Can a Texas county issue tax increment bonds backed by property tax revenue for a road project?

Plain-English summary

State Representative Joseph Pickett asked the Attorney General whether a county is authorized to form a transportation reinvestment zone (TRZ), collect an ad valorem (property) tax increment, and pledge and assign all or part of that increment to secure bonds issued to pay for a transportation project. He also asked the office to clarify an earlier opinion, GA-0953.

The opinion first walked through the statutory scheme in Transportation Code section 222.107. A county commissioners court may designate an area as a TRZ after determining the area is unproductive and underdeveloped and that action would serve the statute's purposes. The designation order sets an ad valorem tax increment base year; as the county later collects taxes, it pays the increment (less certain amounts) into a tax increment account; and subsection (i-1) says that if a county collects a tax increment, it may issue bonds to pay project costs and pledge money in the account to secure those bonds. So on its face, the statute would allow the financing the representative described, "so long as it is consistent with the Texas Constitution."

That constitutional qualifier was the heart of the answer. The opinion turned to the question it had reserved in GA-0953: the constitutional limits on a county's authority to do ad valorem tax increment bond financing. An older opinion (MW-337, 1981) had concluded that the Tax Increment Financing Act of 1979 violated the constitutional requirement that taxation be "equal and uniform" (article VIII, section 1(a)), because property outside the increment district would be fully taxed for the taxing authority's general expenses while only part of the value inside the district would be. The Legislature responded with a 1981 constitutional amendment (article VIII, section 1-g(b)) authorizing tax increment bonds, but by its plain text that amendment extended the authority only to incorporated cities and towns, not to counties. A 2011 proposed amendment that would have reached counties was rejected by the voters.

Because the equal-and-uniform taxation requirement of article VIII, section 1(a) applies to counties, and the opinion found no constitutional basis authorizing a county to issue bonds secured by a pledge of an ad valorem tax increment, it concluded that a county's issuance of tax increment financing bonds secured by such a pledge would be subject to constitutional challenge as violating article VIII, section 1(a). The opinion also corrected a reading of GA-0953: answering that earlier question on statutory grounds did not imply that no constitutional authorization is needed; the office had simply resolved GA-0953 without reaching the constitutional issue, following the practice of deciding constitutional questions only when nonconstitutional grounds will not resolve a matter.

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

Counties considering TRZ bond financing (as the opinion described it): The opinion concluded that a county's issuance of ad valorem tax increment financing bonds secured by a pledge of the increment would be subject to constitutional challenge under the equal-and-uniform taxation requirement, despite the statutory authorization in section 222.107.

Representative Pickett and legislators (as the opinion described it): The opinion explained that the 1981 constitutional amendment authorizing tax increment bonds reached only incorporated cities and towns, and that a 2011 amendment to extend the authority to counties was rejected by the voters.

Anyone relying on GA-0953 (as the opinion described it): The opinion corrected the suggestion that GA-0953 implied no constitutional authorization is needed, clarifying that it had resolved GA-0953 on statutory grounds without reaching the constitutional question.

Common questions

Can a Texas county pledge its property-tax increment to back bonds for a road project?
The opinion concluded that doing so would be subject to constitutional challenge as violating the equal and uniform taxation requirement of article VIII, section 1(a), even though section 222.107 of the Transportation Code appears to authorize the scheme.

If the Transportation Code allows it, why is it a constitutional problem?
The opinion explained that the constitution's equal-and-uniform taxation requirement applies to counties, and that the 1981 amendment authorizing tax increment bonds extended the authority only to incorporated cities and towns, not counties.

Why can cities do this but not counties?
The opinion pointed to article VIII, section 1-g(b), under which the 1981 amendment authorized the Legislature to let incorporated cities and towns issue tax increment bonds; a 2011 amendment that would have reached counties was rejected by voters.

Did GA-0953 already decide counties could do this?
No. The opinion clarified that GA-0953 was resolved on statutory grounds (a county lacked statutory authority under chapter 311 of the Tax Code) without reaching the constitutional question.

Background and statutory framework

Transportation Code chapter 222, subchapter E, addresses toll facilities. Section 222.107 lets a county create a TRZ for a pass-through toll project under section 222.104, after the commissioners court determines the area is unproductive and underdeveloped and that action would serve the statutory purposes in section 222.105(2). The designation order sets a tax increment base year; the county pays its increment into a tax increment account under the formula in the statute; and subsection 222.107(i-1) authorizes a county that collects an increment to issue bonds and pledge the account to secure them.

The constitutional analysis rested on article VIII, section 1(a) (equal and uniform taxation), the 1981 amendment at article VIII, section 1-g(b) (tax increment bond authority for incorporated cities and towns), the rejected 2011 proposal (Tex. H.R.J. Res. 63, 82d Leg., R.S. (2011)), and prior opinions MW-337 (1981) and GA-0953 (2012). The opinion cited Collingsworth Cnty. v. Allred (the statement of one thing implies the exclusion of others), Parker Cnty. v. Spindletop Oil & Gas Co. (the equal-and-uniform requirement applies to counties), and In re B.L.D. (courts decide constitutional questions only when nonconstitutional grounds will not resolve the matter).

Citations

Cases:

• Collingsworth Cnty. v. Allred, 40 S.W.2d 13, 15 (Tex. 1931)
• Parker Cnty. v. Spindletop Oil & Gas Co., 628 S.W.2d 765, 767 (Tex. 1982)
• In re B.L.D., 113 S.W.3d 340, 349 (Tex. 2003)

Texas Attorney General opinions referenced:

• Tex. Att'y Gen. Op. No. GA-0953 (2012)
• Tex. Att'y Gen. Op. No. MW-337 (1981)

Constitution and statutes:

• Tex. Const. art. VIII, § 1(a); art. VIII, § 1-g(b)
• Tex. Transp. Code Ann. §§ 222.101-.110, including § 222.104 and § 222.107(i-1) (West 2011 & Supp. 2012)
• Tex. H.R.J. Res. 63, 82d Leg., R.S. (2011)

Source

• Landing page: https://www.texasattorneygeneral.gov/opinions/greg-abbott/ga-0981
• Original PDF: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/2012/ga0981.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

December 10, 2012

The Honorable Joseph C. Pickett Opinion No. GA-0981
Chair, Committee on Defense and
Veterans' Affairs Re: Authority of a county to form a transportation
Texas House of Representatives reinvestment zone, collect an ad valorem tax
Post Office Box 2910 increment, and pledge and assign all or part of the
Austin, Texas 78768-2910 increment to secure bonds to pay the cost of a
transportation project (RQ-1071-GA)

Dear Representative Pickett:

You ask whether a county is authorized to form a transportation reinvestment zone ("TRZ") for a transportation project, collect an ad valorem tax increment, and pledge and assign all or part of the tax increment receipts to secure bonds to pay the cost of a transportation project.[1] You also seek clarification of Attorney General Opinion GA-0953. Request Letter at 1.

You ask specifically about section 222.107 of the Transportation Code, which appears in chapter 222, subchapter E, concerning toll facilities. See TEX. TRANSP. CODE ANN. §§ 222.101-.110 (West 2011 & Supp. 2012). Section 222.107 authorizes a county to create a TRZ for a pass-through toll project under section 222.104. See id. § 222.107(b) (county TRZs); id. § 222.104 (pass-through tolls). A county commissioners court may designate an area as a TRZ "after determining that an area is unproductive and underdeveloped" and that action under section 222.107 would further specified statutory purposes. Id. § 222.107(c); see also id. § 222.105(2) (statement of statutory purposes, including the "facilita[tion of] the improvement, development or redevelopment of property").

The order designating a TRZ must also designate an ad valorem tax increment base year. Id. § 222.107(f)(2), (4)-(5). When the county collects ad valorem taxes thereafter, it may pay an amount representing the county's TRZ tax increment, less certain amounts, into an ad valorem tax increment account. Id. § 222.107(h)(1); see also id. § 222.107(a) (providing the formula for establishing a county's ad valorem tax increment for a particular year). Finally, subsection (i-1) provides that "[i]n the event a county collects a tax increment, it may issue bonds to pay all or part of the cost of a transportation project and may pledge and assign all or a specified amount of money in the tax increment account to secure those bonds." Id. § 222.107(i-1).

Thus, section 222.107 sets forth a statutory scheme that, so long as it is consistent with the Texas Constitution, would allow a county to form a TRZ, collect an ad valorem tax increment, and pledge an amount of money in the tax increment account to secure bonds issued to pay a transportation project's costs. However, because section 222.107(i-1) purports to authorize a county to issue ad valorem tax increment bonds secured with a pledge of the ad valorem tax increment account, we must consider the issue we reserved in Attorney General Opinion GA-0953 — the potential constitutional limitations on a county's authority to engage in ad valorem tax increment bond financing. See Tex. Att'y Gen. Op. No. GA-0953 (2012) at 2.[2]

In Attorney General Opinion MW-337, this office determined that the Tax Increment Financing Act of 1979 (the "1979 Act"), on its face, violated the constitutional requirement that "[t]axation shall be equal and uniform." Tex. Att'y Gen. Op. No. MW-337 (1981) at 5; see TEX. CONST. art. VIII, § 1(a). The opinion determined that by authorizing a taxing authority to pledge the future increase in ad valorem taxes over a set base level — the tax increment — to the payment of tax increment project costs, the 1979 Act caused an unequal distribution of the ad valorem tax burden. Tex. Att'y Gen. Op. No. MW-337 (1981) at 5. The opinion observed that all of the value of property outside of the tax increment district would be taxed to pay the general expenses of the taxing authority while only a portion of the value of property inside the district would be taxed for those purposes. Id. Consequently, the opinion determined, the 1979 Act was unconstitutional absent an enabling constitutional amendment. Id.

In 1981, the Legislature proposed and the voters approved an amendment to article VIII, section 1-g(b) of the Texas Constitution, which now provides as follows:

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) (emphasis added). The plain text of the amendment enabled the Legislature to grant the authority to issue tax increment bonds to incorporated cities and towns, but it did not extend the Legislature's enabling authority to counties. See Collingsworth Cnty. v. Allred, 40 S.W.2d 13, 15 (Tex. 1931) (observing rule of constitutional construction that the statement of one thing implies exclusion of others). More recently, in 2011, the Legislature proposed a constitutional amendment that would have enabled it to enact laws authorizing counties to issue ad valorem tax increment financing bonds, but the amendment was rejected by the voters. See Tex. H.R.J. Res. 63, 82d Leg., R.S. (2011).

The article VIII, section 1(a) requirement of equal and uniform taxation applies to counties. See Parker Cnty. v. Spindletop Oil & Gas Co., 628 S.W.2d 765, 767 (Tex. 1982). We are not aware of any basis for determining that a county is authorized by the Texas Constitution to issue bonds secured by a pledge of an ad valorem tax increment. Consequently, we conclude that a county's issuance of tax increment financing bonds secured by a pledge of the county's ad valorem tax increment would be subject to constitutional challenge as violating the equal and uniform taxation requirements in article VIII, section 1(a) of the Texas Constitution.

SUMMARY

A county's issuance of tax increment financing bonds secured by a pledge of the county's ad valorem tax increment would be subject to constitutional challenge as violating the equal and uniform taxation requirements of article VIII, section 1(a) of the Texas Constitution.

DANIEL T. HODGE
First Assistant Attorney General

JAMES D. BLACKLOCK
Deputy Attorney General for Legal Counsel

JASON BOATRIGHT
Chairman, Opinion Committee

William A. Hill
Assistant Attorney General, Opinion Committee

[1] See Letter from Honorable Joseph C. Pickett, Chair, Comm. on Def. and Veterans' Affairs, to Honorable Greg Abbott, Tex. Att'y Gen. at 1-2 (July 16, 2012), http://www.texasattorneygeneral.gov/opin ("Request Letter").

[2] Your request letter suggests that, because we answered your question in Attorney General Opinion GA-0953 on statutory grounds, we implicitly determined that no constitutional authorization is necessary for a county to issue tax increment bonds. See Request Letter at 1. Your suggestion is inaccurate. In GA-0953, we determined that because a county lacks statutory authority to engage in tax increment bond financing of improvement under chapter 311 of the Tax Code, it was not necessary to consider potential constitutional impediments to the exercising of that authority. Tex. Att'y Gen. Op. No. GA-0953 (2012) at 2. Following the practice of the courts we generally consider "constitutional questions [only] when we cannot resolve issues on nonconstitutional grounds." In re B.L.D., 113 S.W.3d 340, 349 (Tex. 2003). Nothing 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.