# The Attorney General of Texas

March 11, 1981

Honorable Richard G.Morales, Sr. WebbCounty Attorney 1810San Bernard0 Laredo, Texas 78040

Dear Mr.Morales: Opinion No. MW-301 Re: Administration of article 1066d, V.T.C.S., relating to tax incremental districts

You have requested our opinion regarding the construction end administration of Senate Bill 12ll, Acts 1979,66th Legislature, chapter 695, at 1661 (article lO66d, V.T.C.S.), which authorizes the creation of tax incremental districts by cities to undertake and finance certain municipal public works or improvements in areas in need of rehabilitation. A tax incremental district is an area within the city defined and created by municipal ordinance in accordance with article 1066d, V.T.C.S. Sec. l(7). You have not raised and we do not address any questions regarding the constitutionality ofthe statute. Your first question relates to section 4(a)ofthe act, which provides: A tax incremental district -may not be created if before redevelopment under percent of the real property in the distict, excl that dedicated to public use, is used for residential purposes. (Emphasis added). ~ You inquire “whether the 10% of residential real property in the district should be determined by apercentage of assessed values or by 10% of the total area involved inthe tax increment dmtrict?” Section 4(a) imposes a qualification for the creation of a tax incremental district relating to the useto which the real property within the proposed district has been put. Section 3(a)(2)(E)(i) ofthe act provides that

“not les than 25percent by area ofthe real property within the district isa blighted area,” and section 3(a)(2)(B)(iii) provides that “the aggregate assessed value of taxable property in the district according to the city’s assessment plus all existing districts does not exceed 15percent ofthe total assessed value of taxable property within the city according to the city’s assessment roll.”

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In determining the qualifications and disqualifications for a designated area proposed to constitute atax incremental district, the act speaks interms ofthe nature of or various uses to which the real property is put. Only when discussing the total area proposed to comprise the district is assessed value mentioned, and then to determine the relativity of assessed value of all property within the district to all of that within the entire city. Section l(6) ofthe act defines “the total assessed value of the property located within atax incremental district” asthe “[t]axincremental base.” Section l(7) defines “[tlax incremental district” as “a contiguous geographic area within acity.” There is no suggestion by context or otherwise in the act that “assessed value,” rather than “area” should be used in determining the criteria for a district under section 4(a). Section 4(a) should be construed as stating the use to which the defined area must beput inorder to beencompassed inatax incremental district. Your second question isas follows:

When property is used for both residential and commercial purposes, how is the percentage of residential property determined? In such cases, the percentage of residential property should be determined by the actual area set aside or occupied for residential purposes. Your third question isas follows:

Section ll(c) appears to be inconsistent with section 8(a) in that section llfc) authorizes bond and note securities with a maximum maturity up to 20 years, while 8(a) authorizes payments of not to exceed 15years. The question involved is: Which of the two provisions is controlling in so far as the issuance ofbonded indebtedness is concerned? This question suggests an apparent conflict between sections 8(a) and l&z)ofthe act. Section 8(a) relates to the allocation of “IpIositive tax increments” and provides that such allocations are made “to the applicable tax increment fund each year from the date when the district iscreated until the earlier of:

(1) that time, after the completion of all public improvements specified in the plan or amendments, when the city has received aggregate tax increments of the district in an ~amount equal to the sggregate of all expenditures previously made or monetary obligations previously incurred for project costs for the district; or (2) 15 years after the last expenditure identified inthe plan ismade. Section 8(b)provides that “[a]11tax increments received in a tax incremental district shall bedeposited inaspecial fund for the district.”

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Section 8(a) effectively statas that the city may allocate positive tax increment revenues into the designated improvement fund for a period not to exceed that time after corn-ion ofthe project when it has received sufficient funds to meet its total financial obligations for the project (including financing costs), or 15years after the last expanditure is made oncompletion ofthe project itself, whichever isearlier. This section refers to the allotted period of time for the accumulation offunds to meet all of the financial obligations of the district, including funds for the retirement ofbonds and notes. Section R(c) relates to “(tlax incremental bonds or notes” and provides in pertinent part that:

Tax incremental bonds or notes may not be issued in an amount exceeding the aggregate project costs. The bonds ornotes shall mature over a period not exceeding 20 years from the date thereof. Section 11(d)further provides that “[t)ax incremental bonds or notes are payable only out of the special fund created under Subsection (b) of Section 8 of this Act.” (Empmdded). Sections 8(a) and (b) refer to the creation of a special fund ahd limit the time after completion ofthe project, orthe last expenditures for completionof the project, in which positive tax increments may be deposited into the fund. Sections 11(c)and (d) refer to the time limit for maturity ofbonds or notesued to finance the costs ofthe project and the requirement that these beretired only out of the special fund. These sections du not conflict, but have separate and distinct purposes - one relating to the limits for certain deposits into the special fund, the other relating to time limits for certain payments out ofthe=d. SUMMARY In determining the 10percent limitation imposed by section ?(a) of article lO66d, V.T.C.S., the calculation should be based on the actual geographic area used for residential purposes within the proposed tax incremental district. Whenproperty is used for both residential and commercial purposes, the percentage of residential property should ba determined by the actual area used for residential purposes. There is no inconsistency between sections 8(a) and 11(c)of the act. Section 8(a) relates to time limitations for certain deposits into the special fund provided for in section 8(b). Section 11(c)relates to time limitations for the maturity of bonds and notes which are to ba retired with funds paid out of the special fund provided for in section 8(b).

P. 962Honorable Richard G.Morales, Sr. - Page Four (MW-301)

MARK WHITE Attorney General ofTexas JOHN W.FAINTER, JR. First Assistant Attorney General RICHARD E.GRAY III Executive Assistant Attorney General Prepared byBobGammage Assistant Attorney General APPROVED: OPINION COMMlTTEE Susan L.Garrison, Chairman David B.Brooks BobGammage Ride Gilpin :,, C. Robert Heath Robert T.Lewis William GReid Bruce Youngblood

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