10 TAC §176.3, §176.8
The Texas Department of Economic Development (agency) adopts
amendments to Chapter 176. Enterprise Zone Program, §176.3 and §176.8,
relating to state and local government incentives to induce investment in
severely depressed areas of the state, as authorized by Government Code, Chapter
2303, as amended. The amendments are adopted with changes from the proposed
text as published in the December 27, 2002, issue of the
Texas Register
(27 TexReg 12144).
The amendments are necessary to clarify current program requirements and
practices. In addition, a typographical error and subsection lettering are
being corrected. An amendment to §176.3 clarifies that an area that has
been designated by the federal government as a federal empowerment zone, enterprise
community or renewal community is automatically a state enterprise zone. Amendments
to §176.8 specify the information that must be included in a job certification
application job report.
Comments on the proposed rules were received from Encore Wire, Ethicon,
Kiewit Offshore Services, Ryan & Company, Texas Taxpayers and Research
Association, and 3M. All of the comments related to amendments to section
176(d)(5)(B) and (1) noted the typographical error, (2) suggested that a unique
employee identification number be required instead of a social security number
and (3) changed "and" to "or" in the list of requested information and (4)
changed "economic status" to "economic disadvantaged status." All of the comments
stated that requiring social security numbers could contribute to identity
theft.
While the typographical error will be corrected, the other comments will
not be adopted. The agency shares the concerns about identity theft, and intends
to obtain only the last four digits of employee social security numbers for
job certification purposes. However, since the program must reserve the right
to ask for a complete social security number for audit purposes, the rule
amendment will be adopted as proposed. A unique employee identification number
is not satisfactory as it cannot be independently verified, creating opportunities
for program abuse and fraud.
All of the information on the list is required, not optional, therefore
use of the word "or" in place of "and" is not appropriate. Since economic
status must be reported for each job certified and some employees might not
be disadvantaged, the agency thinks that use of the phrase "economic status"
is more appropriate than "economic disadvantaged status."
The rule amendments are adopted pursuant to Government Code §481.0044,
which directs the Governing Board of the agency to adopt rules for the administration
of agency programs, Government Code §2303.051, which authorizes the agency
to adopt rules for the Enterprise Zone program, and Government Code, Chapter
2001, Subchapter B, which prescribes the standards for rulemaking by state
agencies.
Texas Government Code, Chapter 2303, as amended, is affected by this proposal.
§176.3.Eligibility Requirements for Designation of an Enterprise Zone.
(a)
An applicant may make written application to the department
for designation of an area within the applicant's jurisdiction as an enterprise
zone if such area meets the following eligibility criteria:
(1)
the area has a continuous boundary;
(2)
the area is at least one square mile in size but does not
exceed the larger of the following:
(A)
10 square miles exclusive of lakes, waterways and transportation
arteries; or
(B)
5.0% of the area of the municipality, county or combination
of municipalities or counties nominating the area, but not more than 20 square
miles, exclusive of lakes, waterways and transportation arteries; and
(3)
the area is a depressed area as defined under §176.1(c)(9)
of this title.
(b)
The department may not designate an area as an enterprise
zone if in the jurisdiction of the municipality or county nominating the area
as an enterprise zone there are three enterprise zones in existence that were
nominated as enterprise zones by the governing body of that municipality or
county.
(c)
Areas receiving designation from the federal government
as federal empowerment zones, enterprise communities or renewal communities
are automatically state enterprise zones without further qualification and
are valid for the term permitted by federal law, as authorized by the Act, §2303.109(b).
Designation of these areas as state enterprise zones does not affect the number
of state enterprise zones a governing body may have as authorized by the Act, §2303.112.
(d)
The governing body of a county may not nominate area in
a municipality or a municipality's extraterritorial jurisdiction to be included
in a zone unless the municipality is a joint applicant with the county. However,
a county with a population of 750,000 or more, according to the most recent
federal census, may nominate area in a municipality's extraterritorial jurisdiction
to be included in a zone without the consent of municipality, as authorized
by the Act, §2303.103(e).
(e)
Documentation. For the purpose of showing that an area
is qualified to be designated as an enterprise zone, the applicant must submit
documentation, including the source, methodology and certification of the
data. The authorized data source for population estimates is the State Data
Center. The authorized data source for labor force data is the Texas Workforce
Commission. Data will be considered current from the State Data Center and
the Texas Workforce Commission if they are the most recently published estimates
or if the enterprise zone application containing the data is received by the
department before the 61st day after the date revised estimates of that data
are published. An industrial park may be included as part of the enterprise
zone without averaging in the unemployment and poverty data. However, data
will be required if part of the zone includes an area which is outside the
industrial park but within the same census area. The industrial park may not
exceed 25% of the proposed zone area. To show an area has been designated
as an industrial park the applicant must include documentation of official
action taken by the governing body.
(1)
Unemployment data. The average rate of unemployment for
the area nominated during the most recent 12-month period for which data is
available from the Texas Workforce Commission must be at least one and one-half
times the state average for that period. Computation of the average unemployment
rate for the proposed enterprise zone area will require choosing the smallest
area that contains the zone for which unemployment data is available from
the Texas Workforce Commission.
(2)
Loss of Population. Loss of population may be calculated
using population estimates for the applicant's jurisdiction produced by the
Texas State Data Center. The 12% loss of population is the accumulated population
loss experienced during the most recent six-year period for which data is
available. The alternative 4.0% population loss is the loss of population
experienced during the most recent three-year period for which data is available.
(3)
Income data. If a proposed zone includes portions of more
than one city or county, the median income should be calculated using figures
for each city or county which includes part of the zone. In order to meet
the low-income criteria, the smallest number of census areas that entirely
contain the zone must reflect that at least 70% of the residents or households
in that zone have below 80% of the median residents or household income for
the locality or state, whichever is lower. To determine a low-income poverty
area, at least 20% of the residents of the zone must have an income below
the national poverty level as determined by the most recent available census
data that contains the zone area. Census tracts, block groups, or other official
census areas may be used to show poverty rates.
(4)
Chronic abandonment or demolition. To qualify, the applicant
must demonstrate to the department that 25% or more of the structures in such
area are found by the governing body to constitute substandard, slum, deteriorated,
or deteriorating structures as defined by local law. If local law does not
define what constitutes a substandard, slum, deteriorated, or deteriorating
structure, the governing body of the applicant may consider as substandard
a structure which:
(A)
is abandoned;
(B)
does not have plumbing;
(C)
has been condemned or cited for building or fire code violations
by the appropriate city authority;
(D)
is in an inadequate state of repair under applicable public
health, safety, fire, or building codes;
(E)
is the subject of a tax or special assessment delinquency
stated as a percentage of total taxes assessed, which exceeds the fair market
value of the land involved and the improvements thereon; or
(F)
is functionally or economically obsolete as determined
by a qualified appraiser.
(5)
Substantial tax arrearages. The applicant must certify
and submit evidence that within the proposed zone area, at least 25% of the
commercial or residential taxes have gone unpaid and have been delinquent
for at least one year. For purposes of determining substantial tax arrearages,
the tax rolls of the applicable city or county nominating an area as an enterprise
zone must be used.
(6)
Substantial loss of businesses or jobs. A substantial loss
of businesses or jobs is defined as a loss of at least 20% over the most recent
one-year period or a loss of 30% over the most recent three-year period in
the proposed zone area. The applicant must seek advance approval of documentation
to be provided to the department.
(7)
Declaration of an area as a state or federal disaster area.
The applicant must provide documentation by the applicable state or federal
government that the area has been declared a state or federal disaster area
within the most recent 18-month period.
(8)
Substantial increase in individuals under the age of 18
arrested for criminal activity. The applicant must provide data from the appropriate
law enforcement authority or authorities that the proposed zone area has had
a substantial increase in the number of individuals younger than 18 years
of age arrested due to criminal activity. A substantial increase in arrests
is defined as at least a 20% increase over the most recent three-year period.
(f)
Citizen participation. The department will not approve
the designation of an area as an enterprise zone unless:
(1)
the governing body of the applicant shall first notify
the department of the date it will hold a public hearing as required under
the Act, §2303.103, and these rules for the purpose of nominating an
area as an enterprise zone or to amend the boundaries of a designated enterprise
zone by encompassing additional land area into the zone. The notice to the
department shall be given in writing not less than seven days prior to the
date of the public hearing; and
(2)
notice of such hearing is given to the public by publishing
once in a newspaper of general circulation in the municipality or county or
combination of municipalities or counties and posting a copy of the same at
the city hall or county courthouse not later than seven days prior to the
date of the hearing. Such notice shall contain a description of the area proposed
by the municipality or county or combination of municipalities or counties
to be designated as an enterprise zone, and the date, time, and location of
such hearing. The description of the area should be worded so that residents
of the area and other interested parties may reasonably identify the area
to be discussed at the public hearing. The notice shall also encourage all
interested parties, including residents of the proposed zone to present their
views at the hearing. The hearing must include a presentation on the proposed
location of the zone and the provisions for any tax or other incentives applicable
to business enterprises in the zone. A municipality or county or combination
of municipalities or counties must adopt the enterprise zone nominating ordinance
or order within 180 calendar days of the date the last public hearing was
held. Further, the application for zone designation must be received by the
department within 90 calendar days of the date of final approval of the nominating
ordinance or order, or a new public hearing must occur and a new nominating
ordinance or order must be enacted.
§176.8.Approval Standards.
(a)
Final approval standards for designation of enterprise
zones. Within 10 business days of final approval of the designation of a zone
by the executive director, the staff shall present the form of the negotiated
agreements to the governing body or bodies of the applicant. Such agreements
must include designation of the zone and the administrative authority, if
any, and its function and duties and any other information required under
the Act and this chapter. The department shall complete the negotiations and
sign the agreements in accordance with the Act, §2303.107.
(b)
Approval standards for designation of enterprise projects.
The department shall designate qualified businesses as enterprise projects
on a competitive basis. Applications for designation of enterprise projects
will be accepted on a quarterly basis on or before the following application
deadlines:
(1)
The application deadline for receipt of enterprise project
applications by the department is 5:00 p.m., Austin, Texas time, on the first
business day of every third month beginning with September 1995. The department
may designate no more than 85 enterprise projects during any fiscal biennium,
as specified by the Act, §2303.403.
(2)
The department will designate qualified businesses as enterprise
projects under the following conditions:
(A)
The maximum number of qualified businesses that may be
nominated by a governing entity(s) and designated as enterprise projects located
in qualified enterprise zones during any state fiscal biennium is:
(i)
Four, plus two additional bonus projects the department
may award in a municipality or a county or any nominating combination thereof
with a population of less than 250,000.
(ii)
Six, if the governing body of the enterprise zone is the
governing body of a municipality or a county with a population of 250,000
or more.
(iii)
The enterprise project designations will be granted by
the department on a first-come, first-served basis, subject to the limitations
in this section and based upon the availability of enterprise project designations.
Although enterprise project designations will be awarded on a first-come,
first-served basis, applications will be scored for the purpose of determining
if the project meets the minimum threshold score of 30 points, as well as
for awarding bonus enterprise project designations as defined in subparagraph
(B) of this paragraph.
(B)
Each eligible enterprise project application will be scored
against other eligible enterprise project applications approved during a quarterly
deadline, as specified in paragraph (1) of this subsection. If an enterprise
project application scores within the top quartile (25%) of the other eligible
applications approved in a quarterly deadline, the nominating enterprise zone
authority with a population of less than 250,000 may nominate a qualified
business for a bonus enterprise project designation on any subsequent quarterly
deadline within the state fiscal biennium. Designations will be awarded only
if enterprise project designations are available. The bonus enterprise project
applications will be scored in the same manner as all other enterprise project
applications received on each quarterly deadline. If a bonus project application
scores within the top quartile (25%) of all the bonus and regular applications
received on a quarterly deadline, the nominating enterprise zone authority
with a population of less than 250,000 may nominate an additional bonus enterprise
project for designation on any subsequent quarterly deadline within the same
fiscal biennium. The bonus enterprise project designations may only be located
in an enterprise zone within the governing body's jurisdiction from which
the bonus enterprise project designation was earned, subject to enterprise
project availability. Each application submitted to the department will be
evaluated on the commitments made by the community and qualified business
as specified under the Act, §2303.405. In no case may an enterprise zone
governing body have a combined total of more than six enterprise project designations,
including regular and bonus designations, during the state fiscal biennium.
(C)
In the event the number of enterprise project applications
submitted during a quarterly round exceeds the number of remaining designations
that may be made during the state fiscal biennium, as specified under paragraph
(1) of this subsection, the applications that score the highest based upon
the evaluation system specified in this chapter will be awarded designations.
(3)
The criteria for evaluating enterprise project applications
will be based on weighting as specified by the Act, §2303.406(b). The
department will make its decision on a weighted scale in which:
(A)
50% of the evaluation weight will be evenly divided between
the economic distress of:
(i)
the enterprise zone in which a proposed enterprise project
is or will be located; and
(ii)
the area within the enterprise zone where the project
is or will be located. In the event the zone was designated using primary
or secondary distress criteria that are not available on a sub-community or
sub-enterprise zone level, the economic distress of the zone will be evaluated
using the data at the most discrete level available.
(B)
25% of the evaluation depends on the local effort to achieve
development and revitalization of the enterprise zone. This evaluation criteria
is designed to measure the level of local support on the part of the community
or communities nominating the qualified business and the qualified business
applying for enterprise project designation. This includes, but is not limited
to, such factors as set forth in the Act, §2303.405(c) - (d) and §2303.516(a)
and (b); and
(C)
25% of the evaluation depends on the evaluation criteria
as determined by the department, which will be evenly divided between:
(i)
the amount of capital investment and the number of jobs
to be created or retained by the qualified business, as applicable; and
(ii)
the type and wage level of the jobs to be created and
retained by the qualified business. The wage level of the jobs will be evaluated
on how they compare to the regional average salary of a high wage/high skill
job.
(c)
Period for which designation is in effect.
(1)
An area may be designated as an enterprise zone for a maximum
period of seven years. However, if an area is designated as a federal empowerment
zone or a sub-designation of that initiative, the area may be designated for
a longer period not to exceed that permitted by federal law. Any designation
of an area as an enterprise zone, shall remain in effect during the designation
period beginning on the date of the designation and ending on the earliest
of:
(A)
September 1 of the seventh calendar year following the
calendar year in which such date ending the enterprise zone designation occurs,
or in the case of federal enterprise zone designation, the date federal designation
period ends, or
(B)
following a public hearing, the date the department removes
the designation of zone for the following reason:
(i)
the area no longer qualifies for designation as an enterprise
zone as forth in the Act, §2303.102 or this chapter; or
(ii)
the department determines that the governing body has
not complied with commitments made in the ordinance or order nominating the
area as an enterprise zone.
(2)
A qualified business may be designated as an enterprise
project for a maximum period of five years. The designation of a qualified
business as an enterprise project shall remain in effect during the period
beginning on the date of the designation and ending on the earliest of:
(A)
five years after the date the designation is made; or
(B)
the last day that completes the original project designation
period of a qualified business that has assumed the designation of the enterprise
project through a lease or purchase of a designated qualified business for
the purpose of continuing its operations in the applicable enterprise zone
under a name or legal structure other than that of the qualified business
originally receiving the designation and that has met the requirements of
the department to qualify for the assumption, as specified under §176.6(c)
of this title. The assumption of a project designation or a name change by
a qualified business which must be made during the 5-year period, does not
extend the original designation period, which is applicable to the original
and subsequent designee, and which will end on the earliest of the last day
of the original five-year designation; or
(C)
following a public hearing by the governing body or bodies
that nominated the qualified business for enterprise project designation,
the date the department determines that the qualified business is not in compliance
with any requirement for designation as an enterprise project. The governing
body or bodies will be deemed to have held a public hearing if the removal
of the designation of an enterprise project is included as an agenda item
of a regular session in which the governing body or bodies meet to take official
action. The department will act to dedesignate an enterprise project upon
the written request of a governing body or bodies after:
(i)
the governing body or bodies has provided written notice
to the qualified business that has been designated an enterprise project,
30 calendar days in advance of the proposed action, that the governing body
or bodies is initiating proceedings to remove the project designation. The
notice must specify the reason why the governing body or bodies believes the
project is in noncompliance and specify the time, date and location where
the enterprise zone governing body or bodies plans to take official action
to request the department to remove the designation. A copy of the notice
and copies of any written responses to the notice by the qualified business
must be provided to the department;
(ii)
a public hearing is held and a resolution adopted that
requests the department to remove the project designation as of a specific
date. The resolution must specify the conditions that caused the dedesignation
process to be initiated and include a finding that written notice as specified
under this title has been given;
(iii)
following the governing body's or bodies' written request
to the department to dedesignate an enterprise project, the qualified business
may appeal the governing body's or bodies' action to the department's executive
director. Such appeal must be made in writing within thirty days of the governing
body's or bodies' written request to the department for dedesignation. Upon
receipt of such appeal, the executive director shall act upon the appeal within
30 days from the date the appeal is received.
(d)
Approval standards for certification of a qualified business.
Qualified business certification and the certification of new or retained
jobs may be granted by the local governing body or bodies for purposes of
local benefits, if applicable, or the department, for purposes of state benefits,
as applicable, in accordance with the Act. The department shall provide the
assistance the Comptroller requires in administering this section.
(1)
Once certified by the local governing body, a qualified
business must apply to the local governing body for local tax benefits.
(2)
The governing body or bodies must provide written notification
to the department of each commitment made to a qualified business for a one-time
state sales tax refund, authorized under the Tax Code, §151.431, or state
franchise tax refund, under the Tax Code, §171.501. Once certified a
qualified business by the department, the business must apply to the Comptroller
for state sales tax refunds, under the Tax Code, §151.431, or state franchise
tax refunds, under the Tax Code, §171.501, as applicable. The written
notification to the department must include:
(A)
a copy of the request for the incentive sent to the governing
body or bodies by the business;
(B)
an original or a certified copy of the resolution adopted
to nominate the qualified business and setting the nomination period during
which the qualified business will create or retain the required jobs to receive
the intended benefit; and
(C)
a letter to the department from the governing body or bodies
to the department forwarding the resolution and officially nominating the
business.
(3)
A business that is an enterprise project that is certified
a qualified business must also apply to the Comptroller for state sales tax
refunds, under §151.429, Tax Code or state franchise tax reductions,
under §171.1015, Tax Code, as applicable.
(4)
Refunds of state sales or use taxes provided to an enterprise
project under the Tax Code, §151.429, are conditioned on the enterprise
project maintaining at least the same level of employment of qualified employees
as existed on the date it was certified as eligible for a refund for a period
of three years from that date. The department shall annually certify to the
Comptroller and the Legislative Budget Board whether that level of employment
of qualified employees has been maintained. In the event that the department
certifies that such a level has not been maintained, the Comptroller shall
assess that portion of the refund attributable to any such decrease in employment,
including penalty and interest from the date of refund.
(5)
A state-designated project may request certification of
its jobs created or retained, as specified in §176.2(b)(6) of this title,
by the department on an annual or semi annual basis during the applicable
five year designation period within the limits of the number of jobs allocated
at the time of its project designation in accordance with the Act, §2303.407.
An enterprise project designated after August 31, 1995 may not receive a tax
refund under the Tax Code, §151.429, or a tax reduction under the Tax
Code, §171.1015, before September 1, 1997.
(A)
The department shall establish a reporting format for all
documentation related to certification of new or retained jobs at the qualified
business.
(B)
The job reports, which must be included in the certification
application submitted to the department, shall include any information the
department deems necessary including, but not limited to, a numeric listing
of positions being claimed by the business, and for each position claimed
(i)
a job title;
(ii)
employee name;
(iii)
employee's social security number;
(iv)
payroll and actual hours worked during claim period;
(v)
date of hire, and date of termination or current employment
status;
(vi)
indication of zone residency; and
(vii)
economic status.
(6)
Only qualified businesses that have been certified by the
department to the Comptroller and the Legislative Budget Board are eligible
for a franchise tax reduction under the Tax Code, §171.1015.
(e)
Approval standards for certification of a builder as a
qualified business.
(1)
A builder must complete the enterprise project application
form and other information as stipulated in this subsection to be eligible
to be designated an enterprise project. A builder that meets the criteria
in this chapter is eligible for the benefits allowed a qualified business
under the Act. To be eligible to apply for enterprise project designation,
the builder or consortium of builders that is certified as a qualified business
must have permanent offices located in Texas. In addition to the information
required of a business applying for enterprise project designation under §176.6
of this chapter, the applicant must provide:
(A)
the name of the builder, name of company under which building
occurs, principle business location, address of office serving the enterprise
zone construction activity, telephone numbers, including the telecommunication
devices for the deaf (TDD) number, if available, and facsimile numbers if
applicable;
(B)
five written references from satisfied homeowners for whom
properties were constructed by the builder in the three years preceding the
date of the application;
(C)
current bank references and bank references for the past
three years;
(D)
financial evidence including two years of tax returns or
other satisfactory evidence to substantiate financial viability as a builder;
and
(E)
documentation that supports participation in a 10-year
insured warranty program.
(2)
A builder proposing a housing project in an enterprise
zone, must provide a complete description of the new residential housing to
be constructed, including a statement concerning whether the housing constitutes
affordable housing under the governing body's or bodies' criteria, preliminary
building plans, the location(s) of planned construction, number of units to
be constructed, estimated sales price of homes, statement of affirmative action
participation in employment practices, a statement regarding the coordinated
use of other federal, state, or local funds, and other enhancements to the
project. The applicant builder(s) must meet all requirements other than physical
headquarters location in the zone and hiring requirements required of other
enterprise projects.
(f)
Approval standards for certification of neighborhood enterprise
associations.
(1)
Such standards will be determined and final certification
may be granted by local governing body or bodies or the department as applicable
in accordance with the Act, §2303.302.
(A)
The governing body or bodies or the department may not
grant its approval unless the association has hired or appointed a chief executive
officer.
(B)
The department may not grant state certification to a neighborhood
enterprise association, unless that association has first made a diligent
effort to obtain certification from the applicable enterprise zone governing
body or bodies and the association provides documentation to the department
of that effort to obtain local certification and the reasons the association
was unable to obtain certification from the applicable governing body or bodies.
(2)
The neighborhood enterprise association may implement projects,
other than those enumerated in the Act, by submitting an application to the
governing body or the state for approval of the specific project or activity.
Applications submitted for approval to the governing body or the state must
describe the nature and benefit of the project, including:
(A)
how it will contribute to the self-help efforts of the
residents of the area involved;
(B)
how it will involve the residents of the area in project
planning and implementation;
(C)
whether there are sufficient resources to complete the
project and whether the association will be fiscally responsible for the project;
and
(D)
how it will enhance the enterprise zone in one of the following
ways:
(i)
by creating permanent jobs;
(ii)
by physically improving the housing stock;
(iii)
by stimulating neighborhood business activity; or
(iv)
by preventing crime.
(3)
An existing responsible unit of government may contract
with a neighborhood enterprise association to provide services in an amount
corresponding to the amount of money saved by the unit of government through
this method of providing a service.
(g)
If the governing body or bodies does not specifically disapprove
of a project proposed by the association before the 45th day after the day
of the receipt of the application, it shall be considered approved. If the
governing body or bodies disapproves of the application, it shall specify
its reasons for this decision and allow 60 days for the applicant to make
amendments.
(h)
The association may enter into contracts and participate
in joint ventures with the state or a state agency or institution. The association
may receive money without approval of the governing body or bodies.
This agency hereby certifies that the adoption has been reviewed
by legal counsel and found to be a valid exercise of the agency's legal authority.
Filed with the Office of
the Secretary of State on March 7, 2003.
TRD-200301603
Tracye McDaniel
Deputy Executive Director
Texas Department of Economic Development
Effective date: March 27, 2003
Proposal publication date: December 27, 2002
For further information, please call: (512) 936-0415