Tax Increment Redevelopment Zones (TIRZs)
What Are Tax Increment Reinvestment Zones (TIRZs)?
Tax Increment Reinvestment Zones (TIRZs) are special districts created by City Council to attract new investment to an area. TIRZs help finance the cost of redeveloping or encouraging infill development in an area that would otherwise not attract sufficient market development in a timely manner. Taxes attributable to new improvements (tax increment) are set-aside in a fund to finance public improvements in the zone. Zones in the City of Houston have been created for one of three reasons:
- to address inner city deterioration
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to develop raw land in suburban fringe areas
or
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to proactively address the decline of major activity centers
How They Work
TIRZs are most successful when the area’s tax base is at a low point of its valuation and there is a large property owner/developer who can expeditiously carry out the area’s redevelopment. The term TIF, or tax increment financing, is used interchangeably with TIRZs.
As new construction in the zone occurs, the resulting annual incremental increase in tax revenue above the base amount is returned to the zone for the duration of the zone. For example, if the assessed value for a base year is set at $6 million and improvements to the area increase the assessed value to $7 million; the taxes collected on the additional $1 million, or increment, is earmarked for the TIRZ fund to pay for project costs. TIRZs have no taxing or assessment powers. Property owners pay a normally increasing tax bill. The cost to the city is that the increment that is captured is preempted for use in the zone rather than for the City’s general fund.
Eligible Project Costs
Eligible project costs are associated with public improvements. These improvements can include capital costs (the acquisition and construction of public works and public improvements, and building rehabilitation costs); financing costs (including all interest); real property assembly; relocation costs; professional services; and, creation, organization and administrative costs. Projects that are implemented prior to an increment being realized are often financed by a developer and are later reimbursed as an increment is realized, or through the issuance of bonds. Projects can also be financed on a pay-as-you-go basis.
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Types of Zones
TIRZ’s can be city-initiated, if less than 10% residential land area, or by a petition. TIRZs created by petition must be submitted by owners of property constituting more than 50% of the appraised value of the area. Additional areas can be annexed into the zone at a later time through the initiative of the City, if it meets the less than 10% residential rule, or by property owner’s petition. The zone, plus all other existing zones, may not exceed 15% of all taxable property in the City.
State law requires that zones created by petition within counties of more than 3.3 million in population setaside one third of the increment generated during the term of the zone to provide low-income housing. This housing can occur anywhere within the city limits, and is not restrictive to the zone.
Land use controls can be implemented in a zone created by petition. However, TIRZs are an attractive but inappropriate use to justify the creation of such a district. City initiated zones cannot implement land use controls.
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Governance
A board of directors governs a TIRZ. Non-petitioned TIRZs are governed by between five and fifteen directors. Each taxing jurisdiction levying taxes within the TIRZ are allotted one position on the board, while the City appoints a minimum of five directors. Petition TIRZ boards must have nine members that include: five City representatives (that must own or represent a property owner within the zone); one State Senator appointment; one State Representative appointment; one representative each from the County and School District (if participating in the zone). City appointees serve two-year terms.
The City may delegate to the board any powers granted under state law, except for eminent domain and taxing powers. Powers include land use controls, in special cases; design standards; recommendations for the administration of the zone; and, powers to implement a project and financing plan.
The City of Houston has twenty-two TIRZs, fifteen of the zones were city-initiated and seven zones were initiated through the petition process. The following table provides a listing of the current TIRZs.
Redevelopment Authority:
The powers of the TIRZ Board is limited and therefore, City Council has also created local government corporations, collectively called a Redevelopment Authority, to implement each TIRZ's Project Plan The Redevelopment Authority gets its powers from the Texas Transportation Code CH. 431; these powers include the ability to issue bonds and notes, hire consultants, (legal, financial, engineering), and work with developers to further the TIRZ's goals and objectives. Of the 22 zones, 16 have a redevelopment authority.
Current TIRZs |
