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House Interim Committee on Economic Development
Charge

Study the effectiveness of Reinvestment Zones, Enterprise Zones, and Enterprise Projects-including the number of businesses in each, the relationship between investment required and benefits received, and the impact of previous legislation.
Background

Recently, tax abatements, which are used extensively in each program, have come under criticism. Opponents say local and state tax dollars are being given away to companies that would have come to Texas anyway. Proponents say local communities must be able to offer inducements in order to compete for new jobs with other cities outside Texas.
Recommendations

  • Require the performance of a cost-benefit analysis prior to granting a tax abatement.

  • Instruct the Comptroller or the Department of Commerce to develop guidelines for such cost-benefit analyses, emphasizing performance-based tax abatement standards and "clawback" provisions.
    Charge

    Study the differences between 4A and 4B economic development corporations, particularly whether each type should be allowed to invest in projects currently exclusive to the other.
    Background

    Section 4A of the Development Corporation Act allowed for economic development corporations to be funded with dedicated local sales tax revenue, if it was approved by the local voters. Section 4B allows certain economic corporations to spend dedicated sales tax revenues on a wider variety of civic and commercial projects than those available to a 4A corporation.

    In the 1995 session of the Texas Legislature, many communities proposed legislation allowing them to pursue 4B projects through 4A economic development corporations. The House Economic Development Committee chose to request permission from the speaker to study the issue during the interim.
    Recommendation

  • Allow 4A economic development corporations to expend money on 4B projects, if a majority of voters approve the specific project.