Texas senators are questioning whether the state should require more oversight before cities receive decades of state-tax rebates through project financing zones.
The Senate Economic Development Committee heard testimony on the qualities, purpose, and benefits of project finance zones, as well as possible oversight needed during an interim hearing Tuesday.
Lara Abi Habib, tax policy counsel with the Texas Comptroller of Public Accounts, described a project financing zone (PFZ) as “an area a city designates by either an ordinance or 380 agreement that is within a three-mile radius of the center of a qualified project,” such as a convention center, a venue, or a multipurpose arena.
“The rebates the city receives from such a project is the incremental hotel associated revenue, which is the growth in state sales and use tax, the growth in state hotel occupancy tax, and the growth in state mixed beverage tax from all of the hotels that are located within the PFZ, and that’s all of those things that are exceeding that base year,” said Abi Habib.
The base year is the year the city designates its PFZ. A PFZ can last for 30 years, and cities only receive rebates on incremental tax growth in that 30-year period. Therefore, if no economic growth occurs in the 30-year period, the city receives no rebate for that PFZ.
“Eligible cities include the cities of Fort Worth, Dallas, Houston, Austin, San Antonio, Lubbock, and Corpus Christi,” continued Abi Habib. “Those cities may designate more than one project financing zone.”
Abi Habib noted that there are currently four active PFZs, with one in Fort Worth, one in Dallas, one in Houston, and one in Austin. San Antonio has also recently redesignated a PFZ and Corpus Christi designated a PFZ in 2024, but has not commenced the project. Lubbock also recently designated a PFZ, and Fort Worth has designated a second PFZ.
“The purpose of this program really is to allow some of our Texas communities to develop world-class convention center districts or sports entertainment districts that take our cities to the next level when it comes to what we can offer to visitors,” said Justin Bragiel, general counsel for the Texas Hotel and Lodging Association.
“Once we develop a particular project in a community, [such as an arena or convention center], we know that for decades to come, we’re going to have increased economic activity in terms of additional hotel occupancy tax revenue, sales tax revenue, and mixed beverage sales tax revenue from events that are held at this facility,” said Bragiel. “So, this program allows those communities to tap into that incremental growth over a 30-year period to help finance the development of those facilities.”
State Sen. Angela Paxton (R-McKinney) inquired whether or not return on investments were calculated for each PFZ ahead of approval. Tetyana Melnyk, director of the Revenue Estimating Division for the Texas Comptroller of Public Accounts, said that such an estimate is not calculated.
Melnyk noted that while something akin to a fiscal note is calculated for each PFZ to estimate how much tax revenue will be forfeited by the state, no such positive return estimate is made by her division.
“It seems to me, in the same sense that we require a fiscal note on our legislation, it seems that it would also be helpful if there was some sort of way to determine a projected economic impact of these same kinds of bills, and in a way that would be uniform,” said Paxton.
“We do need to know the revenue that’s forgone, obviously, the cost to the state that way, but it would also be helpful to determine in some way, in a uniform way, that we could again have apples-to-apples regarding projected revenue, and it would give us some sense of whether this is a good project for the state,” added Paxton.
Bragiel also noted concerns regarding cities taking up multiple PFZs and how much that would impact state revenue over time.
“Should the statute be amended to require additional legislative oversight over future projects?” asked Bragiel in regards to multiple PFZs. “I think that’s a fair point. At the same time, I think we need to be careful about not jeopardizing the projects that are already underway.”
The hearing comes ahead of the next legislative session scheduled to begin on January 12.
