MARK WHITE 

Attorney General 

The Attorney General of Texas 

May 15, 1961 

Honorable Chris Victor Semos 

Chairman 

Committee on Business & Industry 

House of Representatives 

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 1976 of a 

proposed constitutional amendment dealing with tax increment financing. 

Acts 1979,66th Leg., R.S., ch. 695, at l66L An appreciation of the 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 proceeds of 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 is defined 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 1979 act 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. We make 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. 1269 l-3, S5b et se~x 

Renewal Tax Increment Financing); V.m.S. art. 12695-4.12 (Ptilic Improvement 

District Assessment Act of 1977). 

The 1979 statute 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 of them together and out of order. 

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 as to 

reprgent the relative net change in assessed value of property after it is included in a 

tax incremental district. The difference in taxes collected from the district as a 

result of such increments in value is the measure of tax ftnds to be collected from the 

district for financing the construction of public 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 of project plans.” The import of 

these provisions depends on the construction given other parts of the act. 

Section 3 provides, among other things, that in order to create a tax incremental 

district rnder the act, the ordinance adopted must contain findings that “the 

improvement of the area is likely to enhance significantly the value of substantially 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 of the 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. In our 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 is not a tax, it is 

analogous to special benefit taxation”). 

In Wharton Camty Drainage District No. 1 v. Higbee, 149 S.W. 361 (Tex. Civ. 

App. - Galveston 1912, writ ref’d), it was said: 

p. 1098 
Honorable Chris Victor Semos - Page Three M-3371 

If a district is created which contains, or is supposed to contain, 

the property benefited by the improvement for which the 

assessment is levied, and if the exaction is levied upon the 

property in such district in proportion to the benefits conferred 

by such improvement, such form of exaction is regularly 

recognized as .a local 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 by the improvement We conclude 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 of the entire taxable property in a city, 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 on a percentage of 

the taxable value of the taxable property of a city, but upon the 

real or supposed benefit resulting from the improvement of the 

property on which the specific charge is laid. . . . 

Article VIII, section 1, of the Texas Constitution is not 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 in part, “It] axation 

shall be equal and miform. . . .,” was ,one of the constitutional provlsions expressly 

referred to by the constitutional amendment rejected in 1978. In City of Wichita Falls 

v. Williams, 26 S.W. 2d 910 (Tex. 19301, the court held that article VIII of the Texas 

Constitution: 

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

subject of special assessments. The power of the 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 

p. 1099 
Honorable Chris Victor Semos - Page Four &N-3371 

in the Constitution, except the usual constitutional guaranties 

of due process, equal protection of the laws, etc. 

See generally 30 Tex Jur. 2d Improvements - Public, Sl et 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 a parcel of 

property for improvements specially benefiting the property. Since article VIII of the 

constitution does not “define, govern or limit” the subject of special assessments, the 

use of such a device for that purpose cannot, by itself, violate the “equal and uniform” 

provision, or any other provision, of article 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 1979 statute. 

Ad valorem 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, 519 S.W. 2d620 ‘(Tex. 1975); Lower 

Colorado River Authority v. Chemical Bank and Trust Co., 196 S.W. 2d 48 (Texm 

Article 1066d, if given its intended effect, would limit the ad~valorem taxes for general 

city purposes (“to meet the current annual want”) that could be collected from district 

property. While the present statute does not run afoul of section 14, article VIII, of the 

constitution concerning county tax Bssessors and collectors (another provision 

expressly mentioned by the defeated amendment), in our opinion, the intended 

operation of article 1066d does violate the first section of article VIII, the “equal and 

uniformn provision. 

In form, this statute appears merely to allocate to the cure of blight a portion of 

municipal tax’ revenues. It is wellsettled that if the 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, 220 S.W. 2d 457 (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 is levied against the enhanced value that escapes ad 

valomm taxation, but it is levied (at a like rate) for the special purpose of paying 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 

p. 1100 
Honorable Chris Victor Semos - Page Five G&+337) 

accruing to district property owners by reason of money collected end spent pursuant 

to article 1066d would 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 be utilized 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 a particular district are two different levies, though they 

be put in one Package. That the rate is the same for each tax, and that the sum of the 

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 or ratio of taxes for the general support of the 

c& that will be paid by a parcel of equal value located outside the district. 

The 1979 statute 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 of imposing 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 with property 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, 271 S.W. 2d 414 (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% of its value taxed to meet the ordinary needs of the city, but 

district property would have only a part of its value taxed for that purpose, c!aus@ an 

unequal distribution of the ad valorem tax burden. 

We conclude that the 1979 statute, 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, 251 S.W. 212 

Texas & P. RY. Co. v. Ward County Irr. 

County Levee District No. 2 v. Looney 

207 S.W. 310 (Tex. 19l8); Higgins v. Bordages, 31 S.W. 52 (Tex. 1895); Uvalda Roei 

Asphalt Co. v. Conray, 71 S.W. 2d 315 (Tex. Civ. App. -Galveston 1934, writ r&d); City 

p. 1101 
Honorable Chris Victor Semos - Page Six @s+3371 

of Marshall v. El&, 143 S.W. 670 (Tex. Civ. App. - Texarkana 1912, writ rePd), Cf. 

County of Harris v. Shepperd, 291 S.W. 2d 721 (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 a separate taxing district so that within the district, at least, 

ad valorem taxes are equal and uniform. No governmental unit is a taxing district in 

that sense inleas the constitution expressly confers powers of taxation on it. See Cit 

of Fort Worth v. Davis, 57 Tex. 225 (1882). See ako Norris v. City of Waco, -+ 57 ex. 

635 (1882). 

Reading the statute as authorizing the collection of tax Increments atop normal 

taxes would save it from article VIII invalidity 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 .a district and, thus, 

assessed, but makes no provision for protesting owners to be heard. See City of 

HD 412 S.W. 2d 35 (Tex 1967). In any case, as said by the Supreme Court 

m City of Austin v. Cahill, 88 S.W. 542, 89 S.W. 552 (Tex. 19051, “[II t would not be 

proper to ascribe to it a meaning at variance with its plain import, so as to conform it 

to constitutionality or wisdom.” 

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 been justified on the 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 future yield of tax revenues from property improved by special assessments. 

But that justification is not sufficient in Texas. 

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 .a portion of the value of property from its share of general 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 of Cleburne v. Gulf C. & S.F. Ry. Co., 1 S.W. 342 (Tex. 1886). But 

the taxes &sary to meet the current annual want are those which the Texas 

Constitution insists be equal and unimex. Const art VIII, s1. 

p. 1102 
Honorable Chris Victor Semos - Page Seven @w-337) 

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 to 7iiGmmh 

Texas legislation); Sigma Tau Gamma v. City of Menomonie, 288 N.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, 591 S.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 Corpo ration, 540 P. 2d 499 (Utah 19751 

(special agency or district with taxing powers). 

In cur opinion, such cases are not persuasive that article lO66d, V.T.C.S., is 

consistent with article VIII, section 1 of the Texas Constitution. As noted above, 

several courts from other jvisdictions have upheld multi-district “tax allocation” 

schemes similar to the plan of the 1977 Texas legislation that fell when the proposed 

constitutional amendment failed in 1978. Under their rationales, the 1977 legislation 

would have been valid without the constitutional amendment - a circumstance that 

makes them particularly unreliable instruments with which to guage the validity of a 

statute under the Texas Constitution. 

Inasmuch as we consider the statute fatally defective for the above reasons, our 

consideration of its other aspects will be brief 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 who might be disadvantaged 

by the withdrawal of a portion of its value from thei reach, the omission does not 

make the statute facially unconstitutional as impairing 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 if the constitutional ce&ig on 

municipal debt, when coupled with the failure of the 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, CL 1; Tex. Const art. I, S16; Delta County Levee Imp. Distm 

No. 2 v. 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, no writ). The same is true of the provision in section 9, subsection (21, 

that allows the dissolution of the district before the retirement of obligations 

associated therewith. 

p. 1103 
Honorable 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 1066d does 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 50 of the 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, 275 S.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., 171 S.W. 2d188 ‘(Tex. Civ. App. - Dallas 1943, writ rePdX We construe 

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 No plain 

in&t to do o&&se is evidenced: See Burch v. City of San Anhnio, 518 S.W. 22 540 

(1975); SJNIM v. City of Dallas, 131 m. 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. 

We similarly 

Sections 7 and 8, determining the calculation and allocation of tati increments, 

have previously been discussed. Section 9 also has been discussed above. Section 10 is 

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 a proper 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, 331 S.W. --+E 26 737 

-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, is discussed below. 

Section 11 governs the issuance of bonds and notes under the act. It is valid if by 

doing so a city does not incur debt in the wnstitutional sense or potentially embarrass 

the exemise of’its governmental fmctions; otherwise, it is not. 

Article XI, section 5, of the constitution, Felating to home rule cities, specifies, 

“[nl o debt shall ever be created by any city, unless at the same time provision be made 

to assess and collect annually a sufficient sum to pay the interest thereon and creating 

a sinking find of at least two per cent thereon .” Article XI, section 7, applicable to all 

p. 1104 
Honorable Chris Victor Semos - Page Nine (M+337) 

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 a tax 

to defray such obligations. Special assessments are not taxes within the meaning of 

those constitutional pmvislons. 

2d 228 (Tex. 193% 

City of Fort Worth v. Bobbitt, 36 S.W. 2d 470.41 S.W. 

Nor does the statute provide for the “annua1 collection” of any sum. 

It provides for the augmentation of a special 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 of the events is uncertain. 

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 8 of this 

Act.” But the only “tax incremental bonds or notes” that the statute authorizea a city 

to issue are those: 

payable out of positive 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 a project. 

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 of bonds or notes, J&. section 10, and so long as the use of 

appropriations deposited to the special fund is so restricted, additional constitutional 

problems do not arise. Cf. Navarm Auto-Park v. City of San Antonio, 574 S.W. 2d 582 

(Tex. Civ. App. - San Antonio 1978, writ rePd n.r.e., 580 S.W. 2d 339). 

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) of the statute father specifies: 

To increase the security and marketability of tax incremental 

bonds or notes, the city may: 

(11 Create a lien for the benefit of the bondholders on any 

public improvements or public Works financed thereby or 

p. 1105 
Honorable Chris Victor Semas - Page Ten (Ew-3371 

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 bonds or notes more 

marketable according to the best judgment.of the city 

governing body. 

A charge sgainst the revenues of a facility is a charge against the facility itself. 

City of Dayton v. Allred, 68 S.W. 2d 172 (Tex. 1934). It is wnstltutionally 

impermissible for a political subdivision to enter into a contract that has the effect of 

potentially controlling and embarrassing it in the exercise of its governmental powers. 

discharge 

I%1 ftmctionr 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 Would be 

&constitutional See also Nain v. Bean,- 48 S.W. 26 584 (Tei 19321. -Cf. Lower 

Neches Vallg Authority v. Mann, 167 S.W. 2d 1011 (Tex. 1943); City of Dayton v. Allred, 

s; City of Nederload v. Calhhan, 299 S.W. 2d 380 (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 Would be necessary because the cost of operating 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 

of Trustees, 593 S.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) of article 1066d specifies: 

. . . if bonds or notes issued under Section. 11 of this Act are 

repayable in Whole or in part from revenue produced by a 

facility acquired, improved, or constructed pursuant to a 

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

project, the city shall deposit the pledged revenues in the fmd. 

Money shall be paid out of the find on1 to pay 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 of the fwd are limited by section 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 be received by the city in connection 

with the implementation of the 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 is proscribed, 

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 of Fort Worth v. Bobbitt, supra; McNeil1 v. City of Waco, supra 

We conclude that section ll of the statute is not unconstitutional on its face, but 

would be held unconstitutional in application if not narrowly applied See eneral 40 

Tex. Jur. 2d Rev. Part 1 Municipal Corporations S587.et 7% (bon&&&&S. 

arts. 701 et se%; 1106 et sew ll75; 2368a. The last section o article lO68dzction 12, 

wncems overlapping tax mcremental districts and is not, 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., is facially unconstitutional because it violates the “equal and uniform” 

requirement of article VIII, section 1 of the Texas Constitution, but not otherwise. A 

determination of mwnstitutionallty on other grounds can be avoided by construing 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 

~the statute narrowly. 

p. 1107 
. 

Honorable Chris Victor Semos - Page Twelve t-337) 

m-m&&g 

Attorney General of Texas 

JOHN W. FAINTER, JR. 

First Assistant Attorney General 

RICHARD E. GRAY IH 

Executive Assistant Attorney General 

Prepared by Bruce Youngblood 

Assistant Attorney General 

APPROVED: 

OPINION COMMIl’TEE 

Susan L. Garrison, Chairman 

Jon Bible 

Ride Gilpin 

Jim MoeUhger 

BNC~ Youngblood 

p. ilO