Can a Texas 4A economic development corporation use sales tax money to help an affordable housing nonprofit?

Plain-English summary

Many Texas cities fund local economic development through a special corporation that collects a dedicated sales tax. The older statute called these "4A" and "4B" corporations; after a 2009 recodification they became "Type A" and "Type B" corporations under the Local Government Code. The catch is that the money can only go to "authorized projects" the Development Corporation Act spells out. A state representative asked the Attorney General whether the Paris Economic Development Corporation, a 4A (Type A) corporation, could grant $10,000 of its sales tax revenue to Paris Living, Inc., a nonprofit that provides affordable housing, to hire a consultant and chase federal funding.

The Attorney General did not answer yes or no. The opinion walked through the framework: the Act exists to promote new and expanded business enterprises and job training, and it limits a corporation to financing the kinds of "projects" the statute lists. Type A corporations focus on projects tied to the creation or retention of "primary jobs," with some additional categories in chapters 504 and 505, including a path for a Type A corporation to fund a Type B affordable-housing project after notice, a hearing, and a vote of the city's voters.

But the opinion stopped short of deciding whether the specific Paris grant fit any of those categories. It explained that whether a particular project or expenditure is authorized turns on fact questions, and that those questions belong to the development corporation's own board of directors in the first instance, not to the Attorney General's opinion process. So the practical takeaway in the opinion is procedural: the board, looking at the actual facts, makes that call first.

Currency note

This opinion was issued in 2010. Subsequent statutory amendments, court decisions, or later Attorney General opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here.

What the opinion meant for those who asked

The Paris Economic Development Corporation and other Type A corporations (what the opinion held): The opinion concluded that whether a particular grant or expenditure is an authorized project under the Act is a fact question for the corporation's board of directors to determine in the first instance. It did not decide whether the proposed $10,000 grant qualified.

Representative Homer and the requestor (what the opinion described): The opinion described the categories of authorized projects (primary-jobs projects under section 501.101, plus chapters 504 and 505), but explained that the opinion process does not resolve the fact-specific question of whether a given expenditure fits.

Affordable-housing nonprofits seeking development-corporation funds (what the opinion noted): The opinion noted that chapter 505 lets a Type A corporation fund a Type B affordable-housing project, but only after notice, a hearing, and approval by the authorizing municipality's voters, and again left the specific eligibility call to the board.

Common questions

Did the Attorney General say the Paris EDC could make the $10,000 grant?
No. The opinion declined to decide. It concluded the corporation's board of directors must determine, in the first instance, whether the expenditure is an authorized project.

Why wouldn't the Attorney General just answer yes or no?
The opinion explained that whether a specific project or expenditure is authorized under the Act involves fact issues that are not resolved through the opinion process.

What can a Texas Type A (4A) development corporation actually spend its sales tax on?
The opinion described "authorized projects," centered on the creation or retention of "primary jobs" under section 501.101, with additional categories in chapters 504 and 505.

Is affordable housing ever an option for these corporations?
The opinion noted that a Type A corporation can fund a Type B affordable-housing project under chapter 505, but only after notice, a hearing, and a vote of the city's voters. Whether a particular plan qualifies is for the board to decide.

Background and statutory framework

The Development Corporation Act promotes new and expanded business enterprises and job training, and authorizes municipalities and other units to create a corporation as a constituted authority for financing one or more projects. Tex. Loc. Gov't Code Ann. § 501.004(a) (West Supp. 2010); id. § 501.151; id. §§ 501.002(5), (17); id. § 501.051. The Act was recodified as title 12, subtitle C1 of the Local Government Code, effective April 1, 2009. Act of May 15, 2007, 80th Leg., R.S., ch. 885, §§ 3.01, 4.02, 2007 Tex. Gen. Laws 1905 (codified at Tex. Loc. Gov't Code Ann. §§ 501.001-505.355). Before recodification, corporations were called "4A" or "4B"; the codified Act calls them "Type A" and "Type B." Id. § 501.002(15), (16). The opinion assumed the Paris Economic Development Corporation is a Type A corporation.

The central limit is the concept of an authorized "project." Id. § 501.002(13). Subchapter C lists authorized projects, and section 501.101 covers projects for the creation or retention of "primary jobs," defined by reference to companies exporting to broader markets and to specified sectors of the North American Industry Classification System. Id. §§ 501.101-.107; id. § 501.101(1)-(2); id. § 501.002(12)(A)(i)-(ii); id. § 501.162. Chapter 504 adds project categories specific to Type A corporations, and chapter 505 lets a Type A corporation fund a Type B project, including an affordable-housing project, after submitting the matter to the municipality's voters following notice and a hearing. Id. § 504.103(c); id. §§ 504.152(a), .153; id. § 505.153.

The opinion then declined to resolve the specific question. Whether a particular project or expenditure is authorized under the Act involves fact issues that are not resolved in the opinion process and are for the development corporation's board of directors to determine in the first instance. Tex. Att'y Gen. Op. No. GA-0086 (2003); Tex. Att'y Gen. LO-97-061; Tex. Att'y Gen. LO-94-037.

Citations

Statutes, session laws, and opinions:

• Tex. Loc. Gov't Code Ann. § 501.004(a) (West Supp. 2010)
• Tex. Loc. Gov't Code Ann. § 501.151
• Tex. Loc. Gov't Code Ann. §§ 501.002(5), (17)
• Tex. Loc. Gov't Code Ann. § 501.051
• Tex. Loc. Gov't Code Ann. § 501.002(15), (16) (West Supp. 2010)
• Tex. Loc. Gov't Code Ann. § 501.002(13)
• Tex. Loc. Gov't Code Ann. §§ 501.101-.107
• Tex. Loc. Gov't Code Ann. § 501.101(1)-(2)
• Tex. Loc. Gov't Code Ann. § 501.002(12)(A)(i)-(ii)
• Tex. Loc. Gov't Code Ann. § 501.162
• Tex. Loc. Gov't Code Ann. § 504.103(c)
• Tex. Loc. Gov't Code Ann. §§ 504.152(a), .153
• Tex. Loc. Gov't Code Ann. § 505.153
• Tex. Loc. Gov't Code Ann. §§ 501.001-505.355
• Act of May 15, 2007, 80th Leg., R.S., ch. 885, §§ 3.01, 4.02, 2007 Tex. Gen. Laws 1905
• Act of May 27, 1989, 71st Leg., R.S., ch. 877, § 2, sec. 4A, 1989 Tex. Gen. Laws 3871
• Act of Mar. 21, 1991, 72d Leg., R.S., ch. 11, § 2, sec. 4B, 1991 Tex. Gen. Laws 37
• Tex. Att'y Gen. Op. No. GA-0086 (2003)
• Tex. Att'y Gen. LO-97-061
• Tex. Att'y Gen. LO-94-037

Source

• Landing page: https://www.texasattorneygeneral.gov/opinions/greg-abbott/ga-0819
• Original PDF: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/2010/ga0819.pdf

Original opinion text

Best-effort transcription from the official PDF. Minor extraction artifacts were corrected; the linked PDF is authoritative.

ATTORNEY GENERAL OF TEXAS
GREG ABBOTT

November 19, 2010

The Honorable Mark Homer Opinion No. GA-0819
Chair, Committee on Culture, Recreation
and Tourism Re: Whether the Development Corporation Act of
Texas House of Representatives 1979 permits a 4A economic development corporation
Post Office Box 2910 to grant or use sales tax funds for certain purposes in
Austin, Texas 78768-2910 connection with a nonprofit corporation that provides
affordable housing assistance (RQ-0877-GA)

Dear Representative Homer:

You ask whether the Development Corporation Act of 1979 (the "Act") permits a 4A economic development corporation to grant or use sales tax funds for certain purposes in connection with a nonprofit corporation that provides affordable housing.[1] You relate that the Paris Economic Development Corporation ("PEDC") was created in 1993 as a "4A" corporation under the Act. Request Letter at 2. The PEDC has been approached for a grant of $10,000 of PEDC sales tax revenue by Paris Living, Inc. ("Paris Living"), a nonprofit corporation that provides affordable housing assistance for persons with low or middle income. Id. at 1-2. The purpose of such a grant from PEDC would be to hire a consultant to assist Paris Living to apply "to the United States Department of Treasury for $100,000 in technical assistance funding in advance of applying for certification as a first lien lender under the Community Development Financial Institutions Fund ["CDFI"]." Id. at 1. Specifically, you ask:

(1) Whether the Paris Economic Development Corporation, a 4A Economic Development Corporation created pursuant to the [Act] may grant $10,000 in 4A sales tax funds to Paris Living, Inc., a local non-profit corporation that provides affordable housing assistance to qualifying persons of low-to-moderate income in the Northeast Texas region?

(2) Does the [Act] allow for 4A Economic Development Corporations (such as PEDC) to use 4A sales tax funds to support an affordable housing program or project?

Request Letter at 1.

The Act is generally intended to promote and develop "new and expanded business enterprises and ... job training." TEX. LOC. GOV'T CODE ANN. § 501.004(a) (West Supp. 2010). To that end, the Act authorizes municipalities and other governmental units to create a corporation as "a constituted authority for the purpose of financing one or more projects." Id. § 501.151; see also id. §§ 501.002(5), (17) (definitions of "Corporation" and "Unit"), 501.051 (authority of unit to create a corporation). The Act has been codified as title 12, subtitle C1 of the Local Government Code, effective April 1, 2009. Act of May 15, 2007, 80th Leg., R.S., ch. 885, §§ 3.01, 4.02, 2007 Tex. Gen. Laws 1905, 2082-2132, 2163 (codified at TEX. LOC. GOV'T CODE ANN. §§ 501.001-505.355). Prior to codification, a corporation was referred to as a "4A corporation" or a "4B corporation" in reference to the particular section of the Act that governed a corporation's creation and authority.[2] Now, the Act as codified in the Local Government Code refers to a "Type A corporation" and a "Type B corporation." TEX. LOC. GOV'T CODE ANN. § 501.002(15), (16) (West Supp. 2010). For purposes of this opinion, we assume that the PEDC is a Type A corporation under the Local Government Code.

A key concept under the Act is its provision for authorized "projects." See id. § 501.151 (stating that a development corporation is "a constituted authority for the purpose of financing one or more projects" (emphasis added)). The Act specifies and limits the kinds of projects that a particular development corporation, depending on its authority, may facilitate. See id. § 501.002(13) (defining "project"); see, e.g., id. §§ 501.101-.107 (subchapter C, "Authorized Projects"). Thus, while you have asked about a specific "grant" and "support," we understand your questions to more broadly concern whether the provision of affordable housing or the financial, administrative, or construction activity related to the provision of affordable housing may constitute an "authorized project" with respect to a Type A corporation.

Chapter 501, subchapter C provides a general listing of authorized development corporation projects. Id. § 501.002(13).[3] Of particular importance, section 501.101 authorizes projects related to the creation or retention of "primary jobs."[4] Id. § 501.101(1). Section 501.101 provides:

[A] "project" includes the land, buildings, equipment, facilities, expenditures, targeted infrastructure, and improvements that are:

(1) for the creation or retention of primary jobs; and

(2) found by the board of directors to be required or suitable for the development, retention, or expansion of [certain categories of facilities].

Id. § 501.101(1)-(2) (emphasis added). Also, chapter 504 authorizes projects specifically concerning Type A corporations. See id. § 504.103(c) (projects concerning certain general aviation business service airports, port-related facilities, or airport-related facilities). And chapter 505 authorizes a Type A corporation to provide funding for a specific Type B corporation project or category of projects by submitting the matter to the authorizing municipality's voters, preceded by notice and a hearing. Id. §§ 504.152(a), .153; see also id. § 505.153 (Type B corporation project concerning affordable housing). However, whether a particular project or a specific expenditure is authorized under the Act involves fact issues that may not be resolved in the opinion process and are matters for the board of directors of the development corporation to determine in the first instance. See, e.g., Tex. Att'y Gen. Op. No. GA-0086 (2003) at 2-3; Tex. Att'y Gen. LO-97-061, at 3 & n.6; Tex. Att'y Gen. LO-94-037, at 3.

SUMMARY

It is for the board of directors of a development corporation to determine, in the first instance, whether a project or expenditure is authorized under the Development Corporation Act.

DANIEL T. HODGE
First Assistant Attorney General

DAVID J. SCHENCK
Deputy Attorney General for Legal Counsel

NANCY S. FULLER
Chair, Opinion Committee

William A. Hill
Assistant Attorney General, Opinion Committee

[1] See Request Letter at 1 (available at http://www.texasattorneygeneral.gov).

[2] See Act of May 27, 1989, 71st Leg., R.S., ch. 877, § 2, sec. 4A, 1989 Tex. Gen. Laws 3871, 3871-73 (providing for 4A corporations), and Act of Mar. 21, 1991, 72d Leg., R.S., ch. 11, § 2, sec. 4B, 1991 Tex. Gen. Laws 37, 37-39 (providing for 4B corporations), both repealed by Act of May 15, 2007, 80th Leg., R.S., ch. 885, § 3.78, 2007 Tex. Gen. Laws 1905, 2163.

[3] See TEX. LOC. GOV'T CODE ANN. §§ 501.101 (West Supp. 2010) (projects for the creation of primary jobs), 501.102 (projects related to certain job training), 501.103 (certain infrastructure improvement projects), 501.104 (projects related to certain military bases or missions), 501.105 (certain career center projects), 501.106 (airport facilities or other projects concerning certain border municipalities), 501.107 (infrastructure projects concerning certain border counties); see also id. § 501.162 (use of tax revenue for job training).

[4] As applicable here, a "primary job" is one that is "available at a company for which a majority of the products or services of that company are ultimately exported to regional, statewide, national, or international markets infusing new dollars into the local economy" and is included in specified job sectors in the North American Industry Classification System. Id. § 501.002(12)(A)(i)-(ii).