Untitled Texas Attorney General Opinion

   The Attorney              General of Texas
                       March    11,     1981




Honorable Richard G. Morales, Sr.           Opinion No.   MW-301
Webb County Attorney
1810San Bernard0                            Re: Administration      of    article
Laredo, Texas 78040                         1066d, V.T.C.S., relating    to tax
                                            incremental districts

Dear Mr. Morales:

       You have requested our opinion regarding the construction          end
administration of Senate Bill 12ll, Acts 1979, 66th Legislature, chapter 695,
at 1661 (article lO66d, V.T.C.S.), which authorizes the creation of tax
incremental districts by cities to undertake and finance certain municipal
public works or improvements in areas in need of rehabilitation.        A tax
incremental      district is an area within the city defined and created by
municipal ordinance in accordance with article 1066d, V.T.C.S. Sec. l(7).
You have not raised and we do not address any questions regarding the
constitutionality     of the statute.

     Your first question relates to section 4(a) of the act, which provides:

           A tax incremental    district -may not be created if
           before redevelopment under
           percent of the real property in the distict, excl
           that dedicated to public use, is used for residential
           purposes. (Emphasis added).     ~

        You inquire “whether the 10% of residential real property in the
district should be determined by a percentage of assessed values or by 10%
of the total area involved in the tax increment dmtrict?”

       Section 4(a) imposes a qualification      for the creation of a tax
incremental district relating to the use to which the real property within the
proposed district has been put. Section 3(a)(2)(E)(i) of the act provides that
“not les than 25 percent by area of the real property within the district is a
blighted area,” and section 3(a)(2)(B)(iii) provides that “the aggregate
assessed value of taxable property in the district according to the city’s
assessment plus all existing districts does not exceed 15 percent of the total
assessed value of taxable property within the city according to the city’s
assessment roll.”




                               p.     960
Honorable Richard G. Morales, Sr. - Page Two      (MW-301)




      In determining the qualifications    and disqualifications  for a designated area
proposed to constitute a tax incremental district, the act speaks in terms of the nature
of or various uses to which the real property is put. Only when discussing the total
area proposed to comprise the district is assessed value mentioned, and then to
determine the relativity of assessed value of all property within the district to all of
that within the entire city. Section l(6) of the act defines “the total assessed value of
the property located within a tax incremental district” as the “[t] ax incremental base.”
Section l(7) defines “[tl ax incremental district” as “a contiguous geographic area
within a city.”

       There is no suggestion by context or otherwise in the act that “assessed value,”
rather than “area” should be used in determining the criteria for a district under
section 4(a). Section 4(a) should be construed as stating the use to which the defined
area must be put in order to be encompassed in a tax incremental district.

     Your second question is as follows:

               When property is used for both residential    and commercial
           purposes, how is the percentage of residential    property deter-
           mined?

In such cases, the percentage of residential property should be determined        by the
actual area set aside or occupied for residential purposes.

     Your third question is as follows:

               Section ll(c) appears to be inconsistent with section 8(a) in
           that section llfc) authorizes bond and note securities with a
           maximum maturity up to 20 years, while 8(a) authorizes
           payments of not to exceed 15 years. The question involved is:
           Which of the two provisions is controlling in so far as the
           issuance of bonded indebtedness is concerned?

      This question suggests an apparent conflict between sections 8(a) and l&z) of the
act. Section 8(a) relates to the allocation of “IpI ositive tax increments” and provides
that such allocations are made “to the applicable tax increment fund each year from
the date when the district is created until the earlier of:

               (1) that time, after the completion of all public improve-
           ments specified in the plan or amendments, when the city has
           received aggregate tax increments of the district in an ~amount
           equal to the sggregate of all expenditures previously made or
           monetary obligations previously incurred for project costs for
           the district; or     (2) 15 years after the last expenditure
           identified in the plan is made.

Section 8(b) provides that “[a] 11 tax increments received in a tax incremental   district
shall be deposited in a special fund for the district.”




                                      p.   961
Honorable Richard G. Morales, Sr. - Page Three         (~~-301)




       Section 8(a) effectively statas that the city may allocate positive tax increment
revenues into the designated improvement fund for a period not to exceed that time
after corn-ion     of the project when it has received sufficient funds to meet its total
financial obligations for the project (including financing costs), or 15 years after the
last expanditure is made on completion of the project itself, whichever is earlier. This
section refers to the allotted period of time for the accumulation of funds to meet all
of the financial obligations of the district, including funds for the retirement of bonds
and notes.

       Section R(c) relates   to “(tl ax incremental    bonds or notes” and provides   in
pertinent part that:

            Tax incremental bonds or notes may not be issued in an amount
            exceeding the aggregate project costs. The bonds or notes shall
            mature over a period not exceeding 20 years from the date
            thereof.

     Section 11(d) further provides that “[t) ax incremental bonds or notes are payable
only out of the special fund created under Subsection (b) of Section 8 of this Act.”
(Empmdded).

       Sections 8(a) and (b) refer to the creation of a special fund ahd limit the time
after completion of the project, or the last expenditures for completionof the project,
in which positive tax increments may be deposited into the fund. Sections 11(c)and (d)
refer to the time limit for maturity of bonds or notesued     to finance the costs of the
project and the requirement that these be retired only out of the special fund.

       These sections du not conflict, but have separate and distinct purposes - one
relating to the limits for certain deposits into the special fund, the other relating to
time limits for certain payments out of the=d.

                                     SUMMARY

                 In determining the 10 percent limitation imposed by section
            ?(a) of article lO66d, V.T.C.S., the calculation should be based
            on the actual geographic area used for residential purposes
            within the proposed tax incremental district. When property is
            used for both residential and commercial purposes, the percent-
            age of residential property should ba determined by the actual
            area used for residential purposes.     There is no inconsistency
            between sections 8(a) and 11(c) of the act. Section 8(a) relates
            to time limitations for certain deposits into the special fund
            provided for in section 8(b). Section 11(c) relates to time
            limitations for the maturity of bonds and notes which are to ba
            retired with funds paid out of the special fund provided for in
            section 8(b).




                                        P.   962
Honorable Richard G. Morales, Sr. - Page Four     (MW-301)




                                             MARK      WHITE
                                             Attorney General of Texas

JOHN W. FAINTER, JR.
First Assistant Attorney General

RICHARD E. GRAY III
Executive Assistant Attorney General

Prepared by Bob Gammage
Assistant Attorney General

APPROVED:
OPINION COMMlTTEE

Susan L. Garrison, Chairman
David B. Brooks
Bob Gammage
Ride Gilpin :,,
C. Robert Heath
Robert T. Lewis
William G Reid
Bruce Youngblood




                                       P-   963