Court Opinion

ID: 4131724
Source: CourtListenerOpinion
Date Created: 2017-02-18 01:18:57.141795+00
Date Added: 2024-06-11T14:34:23.665211
License: Public Domain

The Attorney General of Texas

MARK WHITE                                 May 15, 1961
Attorney General
                   Honorable Chris Victor Semos              Opinion No. I%+597
                   Chairman
                   Committee on Business & Industry          Re: Constitutionality    of article
                   House of Representatives                  1666d, V.T.C.S., the Tax Increment       .
                   Austin, Texas 76769                       Financing Act

                   Dear Representative   Semos:

                           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 amend-
                   ment - 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(BP.

          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 improve-
            ment 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             Texas & P. RY. Co. v. Ward County Irr.
District No. 1, 251 S.W. 212                     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, notwith-
standing 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. City-
Fort 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. We similarly
view related provislors in section 2.

       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 11governs 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. City of Fort Worth v. Bobbitt, 36 S.W.2d 470.41 S.W.
2d 228 (Tex. 193% 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.

            I%1 ftmctionr   The foreclosure of a lien upon facilities essential to the
discharge 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 assess-
            ments, 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 tmwristitu-
           tionality 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

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