Texas Legislation Impacting Municipal Revenue Generation (Part 3 of 3)

Senate Bill 2 – Texas Property Tax Reform and Transparency Act

Senate Bill ("SB") 2 - the Texas Property Tax Reform and Transparency Act – was signed into law on June 12, 2019 as a means of slowing the growth of property tax bills in Texas. Most of the provisions of the SB2 became effective over a staggered schedule that started in January 2020, or January 2021 for appraisal districts with a population below 200,000 people. SB2 requires a voter election before a government can increase their property tax revenue by more than 3.5 percent. The “No-New-Revenue Tax Rate” (formally Effective Tax Rate) refers to the tax rate a county would need in order to raise the same amount of property tax revenue after changes in appraised values – this formula did not change. The “Voter-Approval Tax Rate” (formally Rollback Tax Rate) is the maximum tax rate that a county is permitted to set without voter approval – this figure decreased from 8.0 percent to a 3.5 percent threshold with SB2, with exception (i.e. new construction, three-year averaging, etc.).

These revenue constraints upon municipalities are forcing them to get creative and to deploy economic tools that have traditionally been initiated by the private development industry. One such tool being eyed more frequently by municipalities are public improvement districts (“PIDs”). Since their inception in 1987 in Texas, PIDs have served as a public finance tool for developers to issue tax-exempt bonds to fund infrastructure on the front-end of development. In many cases these developments may not have been feasible and/or may not have occurred in that municipality in the absence of the PID.

This feasibility is resonating with municipalities as they seek tools that make their departments and municipalities viable. Pursuant to the PID Assessment Act in Chapter 372 of the Texas Local Code, PIDs may be created by cities or counties seeking to deploy long-term bonds secured by special assessment liens levied against all benefiting property within the PID. Texas cities and counties increasingly promote PIDs to their development community to secure property and sales tax revenue growth generated from new real estate development, without impacting that city’s statutory debt bonding capacity or credit rating.

Municipalities are also promoting PIDs to incentivize the annexation of development property in unincorporated areas or extraterritorial jurisdictions that may have been previously resistant to incorporating. If the city decides to annex property that already includes a PID into its boundaries, that city is not forced to pay off the assessment bonds. Launch Development Finance Advisors in collaboration with FMS Bonds and P3 Consulting creating very first PID in Texas and shaped legislative language in the Texas Local Code. Launch DFA anticipates the continued popularity of public improvement districts for both the private sector to accelerate cash flow, as well as the public sector to nurture the creation of future property and sales tax revenues during a period of tightening revenue growth.

Should you care to discuss the questions above with a Launch Advisor, please contact Steven Saules at (303) 257-6959 or [email protected].