Chapter 311 of the Texas Tax Code allows municipalities or countries to form a Tax Increment Reinvestment Zone (“TIRZ”). The municipality proposing the TIRZ must notify each taxing unit that levies real property taxes in the proposed TIRZ and determine that tax increment that each taxing unit will contribute to the tax increment fund.
Money deposited in the tax increment fund may be disbursed only to satisfy claims to holders of tax increment bonds or notes issued for the zone, to pay project costs for the zone or payments pursuant to an agreement made by the board. Project costs include, but are not limited to, the following costs associated with public works or public improvements including:
- Capital costs, including acquisition, construction, reconstruction, installation, demolition, clearing and grading;
- Financing costs, including interest before and during construction and for one year after completion of construction, whether or not capitalized.
- Real property assembly costs;
- Professional services costs, including architectural, planning, engineering, and legal advice services.
- Administrative costs for employees of the municipality or county in connection with the implementation of a project plan;
- Organizational costs, including the costs of conducting environment impact studies or other studies, the cost of publicizing the creation of the zone, and the cost of implementing the project plan for the zone;
- Costs of operating the TIRZ and project facilities; public facilities, or pay debt service on bonds.
In addition to property tax contributions into the tax increment fund, a municipality collecting municipal sales and use taxes may contribute all or a portion of the sales tax increments to the tax increment fund or enter into a tax abatement agreement with an owner of the property within the TIRZ.
Criteria for Establishing a Reinvestment Zone
To be designated a reinvestment zone, an area must:
- Substantially arrest or impair the sound growth of the municipality or county creating the zone, retard the provision of housing accommodations, or constitute an economic or social liability and be a menace to the public health, safety, morals, or welfare in its present condition and use because of the presence of:
- Slum, deteriorated or deteriorating structures;
- Defective or inadequate sidewalk or street layout;
- Faulty lot layout in relation to size, adequacy, accessibility, or usefulness;
- Unsanitary or unsafe conditions;
- Tax or special assessment delinquency exceeding the fair value of the land;
- Defective or unusual conditions of title;
- Structures other than single family residential structures, where less than 10 percent of the square footage has been used for commercial, industrial, or residential purposes during the preceding 12 years, if the municipality has a population of 100,000 or more;
- Conditions that endanger life or property by fire or other cause;
- Be predominately open and, because of obsolete platting, deterioration of structures site improvements, or other factor, substantially impair or arrest the sound growth of the municipality or county;
- Be in a federally assisted new community located in the municipality or county or in an area immediately adjacent to a federally assisted new community;
- Be in an area described in a petition requesting that the area be designated as a reinvestment zone, if the petition is submitted to the government body of the municipality or county by the owners of the property constituting at least 50 percent of the appraised value of the property.
Public Improvements Eligible for TIRZ Financing
- Educational facilities if the reinvestment zone was created on or before September 1, 1999
- Flood and drainage facilities
- Parking facilities
- Parks
- Pedestrian malls and walkways
- Sewer
- Street lights
- Streets
- Utilities
- Water