Tax Code Chapter 311 Overview

Tax increment financing (TIF) is method local governments can use to pay for improvements that will draw private investment to an area. Tax increment financing isn’t a new tax; instead, it redirects some of the ad valorem tax from property in a geographic area designated as a Tax Increment Reinvestment Zone (TIRZ) to pay for improvements in the zone. Tax Code Chapter 311 governs tax increment financing.

Future tax revenues from each participating taxing unit that levies taxes against a property are used to pay for the cost of improvements to an area. Each taxing unit may dedicate all, a portion of, or none of the tax revenue that is attributable to increased property values brought about by improvements within the reinvestment zone. The additional tax revenue received from the affected properties is referred to as the tax increment. Each taxing unit determines what percentage of its tax increment, if any, it will commit to repayment of the cost of financing the public improvements.

Only a city or county may initiate tax increment financing . Tax increment financing requires the governing body of a city to create a Tax Increment Reinvestment Zone (TIRZ). The governing body of a city by ordinance may: designate a contiguous or noncontiguous geographic area (a) within the corporate limits of a municipality; (b) in the extraterritorial jurisdiction of the municipality, or (c) in both to be a reinvestment zone. The designation of an area that is wholly or partly located in the extraterritorial jurisdiction of a municipality is not affected by a subsequent annexation of real property in the reinvestment zone by the municipality.

Once a city begins the process of establishing a tax increment financing reinvestment zone, other taxing units may consider participating in the zone.

Cities and counties may take any action that is necessary to implement the tax increment financing. They may acquire real property through purchase or condemnation, enter into necessary agreements, construct or enhance public works facilities and make other public improvements. The power to acquire property prevails over any law or municipal charter to the contrary. Using tax increment financing to improve certain educational facilities is prohibited unless those facilities are located in a reinvestment zone created on or before September 1, 1999.