue available to finance development of project-associated infrastructure would be maximized by establishing the earliest year possible as base year for the determination of incremental revenue, it is assumed project designation for Lubbock would occur during 2025, the year of the effective date of the bill, with deposits to the project trust accounts beginning in 2026. The estimates are based on hotel tax revenue from hotels currently in operation and identified as within the likely boundaries of the zones, multiplied by a factor to account for associated sales tax and mixed beverage tax revenue based on data for extant hotel projects, extrapolated to future years at an average annual growth rate of six and a half percent as representative of typical hotel tax growth rates prior to the pandemic.
As this estimate for project financing zone rebates is extrapolated from hotels currently in operation, it does not reflect higher payments to a project zone that would occur if the project-associated infrastructure improvements result in capture of market share by the project hotel and other hotels in the project zone from hotels elsewhere in a designating municipality or from other parts of the state. It also does not reflect higher payments as would occur if the project improvements attracted additional tourist visits from outside the state that otherwise would not have occurred anywhere in the state; revenue from such additional tourist visits paid to a project zone would not represent revenue foregone
Local Government Impact
The impacts to Corpus Christi and Lubbock are described above.