Can a Texas county issue tax increment financing bonds the way a city can?

Plain-English summary

Tax increment financing, or TIF, is a tool local governments use to pay for public improvements in run-down or undeveloped areas. A government designates a "reinvestment zone," then captures the growth in property tax revenue from inside that zone and funnels it into a special fund that pays for development there. The cornerstone is article VIII, section 1-g(b) of the Texas Constitution, which lets the Legislature authorize an incorporated city or town to issue bonds to finance redevelopment and to pledge increases in property tax revenue (including revenue from "other political subdivisions") to repay those bonds.

A state representative asked the Attorney General three related questions about whether a county can play the same role as a city. The backdrop mattered: when the Legislature first passed the TIF Act in 1981, only cities and towns could designate a reinvestment zone. In 2005 the Legislature let counties designate reinvestment zones too, but it never gave counties the power to issue TIF bonds and never proposed the constitutional amendment that would allow it. In 2011 the Legislature put such an amendment on the ballot, and the voters rejected it.

On the first question, the opinion concluded a county may not issue TIF bonds the way a city can. The reason did not depend on whether a constitutional amendment was strictly necessary; it was simpler than that. Texas courts have long held that a county has no implied authority to issue bonds without express statutory authority, and the Legislature has not granted counties that authority. So no county TIF bonds.

On the second question, the opinion agreed that a county is a "political subdivision" within article VIII, section 1-g(b). Using the Texas Supreme Court's test from City of El Paso v. El Paso Community College District (jurisdiction over part of the state, an elected governing body, and the power to assess and collect taxes), a county checks every box. That status means a county can pay its tax increment into a zone's fund. But the opinion drew a sharp line between paying in and controlling the money. The statute lets only a municipality irrevocably pledge the tax increment fund (including amounts deposited by a county) to secure TIF bonds. The power to issue the bonds and pledge the fund sits with the municipality alone, so a county's ability to contribute does not let it issue bonds or unilaterally pledge any part of the fund.

Because the opinion concluded counties are included in "other political subdivisions," it did not reach the representative's third question, which asked what entities the phrase covers if counties are not among them.

Currency note

This opinion was issued in 2012. Subsequent statutory amendments, court decisions, or later Attorney General opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here.

What the opinion meant for those who asked

The requesting legislator and the Legislature (as the opinion described it): The opinion treated county TIF bonding as a gap the Legislature had not filled. Counties could designate reinvestment zones after the 2005 amendments, but the bonding authority and the constitutional change to support it were never enacted, and the 2011 ballot amendment failed.

Counties (as the opinion described it): The opinion held that a county may deposit tax increment revenue into a zone's fund and qualifies as a political subdivision under section 1-g(b), but cannot issue TIF bonds or unilaterally pledge any part of the tax increment fund.

Cities and towns (as the opinion described it): The opinion read the constitution and section 311.015 as giving municipalities the exclusive power to issue the bonds and to pledge the tax increment fund, including any amounts a county or other political subdivision deposited.

Common questions

Can a Texas county issue tax increment financing bonds?
No, according to the opinion. The Legislature gave that power only to incorporated cities and towns, and a county has no implied authority to issue bonds without express statutory authorization.

Is a county a "political subdivision" under article VIII, section 1-g(b)?
Yes. The opinion applied the Texas Supreme Court's test and found a county has jurisdiction over part of the state, an elected governing body, and the power to assess and collect taxes, so it qualifies.

If a county can put money into the fund, why can't it issue bonds?
The opinion explained that the authority to levy taxes that feed a tax increment fund is distinct from the authority to issue bonds. The statute lets only a municipality pledge the fund and issue the bonds; a county's contribution does not carry bonding power with it.

Did the 2011 ballot measure change anything?
No. The opinion noted that voters rejected the proposed constitutional amendment in November 2011, so no new authority for county TIF bonds was added.

Background and statutory framework

The Tax Increment Financing Act is chapter 311 of the Tax Code. Tex. Tax Code Ann. § 311.001 (West 2008). It lets eligible entities designate "reinvestment zones" (§ 311.003) and commit increases in ad valorem tax revenue from inside the zone to development there, often through a financing plan that describes how project costs will be paid. § 311.011(c)(6). A municipality that designates a zone may issue tax increment bonds or notes (§ 311.015(a)) or finance improvements directly from tax increment revenue (§ 311.010(b)).

The constitutional hook is article VIII, section 1-g(b), which authorizes the Legislature to let an incorporated city or town issue bonds to finance redevelopment of a blighted area and pledge increases in property tax revenue imposed by the city and "other political subdivisions." The Act has each taxing unit that taxes property in the zone agree to pay an amount into the tax increment fund (§ 311.013(a)-(b), (f)), which can be used to satisfy bondholders and pay project costs (§ 311.014(b)). But only a "municipality may pledge irrevocably all or part of the [tax increment] fund" to pay TIF bonds or notes, including funds deposited by a county. § 311.015(b).

The opinion relied on the Texas Supreme Court's political-subdivision test in City of El Paso v. El Paso Community College District, on Lasater v. Lopez and Lopez v. Ramirez for the rule that counties cannot issue bonds without express authority, and on Wichita Falls State Hosp. v. Taylor describing a county as a political subdivision. It built on prior opinions GA-0514 (2007) and JC-0068 (1999).

Citations

Cases:

• City of El Paso v. El Paso Cmty. Coll. Dist., 729 S.W.2d 296 (Tex. 1986)
• Lasater v. Lopez, 217 S.W. 373, 376 (Tex. 1919)
• Lopez v. Ramirez, 558 S.W.2d 954, 957 (Tex. Civ. App.-San Antonio 1977, no writ)
• Wichita Falls State Hosp. v. Taylor, 106 S.W.3d 692, 694 n.3 (Tex. 2003)

Statutes:

• Tex. Const. art. VIII, § 1-g(b)
• Tex. Tax Code Ann. § 311.001 (West 2008)
• Tex. Tax Code Ann. § 311.003 (West Supp. 2011)
• Tex. Tax Code Ann. § 311.011(c)(6)
• Tex. Tax Code Ann. § 311.010(b) (West Supp. 2011)
• Tex. Tax Code Ann. § 311.013(a)-(b), (f) (West Supp. 2011)
• Tex. Tax Code Ann. § 311.014(b) (West 2008)
• Tex. Tax Code Ann. § 311.015(a)
• Tex. Tax Code Ann. § 311.015(b) (West Supp. 2011)

Prior Attorney General opinions referenced:

• Tex. Att'y Gen. Op. No. GA-0514 (2007)
• Tex. Att'y Gen. Op. No. JC-0068 (1999)

Source

• Landing page: https://www.texasattorneygeneral.gov/opinions/greg-abbott/ga-0953
• Original PDF: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/2012/ga0953.pdf

Original opinion text

Best-effort transcription from the official PDF. Minor extraction artifacts were corrected; the linked PDF is authoritative.

ATTORNEY GENERAL OF TEXAS
GREG ABBOTT

June 18, 2012

The Honorable Joseph C. Pickett Opinion No. GA-0953
Chair, Committee on Defense and Veterans' Affairs
Texas House of Representatives Re: Authority of a county to issue bonds pursuant
Post Office Box 2910 to article VIII, section 1-g(b), Texas Constitution
Austin, Texas 78768-2910 (RQ-1040-GA)

Dear Representative Pickett:

You ask three questions related to whether a county may issue tax increment financing bonds in the same manner as a city under article VIII, section 1-g(b) of the Texas Constitution.[1] The Tax Increment Financing Act ("the Act") is found in Chapter 311 of the Tax Code. TEX. TAX CODE ANN. § 311.001 (West 2008). It was enacted to aid "in financing public improvements in blighted or underdeveloped areas." City of El Paso v. El Paso Cmty. Coll. Dist., 729 S.W.2d 296, 296 (Tex. 1986). The Act authorizes certain public entities to designate areas as "reinvestment zones" after first determining that the areas meet specific statutory requirements. See TEX. TAX CODE ANN. §§ 311.003 (West Supp. 2011) ("Procedure for Creating Reinvestment Zone"); .005 ("Criteria for Reinvestment Zone"). Increases in ad valorem tax revenues from property within the zone are then committed to promoting development or redevelopment of the zone area. See id. § 311.011(c)(6) (requiring a reinvestment zone financing plan to describe the methods for financing project costs, including the percentage of tax increment to be derived from property taxes). The Act authorizes municipalities designating a reinvestment zone to "issue tax increment bonds or notes, the proceeds of which may be used to ... pay project costs for the reinvestment zone on behalf of which the bonds or notes were issued." Id. § 311.015(a). Apart from issuing bonds and notes, the Act also authorizes improvements in a reinvestment zone to be financed directly with tax increment revenues or with the proceeds of other financial arrangements secured by tax increment revenues. Tex. Att'y Gen. Op. No. GA-0514 (2007) at 7 (noting that "[a] city need not issue bonds or notes to finance improvements in a tax increment reinvestment zone"); TEX. TAX CODE ANN. § 311.010(b) (West Supp. 2011) (authorizing agreements pledging tax increment fund revenues to pay project costs).

When the Act was adopted in 1981, the Legislature allowed only an incorporated city or town to "designate an area a reinvestment zone for tax increment financing."[2] Alongside the Act, the Legislature proposed article VIII, section 1-g(b) of the Constitution, which voters adopted later that year. Article VIII, section 1-g(b) states:

The legislature by general law may authorize an incorporated city or town to issue bonds or notes to finance the development or redevelopment of an unproductive, underdeveloped, or blighted area within the city or town and to pledge for repayment of those bonds or notes increases in ad valorem tax revenues imposed on property in the area by the city or town and other political subdivisions.

TEX. CONST. art. VIII, § 1-g(b).

In 2005, the Legislature amended certain provisions of the 1981 Act, which is now codified at chapter 311 of the Tax Code, to similarly allow a county to designate an area within the county to be a "reinvestment zone."[3] However, when the Legislature amended the Act, it did not authorize counties to issue tax increment bonds or notes. Nor did it propose a constitutional amendment that would have allowed the Legislature to expressly authorize counties to issue tax increment financing bonds. Six years later, in 2011, the Eighty-second Legislature proposed a constitutional amendment that would have amended the language in article VIII, section 1-g(b) and thereby authorized the Legislature to enact laws allowing counties to issue tax increment financing bonds.[4] However, in November 2011, voters rejected the proposed amendment. In light of the voters' rejection of the constitutional amendment, you first ask whether a county may "issue bonds in the same manner as a city or town under article VIII, section 1-g(b) of the Texas Constitution." Request Letter at 2.

Regardless of whether a constitutional amendment is necessary for counties to issue tax increment bonds, an issue we do not address here, the Legislature has not granted counties such authority. Texas courts have long held that, without statutory authority, a county has no implied authority to issue bonds. Lasater v. Lopez, 217 S.W. 373, 376 (Tex. 1919) (explaining that "[w]ithout special authority, a court charged with the administration of the business affairs of a county is without the power to issue negotiable securities" and defining county bonds as "negotiable securities"); Lopez v. Ramirez, 558 S.W.2d 954, 957 (Tex. Civ. App.-San Antonio 1977, no writ); see also Tex. Att'y Gen. Op. No. JC-0068 (1999) at 9 (noting that bonds "can only be issued for the purposes and in the manner expressly authorized"). Thus, a county may not issue tax increment financing bonds under chapter 311 of the Tax Code.

Your second question asks whether "the reference to 'other political subdivisions' in article VIII, section 1-g(b) includes counties, and if so does that provide sufficient authority for a tax increment collected by a county to be pledged to secure bonds." Request Letter at 2. Article VIII, section 1-g(b) authorizes an incorporated city or town "to pledge for repayment of those bonds or notes increases in ad valorem tax revenues imposed on property in the area by the city or town and other political subdivisions." TEX. CONST. art. VIII, § 1-g(b) (emphasis added). In City of El Paso v. El Paso Community College District, the Texas Supreme Court addressed which entities were "political subdivisions" for purposes of article VIII, section 1-g(b). 729 S.W.2d at 298. Concluding that a school district was a political subdivision, the Supreme Court explained the general attributes of any political subdivision: "1) jurisdiction over a portion of the state; 2) elected officials as a governing body; and 3) the power to assess and collect taxes." Id. at 299. A county possesses all of these features. Consequently, under the Supreme Court's test, Texas counties qualify as political subdivisions for purposes of article VIII, section 1-g(b). Cf. Wichita Falls State Hosp. v. Taylor, 106 S.W.3d 692, 694 n.3 (Tex. 2003) (describing a county as a political subdivision in the context of sovereign immunity).

However, to respond to the remainder of your question, we turn to article VIII, section 1-g(b) and section 311.015, which expressly authorize only incorporated cities or towns, not counties, to issue bonds or notes to finance a reinvestment zone. TEX. CONST. art. VIII, § 1-g(b) (emphasis added). The Act authorizes "[e]ach taxing unit that taxes real property located in a reinvestment zone" to pay into the tax increment fund for the zone a certain amount agreed to between the taxing unit and the governing body that initially designated the zone. See TEX. TAX CODE ANN. § 311.013(a)-(b), (f) (West Supp. 2011). Thus, a county may deposit money into the tax increment fund, which can then be used "to satisfy claims of holders of tax increment bonds or notes issued for the zone, to pay project costs for the zone, ... or to repay other obligations incurred for the zone." Id. § 311.014(b) (West 2008). But the authority to levy taxes that support a tax increment fund is distinct from the authority to issue bonds. Furthermore, the statute provides that only a "municipality may pledge irrevocably all or part of the [tax increment] fund for payment of tax increment bonds or notes," including any funds deposited by a county or another political subdivision. Id. § 311.015(b) (West Supp. 2011) (emphasis added). The power to issue tax increment financing bonds and to pledge the tax increment fund as security lies solely with the municipality. The county's authority to pay into the tax increment fund does not authorize the county to issue bonds or to unilaterally pledge any part of the tax increment fund as security for a municipality's tax increment financing bonds.

Your final question asks, "[i]f the reference to 'other political subdivisions' in article VIII, section 1-g(b) does not include a county, which taxing entities does it include?" Request Letter at 2. Because we conclude that "political subdivisions" as used in article VIII, section 1-g(b) includes counties, we do not address your third question further.

SUMMARY

The Legislature has not authorized a county to issue tax increment financing bonds as a city may under chapter 311 of the Tax Code.

A county qualifies as a "political subdivision" as that term is used in article VIII, section 1-g(b). A municipality has exclusive authority to pledge all or part of a tax increment fund, including any tax increments deposited by a county, for payment of tax increment bonds or notes. A county may not issue tax increment financing bonds or unilaterally pledge any part of the tax increment fund.

Very truly yours,

DANIEL T. HODGE
First Assistant Attorney General

JAMES D. BLACKLOCK
Deputy Attorney General for Legal Counsel

JASON BOATRIGHT
Chair, Opinion Committee

Virginia K. Hoelscher
Assistant Attorney General, Opinion Committee

[1] Letter from Honorable Joseph C. Pickett, Chair, Comm. on Def. and Veterans' Affairs, to Honorable Greg Abbott, Tex. Att'y Gen. at 2 (Feb. 8, 2012), http://www.texasattorneygeneral.gov/opin ("Request Letter").

[2] Act of Aug. 10, 1981, 67th Leg., 1st C.S., ch. 4, § 3, 1981 Tex. Gen. Laws 45, 46. The Tax Increment Financing Act was recodified as Chapter 311 of the Tax Code in 1987. Act of May 1, 1987, 70th Leg., R.S., ch. 191, § 1, 1987 Tex. Gen. Laws 1410, 1413-21.

[3] Act of May 29, 2005, 79th Leg., R.S., ch. 1094, §§ 36-48, 2005 Tex. Gen. Laws 3591, 3607-14.

[4] Tex. H.R.J. Res. 63, 82d Leg., R.S. (2011).