Type As or Type Bs or MDDs: Let s Discuss

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1 Type As or Type Bs or MDDs: Let s Discuss Presentation to Texas City Management Association June 22, 2018 Carlton Schwab President & CEO Texas Economic Development Council

About the TEDC Largest state association of economic developers in the nation Approximately 850 members representing about 600 communities

2 About the TEDC Largest state association of economic developers in the nation Approximately 850 members representing about 600 communities Established in 1961 Provide career development, education, legislative advocacy, networking and resources for professional economic developers

3 CEDA Workforce Excellence Economic Excellence What TEDC Offers Educa&on/ Career Development Basic ED Course ED Sales Tax Workshops Webinars Mentorship Program Award Programs Resources/ Publica&ons Resource Library Surveys Research Professional Speakers Peer to Peer Panels Networking Exhibitors Conferences/ Networking Advocacy Legislative Agenda Bill Tracking Political Action Committee

4 Our discussion today will focus on the following Understanding Economic Development Organizations (Type A, Type B, MDD) Comparing Economic Development Organizations 2019 TEDC Legislative Priorities

5 In 1989, legislative leaders, with the input of the TEDC, (then TIDC) envisioned a tax that would help Texas communities ramp-up their economic development efforts. Originally, the tax was intended to help small to medium-sized Texas cities compete for new business investment Type A was designed to create primary job economic development organizations Since 1989 the ED Sales Tax Law has been amended 70 times; however, only 10 times since 2005.

Type A Corporations (created in 1989) Subsequent terms determined by bylaws or ordinances of the EDC or City Subject to OMA and PIA Serve terms not to exceed six

6 Type A Corporations (created in 1989) Subsequent terms determined by bylaws or ordinances of the EDC or City Subject to OMA and PIA Serve terms not to exceed six years Required to obtain council approval of projects Board consists of at least Wive members Type A Corporation Required to Wile annual reports to the Texas Comptroller

7 Type A Corporations CAN Fund land, buildings, equipment, facilities, improvements and expenditures related to Manufacturing, Industrial, R&D, Recycling Warehousing, Corporate facilities, Distribution Centers Military Bases and Business Airport Facilities Job Training, Cleanup of contaminated sites (with an election) Type B Projects with voter approval

8 Type A Corporations CANNOT Provide funding for the following purposes Transportation Solid Waste General Water and Sewer services Air and Water Pollution Control Direct Winancial assistance to Retailers/Civic Clubs/Service Organizations, etc. Provide Tax Abatements, 380 Agreements

9 Type B (formerly 4B) Economic Development Sales Tax Corporations were established in by the Texas Legislature in The advent of 4B (now Type B) broadened the scope beyond traditional economic development approaches to community development purposes Type B s can do everything that Type A s can do.

10 Type B Corporations CAN Build Water Supply facilities with a special election Pay for the following Quality of Life Improvements Park Professional and amateur sport and athletic facilities Tourism and entertainment facilities Affordable housing Other improvements or expenditures to promote new or expanded business activity or retain primary jobs

11 Type B Corporations CANNOT Build Learning Centers (libraries) Municipal Buildings K-12 Educational Facilities If over 20,000 population, provide direct incentives to retail

What is a Municipal Development District (MDD)? A Special Purpose District created for the purpose of generating economic development and growth opportunities within the boundaries of the district.

12 What is a Municipal Development District (MDD)? A Special Purpose District created for the purpose of generating economic development and growth opportunities within the boundaries of the district. Established in 1999 under Chapter 377 of the Local Government Code May include all or part of a city, including its extra territorial jurisdiction Sales Tax Options: 1/8, 1/4, 3/8, 1/2 of one percent It is an economic development tax that can be spent on development projects

13 MDD Funded Projects may include Any project available to a similarly-sized Type B EDC Convention Center, Civic Center or Auditorium Parking lots for such convention related activities Retail projects if they meet the population and revenue guidelines

14 Municipal Development District (MDD)s An MDD can do projects outside of the city limits if the MDD established boundary includes the ETJ. The scope of permissible projects is larger than a Type A or Type B EDC. The tax does not have to be levied over the entire limits of the city, which may be helpful if the city is maxed out on its 2% local tax cap. If you dissolve the EDC and create the MDD on the same ballot, you cannot include the ETJ. You can only do projects within the district. If you create the district as the City Limits, that precludes projects in the ETJ. An MDD that is initially created to only include the city limits cannot later be expanded by election or otherwise to include the city s ETJ.

Municipal Development District (MDD)s MDDs do not have the same level of detailed restrictions as EDCs. There are virtually no operating guidelines other than their ties to Type Bs.

15 Municipal Development District (MDD)s MDDs do not have the same level of detailed restrictions as EDCs. There are virtually no operating guidelines other than their ties to Type Bs. In dissolving the EDC, you have to transfer all of the assets of the EDC to the City. The City has to transfer the assets back to the MDD via a 380 agreement. An MDD is restricted from undertaking projects outside its jurisdiction. Just like an EDC, you can only incentivize affordable housing. MDD boards need only 4 persons, as opposed to a 7-member Type B board.

16 Comparing Type A, Type B and MDDs Type A Type B MDD A corporation which administers the sales tax Has Articles of Incorporation and Bylaws A corporation that administers the sales tax Has Articles of Incorporation and Bylaws Not a corporation a district and political subdivision of the state and the city Is not required to have Articles of Incorporation or Bylaws Boundaries = City Limits Boundaries = City Limits Within all or part of the city limits; within all or part of the city limits and ETJ; or Within all or part of the ETJ Tax can be 1/8, 1/4, 3/8 or 1/2 of sales tax Tax can be 1/8, 1/4, 3/8 or 1/2 of sales tax Tax can be 1/8, 1/4, 3/8 or 1/2 of sales tax 5 Member Board appointed by City Council 7 Member Board appointed by City Council At least 4 Member Board appointed by City Council

17 Comparing Type A, Type B and MDDs Type A Type B MDD All expenditures authorized require approval by City Council Quorum Majority of entire membership Public hearings are not required 2 separate readings are required by City Council if project expenditure is $10,000 or more 60 day waiting period to expend funds following Wirst public notice of a Type B project only All expenditures authorized require approval by City Council Quorum Majority of entire membership At least one public hearing is required unless project is dewined under Subchapter C of 501 of the LGC and if city pop. is under 20, day waiting period to expend funds following Wirst public notice Establishes a Development Project Fund by resolution Quorum Not speciwied in the Local Government Code No public hearings, publications, performance agreements or elections required No restrictions

18 Comparing Type A, Type B and MDDs Type A Type B MDD Intended for manufacturing and industrial development Projects that create or retain Primary Jobs plus certain targeted infrastructure to promote new or expanded business Type A in cities with population under 7,500 having both an A & B EDC may undertake any Type B project under Chapter 505 For economic development and community development Projects that create or retain Primary Jobs plus certain targeted infrastructure to promote new or expanded business and projects to enhance sports, entertainment, tourist, convention and park purposes and events Very similar to Type B Same as Type B plus can fund convention center, civic center hotel, auditorium, parking facilities

Economic Impact of 25 Years of the Economic Development Sales Tax in Texas From 1989-2014

2 billion in gross product each year and almost 971,900 permanent jobs.

19 Economic Impact of 25 Years of the Economic Development Sales Tax in Texas From generated an overall impact (including multipliers) of $98.2 billion in gross product each year and almost 971,900 permanent jobs. The tax has been benewicial to rural and urban communities by contributing nearly 21% of the state s job growth since Source: Catalyst for Growth, 2014 Every $1 in sales tax for economic development collected over the past 25 years returns a cumulative $10.84 in annual economic activity from assisted projects.

20 As of 2017, there were. 220 Type As 513 Type Bs 733 EDCs At present there are 43 MDDs

Our legislative priorities for the 86 th Texas Legislative Session will include: Protecting the ED Sales Tax for economic and community development purposes Preserving Chapter

22 Our legislative priorities for the 86 th Texas Legislative Session will include: Protecting the ED Sales Tax for economic and community development purposes Preserving Chapter 312 and 313 of the Texas Tax Code Maintain funding for the Texas Enterprise Fund Maintain funding for the Skills Development Fund Protecting Local Control for Texas communities

23 Our Philosophy We support the original intent of Type A s and Type B s economic and community development. Otherwise the ED Sales Tax could be threatened. The law may deteriorate into a special interest/projects or local municipal services tax. At that point, who.. Works to retain existing businesses in the community Works with new business prospects and entrepreneurs Plans and builds the business parks Markets your community for new business investment

24 The TEDC s position on the Economic Development Sales Tax has been the same for nearly 30 years. We oppose expansion into areas with existing tax funding support, such as Public Hospitals Public Schools Community Colleges Colleges and Universities Libraries We believe strongly in local control and the Wlexibly the law provides in meeting local economic development needs. Likewise we believe the law should be left alone because it is working.

25 Why is Local Control Important for Economic Development? The degree to which local leaders, institutions, and governing bodies can make independent or autonomous decisions about the governance and operation of their community and its citizens.

26 The TEDC s Political Action Committee raises funds and distributes those monies to candidates and ofcice holders that support a robust, competitive environment for economic development in the state.

27 The Texas Economic Development Council is Business PRO Public Investment Local Control

28 Discussion. Comments

Type A and Type B Sales Tax

Type A and Type B Sales Tax Texas Municipal League Hyatt Lost Pines, Bastrop, Texas October 16, 2015 1. What is Type A and Type B Sales Tax? Type A and Type B sales tax are sales taxes which cities may