Financing Programs

The Texas Enterprise Fund was established in 2003 (and reauthorized in 2005) to allow the state to respond quickly and aggressively to opportunities to bring jobs and employers to Texas. The funds are used primarily to attract new business to the state or assist with the substantial expansion of an existing business as part of a competitive recruitment situation. Funds are also appropriated for a variety of economic development projects, including infrastructure development, community development, job training programs and business incentives, as well as to attract technology and biotechnology businesses and support university research.

To be eligible for Texas Enterprise Fund support, a project must demonstrate a significant return on the state's investment and strong local support. The review process will consider a variety of factors associated with each project, including job creation and wages, capital investment, the financial strength of the applicant, the applicant's business history, analysis of the relevant business sector, and public and private sector financial support. Before funds can be awarded, the Governor, Lieutenant Governor and Speaker must unanimously agree to support the use of the Texas Enterprise Fund for each specific project.

Legislation signed June 13, 2005 created the Emerging Technology Fund. The Fund provides grants intended to improve research at Texas universities, help start-up technology firms get off the ground, and move inventions out of the lab and into the hands of consumers faster.

The Emerging Technology Fund will include three major areas of investment:

• Increasing research and commercialization collaboration between public and private sector entities to develop new Regional Centers of Innovation and Commercialization where the seeds of an idea can take root and eventually grow into a new product marketed by a new firm. The Central Texas region’s primary point of access to the Emerging Technology Fund is the Central Texas Regional Center of Innovation and Commercialization.
• Matching research grants provided by both federal and private sponsors to help innovators acquire the capital they need to bring their idea to life.
• Attracting more top-notch research teams from other universities around the nation that will help put Texas universities on the cutting edge of technology research and development.

Emerging technology projects are eligible for funding if they will result in the creation of high quality new jobs in Texas or have the potential to result in a medical or scientific breakthrough. Emerging technology is defined as (but may not be limited to): semiconductors, information, computer software technology, energy, manufactured energy systems, micro-electro mechanical systems, nanotechnology, biotechnology, aerospace and defense, medicine, life sciences, petroleum refining and chemical processes.

The Texas Capital Fund consists of programs administered by the Texas Department of Agriculture that are designed to promote growth in rural non-entitlement areas generally defined as cities with fewer than 50,000 residents or counties with less than 200,000 residents. Awards are made through eligible cities and counties to assist businesses that employ low- to moderate-income persons.

Infrastructure Development Program
This program promotes economic development in rural areas by providing financial incentives to assist businesses wishing to locate or expand in their communities. Funds may be used for construction and/or improvements of public infrastructure (water, sewer, roads, etc.). Minimum and maximum awards are $50,000 and $750,000, respectively. Awards may not exceed 50 percent of the total project cost.

Real Estate Development Program
This program promotes economic development in rural areas by providing financial incentives to assist businesses wishing to locate or expand in their communities. Funds may be used to acquire, construct, or rehabilitate real estate to support a for-profit or a non-profit entity willing to commit to creating or retaining permanent jobs primarily for low or moderate income persons. Minimum and maximum awards are $50,000 and $750,000, respectively. Awards may not exceed 50 percent of the total project cost.

The Texas Leverage Fund (TLF) is an "economic development bank" offering added sources of financing to communities that have adopted the economic development sales tax. The TLF allows communities to leverage future sales tax revenues to support job retention or creation. The Fund may be used to provide financing to local businesses for industry expansion or recruitment, industrial parks establishment, or certain community project financing.

Texas Economic Development & Tourism may loan funds directly to a local Industrial Development Corporation (IDC) to finance the costs of eligible projects. Examples of eligible costs include land, buildings, machinery and equipment for manufacturing and industrial operations.

Future sales tax revenues serve as collateral for loan repayment and sales tax revenues pledged by the IDC need only be sufficient to cover projected annual debt service as specified in the TLF program guidelines. Pledged tax collections not needed for actual debt service are available for other projects. This allows cities to leverage their economic development sales tax and to pursue additional projects.

The new Texas Moving Image Industry Incentive Program offers qualifying feature films, television programs, commercials, video games, and stand-alone post-production/finishing projects the opportunity to receive a payment of 5-15% of eligible Texas spending upon completion of a review of their Texas expenditures. There is no cap on the incentive amount.

Film & television projects are qualified based on at least $250,000 in Texas spending, 60% of shooting days completed in Texas, 70% of paid crew are Texas residents, and 70% of paid cast (including extras) are Texas residents. Benefits include:

• Tiered incentive payments of 5-15% based on level of Texas spending.
• Option A to choose incentive calculation based on total in-state spending (possible bonus of 2.5% if 25% of production completed in underutilized area).
• Option B to choose incentive calculation based on wages paid to Texas residents (possible bonus of 4.25% if 25% of production completed in underutilized area).
• Texas spending can include eligible pre-production, production and post-production expenditures.

Commercial projects (commercials and related; music, educational and instructional videos) are qualified based on at least $100,000 in Texas spending, 60% of shooting days completed in Texas, and 70% of paid crew, cast & extras combined are Texas residents. Benefits include:

• Incentive payment of 15% of Texas spending.
• Possible bonus of 2.5% if 25% of production completed in underutilized area.
• Texas spending can include eligible pre-production, production and post-production expenditures.

Video game projects are qualified based on at least $100,000 in Texas spending, 60% of production days are completed in Texas, and 70% of paid employees and contract labor are Texas residents. Benefits include:

• Incentive payment of 15% of Texas spending.
• Possible bonus of 2.5% if 25% of production completed in underutilized area.

Post-Production/Finishing Projects (stand-alone post-production / finishing projects for film, television and commercials) benefit from an incentive payment of 5-15% of Texas spending.
The percentage is based on type of project and level of Texas spending.

Additional information on this incentive is available from the Texas Film Commission.

Industrial Revenue Bonds
The State of Texas Industrial Revenue Bond Program allows local industrial development corporations to issue tax-exempt or taxable bonds to finance land and depreciable property for eligible industrial or manufacturing projects. Eligible project costs include the acquisition by a business of an existing facility, acquisition of land, construction of new facilities, machinery, tools, equipment, and a limited amount of the bond issuance costs. The IDC acts as a conduit through which monies are channeled. Generally, bond debt service is paid by the business under the terms of a lease, sale or loan agreement. As such, it does not constitute a debt or obligation of the governmental unit, the IDC or the State of Texas. The maximum bond amount is $10,000,000 for tax-exempt issues. Tax-exempt bonds must secure a place under the state's private activity bond volume cap administered by the Texas Bond Review Board.

Sales Tax Bonds
Sales tax bonds are available to cities that have passed the local sales and use tax for economic development. These can be taxable or tax-exempt bonds, depending on the type of project and business. Issues are primarily for manufacturing or industrial projects, but can also be issued for commercial, recreational, infrastructure, and other types of projects. Bonds that utilize economic development sales tax as collateral may not be issued for projects that fall outside the guidelines as set forth in Section 4A and/or 4B of the Development Corporation Act of 1979. This type of bond does not have a limitation as to the amount and may not require a portion of the volume cap. These bonds do not require approval by Economic Development & Tourism. Bonds are secured and repaid by proceeds from the Economic Development Sales and Use Tax collected by the city. These issues must be approved by the Attorney General's Office.

Exempt-Facility Bonds
Bonds can be issued to finance certain facilities such as airports, dock and wharf facilities, mass commuting facilities, high-speed inter-rail facilities, or certain qualified hazardous waste facilities (including certain training and storage facilities). There is no limit on the amount of the issue and these issues do not require a reservation under the volume cap. Although the facility must be governmentally owned, it may be leased or subject to management contracts with the business. Other types of exempt bonds include projects for water, sewage and solid waste facilities, facilities for the local furnishing of electricity or gas, or local district heating or cooling facilities. These types of exempt-facility issues must reserve a portion of the volume cap. Exempt facility bonds that are not governmentally owned may reserve up to $25 million in tax-exempt volume cap allocation each year, however, there is no restriction to project size.

The Texas Product/Business Fund provides financing to aid in the development, production and commercialization of new or improved products within the state. The Fund is available to businesses looking for asset-based financing at rates below conventional borrowing. Products appropriate for the Fund are inventions, devices, techniques, or processes that have advanced beyond the theoretical stage and are ready for immediate commercial application. Preference for funding will be given to the state’s defined industry clusters within emerging technology fields including semiconductors, nanotechnology, biotechnology and biomedicine, renewable energy, agriculture and aerospace. Job creation and job retention within Texas will be considered within funding priorities. Funds may be used for working capital, machinery, equipment, furniture and fixtures and loans my range from $500,000 to $10,000,000. The Office of the Governor, Texas Economic Development Bank administers the Fund.

The Texas Small Business Fund provides financing to foster and stimulate the development of small businesses in Texas. The Fund is available to businesses looking for asset-based financing at rates below conventional borrowing. Preference for funding will be given to the state’s defined industry clusters within emerging technology fields including semiconductors, nanotechnology, biotechnology and biomedicine, renewable energy, agriculture and aerospace. Preference will also be given to small businesses that have received financing from the state’s Small Business Development Centers or through the Small Business Innovative Research program. Funds may be used for working capital, machinery, equipment, furniture and fixtures. The Office of the Governor, Texas Economic Development Bank administers the Fund.

The Texas Capital Access Program was established to increase the availability of financing for businesses and non-profit organizations that face barriers in accessing capital. It encourages financial institutions to support businesses that do not meet the requirements of conventional loans, lack sufficient collateral to qualify for conventional financing, or do not meet other business requirements. Eligible borrowers must be either a small or medium-size business with less than 500 employees, a non-profit organization, or domiciled in this state or having at least 51 percent of its employees located in this state. The proceeds may be used for working capital or the purchase, construction, or lease of capital assets, which include buildings and equipment.

Communities may access the Section 108 program through the U.S. Department of Housing and Urban Development (HUD). The program allows communities the ability to borrow funds guaranteed by Section 108 through pledging their current and future Community Development Block Grant (CDBG) allocations (up to the loan amount) as security for the loan. HUD provides additional security for the loan (as a loan-loss reserve or debt-service) to reduce the exposure of a community's CDBG funds. Economic Development Initiative provides grants to local governments that can be used to enhance both the security of loans guaranteed through the Economic Development Loan Fund and the feasibility of the large economic development and revitalization projects they finance. The guaranteed amount may be extended up to five times a community's most recent CDBG allocation. Eligible activities include property acquisition, rehabilitation of publicly owned property, economic development activities, installation of public facilities, and other site improvements.

Voters in Texas cities have the option of imposing a local sales and use tax to help finance economic development efforts. Cities may adopt an economic development sales tax under Section 4A or Section 4B of the Development Corporation Act of 1979. An economic development sales tax rate of 1/8, 1/4, 3/8 or 1/2 of 1 percent is permitted if the new total rate of all local sales and use taxes would not exceed 2 percent. Cities may limit the duration of the tax and the use of the funds.

All cities located in a county with a population of less than 500,000 may impose the tax under 4A. Some cities located in counties with a population of 500,000 or more also may use 4A for economic development efforts but a city's eligibility varies from county to county. All cities are eligible to adopt the 4B tax.

The 4A tax is primarily intended for manufacturing and industrial development, and cities may use the money raised by this sales tax to acquire land, buildings, equipment, facilities, expenditures, targeted infrastructure and improvements for purposes related to:

• manufacturing and industrial facilities, recycling facilities, distribution centers, small warehouse facilities
• research and development facilities, regional or national corporate headquarters facilities, primary job training facilities for use by institutions of higher education, job training classes
• a general aviation business service airport that is an integral part of an industrial park
• certain infrastructure improvements which promote or develop new or expanded business enterprises
• port-related facilities to support waterborne commerce
• maintenance and operating costs associated with projects

The 4B tax provides cities with a wider range of uses for the tax revenues because it is intended to give communities an opportunity to undertake a project for quality of life improvements, including economic development that will attract and retain primary employers. Revenues from a 4B tax can be applied to the same uses as 4A revenues, and also for an array of other community needs ranging from athletic facilities to affordable housing. Communities that adopt the 4B tax instead of the 4A must hold public hearings and adhere to waiting provisions that do not apply to 4A-funded projects.

The Comptroller of Public Accounts identifies 4A and 4B Development Corporations in its list of cities that have adopted addtional local sales and use taxes. Within the Austin metro, Hutto and Taylor have 4A Development Corporations and Bastrop, Elgin, Lockhart, Pflugerville, and Round Rock have 4B Development Corporations. Cedar Park has both 4A and 4B Development Corporations.

Chapter 380 of the Local Government Code provides legislative authority for Texas municipalities to provide a grant or a loan of city funds or services in order to promote economic development. Cities have utilized the provisions under this law to provide a wide array of incentives that have drawn businesses and industries to locales throughout Texas. This statute basically provides for loans and grants of city funds, as well as the use of city staff, city facilities, or city services at minimal or no charge. Whether a city provides any such incentive is completely discretionary.

Tax increment financing (TIF) is a tool that local governments can use to publicly finance needed structural improvements and enhanced infrastructure within a defined area. These improvements usually are undertaken to promote the viability of existing businesses and to attract new commercial enterprises to the area. The statutes governing TIF are located in Chapter 311 of the Texas Tax Code.

The cost of improvements to the area is repaid by the contribution of future tax revenues by each taxing unit that levies taxes against the property. Specifically, each taxing unit can chose to dedicate all, a portion of, or none of the tax revenue that is attributable to the increase in property values due to the improvements within the reinvestment zone. The additional tax revenue that is 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.

TIF may be initiated only by a city. If a property is located outside of the city limits (within the city's extraterritorial jurisdiction or beyond), it is not eligible for TIF. Once a city has initiated TIF, counties, school districts, and special districts are allowed to consider participating in the TIF agreement.

The Texas Legislature has recognized that it is sometimes advantageous to pursue economic development at the county level. The County Development District Act provides counties that have a population of less than 400,000 with a means to generate sales tax funds for local economic development and tourism-related projects. Such districts are initiated by a petition of landowners in the proposed district. Upon approval of the petition by the county, an election is called to gain the voters' consent to the creation of the district and to levy a sales tax to fund district projects. A county development district may acquire or dispose of the same sorts of projects and pay the same sorts of costs as a 4B economic development corporation. The statutes governing the creation and administration of county development districts are found in Chapter 383 of the Texas Local Government Code.

A county development district has broad authority to establish projects related to economic development and promotion of tourism in the district. Unlike economic development corporations, which are ultimately overseen by the city's or county's governing body, Texas law does not require a county development district to get approval from the county before it commits to various projects or expenditures.

The Rural Municipal Finance Program was created by the Texas Agricultural Finance Authority (TAFA) to provide financial assistance to businesses and governmental entities located in the state's rural regions. Applicants must be located in a rural area, provide economic benefits for rural area, show evidence of creation or retention of employment, and prove their ability to repay the loan. The program provides financial assistance through guarantees, loan participations and direct loans in certain circumstances to enhance and diversity the state's rural economic development efforts.