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4B Sales Tax Proposal

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1. Are there other ways to fund Economic Development?

Yes, but after considering several other options, the City Council chose to propose the creation of a Section 4B Sales Tax.

2. Will approval of a Section 4B Sales Tax make my Property Taxes Increase?

Unknown. The City Council of the City of Huntsville is required annually to adopt a budget and a property tax rate prior to October 1. Property taxes are a function of the value of property, as well as the rate charged by the four taxing entities in the City of Huntsville. There are several factors that can result in a property owner paying more or less property taxes in any given year. Ordinance #_ is a proposition related to sales tax. As of the budget adopted by the Council for the 2015-2016 Fiscal Year, sales tax comprised a total of % in the General Fund. To attribute any increase in property taxes solely to the creation of a Section 4B Sales Tax is difficult.

3. Can a Section 4B Sales Tax be used to incentivize retail development?

Not directly. A Section 4B Sales Tax may be used to fund expenditures found by the board of directors to be required or suitable for infrastructure necessary to promote or develop new or expanded business enterprises of many types. However, the infrastructure improvements are limited to streets and roads, rail spurs, water and sewer utilities, electric utilities, gas utilities, drainage, site improvement, and related improvements, telecommunications and Internet improvements. Section B offers advantages not found in other programs. (See item 4 below).

4. What other ideas did the City Council consider in addition to a Section 4B Sales Tax?

The City Council considered budgeting an annual amount for Economic Development, calling for a non-binding election for the dedication of a specific amount of funds for Economic Development. There is also a Section 4A Sales Tax available to choose. However, the laws governing the Section 4A Sales Tax are more rigid and allow fewer eligible uses of funds than Section 4B.

5. Who decides how the money is spent?

State Law requires the establishment of a non-profit corporation to hold the dedicated sales tax that is to be overseen by a Section 4B Board of Directors. This Board must include at least 7 members, is appointed by the Council and serves under the authority of the City Council.

6. How could someone apply for Section 4B Funds?

With voters’ approval, the City Council will create and appoint a 4B Sales Tax Board (Board of Directors). Typically, a 4B Board will establish a set of bylaws for Board governance, which also establishes the process of how requested projects would be considered. After the Board agrees on a proposed use of available funds, a written explanation and application for the use of funds is required for review by City staff to verify project eligibility under state law. After all of these steps have been successfully completed, the City Council must appropriate the funds to complete the process.

7. What restrictions does the 4B Sales Tax Board have on proposed uses of funds?

There are three primary restrictions:
a. The first is state law governing the use of funds.
b. The second is that City Council retains authority to approve all programs and expenditures of the Board through the appropriation of the funds.
c. Third, the Section 4B Board must conduct at least one public hearing on a proposed use of funds and must publish the proposed project in the official City newspaper. Once the project has been considered at a public hearing, and after 60 days have passed since publication, the Section 4B Board can approve and recommend the use of funds to the City Council.

8. How many other cities have a Section 4B Sales Tax?

To date 485 Texas cities have adopted a Section 4B plan for their location, per Texas Municipal League current statistics.

9. Is it proven to be effective in recruiting and/or retaining businesses in a community?

It is very difficult to answer that question in an objective manner simply because the term “economic development” means different things to different people. As a result, what one community might deem an important economic development project, another might deem it unnecessary. In the end, the best approach may be for the informed voter to explore and consider some resources and come to their own determination. See #11 below for some resources for your review.

10. What happens if the community doesn’t want a Section 4B Sales Tax anymore?

Reversing the process thru a Citizen ballot would rescind the Section 4B program.

11. What if the City Council and 4B Sales Tax Board cannot agree on a proposed use of funds?

Funds will not be spent until all approvals outlined above have been completed.

12. Will the board have a general allocation of the sales tax for use?

The Texas Municipal League Economic Development Handbook states on that issue:

“The city, upon receiving its local sales tax allotment from the Comptroller, must remit the sales tax for economic development to the economic development corporation responsible for administering the tax. The proceeds of a sales tax for property tax relief would remain with the city.” – Page 34 Id. §§ 504.301, 505.256

13. Will every allocation come before the City Council?

The Texas Municipal League Economic Development Handbook states on that issue:

“Section 501.073 of the Act provides that the city shall approve all programs and expenditures of the development corporation and shall annually review any financial statements of the corporation. It further provides that at all times the city will have access to the books and records of the development corporation. Additionally, Section 501.054(b)(2) of the Act states that the powers of the corporation shall be subject at all times to the control of the city’s governing body.” – page 42

14. If your proposed budget to the City Council had to be made today, what specifically would you recommend to make up for a $625,000 loss in revenue to the General Fund?

That question is very difficult to answer. Cities traditionally do not begin planning an annual budget until at least April because much of the information needed to plan a budget does not become clear until much later in the year. Answering that question in October is not a responsible approach. Furthermore, a City Manager’s recommended budget is only that: a recommendation. Each City Councilmember is free to accept as much or as little of the City Manager’s recommendations as they wish. So, whatever I may or may not recommend may not translate into policy when the City Council actually votes to adopt a budget.

15. Will every question and response be posted on the internet site?

Yes, unless someone poses a question that is inappropriate or not germane to the topic, everything submitted will be answered and posted.

16. What is the advantage to a business considering Huntsville over what the City already offers to others?

Section 255.003 of the Election Code prohibits the use of political subdivision (City) resources (website) to produce or distribute political advertising in connection with an election. Outlining the real or perceived advantages and disadvantages of a dedicated economic development sales tax risks violating the Election Code. Put differently, the City as an entity cannot legally offer “pros” or “cons.” The City Council has placed the item on the ballot so that the voters can decide for themselves if they would like the City to establish this method of financing Economic Development. Interested citizens are encouraged to use the resources available on the City’s website at huntsvilletx.gov/4b to complete their own review and decipher the appropriateness of the proposed Section 4B Sales Tax.

17. It is my understanding that the Development Corporation is a fully registered corporation which operates independently of the city other than approval (See continuation of question in answer below)

of funds. I believe they can create bonds and debt. Do you anticipate this will happen in Huntsville?
Answer: The Section 4B Sales Tax has not yet been voted on. If the Section 4B Sales Tax passes, the City Council will need to appoint a board governing the Section 4B Sales Tax. It is too early at this time to predict or anticipate what project(s) the Board might wish to consider or how any particular project may be funded.

18. Why has the City chosen not to provide a timely copy (written hard copy) of the published website information, one copy to be at the City Secretary Office and another at the City Library?

That’s a good idea. We will start that immediately. The City will provide hard copies for review in the City Secretary’s Office.

19. On what state website and where on that website can I find the ballot wording that is suggested or prescribed for a Type B election?

The Texas Municipal League Economic Development Handbook (2015) (Handbook”) is found at:
www.tml.org/p/EconomicDevelopmentHandbook2015_TML.pdf

Below are excerpts from the Handbook that talk about ballot wording on pages 27 and 28.

“Type B Ballot: Current law does not provide any required wording for the ballot for a Type B sales tax for economic development. Before the Development Act was codified, cities would use great care to include wording that described all of the categories of projects that the city would want to have the Type B corporation to pursue. 130 Cities should be sure to have their legal counsel review any proposed ballot wording prior to its use in an election proposition.” Page 27.
A city may limit the use of the Type B tax to a specific project.136 However, as noted earlier, there is no required wording for a Type B tax ballot. Accordingly, there is no special wording that must be used to limit the use of the Type B tax to certain projects. If a city wants to limit the use of Type B tax proceeds to certain projects, it may choose to list only the types or categories of projects it desires on the ballot. Also, the Act provides certain authorization to expand the types of projects undertaken if subsequently approved by the eligible voters.137. Page 28

Further, the Texas Attorney General in Tex. Atty Gen. No. JC-400 (2001) addresses ballot wording regarding the adoption of a 4B sales and use tax. Tex. Atty Gen. No. JC-400 (2001)
The link is:
https://www.texasattorneygeneral.gov/opinions/opinions/49cornyn/op/2001/pdf/jc0400.pdf