                                             February 26, 2015



The Honorable Joseph C. Pickett                            Opinion No. KP-0004
Chair, Committee on Transportation
Texas House of Representatives                             Re: The authority of a county to form and
Post Office Box 2910                                       operate transportati~n reinvestment zones, tax
Austin, Texas 78768-2910                                   increment reinvestment zones, or county
                                                           energy transportation reinvestment zones in
                                                           various circumstances (RQ-1215-GA)


Dear Representative Pickett:

        You seek clarification regarding a county's formation and operation of various types of
reinvestment zones after the issuance of Attorney General Opinion GA-1076. 1 In that opinion,
this office concluded that "[a] county's use of tax increment financing to fund transportation
projects in a county energy transportation reinvestment zone could be subject to challenge under
the equal and uniform taxation requirement in article VIII, section l(a) of the Texas Constitution."
Tex. Att'y Gen. Op. No. GA-1076 (2014) at 4.

         Article VIII, section l(a) provides that "[t]axation shall be equal and uniform." TEX.
CONST. art. VIII, § l(a). Under the equal and uniform provision, "[t]axes are said ... to be 'equal
and uniform,,' when no person nor class of persons in the taxing district ... is taxed at a different
rate than are other persons in the same district upon the same value or the same thing." Norris v.
City of Waco, 57 Tex. 635, 641, 1882 WL 9558, at *5 (1882). The equal and uniform mandate
requires that all persons falling within the same class be taxed alike, so that a tax imposed by a
taxing entity within its territory that equally and uniformly operates on all property in the taxing
unit is not constitutionally infirm. See id.; see also Smith v. Davis, 426 S.W.2d 827, 833-34 (Tex.
1968) (recognizing that the equal and uniform mandate requires that all persons falling within the
same class be taxed alike); Sharp v. Caterpillar, Inc., 932 S.W.2d 230, 240 (Tex. App.-Austin
1996, writ denied) (same).

       In your request letter, you assert that Opinion GA-107 6 is inconsistent with prior attorney
general opinions and re-urge our consideration of a number of questions about county authority
with respect to transportation reinvestment zones (TRZs) and county energy transportation

        1
          See Letter from Honorable Joseph C. Pickett, Chair, House Select Comm. on Transp. Funding, Expenditures
& Fin., to Honorable Greg Abbott, Tex. Att'y Gen. at 1 (Aug. 21, 2014), https://www.texasattomeygeneral.gov/
opinion/requests-for-opinion-rqs ("Request Letter").
The Honorable Joseph C. Pickett - Page 2         (KP-0004)



reinvestment zones (CETRZs) under sections 222.107 and 222.1071, respectively, of the
Transportation Code, and tax increment reinvestment zones (TIRZs) under section 311.003 of the
Tax Code. See Request Letter at 2-3; see generally Tex. Att'y Gen. Op. Nos. GA-1076 (2014) at
1 (describing CETRZs), GA-0981 (2012) at 1-2 (describing TRZs), GA-0953 (2012) at 1-2
(discussing TIRZs). Yet, though each opinion to which you refer is limited to the issues relevant
to the particular request, this office has consistently cast doubt on the tax increment funding
mechanism that forms the basis of these types of county-level entities.

        This office first considered a tax increment reinvestment zone under article VIII, sectipn
l(a) in Opinion MW-337. See Tex. Att'y Gen. Op. No. MW-337 (1981). The Tax Increment
Financing Act of 1979, at issue in MW-337, authorized municipalities to engage in tax increment
financing. Id. at 1-2. Fundamentally, tax increment financing involves a base value, which is the
amount of property values frozen as of a particular date within a district or "zone," and a captured
increment value, which is the enhanced amount of the same property values above the frozen value
in subsequent years. See generally El Paso Cnty. Cmty. Coll. Dist. v. City ofEl Paso, 698 S.W.2d
248, 249-50 (Tex. App.-Austin 1985) (describing tax increment financing), rev 'd on other
grounds, 729 S.W.2d 296 (Tex. 1986); see also Tex. Att'y Gen. Op. No. GA-0549 (2007) at 2-3
(same). Though a taxing unit's tax levy may be the same percentage for all appraised value for
property within a zone and property outside of the zone, the portion of the tax levy on the captured
increment is not used for the taxing entity's general revenue fund but is instead pledged or
dedicated to funding particular projects as authorized by statute. See generally Tex. Att'y Gen.
Op. No. GA-0549 (2007) at 2-3. In Opinion MW-337, this office described the tax levy within a
zone as "[a]n ad valorem tax for general municipal purposes and a special assessment for the
special purpose of improving a particular district ...." Tex. Att'y Gen. Op. No. MW-337 (1981)
at 5. Opinion MW-3 37 noted that the amount of the captured tax increment would be deducted
from the municipal tax burden that property in the zone would otherwise share with property
outside of the zone. See id. The result was a disparate tax treatment of property in the same class:
of all real property located within the municipality, property located outside of the zone "would
have 100% of its value taxed to meet the ordinary needs of the city, but [zone] property would
have only a part of its value taxed for that purpose, causing an unequal distribution of the ad
valorem tax burden." Id. Because of this disparity, MW-337 concluded that the Tax Increment
Financing Act was unconstitutional under the equal and uniform provision of the Texas
Constitution without an enabling constitutional amendment. See id.

        That enabling constitutional amendment was approved by the voters with the adoption of
article VIII, section 1-g. Article VIII, section 1-g was passed in 1981 and consists of two sections.
See City of El Paso, 729 S.W.2d at 296-97. Article VIII, section 1-g(a) provides that:

               The legislature by general law may authorize cities, towns, and other
               trucing units to grant exemptions or other relief from ad valorem
               taxes on property located in a reinvestment zone for the purposes of
               encouraging development or redevelopment and improvement of
               the property.
The Honorable Joseph C. Pickett - Page 3          (KP-0004)



TEX. CONST. art. VIII,§ 1-g(a) (emphasis added). Article VIII, section 1-g(b) provides that:

               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 or other political subdivision.

Id. art. VIII, § 1-g(b) (emphasis added). This office has distinguished the two provisions
characterizing section 1-g(a) as authorizing tax exemptions or other tax relief and section 1-g(b)
as authorizing the Legislature to provide for tax increment financing. Tex. Att'y Gen. Op. No.
GA-0514 (2007) at 5-8; see Tex. Att'y Gen. Op. No. GA-0304 (2005) at 2 (noting that chapter
312 of the Tax Code, authorizing municipal tax abatements, is the enabling legislation for article
VIII, section 1-g(a)).

         Subsequent to the adoption of article VIII, section 1-g(b), this office considered a county's
authority to issue tax increment financing bonds. See Tex. Att'y Gen. Op. No. GA-0953 (2012)
at 1-2. Opinion GA-0953 involved an amendment to the statute at issue in MW-337 that allowed
counties to designate an area within the county as a reinvestment zone. Id. at 2. The amended
statute did not expressly authorize counties to issue bonds or notes secured by tax increment
revenue. See id. This lack of authority to issue bonds resulted in the conclusion that a county was
not authorized to issue tax increment financing bonds. Id. In making the statement "the authority
to levy taxes that support a tax increment fund is distinct from the authority to issue bonds," this
office recognized that a county could contribute its general revenue funds to a tax increment fund
created by another entity but distinguished that authority from any implied authority to issue bonds.
Id. at 3; see Canales v. Laughlin, 214 S.W.2d 451, 453 (Tex. 1948) (noting that counties have only
the powers granted "expressly or by necessary implication" in the Texas Constitution or statutes).
It was not a statement indicating that any authority of a county to issue bonds was the impediment
to a county's creation of a tax increment zone. See Tex. Att'y Gen. Op. No. GA-1076 (2014) at
3. Because the statute was dispositive to the question presented, Opinion GA-0953 did not need
to address any constitutional impediments to a county engaging in its own tax increment financing.
See Tex. Att'y Gen. Op. Nos. GA-0953 (2012) at 2; GA-0981 (2012) at 2 n.2 (clarifying that
Opinion GA-0953 was decided on statutory grounds only and stating that "[n]othing in GA-0953
suggests that a county with statutory authority to issue ad valorem tax increment bonds may do so
in the absence of clear constitutional authority").

        The constitutional question reserved in GA-0953 was addressed in Opinion GA-0981. In
Opinion GA-0981, this office concluded that a county was not authorized to issue tax increment
financing bonds secured by a pledge of a county's tax increment revenue because the scheme
violated the equal and uniform requirement of article VIII, section l(a). Tex. Att'y Gen. Op. No.
GA-0981 (2012) at 3. Opinion GA-0981 considered the tax disparity described in MW-337 and
determined that section 222.107 of the Transportation Code similarly resulted in property within
a zone being taxed differently from property located outside the zone. Id. at 2-3. It also noted
that as article VIII, 1-g(b), authorizing cities to engage in tax increment financing, did not include
counties, the amendment did not serve to exempt counties from the equal and uniform requirement
The Honorable Joseph C. Pickett - Page 4                 (KP-0004)



as it did cities so that section 222.107 of the Transportation Code would likely be unconstitutional
if challenged under article VIII, section l(a). 2 Id.; see also irifra p. 5 and note 3.

        Finally, this office issued Opinion GA-1076 which prompted this, your most recent request.
Tex. Att'y Gen. Op. No. GA-1076 (2014); Request Letter at 1. Opinion GA-1076 addressed
section 222.1071 of the Transportation Code. Tex. Att'y Gen. Op. No. GA-1076 (2014). Section
222.1071 authorizes a county to create a county energy transportation reinvestment zone and use
the tax increment revenue to secure matching funds from the state's Transportation Infrastructure
Fund. See id. at l; see also TEX. TRANSP. CODE ANN.§ 222.107l(i) (West Supp. 2014). Section
222.1071 expressly prohibits counties from issuing bonds.              TEX. TRANSP. CODE ANN.
§ 222.10710) (West Supp. 2014). Despite that prohibition, Opinion GA-1076 determined that
section 222.1071 would likely fail if challenged under the equal and uniform requirement in article
VIII, section l(a). See Tex. Att'y Gen. Op. No. GA-1076 (2014) at 2-3. The opinion affirmatively
stated that the constitutional infirmity, as was the case in GA-0981, was the disparate tax treatment
of property located within the zone versus property located outside of the zone. Id. at 2.

       While each of your specific questions inquire about several different types of entities, all
of your questions implicate the fundamental issue of whether a county has authority to pledge a
captured increment of ad valorem taxes to fund a county tax increment reinvestment zone. To
address that issue, we consider again the authority granted by article VIII, section 1-g(b) of the
Texas Constitution.

         The fundamental rule in the interpretation of a constitutional provision is to give effect to
the intent of the legislators who proposed it and the people who adopted it. Harris Cnty. Hosp.
Dist. v. Tomball Reg 'l Hosp., 283 S.W.3d 838, 842 (Tex. 2009). Courts look to the text of a
constitutional provision to give effect to its plain language. Id. In determining the framer's and
voter's intent, a constitutional provision is construed in light of the conditions existing at the time
of its adoption. In re Nestle USA, Inc., 387 S.W.3d 610, 618 (Tex. 2012) (orig. proceeding). "The
meaning of a constitutional provision is fixed when it is adopted .... " Cramer v. Sheppard, 167
S.W.2d 147, 154 (Tex. 1942) (orig. proceeding).

        By its express language, article VIII, section 1-g(b) applies to only "an incorporated city
or town." TEX. CONST. art. VIII, § 1-g(b); see Tex. Att'y Gen. Op. No. GA-0514 (2007) at 5-8
(discussing distinction between sections 1-g(a) and 1-g(b), which were adopted in the same
legislative session); cf, TEX. CONST. art. VIII, § 1-g(a). The difference in language between
sections 1-g(a) and 1-g(b) indicates that the Legislature knew how to include taxing units other
than cities or towns in its grant of authority. See FM Props. Operating Co. v. City of Austin, 22
S.W.3d 868, 885 (Tex. 2000) (relying on the principle of statutory construction that the Legislature
knows how to enact laws effectuating its intent). But it did not do so in article VIII, section 1-
g(b ). Moreover, counties, as "other political subdivision[s]," were authorized by the amendment
to only participate in tax increment financing as established by a municipality. See Act of Aug. 10,
1981, 67th Leg., 1st C.S., ch. 4, § 10, 1981 Tex. Gen. Laws 45, 49-50; see generally City of El
Paso, 729 S.W.2d at 297-98 (recognizing that article VIII, section 1-g(b) provides for the


         2
          A proposed constitutional amendment to grant authority to counties was defeated by the voters in 2011. See
Tex. Att'y Gen. Op. Nos. GA-1076 (2014) at 2 (noting rejection), GA-0981 (2012) at 3 (same).
The Honorable Joseph C. Pickett - Page 5                  (KP-0004)



participation by political subdivisions in the city's tax increment financing plan). Thus, the
language of article VIII, section 1-g(b) grants authority to cities that it does not grant to counties.

         We received briefing in connection to your request letter that argues article VIII, section
1-g(b) makes no express mention of tax increment financing. See Brief from C. Brian Cassidy,
Locke Lord, L.L.P. at 4 (Sept. 19, 2014) (on file with the Op. Comm.). The argument is that just
as cities have beeh utilizing tax increment financing based only on statutory authorization without
benefit of a constitutional amendment, so too may counties utilize such financing based on
statutory authority. 3 See id. at 4. Although article VIII, section 1-g(b) does not use the term "tax
increment financing," the circumstances of its adoption support a construction of the section as a
grant of authority for tax increment financing limited to only municipalities. The Legislature
proposed article VIII, section 1-g(b) in response to the issuance of Attorney General Opinion MW-
337 (1981), which concluded that a 1979 law authorizing municipalities to engage in tax increment
financing violated the Texas Constitution's equal and uniform taxation provision. 4 Tex. Att'y
Gen. Op. No. MW-337 (1981) at 11. Contemporaneous with the election, a publication for voters
analyzing proposed SJR 8 described the tax increment financing mechanism in cities and indicated
that its purpose was to provide constitutional support to the mechanism at issue in MW-337. 5 A
similar publication reiterated the fact that SJR 8 was proposed in direct response to Opinion MW-
3 37 and stated that the legislation implementing article VIII, section 1-g(b) "authorize[d] 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." 6 These publications indicate that the proposed amendment was
understood by the voters to provide a constitutional basis to support a municipality's use of tax
increment financing to develop or redevelop certain municipal areas.

        The Legislature that framed the proposed amendment evidenced a similar intent. In the
same legislative session in which it adopted SJR 8, the Legislature enacted enabling legislation for
the proposed amendment, which specifically authorized municipalities to create reinvestment
zones, issue tax increment bonds or notes, and deposit tax increments into the tax increment fund.
See Act of Aug. 10, 1981, 67th Leg., 1st C.S., ch. 4, § 9, 1981 Tex. Gen. Laws 45, 49. It contained
no similar authority for counties. See id. The enabling legislation is a statement, contemporaneous

          3
            We disagree with this argument. While statutes may grant counties the authority to create a tax increment
reinvestment zone and use the increased tax revenue for county zone projects as authorized by statute, we have
previously concluded those statutes likely violate the constitution. See supra at 3-4. Statutes authorizing municipal
use of tax increment zones are not unconstitutional under the equal and uniform requirement in article VIII, section
I (a) only because article VIII, section 1-g(b) serves as an exception to that requirement. See Tex. Att'y Gen. Op. Nos.
GA-0276 (2004) at 5 (characterizing section 1-g(b) as an exception to the equal and uniform requirement), JC-0152
(1999) at 5 (same), JC-0141 (1999) at 3 (same).
         4
          See Tex. S.J. Res. 8, 67th Leg., 1st C.S., I 981 Tex. Gen. Laws 295 ("SJR 8"); see also House Study Group,
Special Legislative Report, Constitutional Amendment Analysis, Analysis of SJR 8, at 2 (Sept. 9, I 98 I); Tex.
Legislative Council, Analysis of Proposed Constitutional Amendments Appearing on November 3, 198 I, Ballot,
Information Report No. 81-3 at 4 (Sept. 1981 ).
         5
          House Study Group, Special Legislative Report, Constitutional Amendment Analysis, Analysis of SJR 8 at
1-2 (Sept. 9, 1981).
         6
         Tex. Legislative Council, Analysis of Proposed Constitutional Amendments Appearing on November 3,
1981, Ballot, Information Report No. 81-3 at 4, 6 (Sept. 198 I).
The Honorable Joseph C. Pickett - Page 6         (KP-0004)



to the amendment, by the Legislature of its intent to provide only municipalities with a method to
finance development with the use of tax increment revenues. See Walker v. Baker, 196 S. W .2d
324, 327 (Tex. 1946) (orig. proceeding) (stating that "contemporaneous construction of a
constitutional provision by the Legislature, continued and followed, is a safe guide as to its proper
interpretation").

         Neither the circumstances surrounding the adoption of SJR 8 nor the enactment of its
enabling legislation suggest that either the voters or the framers intended article VIII, section 1-
g(b) to permit the Legislature to allow counties to use a tax increment funding mechanism for
county projects. And despite the possibility that a given transportation project in a zone may have
some county-wide benefit, it remains that all real property located within a county creating a zone
is not taxed alike: 100% of the ad valorem taxes paid by property owners outside of the zone goes
toward the general support of the county, and a percentage less than 100% of the ad valorem taxes
paid by property owners inside the zone goes toward the general support of the county. See
generally Tex. Att'y Gen. Op. No. MW-337 (1981) at 5. As this office concluded in Opinions
GA-0981 and GA-1076, this taxation disparity is the infirmity under article VIII, section l(a),
which requires taxation to be equal and uniform-a mandate we cannot ignore.

        For these reasons, a county's attempt to utilize a captured increment of ad valorem taxes
to fund a county tax increment reinvestment zone is likely prohibited by article VIII, section l(a).
Accordingly, absent a constitutional amendment, it is likely a court would conclude that a county
may not form and operate a CETRZ, a TIRZ, or a TRZ, to the extent that doing so utilizes a
captured increment of ad valorem taxes to fund a county-created tax increment reinvestment zone.
The Honorable Joseph C. Pickett - Page 7       (KP-0004)



                                     SUMM A RY

                      Absent a constitutional amendment, it is likely a court would
              conclude that a county may not form and operate a county energy
              transportation reinvestment zone, a tax increment reinvestment
              zone, or a transportation reinvestment zone, to the extent that doing
              so utilizes a captured increment of ad valorem taxes to fund a
              county-created tax increment reinvestment zone.

                                            Very truly yours,




                                            KEN PAXTON
                                            Attorney General of Texas



CHARLES E. ROY
First Assistant Attorney General

BRANTLEY STARR
Deputy Attorney General for Legal Counsel

VIRGINIA K. HOELSCHER
Chair, Opinion Committee

CHARLOTIE M. HARPER
Assistant Attomey General, Opinion Committee
