Can a Texas city's economic-development sales tax pay for a road to undeveloped commercial property?

Plain-English summary

Representative Rene Oliveira, chair of the House Ways and Means Committee, asked the Attorney General a question on behalf of the City of Lake Jackson. In May 1995, the city's voters had approved a half-cent sales and use tax under section 4B of the Development Corporation Act of 1979. The city wanted to know whether the language the voters approved would let it spend those tax proceeds to build an access road serving a piece of undeveloped, commercially zoned property that fronts a state highway.

The Attorney General concluded that the proposition did not prohibit the expenditure, so long as a condition was met. Section 4B lets an eligible city create an industrial development corporation and levy a sales and use tax for that corporation's benefit, subject to voter approval. The list of "projects" a 4B corporation may fund includes public-service-type facilities, and since a 1993 amendment, that list has expressly included "streets and roads." Section 4B does not require that a particular road or street project be separately spelled out and approved on the ballot; apart from the tax rate and descriptions of particular projects, the statute does not dictate the contents of the proposition. So the question came down to whether this particular road fit the economic-development purpose. The opinion reasoned that an access road to undeveloped commercial land could be necessary for, or could result in, the commercial development of that land, for example by enabling a business to be built or expanded there. It therefore concluded that the 1995 proposition language did not, as a matter of law, bar the Lake Jackson Development Corporation from using the tax proceeds for the road, if the expenditure would promote the development of new or expanded business enterprises. The opinion also drew the line on who spends the money: the tax is levied for the benefit of the development corporation, and the corporation, not the city itself, is the entity authorized to expend the proceeds on authorized projects.

Currency note

This opinion was issued in 2002. 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. The Development Corporation Act of 1979 was later recodified into the Local Government Code (the former section 4B economic-development sales tax is now part of the Type B corporation provisions), so the article 5190.6 citations here describe the law as it stood in 2002.

What the opinion meant for those who asked

Representative Oliveira and the City of Lake Jackson (what the opinion held for them): The opinion answered that the 1995 voter proposition did not, as a matter of law, prohibit using the 4B sales tax proceeds for the proposed access road, conditioned on the expenditure promoting development of new or expanded business enterprises.

The Lake Jackson Development Corporation (what the opinion held for it): The opinion identified the corporation, not the city, as the entity authorized to spend the tax proceeds on authorized 4B projects, and treated a road serving undeveloped commercial land as a permissible project if it promotes business development.

Cities using a 4B (now Type B) economic-development sales tax (what the opinion held for them): The opinion read section 4B as not requiring a road or street project to be separately listed and approved on the ballot, since "streets and roads" became an authorized project category by the 1993 amendment, and treated the controlling question as whether the spending serves the statute's economic-development purpose.

Common questions

What is a 4B sales tax?
It was a local sales and use tax authorized by section 4B of the Development Corporation Act of 1979, approved by city voters and levied for the benefit of an industrial development corporation that funds economic-development projects. (The program was later recodified as the Type B corporation in the Local Government Code.)

Can that money pay for a road?
The opinion concluded it could. Since a 1993 amendment, "streets and roads" have been among the projects a 4B corporation may fund, and the statute does not require a specific road project to be separately approved on the ballot.

Was there a catch?
Yes. The road had to serve the statute's purpose. The opinion allowed the access road only if the expenditure would promote the development of new or expanded business enterprises, which fit because the road could enable commercial development of the undeveloped land it served.

Who actually spends the tax money, the city or the corporation?
The opinion said the tax is levied for the benefit of the development corporation, and the corporation, not the city, is authorized to spend the proceeds on authorized projects.

Background and statutory framework

The Development Corporation Act of 1979 authorizes cities to create development corporations to fund "projects" that generally promote economic development. Tex. Rev. Civ. Stat. Ann. art. 5190.6 (Vernon 1987 & Supp. 2002). Section 4B authorizes an eligible city to create an industrial development corporation governed by that section, id. art. 5190.6, § 4B(b) (Vernon Supp. 2002), and to levy a sales and use tax for the corporation's benefit, but only if approved by a majority of voters at an election called for that purpose, id. § 4B(d). Other than the tax rate and descriptions of particular projects, section 4B does not generally specify the contents of the proposition or ballot submitted to the voters.

The category of authorized projects expressly includes "streets and roads," a category added by a 1993 amendment that was in force at the time of the City's 1995 election. Act of May 22, 1993, 73d Leg., R.S., ch. 1022, § 3, 1993 Tex. Gen. Laws 4424, 4426 (adding section 4B(a)(2)(B)); see Tex. Rev. Civ. Stat. Ann. art. 5190.6, § 4B(a)(2)(B) (Vernon Supp. 2002). The opinion drew on a prior opinion, JC-0400, which had addressed whether 4B proceeds could be spent on a park project that the voters had not specifically approved, and which summarized section 4B's requirements. It also relied on the standard that a project must serve the economic-development purpose, distinguishing a prior letter opinion that doubted residential sewer facilities would "promote or develop new or expanded business enterprises." Tex. Att'y Gen. LO-95-072, at 2; see Tex. Att'y Gen. Op. No. JC-0362 (2001) at 5-6. Applying that standard, the opinion concluded a road providing access to undeveloped commercial land could be necessary for, or result in, the commercial development of that land.

Citations

Statutory provisions:

• Tex. Rev. Civ. Stat. Ann. art. 5190.6 (Vernon 1987 & Supp. 2002)
• Tex. Rev. Civ. Stat. Ann. art. 5190.6, § 4B(b) (Vernon Supp. 2002)
• Tex. Rev. Civ. Stat. Ann. art. 5190.6, § 4B(d) (Vernon Supp. 2002)
• Tex. Rev. Civ. Stat. Ann. art. 5190.6, § 4B(a)(2)(B) (Vernon Supp. 2002)
• Act of May 22, 1993, 73d Leg., R.S., ch. 1022, § 3, 1993 Tex. Gen. Laws 4424

Prior Attorney General opinions:

• Tex. Att'y Gen. Op. No. JC-0400 (2001)
• Tex. Att'y Gen. Op. No. JC-0362 (2001)
• Tex. Att'y Gen. LO-95-072

Source

• Landing page: https://www.texasattorneygeneral.gov/opinions/john-cornyn/jc-0488
• Original PDF: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/2002/jc0488.pdf

Original opinion text

Best-effort transcription from the official scanned PDF. Minor errors may remain, and several mid-opinion passages marked [. . .] were not recoverable from the source extraction; the linked PDF is authoritative.

OFFICE OF THE ATTORNEY GENERAL - STATE OF TEXAS
JOHN CORNYN

April 15, 2002

The Honorable Rene O. Oliveira
Chair, Committee on Ways and Means
Texas House of Representatives
P.O. Box 2910
Austin, Texas 78768-2910

Opinion No. JC-0488

Re: Whether the City of Lake Jackson's sales and use tax election proposition allows expenditure of the taxes for an access road to service undeveloped commercially zoned property (RQ-0454-JC)

Dear Representative Oliveira:

Pursuant to section 4B of the Development Corporation Act of 1979 (the "Act"), the voters of the City of Lake Jackson (the "City") approved the collection of a one-half cent sales and use tax to pay for the costs of, among other improvements, "infrastructure improvements for the development of new or expanded business enterprises."[1] On behalf of the City, you ask whether the language approved by the voters allows the City to use the sales tax proceeds to build a proposed access road to service undeveloped commercially [zoned property].

[. . .]

The Act authorizes a city to create a development corporation to fund "projects" that generally promote economic development. See TEX. REV. CIV. STAT. ANN. art. 5190.6 (Vernon 1987 & Supp. 2002). In particular, section 4B of the Act authorizes an eligible city to create an industrial development corporation governed by that section, see id. § 4B(b) (Vernon Supp. 2002), and authorizes the city to levy a sales and use tax for the benefit of the corporation, see id. § 4B(d), but only if approved by a majority of the voters at an election called for that purpose, see id. Other than the rate of the tax and descriptions of particular projects, section 4B does not [generally specify the contents of the proposition].

[. . .]

new or expanded business enterprises. Id. § 4B(a)(2)(B) (Vernon Supp. 2002) (emphasis added).

With this statutory background, we turn to your question. You inform us that in May of 1995,[2] the voters of the City approved the levy and collection of a one-half cent sales and use tax. See Request Letter, supra note 1, at 1. The proposition submitted to the voters provided as follows:

The levy and collection of a [one-half] cent sales and use tax within the City for the purposes authorized by Section 4B of Article 5190.6, Vernon Texas Civil Statutes, as amended (the "Act"), but limited to provisions for payment of the costs of land, buildings, equipment, facilities, improvements and maintenance and operation costs for public park purposes, recreational facilities to be used for sports and [. . .]

This provision, we note, specifically authorizes, and did so at the time of the City's election, "streets and roads" among those public-service-type facilities. See id.; Act of May 22, 1993, 73d Leg., R.S., ch. 1022, § 3, 1993 Tex. Gen. Laws 4424, 4426 (adding section 4B(a)(2)(B)).

Additionally, section 4B does not require that a road and street project authorized under subsection (a)(2)(B) be specifically approved. Other than the rate of the tax and descriptions of particular projects, section 4B does not generally specify the contents of the tax election proposition or ballot to be submitted to the voters. After reviewing the statutory provisions, Attorney General Opinion JC-0400, which dealt with whether sales tax proceeds could be expended for a park project that was not specifically approved by the voters, summarized section 4B's provisions as follows:

[S]ection 4B requires that the sales and use tax be approved by the [voters . . . .]

[. . .]

Op. No. JC-0362 (2001) at 5-6. In this instance, it is conceivable that a road providing access to the undeveloped commercially zoned land is necessary for the commercial development of that land or will result in its commercial development, for example, by the construction or expansion thereon of a business enterprise. Cf. Tex. Att'y Gen. LO-95-072, at 2 (stating that it is unlikely that construction of sewer facilities in residential subdivision would "promote or develop new or expanded business enterprises").

We conclude, based on the information provided to us, that the sales tax election proposition language approved by the City voters does not, as a matter of law, prohibit the Corporation from using the sales tax proceeds to build the proposed access road to service undeveloped commercially zoned property if the expenditure will promote the development of new or expanded business enterprises.

SUMMARY

Under section 4B of the Development Corporation Act of 1979, the sales and use tax is levied for the benefit of the Lake Jackson Development Corporation established by the City of Lake Jackson under section 4B; and the Corporation, rather than the City, is authorized to expend the tax proceeds for authorized projects.

The 1995 sales and use tax election proposition approved by the voters of the City of Lake Jackson pursuant to section 4B does not prohibit the Lake Jackson Development Corporation from using the sales tax proceeds to build an access road to service undeveloped commercially zoned property that fronts a state highway if the expenditure will promote development of new or expanded business enterprises.

                              JOHN CORNYN
                              Attorney General of Texas

HOWARD G. BALDWIN, JR.
First Assistant Attorney General

NANCY FULLER
Deputy Attorney General - General Counsel

SUSAN DENMON GUSKY
Chair, Opinion Committee

Sheela Rai
Assistant Attorney General, Opinion Committee

[1] Letter from Honorable Rene O. Oliveira, Chair, Committee on Ways and Means, Texas House of Representatives, to Honorable John Cornyn, Texas Attorney General, at 1 (Oct. 17, 2001) (on file with Opinion Committee) [hereinafter Request Letter].

[2] See Lake Jackson, Tex., Election Ordinance 95-1330 (May 6, 1995) (on file with Opinion Committee) [hereinafter Election Ordinance].