MARK WHITE Attorney General 

# The Attorney General ofTexas

May 15, 1961

Honorable Chris Victor Semos Chairman Committee onBusiness &Industry House ofRepresentatives Austin, Texas 76769
Dear Representative Semos: Opinion No. I%+597
Re: Constitutionality of article 1666d,V.T.C.S., the Tax Increment

. Financing Act

You have requested the issuance of an opinion regarding the constitutionality of article l666d, V.T.C.S., in the absence of an enabling amendment to the Texas Constitution, %cluding consideration of the validity of each section of the statute and the validity of the statute & toto.”
Article lCl66d, V.T.C.S., Is popularly known (1~the Tax Increment Financing Act of 1979. It was enacted following the defeat in 1976ofa proposed constitutional amendment dealing with tax increment financing. Acts 1979,66th Leg., R.S., ch. 695, at l66L Anappreciation ofthe defeated proposal helps to place your request in perspective. The I978 proposal to amend the constitution read:

Notwithstanding the requirements of Section 1 of [Article VIIll or of Section 14 of Article VIII, the legislature may, subject to the limitations provided herein, authorize cities and towns to issue tax increment bonds, the proceedsof which shall be used to finance the redevelopment of blighted areas, and the payment of which shall be provided from tax increments as such term isdefined by the legislature.
See Acts 1977,65th Leg., R.S., S.J.R. No. 44, at 3265. See ako Acts 1979, 66th Leg., R.S., Table 2,Votes on Proposed Amendments,-
The &feat of the amendment operated ipm facto to invalidate anticipatory legislation passed in 1977 to implement the proposed amendment - legislation which, in the absence of an enablb constitutional amendment, was thought to vblate both section 1,requiring that taxes be equal and miform, and section 14,governing the office and duties of the county tax assessor and collector, of article VIIl of the constitution. That 1977 legislation (ako codified as article l666d, V.T.C.S., plier to its invalidation) was similar in many respects to the 1979act at issue here, including its formula for defining “tax increments.” Tha formula differed

p. 1097.

Honorable Chris Victor Semos - Page Two (Ew-3371

only in that it took all property tax= into account, including county taxes, school district taxes, etc., and not merely the increment in municipal taxes. Wemake our review in that historical light. See Acts 1977,65th Leg., R.S., ch. 361,at 956. See also Attorney General Opinion Xi-ll9m76). Cf. V.T.C.S., art. 1269l-3, S5bet se~x Renewal Tax Increment Financing); V.m.S. art. 12695-4.12(Ptilic Improvement District Assessment Act of 1977).
The 1979statute consists of twelve sections. Several are complex. You have asked that we comment on the validity of each section, but it will be necessary to consider some ofthem together and out oforder.
The first section is devoted to definitions. The definitions are unexceptionable for the most part, but some will be noticed later. “Tax increment” is defined so asto reprgent the relative net change in assessed value of property after it isincluded ina tax incremental district. The difference in taxes collected from the district as a result ofsuch increments in value isthe measureoftax ftnds to becollected from the district for financing the construction ofpublic improvements within the district. See V.T.C.S. art. 1066d,Sl(H)(5). -

The second section confers certain powers on incorporated cities and towns. Among them is the power to create tax incremental districts, to cause plans for improvement projects to be prepared, approved and implemented, to acquire property for the implementation of project plans, to issue tax incremental bonds and notes, to &posit money into the special fmds of tax incremental districts, and to enter into

“any contracts or agreements.

. . determined.

. . to be necessary or convenient to implement the provisions and effectuate the purposes ofproject plans.” The import of these provisions depends on the construction given other parts ofthe act.
Section 3provides, among other things, that inorder to create atax incremental district rnder the act, the ordinance adopted must contain findings that “the improvement of the area islikely to enhance significantly the value ofsubstantially all of the other real property in the district. ” Id. S3fE)fii). Twenty-f& percent of the
area must be ‘blighted,” id. section 3(E)(i),xt the definition of “blighted area” is extremely broad and includes, for instance, even an area “predominently open.
.. which because of obsolete platting, diversity of ownershi

. . .or otherwise.

. .impairs
or arrests the sound growth ofthe commmity.” & Sl(D(B

. P Thus, the statute requires that any contemplated improvement must enhance the value of the property in the district created, and requires that the collection of “tax incrementsw from each parcel therein be in direct proportion to the amount by which the improvement has enhanced its value. Inour opinion the tax incremental districts authorized by article lO66d, V.T.C.S., are a form of “special improvement” districts See Davidson, Tax Increment Financing as a Tool for Community Redevelopment, 56 Journal of Urban Law, 406, 414(1979)(“while tax increment financing isnot atax, it is analogous to special benefit taxation”).
In Wharton Camty Drainage District No. 1v. Higbee, 149S.W. 361 (Tex. Civ. App.-Galveston 1912,writ ref’d), it wassaid:

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If a district is created which contains, or issupposed to contain, the property benefited by the improvement for which the assessment is levied, and if the exaction is levied upon the property insuch district inproportion to the benefits conferred by such improvement, such form of exaction is regularly recognized as .alocal assessment and not as a form of general taxation. Any tax incremental district created imder article lO66d, V.T.C.S., is supposed to contain only property benefited by the improvement for which the tax increments are collected, and the increments are charged against property in the district in exact proportion to the benefits supposedly conferred bythe improvement Weconclude that the Increments represent ‘local” or %pecial” assessments under Texas law.
The difference between oniinary ad valorem taxes and special assessments was explained by the Texas Supreme Court in Taylor v. Boyd., 63 Tex. 533 (1885X It distinguished “ad valorem taxes,” that is:

such taxes as are annually collected for ordinary purposes of mtmicipal government - . . .taxes based upon an estimation of the value ofthe entire taxable property inacity, from which an estimate is made of the per cent. of taxation, on this value, which will raise the sum necessary to be raised to meet the current annual want,
from “special assessmen&” saying:

Assessments are not of that character, but are charges imposed for purposes which do not necessarily require that they be imposed annually, nor are they usually based onapercentage of the taxable value ofthe taxable property ofacity, but upon the real or supposed benefit resulting from the improvement of the property on which the specific charge islaid.

.. . Article VIII,section 1,of the Texas Constitution isnot offended by the creation of special assessment districts or the usa of tax Increments as a measure of the amount to be collected from such districts to pay for local improvements specially benefiting property in the district. Article VIII,section 1,reading inpart, “It]axation shall be equal and miform.

. . .,” was,one ofthe constitutional provlsions expressly referred to by the constitutional amendment rejected in 1978. InCity ofWichita Falls v. Williams, 26 S.W. 2d 910(Tex. 19301,the court held that article VIIIof the Texas Constitution:

was not intended in any way to define, govern or limit the

subject of special assessments. The power ofthe Legislature to authorize the levying of special assessments for the improvement of property is one which it has by reason of its reserved legislative power, sgainst which we find no specific limitation

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in the Constitution, except the usual constitutional guaranties of dueprocess, equal protection ofthe laws, etc.
See generally 30Tex Jur. 2dImprovements - Public, Slet seq at 344.
As used in article lO66d,V.T.C.S., in our opinion, a “tax increment” is merely a device to measure the size of the special assessment to be levied against aparcel of property for improvements specially benefiting the property. Since article VIIIof the constitution does not “define, govern or limit” the subject of special assessments, the
use of such a device for that purpose cannot, byitself, violate the “equal and uniform” provision, or any other provision, ofarticle VIll.
But this does not mean that the proposed amendment defeated in 1978 was superflwus or that no “equal and uniform” problem is presented by the 1979statute. Advalorem taxes are subject to the “equal and uniform” requirement. The courts look to substance, not form, in tax matters. The effect of a levy, not the guise in which it is made, determines its character and legal consequences. See Conlen Grain and Mercantile, Inc. v.Texas Grain Sorghum Producers, 519S.W.2d620 ‘(Tex.1975);Lower Colorado River Authority v. Chemical Bank and Trust Co., 196S.W.2d48 (Texm Article 1066d,ifgiven its intended effect, would limit the ad~valorem taxes for general city purposes (“to meet the current annual want”) that could becollected from district property. While the present statute does not run afoul of section 14,article VIII,ofthe constitution concerning county tax Bssessors and collectors (another provision expressly mentioned by the defeated amendment), in our opinion, the intended operation of article 1066ddoes violate the first section of article VIII,the “equal and uniformn provision.
In form, this statute appears merely to allocate to the cure ofblight aportion of municipal tax’revenues. It is wellsettled that ifthe rate and manner of assessment of
a tax is equal and uniform, the constitutional provision is satisfied though the tax revenue is expended in a manner that benefits some taxpayers more than others. See - Wheeler v. City of.Brownsville, 220S.W.2d457(Tex. 1949).
But in substance, this statute authorizea a mmicipality, by creating such a district, to refrain from levying an ad valorem tax “for general municipal purposes” against the full value of property located in the district if the value of the property has been enhanced by the improvement. Instead, the mlnicipallty then taxes for general municipal purposes only that pert of the property that &es not represent enhanced value. Another charge islevied against the enhanced value that escapes ad valomm taxation, but it islevied (at a like rate) for the special purpose ofpaying for the enhancing improvement.
The difference between ad valorem taxes and special assessments is in the purpose for which they are collected. Taxes evenly collected for general muiicipal purposes, &, ad valorem taxes, do not violate the “equal and uniform” rule though they are spent unevenly for public improvements which incidentally benefit some citizens more than others. But amounts collected expressly to benefit particular private parcels are not collected “for general mimicipal purposes,” and the benefits

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accruing to district property owners by reason of money collected end spent pursuant to article 1066dwould not be merely ?ncidental.” The statute specifically makes it a primary requisite that all the property in ,the district be specially benefited by an improvement project, and that each parcel of property in the district be charged for the purpose of paying for the improvement, but only to the extent of the benefit the parcel presumably realizes. Unless that condition is met, tax Increment financing cannot beutilized under the statute.
Tax increments, as defined by article lO66d, are not collected for general mtmicipal purposes and cannot be used for general municipal purposes. In effect, the statute authorize two taxes against district property, each for a different purpose. An ad valorem taxxr general mtmicipal purposes and a special assessment for the special purpose of improving aparticular district are two different levies, though they beput in one Package. That the rate isthe same for each tax, and that the sum ofthe two taxes levied against district property will exactly equal the single tax for general city purposes levied against non-district property, does not mean that the rate and
manner of ad valoram taxation is equal and uniform city wide. It means the opposite: a parcel of property located in the tax incremental district (if its value has been enhanced) will not pay the same amount orratio oftaxes for the general support ofthe c& that will bepaid byaparcel ofequal value located outside the district.
The 1979statute nowhere expressly purports to reduce the level of ad valorem taxation imposed on district property for the general support of the mmicipality, and it might be read se merely us@ a tax Incremental formula as a measure for assessments to be added to the normal tax load for district property. That is the ordinary method ofimposing special assessments. However, when sections one and two of the statute are read with sections seven and eight, it is clear that the 1979 act contemplates deducting the special assessment for improving the district, measured by the tax increment, from the municipal tax burden that property in the district would otherwim share withproperty outside the district.
The latter arrangement, if implemented, would umonstitutionally impact the general tax burden of all taxable property ln the city by systematically exempting a portion of the value of property located in the district from the municipal taxation necessary “to meet the current annual want,” i.e. from ad valorem taxation that is subject to the “equal and uniform” requlrement~article VIII,section L See City of Arlington v. Cannon, 271S.W.2d414(Tex. 1954);Anderson County Taxpayerxeague v. City of Palestine, 576 S.W. 2d 679 (Tex. Civ. App.- ‘l)ler 1979,no writ), All other property would have 100%ofits value taxed to meet the ordinary needs ofthe city, but district property would have only apart ofits value taxed for that purpose, c!aus@ an unequal distribution ofthe ad valorem tax burden.
Weconclude that the 1979statute, article 1066d,V.T.C.S., violates article VIII, section l, of the Texas Constitution and is invalid in the absence of an enabling constitutional amendment, See District No. 1,251S.W.212 Texas & P. RY. Co. v. Ward County Irr. County Levee District No. 2v. Looney 207 S.W. 310 (Tex. 19l8); Higgins v. Bordages, 31S.W. 52 (Tex. 1895); Uvalda Roei Asphalt Co. v. Conray, 71S.W.2d315(Tex. Civ. App.-Galveston 1934,writ r&d); City

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of Marshall v. El&, 143S.W. 670 (Tex. Civ. App.- Texarkana 1912,writ rePd), Cf. County of Harris v.Shepperd, 291S.W.2d721(Tex. 1956)(local tax); Evans v.Whi&G 90 S.W. 2d 554 (Tex 1936j (priority of liens). The statute cannot be saved by considering it as creating aseparate taxing district sothat within the district, at least, ad valorem taxes are equal and uniform. Nogovernmental unit is a taxing district in that sense inleas the constitution expressly confers powers oftaxation onit. See Cit of Fort Worth v. Davis, 57 Tex. 225 (1882). See ako Norris v. City ofWaco, 57 -+ ex. 635 (1882). Reading the statute as authorizing the collection oftax Increments atop normal taxes would save it from article VIIIinvalidity but render it unconstitutional under the Due Process Clause of the federal Constitution. The statute leaves it to city officiak to determine which property owners, if any, are to be included in .adistrict and, thus, assessed, but makes no provision for protesting owners to be heard. See City of HD 412S.W.2d 35 (Tex 1967). Inany case, assaid by the Supreme Court
m City of Austin v. Cahill, 88 S.W. 542, 89 S.W.552 (Tex. 19051,“[IIt would not be proper to ascribe to it a meaning at variance with its plain import, soasto conform it to constitutionality orwisdom.”
Tax increment financing is a relatively new device that each jurisdiction must examine in the context of its own constitution and judicial precedents. California amended its constitution to accomodate tax increment financing. See Calif. Const. art 16,96. While tax increment financing statutes have been judic%ily approved in
some states without a constitutional amendment, the courts which have done so have dealt with statutory schemes essentially different from the pattern of article lO66d, V.T.C.S., or have looked to constitutional restrictions not as stringent as those of the Texas Constitution.
Where the question of “equal and tmiform” taxation has been raised and addressed, it has not been raised in a “special assessment district” context and any disparity between district and non-district burdens in the allocation of property charges for the general support of the municipality has beenjustified onthe basis that the entire commmiity will eventually benefit from the anticipated additional tax revenue to be realized after the cost of the improvements has been recovered, if the economic value of district property is increased. The same could be mid for an expected futureyield of tax revenues from property improved by special assessments. But that justification isnot sufficient inTexas.
In Texas, ad valorem taxes are laid for the purpose of meeting “current annual want” Taylor v. Boyd, B The scheme of tax increment financing isrently exempt .aportion of the value ofproperty from its share ofgeneral revenue taxes until the cost of improvements are paid, in hopes that the taxes lost will be more than recouped later when the value of the property has increased. It is similar to schemes endorsed in other states., but not in Texas, of exempting from ad valorem taxes for a period of time those private companies willing to locate in a community, all in the expectation that a general benefit to the commmtity and increased future revenues will result. Cf. City ofCleburne v. Gulf C.&S.F. Ry. Co., 1S.W.342(Tex. 1886). But the taxes &sary to meet the current annual want are those which the Texas Constitution insists beequal and unimex. Const art VIII,s1.

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The following are among those cases from other jm+sdictions that we have considered: State v. Miami Beach Redevelopment Agency, 392 So. 2d 875 (Fla. 1981) (uses tax increment as “measure” only; equality and uniformity not addressed); People v. Crouch, 403 N.W. 2d 242 (Ill. 1980)(tax allocation device similar to 1977- legislation invalidated by &feat of 1978 constitutional amendment); State v. Cit of Topeka, 605 P. 2d 556 (Kan. 1980)(tax allocation scheme similar to7iiGmmh Texas legislation); Sigma Tau Gamma v. City of Menomonie, 288N.W.2d 85(Wia 19801 (tax allocation scheme similar to 1977 Texas legislation; special assessment/ ad valomm tax dichotomy not addressed); Denver Urbai Renewal Authority v. Byrne, 618 P. 2d 1374(Colo. 1980)(special assessment type argument not addressed for lack of standing); City of Sparks v. Beat, 605 P. 2d 838 (Nev. 1980)(“friendly sut”; equal and uniform arguments not addressed); e, 591S.W. 2d 427 (Term. 1979 Texas legislation); Short v. City of Minneapolis, 269 N.W.2d 331(Minn. 19781(scheme under which city acquires and resell property to private developers; equality and uniformity not addressed); Salt Lake City County v. Murray City Redevelopment, 598 P. 2d 1339(Utah 1979);Tribe v. Salt Lake City Corporation, 540 P. 2d499 (Utah 19751 (special agency ordistrict with taxing powers).
In cur opinion, such cases are not persuasive that article lO66d, V.T.C.S., is consistent with article VIII, section 1of the Texas Constitution. As noted above, several courts from other jvisdictions have upheld multi-district “tax allocation” schemes similar to the plan of the 1977Texas legislation that fell when the proposed constitutional amendment failed in 1978. Under their rationales, the 1977legislation would have been valid without the constitutional amendment - a circumstance that makes them particularly unreliable instruments with which to guage the validity ofa statute under the Texas Constitution.
Inasmuch as weconsider the statute fatally defective for the above reasons, our consideration of its other aspects willbebrief where possible. Although section 3 of the statute, when considered with the rest, makes no provision to secure with a “substantial equivalent” those preexisting municipal creditors who may have a call on all taxable property and whomight bedisadvantaged by the withdrawal of a portion of its value from thei reach, the omission does not make the statute facially unconstitutional asimpairing the obligation of contract The statute does not limit the tax burden that may be imposed on property that is fully taxed, so a ppexisting creditor could be harmed only ifthe constitutional ce&ig on municipal debt, when coupled with the failure ofthe city to fuIly tax district property, would make enforcement of his claim impossible. See Tex. Const. art. XI, S5;City of Austin v. Cahill, w In particular situations% statute might be found to be unconstitutionally applied on this grcund, but it is not facially unconstitutional See U.S. Const art I, s10, CL1;Tex. Const art. I, S16;Delta County Levee Imp. Distm No. 2v. Leonard, 559 SW. 2d 387 (Tex. Civ. App.- Texarkana 1977,writ rePd n.r.e.1. Cf

.Preston v. Anderson County Levee Imp. Dist. No. 2,261 S.W. 1077(Tex. Civ. App.- Earkana 1924,nowrit). The same istrue ofthe provision insection 9, subsection (21, that allows the dissolution of the district before the retirement of obligations associated therewith.

p. 1103Honorable Chris Victor Semos - Page Eight (Ew-3371

Similarly, although section 4 of article 1066d,V.T.C.S., limits the percentage of residential property that may be included in a district, see Attorney General Opinion MW-301(1981),we do not think any unconstitutional depvation of equal pmtection under the law would result were there no other constitutional problems, notwithstanding an obvious advantage to the owners of pmperty located in a district where public finds are by law particularly &voted to Increasing the economic value of pmperty therein without additional cost to the owners. See U.S. Ccnst amend. 14; Tex. Coast art I, S3. Though article 1066ddoes not reflex-y legislative findings or declarations on the matter, we are unable to say that no reasonable basis for such a preference could exist. Liens for the payment of such charges - charges that are not taxes within the meaning of article XVI,section 50ofthe constitution - could not be enforced against homestead property as they could against other property, including other property exempt from ordinary taxation. See Himins v. Bordages, supra. See also City of Wichita Falk v. Willlams, supra; Mz Olivet Cemetary Co. v. CityFort Worth, 275S.W.2d 152(Tex. Civ. App.- Fort Worth 1955,writ rePd n.r.e.).
Section 5, which wncerns the board of directors, presents no insurmountable constitutional problems. See Kaufman County Levee Imp. District v. National Life Insurance Co., 171S.W. 2d188 ‘(Tex.Civ. App.-Dallas 1943,writ rePdX Weconstrue section 6, relating to the delegation of powers to the board, as intended to authorize onlv th&e d&&ions of authoritv that meet constitutional reouirements Noplain in&t to doo&&se is evidenced: See Burch v. City ofSan Anhnio, 518S.W.22540 (1975); SJNIM v. City of Dallas, 131m. 2d 1079(Tex. Civ. App.-Dallas 1939,writ ref’d); 40 Tex. Jur. 2d Rev. Part I Municipal Corporations S334, at 97. view related provislors in section 2. Wesimilarly

Sections 7 and 8, determining the calculation and allocation of tati increments, have previously been discussed. Section 9also has been discussed above. Section 10is not facially unconstitutional as a violation of article IlI, section 52 or article XVI, section 6 of the constitution, though it permits the use of general city finds to pay project costs otherwise payable from assessments - assuming aproper public purpose is served thereby. Those provisions pmhibit gifts to private persons or appropriations to private purposes. Not every measure is tmwnstitutional that relieves private parties of financial burdens they could otherwise be forced to bear. Barrin ton v. Coklnos 338 S.W. 2d 133(Tex. 1960); State v. City of Austin, 331S.W. 26 737 --+E -Se-e also Davis v. City of Lubbock, 326 S.W. 2d 699 @ex. 1959); ,““sTll Authoritmty of Dallas v. Hiainbotham, 143 S.W. 2d 79 (Tex. 1940. application of this provision, if coupled with binding agreements to supplement the fmd, isdiscussed below.
Section 11governs the issuance of bonds and notes under the act. It is valid if by doing so acity does not incur debt in the wnstitutional sense or potentially embarrass the exemise of’its governmental fmctions; otherwise, it isnot.
Article XI, section 5, of the constitution, Felating to home rule cities, specifies,

“[nlodebt shall ever becreated by any city, unless at the same time provision bemade to assess and collect annually asufficient sum to pay the interest thereon and creating asinking find of at least two per cent thereon

.” Article XI,section 7, applicable to all

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cities, requires the levying and collecting of a tax therefor. “Debt,” as used in these pmvisions, means any pecuniary obligation ime by wntract, except such as were, at the date of the wntract, Within the lawful and reasonable contemplation of the parties, to be satisfied out of the current revenues for the year or out of some fund then~Within the immediate control of the wrporation. McNeil1 v. City of Waco, 33 S.W.322(Ten. 1895X
The statute at hand, article 1086d,makes no provision for the collection of atax to defray such obligations. Special assessments are not taxes within the meaning of those constitutional pmvislons. 2d228 (Tex. 193% City of Fort Worth v.Bobbitt, 36 S.W.2d470.41 S.W.

Nordoes the statute provide for the “annua1 collection” of any sum. It provides for the augmentation of aspecial turd g positive tax increments accrue, g ple@ed revenues are realized from the project financed, or if the city governing body elects to deposit other monies therein. V.T.C.S. art. lOSSd;SS(b). In those events, deposits to the fwd are mandated, but occurence ofthe events isuncertain.
Section 11(d)of the statute specifies that tax incremental bonds or notes are payable “only out of the special find created under Subsection fbl of Section 8ofthis Act.” But the only “tax incremental bonds or notes” that the statute authorizea acity to issue are those:

payable out ofpositive tax increments or out of a combination of positive tax mcrements and all or part of the net revenue produced by a facility w*ed, improved, or wnstructed pursuant to aproject.
V.T.C.S. art 1066d,Sllfah Thus, such obligations cannot be paid With any of‘the extra money the city is authorized to appropriate for deposit to the special fmd. Money coming to the fund from that source can, of wurse, be used under the statute to pay project costs not financed by the sale proceeds ofbonds ornotes, J&.section 10,and solong as the use of appropriations deposited to the special fund is so restricted, additional constitutional problems donot arise. Cf. Navarm Auto-Park v. City ofSan Antonio, 574S.W.2d582 (Tex. Civ. App. -San Antonio 1978,writ rePd n.r.e., 580S.W.2d339).
A more serious matter is the permitted use of “net reveriue produced by a facilityl’ for the payment of bonds or notes. The definition of “net revenue produced’ is mt given, and the types of facilities which may be acquired, impmved or constructed pursuant to a project are not expressly limited to those which cities own and operate as proprietary factions rather than as governmental fwctions. Section IYe)ofthe statute father specifies:

To increase the security and marketability of tax incremental bonds or notes, the city may: (11Create a lien for the benefit of the bondholders on any public improvements or public Worksfinanced thereby or

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the revenues therefrom if revenues are not otherwise pledged; or (2) Make covenants and do any and all acts necessary or convenient or desireable in order to additionally secure bonds or notes or tend to make the bondsor notes more marketable according to the best judgment.of the city governing body.
Acharge sgainst the revenues of a facility isa charge against the facility itself. City of Dayton v. Allred, 68 S.W. 2d 172 (Tex. 1934). It is wnstltutionally impermissible for apolitical subdivision to enter into acontract that has the effect of potentially controlling and embarrassing it in the exercise ofits governmental powers.

discharge I%1ftmctionr The foreclosure of a lien upon facilities essential to the

of a city’s governmental duties would obviously impair or embarrass the discharge of them. In our opinion, any attempt by a city to apply these statutory oowers to facilities other than those held ourelv in a nrowietarv canacitv Wouldbe &constitutional See also Nain v. Bean,- 48 S.W. 26 584 (Tei 19321. -Cf. Lower Neches Vallg Authority v. Mann, 167S.W.2d 1011 (Tex. 1943);City ofDayton v.Allred, s; City of Nederload v. Calhhan, 299S.W.2d380(Tex. Civ. App.-Beaumont 1957, writ rePd n.r.e.1 (governmental/ pmprletary distinction not addressed).
Even as to facilities held by a city in its proprietarycapacity, uider article 1066d, V.T.C.S., a city could not unreservedly pledge to operate the facility so as to produce revenues - unless it fist complied with wnstitutional requirements respecting the annual assessment and collection of a tax sufficient to secure the obl@tion. Such compliance Wouldbe necessary because the cost ofoperating project facilities is apparently not a “project wst” which may be paid from the special fund created, and an tmdertaking to operate them would constitute a debt within the meaning of the constitution. See City of Wichita Falls v. Kemp Pwlic Library Board ofTrustees, 593S.W.2d 834(T~CIV. App. - Fort Worth 1980,writ reTd n.r.e.1.
The statute limits the purposes for Which money may be withdrawn from the fund. Section 8(b)ofarticle 1066dspecifies:

. .. if bonds or notes issued under Section. 11of this Act are repayable in Whole or in part from revenue produced by a facility acquired, improved, or constructed pursuant to a

p. 1106Honorable Chris Victor Semos - Page Eleven (rm-337)

project, the city shall deposit the pledged revenues in the fmd. Money shall bepaid out of the find on1 topay project costs of the district, to reimburse the city or the payments, or to + satisfy claims of tax Incremental bonds or notes issued for the district.

.. . (Emphasis added).
The “project cost.9 payable out ofthe fwd are limited bysection l(3)to:

Any expenditures made or estimated to be made or monetary obligations incurred or estimated to be Incurred by the city which are listed in a .pmject plan as costs of public Works or improvements within a tax incremental district, plus any costs incidental thereto, diminished by any inwme, special assessments, or other revenues, other than tax increments, received or reasonably expected to bereceived by the city inconnection with the implementation ofthe plan.
A number of costs am particularly described as being included In the term

“project costs,” h& but the cost of operating pmject facilities to produce revenue is not among them, nor does the statute explicitly~permlt the use of proweds from the sale of bonds or notes for ordinary operating expenses year-in and year-out. It seems apparant that costs of operating project facilities must be funded from some other source, but whether or not the use of the special fund for that purpose isproscribed, any agreement by the city binding it to operate such facilities With general funds of the city Would constitute the assumption of debt within the meaning of the Texas Constitution. City of Wichita Falk v. Kemp Public Library Board of Trustees, supra. k City ofFort Worth v.Bobbitt, supra; McNeil1v.City ofWaco, supra
Weconclude that section ll ofthe statute isnot unconstitutional onits face, but would be held unconstitutional in application if not narrowly applied See eneral 40 Tex. Jur. 2d Rev. Part 1Municipal Corporations S587.et 7% (bon&&&&S. arts. 701et se%; 1106et sew ll75; 2368a. The last section o article lO68dzction 12, wncems overlapping tax mcremental districts and isnot, by itself, uiwnstitutionaL
You have asked that we wmment on the overall validity of the statute ln addition to discussing its various sections With particularity. In our opinion, article 1066d,V.T.C.S., isfacially unconstitutional because it violates the “equal and uniform” requirement of article VIII,section 1of the Texas Constitution, but not otherwise. A determination of mwnstitutionallty onother grounds can beavoided byconstruing and applying the statute narrowly.
SUMMARY

Article 1666d, V.T.C.S., is facially unconstitutional because it violates the “equal and uniform” requirement of article VIII, section 1,of the Texas Constitution. A finding of tmwristitutionality on other grounds is avoided by wnstruing and applying ~thestatute narrowly.

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# m-m&&g

Attorney General ofTexas
JOHN W.FAINTER, JR. First Assistant Attorney General
RICHARD E.GRAY IH Executive Assistant Attorney General Prepared byBruce Youngblood Assistant Attorney General
APPROVED: OPINION COMMIl’TEE
Susan L. Garrison, Chairman Jon Bible Ride Gilpin Jim MoeUhger BNC~Youngblood

p. ilO