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Dan Casey, Bob Popinski, Chris Grammer, and Dr. Tom Alvis Moak, Casey & Associates Kevin OHanlon, Mali Hanley, and Annabel Canchola OHanlon, McCollom & Demerath TASA/TASB Annual Meeting Dallas, Texas September 27, 2013 Economic Development Options for Texas School Districts Slide 2 Economic Development Programs and Public Education Two options available to school districts to participate in economic development through tax reductions: Texas Economic Development Act: Chapter 313 property value limitations Freeport exemptions for goods in-transit Ability to grant Chapter 312 tax abatements like cities and counties ended in 2001 Deduction from the value study for Chapter 312 abatements was ended in 1993 Tax Increment Reinvestment Zones (TIF or TIRZ) created after 1999 are no longer eligible for state property value study deduction September 2013 2 Slide 3 Texas Economic Development Act: Chapter 313 of the Tax Code September 2013 3 Slide 4 Texas Economic Development Act: Chapter 313 Property Value Limitations Limited to school districtsestablished in 2001 under HB 1200 First projects approved in late 2002 150 active projects through 2012 Approaching 100 projects under consideration for 2013 $60+ billion in new investment covered by adopted agreements September 2013 4 Slide 5 Types of Projects September 2013 *Based on Comptroller Texas Economic Development Act Biennial Report (projects through 2011) 5 Slide 6 Project Types and Employment Types of projects 57 percent of the investments are in manufacturing 26 percent are in renewable energy 17 percent of the investments are in research and development, clean coal, advanced clean energy, electric power generation, and nuclear electric power generation Job Creation 6,676 estimated direct jobs created Comptroller does not estimate indirect jobs in report September 2013 6 Slide 7 Chapter 313 Basics Eligible projects include: Manufacturing Research and development Renewable electric generation Clean coal Nuclear energy Computer data centers A new category of eligible projects has been added, which are called Texas Priority Projects and have investment levels in excess of $1 billion. Company makes application to school district for each eligible project September 2013 7 Slide 8 Chapter 313 Basics (cont.) District may offer minimum property value limitation from $1 million to $100 million ( changing to minimum of $30 million starting with 2014 rules and statutes) Depends on size of tax base, rural status Look at Comptrollers website for list of limits (recently updated) http://www.texasahead.org/tax_programs/chapter313/values.php http://www.texasahead.org/tax_programs/chapter313/values.php Also beginning with 2014 rules: value limitation applies for ten years and tax credits will no longer exist for new projects Full project value available for debt service on bonds September 2013 8 Slide 9 Basic Mechanics: An Illustration Year of AgreementProject Value Estimated Taxable Value Assumed M&O Tax Rate Taxes Before Value Limit Taxes after Value Limit Tax Savings @ Projected M&O Rate School District Revenue Losses Estimated Net Tax Benefits School District Tax Benefit $100 per ADA Company Tax Benefit Pre-Year 1$0 $1.0686$0 $363,637-$363,637 1$279,700,000$30,000,000$1.0686$2,988,874$320,580$2,668,294-$2,833,445-$165,151$367,273-$532,424 2$711,995,000$30,000,000$1.0686$7,608,379$320,580$7,287,799-$4,683,440$2,604,358$370,946$2,233,412 3$690,915,000$30,000,000$1.0686$7,383,118$320,580$7,062,538$0$7,062,538$374,656$6,687,882 4$670,459,000$30,000,000$1.0686$7,164,525$320,580$6,843,945$0$6,843,945$378,402$6,465,543 5$650,625,000$30,000,000$1.0686$6,952,579$320,580$6,631,999$0$6,631,999$382,186$6,249,813 6$631,385,000$30,000,000$1.0686$6,746,980$320,580$6,426,400$0$6,426,400$386,008$6,040,392 7$612,719,000$30,000,000$1.0686$6,547,515$320,580$6,226,935$0$6,226,935$389,868$5,837,067 8$594,610,000$30,000,000$1.0686$6,354,002$320,580$6,033,422$0$6,033,422$393,767$5,639,656 9$577,050,000$30,000,000$1.0686$6,166,356$320,580$5,845,776$0$5,845,776$397,704$5,448,072 10$560,012,000$30,000,000$1.0686$5,984,288$320,580$5,663,708$0$5,663,708$401,681$5,262,027 11$543,489,000 $1.0686$5,807,723 $0 $405,698-$405,698 12$527,456,000 $1.0686$5,636,395 $0 $409,755-$409,755 13$511,917,000 $1.0686$5,470,345 $0 $413,853-$413,853 14$496,837,000 $1.0686$5,309,200 $0 15$496,837,000 $1.0686$5,309,200 $0 $91,429,480$30,738,664$60,690,816-$7,516,885$53,173,931$5,071,799$48,102,132 September 2013 9 Slide 10 Chapter 313 Basics (cont.) 150-day review process identified in law Comptroller has 91 days to make recommendation and present economic analysis from the time they have complete information in hand Board must adopt findings and approve agreement between district and the company Company pays an application fee to cover costs of consultants and legal help for the district September 2013 10 Slide 11 Items of Note $100/ADA/Year for fourteen years may be negotiated on behalf of districts During last legislative session a floor of $50,000 per year for smaller districts was adopted Comptrollers rule calls for company to submit copy of the agreement to their office prior to School Board action Extraordinary educational expenses can be considered outside of the limit September 2013 11 Slide 12 Major Issues during 83 rd Legislative Session Numerous 313 bills were filed Movement to limit or kill off district benefits altogether However, Rep. Eiland and Rep. Bonnens push to increase benefit minimum of $50,000 for smaller districts actually succeeded and silenced those looking to limit district benefits Discussion to no longer allow wind generation as eligible projects Wind remained eligible, but a new measure has been added to evaluate the tax benefits from the project over a 25-year period Discussion on number of jobs and types of wages became issue The requirement that 80 percent of all jobs must be qualifying jobs has been eliminated. An applicant must create either 10 or 25 qualifying jobs to be eligible for a limitation, depending on rural/non-rural status. September 2013 12 Slide 13 Tax Credit Issues (not for future agreements)* 1. Company must file tax credit application with the district Currently, agreements with first qualifying year of 2010 or earlier are eligible If company is eligible for tax credits in 2013 an application must be filed with school district, with reimbursement payments due in 2014 2. District must reimburse company Typically the district provides a check to the company in the form of a refund Discussions with TEA on alternative approach have been had 3. District to be reimbursed by TEA This requires an annual application by the district to TEA, including a copy of the check to prove the reimbursement has been made The reimbursement comes in the form of adjustment to the districts Summary of Finance (on ASATR report) * O Hanlon, McCollom & Demerath will provide districts with assistance on this issue September 2013 13 Slide 14 Comptroller Reporting Requirements Under Comptroller rules, companies and districts are required to submit three new forms on an annual or biennial basis: 1. Annual Eligibility Report (form 50-772) 2. Biennial Progress Report (form 50-773) Districts are responsible for verifying any value, job and wage data provided by company 3. Biennial School District Cost Request Must project revenue loss and benefit for entire term of agreement Must provide information on any additional benefit the district received outside of agreement The companies must return the annual and biennial progress reports to the district by May 15 of each year The district must return company biennial progress form and district cost request to the Comptroller by June 15 of each even numbered year September 2013 14 Slide 15 Where We Stand Today Chapter 313 value limitations remain a valuable tool for economic development Potential community benefits need to be evaluated Effects on tax base for debt service, local job creation, etc. Current program expires (for new applications) on December 31, 2022 September 2013 15 Slide 16 Possible Issues Future state budget constraints and rapid growth of program could make the program a target once again Business groups still believe area of continuing controversy within Chapter 313 relates to supplemental payments As introduced, HB 3390 would have outlawed supplemental payments, but as finally passed, the bill not only retains supplemental payments but also increases the allowable amount of payments to $50,000 Hold-harmless calculations have become more controversial as more districts are now formula-funded and no longer receiving ASATR funds under the target revenue system September 2013 16 Slide 17 Freeport Exemption September 2013 17 Slide 18 Freeport Exemption Freeport Exemption: Applied to goods that are acquired in or imported into this state to be forwarded outside the state no later than 175 days after acquired 179 districts granted exemption for a total of $26.2 billion in freeport value in tax year 2012 Districts can negotiate with companies for hold-harmless payment on any M&O or I&S revenue loss Manufacturing companies want to locate in areas where triple freeport is availablecity, county and school district Granting freeport requires rescinding school board resolution to tax those goods dating back to late 1989 or early 1990 Super Freeport: Applied to goods that reside temporarily in warehouses within a city while awaiting shipment to other locations within or outside of Texas September 2013 18 Slide 19 Aircraft Parts Freeport Exemption HJR 133 gives counties, cities and school districts ability to exempt aircraft parts temporarily held in Texas for up to 730 days (two years) Voter approval needed statewide November 5, 2013 Then local option whether to grant exemption September 2013 19 Slide 20 Districts with Freeport Exemptions, 2012 September 2013 20 Slide 21 September 2013 512-485-7878 Dan Casey, dcasey@moakcasey.comdcasey@moakcasey.com Bob Popinski, bpopinski@moakcasey.combpopinski@moakcasey.com Chris Grammer, cgrammer@moakcasey.comcgrammer@moakcasey.com Dr. Tom Alvis, tomalvis@yahoo.comtomalvis@yahoo.com 512-494-9949 Kevin OHanlon, kohanlon@808west.comkohanlon@808west.com Mali Hanley, mhanley@808west.commhanley@808west.com Annabel Canchola, acanchola@808west.comacanchola@808west.com