OFFICE OF THE ATTORNEY GENERAL - STATE OF TEXAS 

JOHN CORNYN 

May 1,200l 

The Honorable Carole Keeton Rylander 

Comptroller of Public Accounts 

P.O. Box 13528 

Austin, Texas 7871 l-3528 

Opinion No. JC-0373 

Re: Whether the value of property subject to a 

tax increment financing agreement under Local 

Government Code chapter 374 may be deducted 

from a school district’s total taxable value, and 

related questions (RQ-0303-JC) 

Dear Comptroller Rylander: 

You request an opinion concerning the Comptroller’s duty to “determine the total taxable 

value of all property in each school district” pursuant to Government Code section 403.302. See 

TEX. GOV’T CODE ANN. 9 403.302(a) (Vernon Supp. 2001). The “total taxable value” of such 

property is certified to the Commissioner of Education and is used to calculate the state’s support 

for school districts and determine the district’s wealth per student under the funding equalization 

provisions of the Education Code. See id. 8 403.302(g); seealso TEX. EDUC. CODEANN. $9 41.001, 

41.002,42.302(a); Tex. Att’y Gen. Op. No. JC-0152 (1999) at 8-9 (discussing purpose and history 

of Government Code section 403.302). The “taxable value” of property in a school district “means 

the market value of all taxable property” less the dollar amounts of certain exemptions and 

deductions, as provided by Government Code section 403.302(d). See TEX. GOV'T CODE ANN. 

0 403.302(d) (Vernon Supp. 2001). 

You ask whether Government Code section 403.302(d)(8) requires the deduction from the 

market value of the property value subject to a tax increment financing agreement entered into under 

the Texas Urban Renewal Law, chapter 374 of the Local Government Code.’ Government Code 

section 403.302(d)@) requires the deduction of such market value. See id. 8 403.302(d)@). You 

also ask about the authority of a municipality to adopt tax increment financing under Local 

Government Code chapter 374, subchapter D, without holding an election, and in connection with 

this question, you raise an issue about the constitutionality of these tax increment financing 

‘See Letter from Billy C. Hamilton, Deputy Comptroller, Office of the Comptroller of Public Accounts, to 

Honorable John Cornyn, Texas Attorney General (Oct. 27,200O) (on file with Opinion Committee) [hereinafter Request 

Letter]. 
The Honorable Carole Keeton Rylander - Page 2 JC-0373 

provisions when they were adopted and the possibility that they were subsequently validated.2 The 

predecessor of subchapter D was unconstitutional when adopted, and tax increment financing could 

not be adopted thereunder whether or not an election was held. The tax increment provisions were 

validated when the statute was reenacted in 1987 after the adoption of the constitutional provision 

authorizing tax increment financing. See TEX. CONST. art. VIII, 4 l-g. An election is still necessary 

for a city to adopt tax increment financing under the Texas Urban Renewal Law. You finally ask 

whether a school district action in placing ad valorem tax revenues in the tax increment fund is 

optional and not “required by statute” because the city must hold an election to adopt the tax 

increment financing provisions .3 In such case, the school district’s action is not optional and is 

required by statute. 

The tax increment financing provisions of Local Government Code chapter 374 have not 

been the subject of any judicial decisions, and only one opinion of this office has addressed them. 

See Tex. Att’y Gen. Op. No. H-l 191 (1978) (whether tax increment bonds may be issued without 

holding an election). In contrast, the Tax Increment Financing Act found in Tax Code chapter 3 11 

has been the subject of judicial decisions and attorney general opinions. See Civ of El Paso v. El 

Paso Cmty. Coil. Dist., 729 S.W.2d 296 (Tex. 1986) (constitutionality of Act), Lampson v. City of 

Beaumont, 687 S.W.2d 788 (Tex. App.-Beaumont 1985, no writ) (determination of proper year to 

figure value of tax increment base); see, e.g., Tex. Att’y Gen. Op. Nos. JC-0152 (1999); JC-0141 

(1999); DM-390 (1996); JM-758 (1987). We begin by summarizing the provisions that you inquire 

about. 

Chapter 374 of the Local Government Code grants municipalities various powers directed 

at eliminating slum and blighted areas, and subchapter D of that law authorizes municipalities to 

fund urban renewal projects through tax increment financing. See TEX. LOC. GOV’T CODE ANN. 

$9 374.001, -002, .035 (Vernon 1999). The provisions authorizing tax increment financing were 

adopted in 19774 as amendments to former article 12692-3 of the Revised Civil Statutes, which is 

now codified as Local Government Code chapter 374? The analysis of a 1981 bill proposing an 

amendment to the tax increment provisions of former article 12691-3 described their operation as 

follows: 

A city designates an urban renewal area and issues bonds for public 

improvements. The bonds are not an obligation of the city, but are 

backed solely by future tax increments. Tax increments are any taxes 

that result from the increased value of the property in the project area. 

City, county, state, school district, and special district tax increments 

go into a [tax increment] fund to be used to repay the bonds. The 

2See Request Letter, supra note 1. 

3See Request Letter, supra note 1. 

4See Act of May 28, 1977,65th Leg., R.S., ch. 850, $9 l-3, 1977 Tex. Gen. Laws 2126. 

‘See Act of May 1, 1987,7Oth Leg., R-S., ch. 149, $0 1,49(l), 1987 Tex. Gen. Laws 707, 1175, 1306. 
The Honorable Carole Keeton Rylander - Page 3 JC-0373 

taxes collected by each taxing entity on the original market value of 

the district still go [to] the taxing entity. Only taxes on newly added 

value go to repay bonds. Once the bonds are repaid, the full value of 

the area goes onto each jurisdiction’s tax rolls, to be taxed normally. 

HOUSE STUDY GROUP, BILL ANALYSIS, Tex. H.B. 1495,67th Leg., R.S. (1981)! 

To engage in urban renewal projects as authorized by Local Government Code chapter 374, 

a municipality must designate an “urban renewal area,” defined as “a slum area, blighted area, or a 

combination” of such areas that is appropriate for an urban renewal project, and prepare an urban 

renewal plan for the area. TEX. LOC. GOV’T CODE ANN. $5 374.003(26), .014 (Vernon 1999). The 

municipality “may not use the tax increment method of financing” prescribed under subchapter D 

of chapter 374 “unless a majority of the qualified voters of the municipality voting on the question 

approve that method of financing in an election held by the municipality,” but “[tlhis referendum 

is not required if the constitutional amendment on tax increment financing is approved by the 

voters.” Id. 6 374.03 1 (a), (d). The legislature that enacted the predecessor to subchapter D of Local 

Government Code chapter 374 also proposed an amendment to the Texas Constitution that would 

grant the legislature power to authorize cities to issue tax increment bonds for the redevelopment of 

blighted areas,7 but “the constitutional amendment on tax increment financing” was not approved 

by the voters.* 

Upon approval of tax increment financing by the voters of the municipality, the governing 

body must establish a “tax increment fund,” which provides security for bonds issued to pay urban 

renewal costs in the project area. See id. $8 374.032, .035 (tax increment bonds). After tax 

increment financing is implemented in an urban renewal project area, governmental entities that tax 

real property in the area must deposit in the tax increment fund any increases in ad valorem tax 

revenues, or “tax increments,” from real property within the area. Id. 0 374.034. The increased 

market value reflected by the tax increments is defined as the “captured market value.” See id. 

8 374.003(6). The taxing entities retain tax revenues generated by the original market value of the 

real property in the project area at the time tax increment financing was implemented. 

We turn to your first question, whether section 403.302(d)(8) of the Government Code 

“requires the deduction of the captured appraised [or market] value of property the school district 

is required to contribute to the tax increment fund.“’ We assume for purposes of this question that 

the tax increment fund was validly created, and we will consider constitutional issues relevant to the 

‘The bill was withdrawn by the author. See H.J. OF TEX., 67th Leg., R.S. 2760; see also HOUSE STUDY GROUP, 

BILL ANALYSIS, Tex. S.J. Res. 8, 67th Leg., 1st C.S. (1981). 

7See Tex. S.J. Res. 44,65th Leg., R.S., 1977 Tex. Gen. Laws 3365. 

*See Table 2: Votes on Proposed Amendments tG the Texas Constitution, 1875-1978, 1979 Tex. Gen. Laws 

3251,3267. 

‘Request Letter, supra note 1, at 3. 
The Honorable Carole Keeton Rylander - Page 4 JC-0373 

tax increment financing provisions of the Texas Urban Renewal Law in addressing your remaining 

questions. See generally Tex. Att’y Gen. Op. No. MW-337 (1981); HOUSE STUDY GROUP, BILL 

ANALYSIS, Tex. S.J. Res. 8,67th Leg., 1st C.S. (1981). 

Government Code chapter 403, subchapter M was adopted to help “ensure equity among 

taxpayers in the burden of school district taxes and among school districts in the payment of state 

financial aid to schools.” TEX. GOV’T CODE ANN. 8 403.301 (Vernon 1998). As a means of 

implementing this policy, section 403.302 requires the Comptroller to conduct annual studies to 

determine the total value of taxable property within Texas school districts. See id. 8 403.302 

(Vernon Supp. 2001); see also El Paso Indep. Sch. Dist. v. Sharp, 923 S.W.2d 844, 845 (Tex. 

App.-Austin 1996, writ denied) (purpose of section 403.302); Tex. Att’y Gen. Op. No. JC-0002 

(1999) at 2 (purpose of section 403.302). The Commissioner of Education uses that figure to 

calculate the amount of local tax revenue the school district will be able to raise at its current tax rate 

and to determine the school district’s “wealth per student” under the Education Code provisions 

directed at determining state support for school districts and equalizing wealth among them. See 

TEX. EDUC. CODE ANN. $5 41.001, .002 (Vernon Supp. 2001); id. 95 42.252, .302(a); Calhoun 

County Indep. Sch. Dist. v. Meno, 902 S.W.2d 748 (Tex. App.-Austin 1995, writ denied) (use of 

Comptroller’s determination under Government Code section 403.302 to determine school district 

funding). See also Sharp, 923 S.W.2d at 845 (taxable value of property in a school district directly 

determines amount of state funding received by the district). 

Section 403.302(d) provides that the “taxable value” of property within a school district is 

determined by deducting specified amounts from the market value of such property, including: 

(8) a portion of the market value of property not otherwise 

fully taxable by the district at market value because of action required 

by statute or the constitution of this state that, if the tax rate adopted 

by the district is applied to it, produces an amount equal to the 

difference between the tax that the district would have imposed on the 

property if the property were fully taxable at market value and the tax 

that the district is actually authorized to impose on the property, if 

this subsection does not otherwise require that portion to be deducted. 

TEX. GOV’T CODE ANN. 8 403.302(d)(8) (V emon Supp. 2001). We are asked to decide whether 

real property subject to tax increment financing under Local Government Code, chapter 374, is 

“property not otherwise fully taxable by the district at market value because of action required by 

statute or the constitution of this state.” See id.” 

You suggest that the property is in fact “fully taxable by the district at market value,” see id., 

because the district imposes taxes on the full value of the property, even though the law does not 

“See Request Letter, supra note 1. 
The Honorable Carole Keeton Rylander - Page 5 JC-0373 

pert-nit it to retain all of the taxes it collects.* * You also state that “an argument has been made that 

because the school district is not permitted by law to retain the taxes paid on the captured appraised 

value of this property, the property is not in fact fully taxable by the district.“12 

In our opinion, the property is not “fully taxable by the district at market value because of 

action required by statute,” see id., specifically, Local Government Code section 374.034, which 

requires a school district that taxes real property in the project area to deposit in the tax increment 

fund any increases in ad valorem tax revenues from real property within the area. See TEX. LOC. 

GOV’T CODE ANN. 4 374.034 (Vernon 1999). The phrase “fully taxable by the district” in 

Government Code section 403.302(d)(8) must be read in context and construed according to the rules 

of grammar and common usage. See TEX. GOV’T CODE ANN. 5 311.01 l(a) (Vernon 1998). The 

property value studies required by subchapter M of chapter 403 of the Government Code are used 

to calculate the amount of “local” tax revenue the school district will be able to raise, for the 

purpose of making other determinations about school district funding. See generally id. 9 4 403.301- 

.304 (Vernon 1998 & Supp. 2001) (subchapter M); TEX. EDUC. CODEANN. $9 42.252, .302 (Vernon 

Supp. 2001). Reading section 403.302(d)(8) in light of this purpose, we conclude that “taxable by 

the district” means property that generates tax revenues for the district, and not property that the 

district taxes as an agent for another entity. See TEX. GOV’T CODE ANN. 6 403.302(d)(8) (Vernon 

Supp. 2001). Accordingly, the “captured appraised value” must be subtracted from the market value 

of property taxable by a school district subject to tax increment financing under chapter 374. See 

id. 8 403.302(d). S ee also TEX. LOC. GOV’T CODE ANN. 8 374.033(e) (Vernon 1999) (taxing entity 

may not consider captured market value for any purpose except to determine the amount to be paid 

into the tax increment fund). 

You next inquire about the validity of the provisions of Local Government Code chapter 374 

authorizing a municipality to use tax increment financing without holding an election.13 You ask 

whether these provisions were revived by the adoption of article VIII, section l-g of the Texas 

Constitution in 1981 I4 or the 198715 codification of the Urban Renewal Law as chapter 374 of the 

Local Government Code. l6 

“Request Letter, supra note 1, at 3. 

i2Request Letter, supra note 1, at 3. . 

13See Request Letter, supra note 1, at 3. 

14See Tex. S.J. Res. 8,67th Leg., 1st C.S., 1981 Tex. Gen. Laws 295 (proposing adoption of article VIII, 0 l-g); 

see also Table 2: Votes on Proposed Amendments to the Texas Constitution, 1875-1982, 1983 Tex. Gen. Laws 6739, 

6756 (adoption of article VIII, $ l-g). 

15See Act of May 1, 1987, 70th Leg., R.S., ch. 149, $6 1, 49, 1987 Tex. Gen. Laws 707, 1176, 1306 

(nonsubstantive revision of statutes relating to local government, adopting chapter 374 of the Local Government Code 

and repealing article 12691-3, Revised Civil Statutes). 

16See Request Letter, supra note 1. 
The Honorable Carole Keeton Rylander - Page 6 JC-0373 

In our opinion, the provisions of former article 12692-3 of the Revised Civil Statutes 

authorizing tax increment financing were unconstitutional when adopted. See Tex. Att’y Gen. Op. 

No. MW-337 (198 1) (finding Tax Increment Financing Act of 1979 unconstitutional). Although the 

legislature that added the tax increment provisions to article 12691-3 also proposed a constitutional 

amendment authorizing tax increment financing, the voters did not adopt the proposed amendment. l7 

A tax increment financing plan adopted under unconstitutional provisions of article 12692-3 would 

not be valid, with or without voter approval. 

Our conclusion is based on Attorney General Opinion MW-337 (198 l), which addressed the 

constitutionality of the Tax Increment Financing Act of 197918 (“the 1979 Act”) at the request of a 

legislative committee. This office determined that the 1979 Act was facially unconstitutional under 

article VIII, section 1 (a) of the Texas Constitution, which provides that “[tlaxation shall be equal and 

uniform.” TEX. CONST. art. VIII, 8 l(a). Ad valorem taxes were to be collected for the general 

support of the municipality, while charges laid to benefit particular property within the municipality 

were not “taxes,” but “special assessments.” See Tex. Att’y Gen. Op. No. MW-337 (1981) at 3-5 

(citing City of Wichita Falls v. Williams, 26 S.W.2d 910 (Tex. 1930), Taylor v. Boyd, 63 Tex. 533 

(1885)). The 1979 Act attempted to limit the use of certain ad valorem tax revenues to improving 

property within the tax increment district instead of allocating them to the general support of the city. 

See Tex. Att’y Gen. Op. No. MW-337 (1981) at 5. “[T]h e earmarking of tax-increment revenue to 

pay for improvements within the tax increment zone meant that property within the zone was not 

contributing its fair share to the city’s general fund.” HOUSE STUDY GROUP, BILL ANALYSIS, Tex. 

S.J. Res. 8,67th Leg., 1st C.S. (1981). Thus, the Tax Increment Financing Act of 1979 violated the 

“equal and uniform” provision of article VIII, section 1 (a) of the Texas Constitution. 

Attorney General Opinion MW-337 did not address the tax increment financing provisions 

of former article 12691-3 of the Revised Civil Statutes, but they would also have been 

unconstitutional under its reasoning. See HOUSE STUDY GROUP, BILL ANALYSIS, Tex. S.J. Res. 8, 

67th Leg., 1st C.S. (1981) (Attorney General Opinion MW-337 is assumed to apply to the taxincrement provision of the Urban Renewal Law); Tex. Att’y Gen. Op. No. H-l 191 (1978) at 3 

(reserving comment on constitutional issues that might be raised by tax increment financing 

provisions of Urban Renewal Law). Moreover, when Attorney General Opinion MW-337 was 

issued, former article 12691-3 required the diversion of school district tax revenues to noneducational purposes in violation of article VII, section 3 of the Texas Constitution. See TEX. 

CONST. art. VII, 8 3 (legislature may authorize school district to collect ad valorem taxes for 

maintenance of public schools and the construction and equipment of school buildings); HOUSE 

STUDY GROUP, BILL ANALYSIS, Tex. S.B. 16, 67th Leg., 1st C.S. (1981) at 4-5; CJ: EZ Paso Cmty. 

Coil. Dist., 729 S.W.2d 296 (article VIII, section l-g of Texas Constitution permits school district 

ad valorem tax revenues to be used for noneducational purposes pursuant to tax increment financing 

17See Tex. S.J. Res. 44, 65th Leg., R.S., 1977 Tex. Gen. Laws 3365; see also Table 2: Votes on Proposed 

Amendments to the Texas Constitution, 1875-l 978, 1979 Tex. Gen. Laws 325 1,3267. 

‘*See Act of May 28, 1979, 66th Leg., R.S., ch. 695, 1979 Tex. Gen. Laws 1661. 
The Honorable Carole Keeton Rylander - Page 7 JC-0373 

provisions). We conclude that the provisions of former article 12691-3 of the Revised Civil Statutes 

authorizing tax increment financing were unconstitutional when adopted. 

After Attorney General Opinion MW-337 ruled that the tax increment law was 

unconstitutional, the legislature proposed adding article VIII, section l-g to the constitution to 

authorize tax increment financing.19 This provision was adopted by the voters.20 We will consider 

whether the adoption of article VIII, section l-g, validated the tax increment provisions of former 

article 12691-3 of the Revised Civil Statutes. 

A statute unconstitutional when adopted may be revived by the adoption of a constitutional 

amendment that cures the constitutional defect. See Beckv. Beck, 8 14 S.W.2d 745,749 (Tex. 1991) 

(holding that 1980 amendment to article XVI, section 15 of the Texas Constitution impliedly 

validated statute on premarital agreements regarding community property). An invalid statute and 

actions taken in reliance on it will be validated by the adoption of a constitutional amendment that 

specifically refers to the statute. See id. at 747; see also Hutchinson v. Patching, 129 S. W. 603 (Tex. 

1910). An invalid statute may also be impliedly validated by the adoption of a constitutional 

amendment to cure it, if there is no impairment of the obligation of a contract or of vested rights. 

See Beck, 8 14 S. W.2d at 747.21 An invalid statute will not be impliedly validated by a constitutional 

amendment unless it was intended to apply retroactively. See id. at 748. 

Article VIII, section l-g of the Texas Constitution did not specifically refer to any statute 

and, in consequence, its adoption did not expressly validate any legislation. See id. at 747; 

Hutchinson, 129 S.W. 603. The legislature proposed this constitutional amendment with the 

understanding that the Tax Increment Financing Act of 1979 was unconstitutional,22 but it did not 

attempt to validate that law. Instead, the session of the legislature that proposed amending the 

constitution repealed the Tax Increment Financing Act of 1979 and adopted the Tax Increment 

Financing Act of 1981 (“the 198 1 Act’y).23 Moreover, the effectiveness of the 198 1 enactment was 

expressly contingent on the addition of article VIII, section l-g, to the constitution.24 Despite the 

issuance of Attorney General Opinion MW-337, two cities had established tax increment districts 

“See Tex. S.J. Res. 8,67th Leg., 1st C.S., 1981 Tex. Gen. Laws 295 (proposing adoption of article VIII, 5 l-g). 

20See Table 2: Votes on Proposed Amendments to the Texas Constitution, 1875-1982, 1983 Tex. Gen. Laws 

6739,6756 (adoption of article VIII, 0 l-g). 

21See also Annotation, Removal or Suspension of ConstitutionaZ Limitation As Aflecting Statute PreviousZy 

Enacted, 171 A.L.R. 1070, 1072-73 (1947). 

22See HOUSE STUDY GROUP, BILL ANALYSIS, Tex. S.J. Res. 8,67th Leg., 1st C.S. (1981). 

23See Act of August 10, 1981,67th Leg., 1st C.S., ch. 4, 5 1, sets. 1-14, 1981 Tex. Gen. Laws 45. 

24See id. ch. 4,§ 4, 1981 Tex. Gen. Laws 45,52. 
The Honorable Carole Keeton Rylander - Page 8 JC-0373 

under the 1979 Act.25 The 198 1 Act included a validation provision for such cities, stating that “[a] 

tax incremental district approved by a city or town pursuant to [the 1979 Tax Increment Financing 

Act] may be designated by ordinance adopted by the governing body of the city or town as a 

reinvestment zone under this Act.yy26 Thus, the legislature wished existing tax increment districts to 

operate under the 198 1 Act, rather than 1979 Act held unconstitutional by Attorney General Opinion 

MW-337. 

The legislature’s treatment of the 1979 Act and actions taken thereunder displayed an intent 

for the constitutional amendment to operate prospectively only, and not to validate tax increment 

provisions adopted without constitutional authority. Given this strong legislative preference for 

prospective operation of Texas Constitution article VIII, section l-g with respect to the Tax 

Increment Financing Act of 198 1, and the absence of any evidence that it wished to validate the tax 

increment provisions of the Urban Renewal Law, we conclude that the latter provisions were not 

validated by the adoption of the constitutional amendment. 

The tax increment financing provisions of the Urban Renewal Law were validated when they 

were repealed and reenacted as chapter 374 of the Local Government Code in the 1987 

nonsubstantive revision of statutes relating to local govemment.27 When a code is enacted, it 

becomes the binding law of the state. See Long v. State, 3 S. W.2d 448,449 (Tex. Crim. App. 1928). 

If a statute is unconstitutional when adopted, it will become effective by its inclusion in a code 

adopted after the constitution has been amended to authorize legislation of its type. See Carlton 

Indep. Sch. Dist. v. Jordon, 25 S.W.2d 610,611 (Tex. Comm. App. 1930, judgm’t adopted); see also 

Skaggs v. Grisham-Hunter Corp., 53 S.W.2d 687,688 (Tex. Civ. App.-El Paso 1932, writ ref d). 

The Urban Renewal Law was repealed and reenacted in 1987, after the constitutional amendment 

authorizing tax increment financing had been adopted. See TEX. CONST. art. VIII, 6 1 -g.28 The tax 

increment financing provisions of the Urban Renewal Law were constitutional when they became 

effective as subchapter D of Local Government Code, chapter 374.29 

We point out, however, that a municipality may not use the tax increment method of 

financing under subchapter D of chapter 374 “unless a majority of the qualified voters of the 

municipality voting on the question approve that method of financing in an election held by the 

municipality.” TEX. Lot. GOV’T CODE ANN. 5 374.03 1 (a) (Vernon 1999). Subsection 374.03 1 (d) 

provides that “[tlhis referendum is not required if the constitutional amendment on tax increment 

financing is approved by the voters,” id. 8 374.03 l(d), but the voters did not approve the 

25See HOUSE STUDY GROUP, BILL ANALYSIS, Tex. S.J. Res. 8, 67th Leg., 1st C.S. (1981). 

26Act of August 10, 1981, 67th Leg., 1st C.S., ch. 4, 0 2(b), 1981 Tex. Gen. Laws 45, 52 (emphasis added). 

See also id. 0 2(a), 1981 Tex. Gen. Laws 45, 52 (reinvestment zone designated pursuant to this Act may not incur tax 

increments before January 1, 1982). 

27See Act of May 1, 1987,7Oth Leg., ch. 149, $3 1,49(l), 1987 Tex. Gen. Laws 707, 1175, 1307. 

28See supra notes 19,20 (proposal and adoption of article VIII, 9 l-g). 

29See Act of May 1, 1987,7Oth Leg., ch. 149,s 52, 1987 Tex. Gen. Laws 707, 1308 (effective Sept. 1, 1987). 
The Honorable Carole Keeton Rylander - Page 9 JC-0373 

constitutional amendment referred to. This provision refers to Senate Joint Resolution 44 of the 

Sixty-fifth Legislature, see Tex. Att’y Gen. Op. No. H- 119 1 (1978) at 2, which was defeated by the 

voters . 3o The provision adopted in 198 1 as article VIII, section 1 -g of the Texas Constitution differs 

so much from the amendment proposed by Senate Joint Resolution 44 that it cannot be regarded as 

“the amendment” referred in subsection 374.03 1 (d) and its predecessor. Senate Joint Resolution 44 

provided that: 

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. 

Tex. S.J. Res. 44,65th Leg., R.S., 0 1, sec. l-g(a), 1977 Tex. Gen. Laws 3365. Subsection (b) barred 

the use of tax revenues, utility revenues, and revenues from municipal or state services to pay any 

bonds issued pursuant to the authorization in the proposed amendment. See id. 9 1, sec. 1 -g(b). 

Article VIII, section l-g, as adopted in 1981, provides as follows: 

(a) The legislature by general law may authorize cities, towns, 

and other taxing units to grant exemptions or other relief from ad 

valorem taxes on property located in a reinvestment zone for the 

purpose of encouraging development or redevelopment and 

improvement of the property. 

(b) The legislature by general law may authorize an 

incorporated city or town to issue bonds or notes to finance the 

development or redevelopment of an unproductive, underdeveloped, 

or blighted area within the city or town and to pledge for repayment 

of those bonds or notes increases in ad valorem tax revenues imposed 

on property in the area by the city or town and other political 

subdivisions. 

TEX. CONST. art. VIII, 0 l-g. 

Senate Joint Resolution 44 would have authorized legislation granting cities and towns 

authority to issue tax increment bonds subject to stated limitations. The bond proceeds could be 

used “to finance the redevelopment of blighted areas.” Tex. S.J. Res. 44,65th Leg., R.S., 5 3,1977 

Tex. Gen. Laws 3365. Article VIII, section l-g, authorizes a broader range of legislation, including 

legislation authorizing taxing units “to grant exemptions or other relief from ad valorem taxes on 

property located in a reinvestment zone” to encourage development or redevelopment and 

30See Table 2: Votes on Proposed Amendments to the Texas Constitution, 1875- 1978,1979 Tex. Gen. Laws 

325 1,3267. 
The Honorable Carole Keeton Rylander - Page 10 ~~-0373 

improvement of the property. TEX. CONST. art. VIII, 8 1 -g(a). It also authorizes legislation allowing 

cities and towns to issue bonds or notes repayable from tax increments to finance the “development 

or redevelopment of an unproductive, underdeveloped, or blighted area within the city or town.” Id. 

8 l-g(b). Accordingly, article VIII, section l-g is not “the amendment” that section 374.03 1 refers 

to, and a municipality may not use the tax increment method of financing under chapter 374 absent 

an election. See TEX. LOC. GOV’T CODE AN-N. 0 374.03 l(a) (Vernon 1999). 

You finally ask whether the referendum requirement of Local Government Code section 

374.031(a) makes the tax increment financing method optional for the school district, so that the 

school’s participation is not “required by statute” within section 403.302(d)(8) of the Governrnent 

Code, and the market value of property subject to a tax increment financing agreement is not 

deductible under that statute.31 

In our opinion, the deposit of ad valorem tax revenues in the tax increment fund is an “action 

required by statute,” specifically, section 374.034 of the Local Government Code. See TEX. GOV’T 

CODE ANN. § 403.302(d)(8) (V emon Supp. 2001); TEX. LOC. GOV’T CODE ANN. 8 374.034 (Vernon 

1999) (deposit of tax increments). The legislature enacted Subchapter D of Local Government Code 

chapter 374 and authorized municipalities to accept or reject its benefits. See generaZZy Reynolds 

v. Dallas County, 203 S.W.2d 320 (Tex. Civ. App.-Amarillo 1947), certijZed question answered, 

207 S.W.2d 362 (Tex. 1948) (legislature may delegate to local authorities power to determine 

whether a general statute shall become effective within their respective jurisdictions). While the 

governing body of a city or town may not adopt tax increment financing absent the voters’ approval, 

it is the statute adopted by the legislature under constitutional authorization, and not any voluntary 

act of the school district, that requires the school district to place tax revenues in the tax increment 

fund. Although the Education Code vests authority to manage the school district in the board of 

trustees, see TEX. EDUC. CODE ANN. 9 11.05 1 (a) (Vernon 1996), the school board has no opportunity 

to consent or withhold consent for the school district’s participation in the tax increment financing 

scheme under subchapter D. See El Paso Cmty. Coil. Dist., 729 S.W.2d 296 (article VIII, section 

1 -g of the Texas Constitution makes the school board’s consent unnecessary to the school district’s 

participation in a tax increment financing plan adopted by a city under 198 1 Act).32 We conclude 

that the school district’s deposit of ad valorem tax revenues in the tax increment fund is an “action 

required by statute,” under Government Code section 403.302(d)(8) even though the voters of the 

municipality approved adoption of tax increment financing under Local Government Code chapter 

374, subchapter D. Accordingly, the Comptroller must deduct from the market value of property 

taxable by the school district the value subject to a tax increment financing agreement authorized 

3’See Request Letter, supra note 1, at 3. 

32The Tax Increment Financing Act was subsequently amended to provide that a taxing unit need not pay into 

the tax increment fund any of its tax increment produced from property located in a reinvestment zone unless it enters 

into an agreement with the governing body of the municipality that created the zone. See TEX. TAX CODE ANN. 

9 311.013(f) (V ernon Supp. 2001), adopted by Act of May 24, 1989,71st Leg., R.S., ch. 1137, 0 25, sec. 311.013(g), 

1989 Tex. Gen. Laws 4683,4691, relettered by Act of May 29, 1999,76th Leg., R.S., ch. 983, 6 7, sec. 3 11.013(f), 

1999 Tex. Gen. Laws 3763,3766. 
The Honorable Carole Keeton Rylander - Page 11 ~~-0373 

by the Urban Renewal Law, even though that statute requires the voters of the city to approve the 

adoption of tax increment financing. 

SUMMARY 

Section 403.302 of the Government Code requires the 

Comptroller to conduct annual studies to determine the total value of 

taxable property within Texas school districts. Subsection 

403.302(d)(8) of the Government Code requires the Comptroller to 

deduct from the market value of property taxable by a school district 

any property value that is subject to a tax increment financing 

agreement entered into under Local Government Code, chapter 374, 

subchapter D. The deduction is not optional, but is required by 

statute. 

The predecessor of Local Government Code chapter 374, 

subchapter D was unconstitutional when adopted. It was not 

impliedly validated by the 198 1 adoption of article VIII, section 1 -g 

of the Texas Constitution authorizing tax increment financing, but it 

was validated in 1987 when the predecessor statute was reenacted in 

the codification of laws relating to local government. A municipality 

may not adopt tax increment financing under Local Government 

Code, chapter 374, subchapter D unless it holds an election as 

required by section 374.03 l(a) of that statute. 

Attorney General of Texas 

ANDY TAYLOR 

First Assistant Attorney General 

SUSAN D. GUSKY 

Chair, Opinion Committee 

Susan L. Garrison 

Assistant Attorney General - Opinion Committee