Court Opinion

ID: 4128581
Source: CourtListenerOpinion
Date Created: 2017-02-18 00:40:01.434869+00
Date Added: 2024-06-11T14:31:22.146583
License: Public Domain

ATTORNEY            GENERAL         OFTEXAS
                                          GREG       ABBOTT

                                             February 9,2007

The Honorable Royce West                             Opinion No. GA-05 14
Chair, Committee on Intergovernmental
   Relations                                         Re: Whether a city may designate as a reinvestment
Texas State Senate                                   zone under Tax Code section 311.005(a)(5) an
Post Office Box 12068                                area that is not “unproductive, underdeveloped, or
Austin, Texas 7871 l-2068                            blighted” if no bonds or notes are issued to finance
                                                     the area’s development or redevelopment
                                                     (RQ-0442-GA)

Dear Senator West:

         The late Senator Frank Madla, your predecessor as Chair of the Senate Committee on
Intergovernmental Relations, asked whether a city may designate as a reinvestment zone under Tax
Code section 3 11,005(a)(5) an area that is not “unproductive, underdeveloped, or blighted” within
the meaning of article VIII, section l-g(b) of the Texas Constitution if no bonds or notes are issued
to finance the area’s development or redevelopment.’ See TEX. CONST.art. VIII, 5 l-g(b); TEX. TAX
CODE ANN. 5 3 11.005(a)(5) (Vernon Supp. 2006).

         Article VIII, section 1-g ofthe Texas Constitution permits the Legislature to authorize taxing
units to grant tax exemptions or tax relief and permits the Legislature to authorize cities and towns
to finance improvements to promote development:

                 (a) The legislature by general law may authorize cities, towns, and
                 other taxing units to grant exemptions or other relieffrom advalorem
                 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 Jinance the development or
                 redevelopment ofan unproductive, underdeveloped, or blighted area
                 within the city or town and to pledge for repayment of those bonds or

         ‘See Letter from the late Honorable Frank Madla, Chair, Committee on Intergovernmental Relations, Texas
State Senate, to Honorable Greg Abbott, Attorney General of Texas, at 1 (Feb. 6, 2006) (on file with the Opinion
Committee, also available al http:/lwww.oag.state.tx.us) [hereinafier Request Letter].
The Honorable Royce West - Page 2                  (GA-0514)

                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, 5 l-g (emphasis added),

         Tax Code chapter 311, the Tax Increment Financing Act (“chapter 31 l”), enacted pursuant
to article VIII, section l-g, authorizes a city to designate an area meeting certain criteria as a
reinvestment zone and to finance the improvement ~of property in the zone directly with tax
increments or the proceeds of bonds or notes payable from the tax increments. See TEx. TAX CODE
ANN. 5s 3 11.001 (Vernon 2002), 3 11.003, ,004, ,014 (Vernon Supp. 2006). “Tax increments” are
generally the portion ofthe taxes derived by a taxing unit due to the difference between the appraised
value of all taxable property in the reinvestment zone for that year less the appraised value of the
property when the zone was established.. See id. 5 3 11.012 (Vernon 2002). In other words, they are
the taxes attributable to the increased value of the real property in the zone due to its develbpment.
See id.

         Your predecessor asked about a tax increment financing reinvestment zone authorized and
established under chapter 3 11. He suggested that if no bonds or notes are issued to finance the
development of property in a tax increment financing reinvestment zone established under section
3 11.005(a)(S), then article VIII, section l-g(b) and its requirement that an area be unproductive,
underdeveloped, or blighted do not apply to the zone. See Request Letter, supra note 1, at 1-2; TEX.
TAX CODE ANN. § 3 11.005(a)(5) (Vernon Supp. 2006) (providing for petition requesting that area
be designated as a reinvestment zone). Instead, he suggested, the designation of such an area is.
governed by article VIII, section l-g(a) authorizingtheLegislature  to grant exemptions or other relief
from ad valorem taxes on property located in a reinvestment zone. See Request Letter, szdpra note
1, at l-2.

I.      Legal Background

        A.     Constitutional   amendment required for tax increment financing

        The Tax Increment Financing Act of 1979 (the “1979 Act”); a predecessor of chapter 3 11,
was determined to be facially unconstitutional by this office in Attorney General Opinion MW-3 37.
See Tex. Att’y Gen. Op. No. MW-337 (1981). This office determinedthat the 1979 Actviolated the
requirement of article VIII, section 1(a) of the Texas Constitution that “[tlaxation shall be equal and
uniform” by “causing an unequal distribution of the ad valorem tax burden.” Id. at 5; see TEX.
CONST. art. VIII, 5 l(a). The 1979 Act limited the use of a part of the ad valorem tax revenues-the
tax increments-to    improving property within the tax increment district rather than for the general
support of the city. See Tex. Att’y Gen. Op. No. MW-337 (1981) at 5. “[Tlhe 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, DAILY

        ‘See Act of May 28, 1979,66th   Leg., R.S., ch. 695, 1979 Tex. Gen. Laws 1661, 166147.
The Honorable Royce West - Page 3                         (GA-05 14)

FLOORREPORT,HOUSECOMM.ONCONSTITUTIONALAMENDMENTS,BILLANALYSIS,                                               Tex. S.J. Res.
867th    Leg., 1st C.S. (1981) (referring to 1979 Act).

        Article VIII, section l-g was adopted in 1981, and the adoption of article VIII, section l-g(b)
ensured that the Tax Increment Financing Act of 198 1, codified at chapter 3 11,3 did not contravene
the constitutional mandate that taxation be equal and uniform. See TEX. CONST. art. VIII, 5 l(a);
City of El Paso Y. El Paso Cmty. Coil. Dist., 729 S.W.2d 296,298 (Tex. 1986) (“The reason for
proposing the amendment [providing for participation by political subdivisions in the tax increment
financing plan] was to provide a constitutional basis for the [Tax Increment Financing] Act.“). The
Tax Increment Financing Act of 1981 took effect upon the voters’ approval of this amendment to
the Texas Constitution.4

         B. Chapter 311 overview and criteria for tax increment reinvestment zone

        Under chapter 3 11, a municipal governing body may designate by ordinance “a contiguous
geographic area in the jurisdiction of the municipality      .-to be a reinvestment zone to promote
development or redevelopment of the area if the governing body determines that development or
redevelopment would not occur solely through private investment in the reasonably foreseeable
future.” TEX. TAX CODE ANN. 5 311.003(a) (Vernon Supp. 2006); see also id. 5 311.003(b)+c)
(procedures for adopting and contents of authorizing ordinance). The reinvestment zone ordinance
must, among other things, establish a tax increment fund’ for the zone, which is used to finance
improvements within the zone. See id. $5 3 11,004(a)(6), .014(b). The ordinance must include
fmdings that “improvements in the zone ,will significantly enhance the value of all the taxable real
property in the zone and will be of general benefit to the municipality” and that “the area meets the
requirements of Section 3 11.005.” Id. § 3 11,004(a)(7)(A)-(B).

       Section 3 11.005(a) provides that in order to be designated as a reinvestment                         zone, an area
must satisfy the following criteria:

                   (1) substantially  arrest or impair the sound growth of the
                   municipality or county creating the zone, retard the provision of
                   housing accommodations, or constitute an economic or social liability
                   and be a menace to the public health, safety, morals, or welfare in its
                   present condition and use because of the presence of:

        ‘The Tax Increment Financing Act of 1981 was repealed andrecodifiedas       chapter31 1 oftheTax Code in 1987.
See Act of May 1, 1987,7Oth Leg., RX, ch. 191, $5 1 (adding title 3 to the Tax Code), 12 (repealing former article
1066e, Revised Civil Statutes), 13 (providing that “no substantive change in the law is intended by this Act”), 1987 Tex.
Gen.Laws 1410,1413-21,1466.

          “SeeAct ofAug. 10, 1981,67th Leg., lstC.S., ch. 4;s 4, 1981 Tex. Gen. Laws45,52 (“This Acttakes effect
only ifthe constitutional amendment proposed by S.J.R. No. 8,67th Legislature, 1st Called Session, 1981, is adopted.“).

           ‘After a reinvestment zone’s creation and for the zone’s duration, participating taxing units that tax real property
in the reinvestment zone, with certain exceptions, must pay the tax increment into the tax increment fund. See TEX. TAX
CODEANN. 5 311.013 (Vernon Supp. 2006).
The Honorable Royce West - Page 4               (GA-0514)

                     (A) a substantial number of substandard, slum, deteriorated, or
               deteriorating structures;

                      (B) the predominance    of defective or inadequate    sidewalk or
                street layout;

                     (C) faulty lot layout in relation to size, adequacy, accessibility,
                or usefulness;

                     (D) unsanitary or unsafe conditions;

                     (E) the deterioration of site or other improvements;

                     (F) tax or special assessment     delinquency   exceeding   the fair
                value of the land;

                     (G) defective or unusual conditions of title;

                     (H) conditions that endanger life or property by fire or other
                cause; or

                      (I) structures, other than single-family residential structures,
                less than 10 percent of the square footage of which has been used for
                commercial, industrial, or residential purposes during the preceding
                 12 years, if the municipality has a population of 100,000 or more;

                (2) be predominantly      open and, because of obsolete platting,
                deterioration of structures or site improvements, or other factors,
                substantially impair or arrest the sound growth of the municipality or
                county;

                (3) be in a federally assisted new community located in the
                municipality or county or in an area immediately adjacent to a
                federally assisted new community; or

                (4) Deleted by Acts 1989, 71st Leg., ch. 1106, 5 27.

                (5) be an area described in a petition requesting that the area be
                designated as a reinvestment zone, if the petition is submitted to the
                governing body of the municipality .or county by the owners of
                property constituting at least 50 percent of the appraised value of the
                property in the area according to the most recent certified appraisal
                roll for the county in which the area is located.

Id. 5 3 11.005(a).
The Honorable Royce West - Page 5                 (GA-0514)

        While subsections (a)(l), (2), and (3) of section 311.005 set out certain “unproductive,
underdeveloped, or blighted” required conditions for land eligible to be included in a proposed
reinvestment zone, subsection(s)(5) containsno similar requirements. Compare id. 5 3 11.005(a)(S),
with id. 5 311.005(a)(l)-(3).   But see Tex. Att’y Gen. Op. No. JC-0152 (1999) at 6 (construing
section 3 11.005(a)(5) to permit the designation of only those areas that the city determines are
“unproductive, underdeveloped, or blighted” within the meaning of article VIII, section l-g(b)).

~11.    Analysis                                                                                                ~

         As we have already noted, your predecessor suggested that when no bonds or notes are
issued, article VIII, section 1-g(b) and its requirement that an area be unproductive, underdeveloped,
or blighted do not apply to an area designated as a tax increment financing reinvestment zone under
section 3 11.005(a)(S) because the designation of such an area Can be governed by article VIII, section
 l-g(a) instead. See Request Letter, supra note 1, at l-2. This suggestion is premised on the view
that both subsections (a) and @) of section 1-g authorize tax increment financing reinvestment zones
and that subsection (b)‘s criteria apply only if the financing occurs through the issuance of bonds or
notes. But, as our analysis will show, section l-g(a) permits the Legislature to authorize tax
exemptions or other tax relief. Only section 1-g(b) permits the Legislature to authorize tax increment
financing, which does not involve tax exemption or tax relief.

        A.    Literal language of section l-g(a) and (b)

         In construing article VIII, section 1-g(a) and (b), we first consider the literal text and its plain
meaning. See Stringer v. Cendunt Mortgage Corp., 23 S.W.3d 353, 355 (Tex. 2000) (stating that
when interpreting the state constitution, a court looks at its literal text and gives effect to its plain
language). Additionally, we construe its words as they are commonly understood. See Spradlin v.
Jim Walter Homes, Inc., 34 S.W.3d 578, 580 (Tex. 2000) (stating that courts rely on the
constitution’s literal text and construe its words as they are generally understood).

              1.     Section l-g(a)

         Article VIII, section 1-g(a) permits the Legislature to “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.” TEX. CONST. art. VIII, 5 l-g(a).
Subsection (a) does not mention tax increments or their use. Based on the literal language, section
 l-g(a) only authorizes tax exemption or other tax relief. See Stringer, 23 S.W.3d at 355.

         Tax exemption means that no taxes are due or paid. See William Cluirmont, Inc. v. State, 26 1
N.W.2d 780, 784 (N.D. 1977) (stating that “the word ‘exempt’ is used to signifythat no tax is
payable in the first instance”); BLACK’S LAW DICTIONARY 1474 (7th ed. 1999) (defining “tax-
exempt” as “[nlot legally subject to taxation”). No court or attorney general opinion has construed
the term “tax relief’ as used in article VIII, section l-g(a). Based on established principles of
statutory construction, however, we must presume that the term means something related to
eliminating or reducing ad valorem taxes. See Spradlin, 34 S.W.3d at 580; BLACK’S LAW
The Honorable Royce West - Page 6               (GA-0514)

DICTIONARY1293 (7th ed. 1999) (defining “relier’ as “[alid or assistance given to those in need,
esp., financial aid provided by the state”).

          But tax increment financing does not involve exempting property from ad valorem taxation
or providing other relief from such taxation. See TEX. TAX CODE ANN. $5 3 11.012 (Vernon 2002)
(determination oftax increment amount), 3 11.014 (Vernon Supp. 2006) (use oftax increment fund).
Under a tax increment financing scheme, a city designates a specific area as a reinvestment zone, and
“[&]ny increase in ad valorem tax revenues from land within the zone is then committed to the
purchase of property, improvement of approved property, or retirement of revenue bonds issued to
provide funding for the approved projects.” City of El Paso, 729 S.W.2d at 296. Thus property in’
the reinvestment zone does not escape taxation or enjoy reduced taxation; rather, the tax is imposed
on the entire value of the property, but a portion of the tax revenues derived from the property is
dedicated to improving the reinvestment zone property rather than for the general support of the
taxing authority. See TEX. CONST. art. VIII, 5 l-g(b) (authorizing use of “increases in ad valorem
tax revenues imposed on property in the area by the city or town and other political subdivisions”
to make property improvements); TEX. TAX CODEANN. $5 3 11.012 (Vernon 2002) (determination
 of tax increment amount), 3 11 ,013 (Vernon Supp. 2006) (collection and deposit of tax increment),
 3 11.014 (use of tax increment fund) (Vernon Supp. 2006); see also Tex. Att’y Gen. LO-89-03 1, at
.3 (stating that property in a tax increment reinvestment zone does not escape taxation; tax is imposed
 on the entire value of the property). If the reinvestment zone property were to be exempted or
 otherwise provided tax relief, there would be no or little tax increments to fund the improvements.

              2.    Section l-g(b)

         Section l-g(b), on the other hand, specifically references tax increments, linking its use
to bonds or notes: It authorizes a~“city or town to issue bonds or notes to finance the development
     of an unproductive, underdeveloped, or blighted area” and to pledge to 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,” namely, the tax increments. TEX. CONST. art. VIII, § 1-g(b); see also HOUSE
COMM. ON CONSTITUTIONALAMENDMENTS,BILL ANALYSIS,Tex. S.J. Res. 8,67th Leg., 1st C.S.
(1,981) (“‘tax increments’ (i.e.[,] increases in tax revenues due to enhancement of taxable
property”)). The specific reference to bonds and notes is not unusual in that the issuance of such
obligations is the common method for obtaining funds to finance the up-front develbpment of the
area; the tax increments are available only after and as a result of the development. See BLACK’S
LAW DICTIONARY1474 (7th ed. 1999) (defining “tax increment financing” as “[a] technique used
by a municipality to finance commercial developments [usually] involving issuing bonds to finance
land acquisition and other up-front costs, and then using the additional property taxes generated from
the new development to service the debt”); see also ANALYSESOF PROPOSEDCONSTITUTIONAL
AMENDMENTSAPPEARINGON NOVEMBER3, 198 1, BALLOT, TEX. LEG. COUNCIL, INFORMATION
 REPORTNO. 8 l-3, at 3 (Sept. 198 1) (“The increases in property taxes resulting from redevelopment
 are called tax increments and occur because of the increases in taxable values of redeveloped
 property.“).
The Honorable Royce West - Page 7                  (GA-0514)

         By its terms, section 1-g(b) specifically permits the Legislature to authorize tax increment
financing but only in an area that is “unproductive, underdeveloped, or blighted.” See TEX. CONST.
art. VIII, 5 l-g(b); Stringer, 23 S.W.3d at 355; Walker Y. Baker, 196 S.W.2d 324,327 (Tex. 1946)
(stating that when the constitution grants a power, and where the manner of exercising that power
is prescribed, it is implied that the prescribed manner excludes all others).

              3.     Financing method

         Our conclusion that only section 1-g(b) authorizes tax increment financing means that its
criteria apply regardless of whether the tax increment reinvestment zone property is financed with
bond or note proceeds or by some other method. A city need not issue bonds or notes to finance
improvements in a tax increment reinvestment zone. See TEX. TAX CODE ANN. §§ 3 11 .Ol O(b),
.013(b), ,014 (Vernon Supp. 2006); City of El Paso, 729 S.W.2d at 296. A city may finance
improvements in a reinvestment zone either (1) directly with tax increment revenues, or (2) indirectly
with the proceeds of bonds or notes or other agreements secured by the tax increment revenues. See
TEX. TAX CODE ANN. $5 3 11.010(b) (Vernon Supp. 2006) (authorizing agreements pledging tax
increment fund revenues to pay project costs), 3 11.013(b) (requiring taxing units to deposit tax
increments into tax increment fund), 3 11.014 (authorizing payment of bonds or project costs from
tax increment fund); see also City of El Paso, 729 S.W.2d at 296 (“Any increase in ad valorem tax
revenues from land within the zone is then committed to the purchase of property, improvement of
approved property, or retirement of revenue bonds [or notes] issued to provide funding for the
approved projects.“). Thus chapter 3 11 permits but does not require a city to issue bonds or notes
to make or finance improvements. See TEX. TAX CODE ANN. § 3 11 ,015 (Vernon Supp. 2006) (“A
municipality creating a reinvestment zone may issue tax increment bonds or notes, the proceeds of
which may be used to pay project costs      ., .I’) (emphasis added); Tex. Att’y Gen. Op. No. JM-758
(1987) at 3 (stating that the act allows a city to implement project plans by a number of methods
other than issuance of bonds, including direct expenditures of tax increment funds).

         But a city generally cannot make significant improvements in a reinvestment zone without
undertaking some type of financing. Even if bonds or notes are not issued, it is still necessary to
obtain~the lump sum from another source to make the improvements because the tax increments
come into existence and are available annually only after the tax value of the reinvestment zone
property increases as a result of making the improvements. See TEX. TAX CODE ANN. 5 311.012
(Vernon 2002) (determination of amount of tax increment); City of El Paso, 729 S.W.2d at 296
(describing tax increment financing). As we understand it, while no bonds or,notes will be issued
in this instance, the improvements will nevertheless be financed over time: The developers of the
reinvestment zone property will pay for the improvements, and the city designating the reinvestment
zone will, pursuant to a promissory note or similar agreement; repay the developer’s loan with the
available tax increments.6

         ‘See Memorandum Brief from Michael D. Bernard, City Attorney, City of San Antonio, to Honorable   Greg
Abbott, Attorney General of Texas, at 4-5 (Apr. 10,2006) (on file with the Opinion Committee).
The Honorable Royce West - Page 8                     (GA-0514)

        Thus, based on the literal text, section l-g(a) authorizes tax exemption and tax relief, and
section l-g(b) authorizes tax increment financing. Because the use of tax increments does not.
involve exempting property from taxation or providing other relieffrom taxation, section 1-g(a) does
not authorize tax increment financing. Tax increment financing and tax increment reinvestment
zones are authorized only by section l-g(b), and its use is limited to an area that is “unproductive,
underdeveloped, or blighted.”

        B.     Legislative history

         The amendment’s legislative history and the circumstances surrounding its adoption support
the construction that section I-g(a)‘s tax exemption or tax relief scheme is distinct from section
 1-g(b)‘s tax increment financing scheme. See Republican Party of Tex. v. Die&, 940 S.W.2d 86,89
(Tex. 1997) (stating that a court construing a constitutional provision may consider, in addition to
the literal text, “the purpose of the constitutional provision, the historical context in which it was
written, the collective intent, if it can be ascertained, of the framers and the people who adopted it”);
Kirby Lumber Corp. v. HardinZndep. Sch. Dist., 351 S.W.2d 310,312 (Tex. 1961) (“Constitutional
provisions must be construed in the light of conditions existing at the time of adoption, and it does
not lie within the power of the Legislature to change their meaning, or to enact laws in contlict~
therewith.“).

         The Sixty-seventh Legislature, which proposed article VIII, section l-g in Senate Joint
Resolution 8, also adopted the Tax Increment Financing Act of 1981 and the Property
Redevelopment and Tax Abatement Act (codified at chapter 3 12 of the Tax Code) implementing the
constitutional amendment7 A Texas Legislative Council analysis ofthe proposed amendment states
that the amendment “would authorize the use of tax increment financing to encourage the
redevelopment of property in economically distressed areas” and would also authorize “the local
adoption of exemptions from property taxation to encourage redevelopment.”        ANALYSES OF
PROPOSEDCONSTITUTIONALAMENDMENTSAPPEARINGONNOVEMBER~,                   ~~S~,BALLOT,TEX. LEG.
COUNC~, INFORMATIONREPORTNO. 81-3, at 4 (Sept. 1981) (emphasis added). And the analysis
further explains:

                 Senate Bill 17, the Property Redevelopment and Tax Abatement Act,
                 implements Subsection (a) of Section l-g. It would authorize
                 cities or towns to exempt all or part of the value of residential,
                 commercial, or industrial property in certain designated reinvestment
                 zones. To qualify for the exemption, the property would have to be
                 economically impaired, be predominantly open or otherwise impaired
                 so as to arrest redevelopment, or be located in or adjacent to areas
                 qualifying for certain federal assistance.

          ‘SeeTex. S.J. Res. S, 67thLeg., 1st C.S., 1981 Tex. Gen. Laws295;ActofAug.     10, 1981,67thLeg.,   lstC.S.,
ch. 4, 1981 Tex. Gen. Laws 45,45-53 (Senate Bill 16); Act,ofAug. 10, 1981,67thLeg.,    lstC.S., ch. 5, 1981 Tex. Gen.
Laws 53,53-57 (Senate Bill 17).
The Honorable Royce West - Page 9              (GA-0514)

                       Senate Bill 16, the Texas Tax Increment Financing Act of
               1981, will also take effect if the proposed amendment is adopted.
               This act would implement Subsection (b) ofSection l-g, authorizing
               a city or town to designate an area within its jurisdiction as a
               reinvestment zone, redevelop property in the zone, and finance the
               redevelopment by bonds or notes payable solely from tax increments
               from the reinvestment zone.

Id. at 4-6 (emphasis added).

        Similarly, the bill analysis from the House Committee on Constitutional   Amendments   states
that:

               The implementing.legislation  for subsection (b) of SJR 8, SB 16,
               .     would allow cities or towns to designate areas which are
               deteriorating or unproductive as “reinvestment zones” and finance
               redevelopment   projects in these zones through tax increment
               financing.

               The implementing legislation for subsection (a) of SJR 8, SB 17,
               authorizes cities or towns to create reinvestment zones for the
               purpose of residential or industrial tax abatement. The city or town
               must find that the area is deteriorating or unproductive before
               designating it as a reinvesttient zone.

HOUSECOMM.ONCONSTITUTIONALAMTNDM!ZNTS,BILLANALYSIS,                   Tex. S.J. Res. 8,67thLeg., 1st
C.S. (1981) (emphasis added);see also SENATEFINANCECOMM.,BILLANALYSIS,T~~.C.S.S.J. Res.
867th Leg., 1st C.S. (1981) (stating that the first part of the amendment “is new and is offered as
a preparatory step to making Texas businesses and low income citizens eligible for Federal Tax
breaks under the Kemp-Garcia bill,” and the second part repeats the failed 1977 constitutional
amendment authorizing tax increment financing).

         In sum, the Legislature that adopted both article VIII, section l-g(a) and (b) and the
implementing legislation, intended subsection (a) to authorize tax exemption or tax relief such as the
tax abatements authorized in the Property Redevelopment and Tax Abatement Act, codified at Tax
Code chapter 312, and subsection (b) to authorize tax increment financing as provided in the Tax
Increment Financing Act of 198 1, codified at Tax Code chapter 3 11. See Kirby Lumber Corp., 35 1
S.W.2d at 312; see also City of El Paso, 729 S.W.2d at 298 (construing the term “political
subdivisions” in article VIII, section l-g(b) consistent with the 1981 implementing legislation to
include school districts because “the reason for proposing the amendment was to provide a
constitutional basis for the [Tax Increment Financing] Act”).
The Honorable Royce West - Page 10           .(GA-0514)

III.   Conclusion

         Because only section l-g(b) of the Texas Constitution enables the use of tax increments to
make improvements in a particular area-the reinvestment zone-as authorized under chapter 3 11,
its “unproductive, underdeveloped, or blighted” requirement applies to any designation of an area
as a tax increment fmancing reinvestment zone, including an area subject to petition under Tax Code
section 311.005(a)(5).     Therefore, we conclude that a city may not designate an area as a
reinvestment zone under Tax Code section 311.005(a)(5) unless the area is “unproductive,
underdeveloped, or blighted” even if its plan of tax increment financing does not include issuance
of bonds or notes.

        Given our construction that only Texas Constitution article VIII, section 1-g(b) permits tax
increment financing, we do not consider whether the “unproductive, underdeveloped, or blighted”
requirement applies to a reinvestment zone designated under section l-g(a).
The Honorable Royce West - Page 11             (GA-0514)

                                        SUMMARY

                       A city may not designate an area as a reinvestment zone under
               Tax Code section 311.005(a)(S) unless the area is “unproductive,
               underdeveloped,    or blighted” within the meaning of article VIII;
               section 1-g(b) of the Texas Constitution, even if the area’s plan of tax
               increment financing does not include issuance of bonds or notes.

KENT C. SULLIVAN
First Assistant Attorney General

ELLEN L. WITT
Deputy Attorney General for Legal Counsel

NANCY S. FULLER
Chair, Opinion Committee

Sheela Rai
Assistant Attorney General, Opinion Committee