KEDC gets a primer on tax options

Members of the Kilgore Economic Development Corporation (KEDC) Board of Directors went “back to school,” Monday during a three-hour work session on the Texas Development Corporation Act.

Bob Bearden of the Local Governments Division of the Texas Comptroller of Public Accounts spent the afternoon addressing the differences in 4A and 4B sales tax corporations, not only to the KEDC board but to the few interested citizens in attendance.

KEDC is a 4A corporation and has been since its inception 1990. Several weeks ago a group of Kilgore citizens and City Commissioner Billy Bob Brady asked the city commission to consider conducting a special election to have the citizen decide if they want KEDC to remain 4A or go 4B.

The city commission voted not to put the issue to a public vote.

KEDC board members, several of whom are new to the board, requested the educational work session with a representative of the comptroller’s office to learn more about both the 4A and 4B economic development corporations.

Both are funded by a portion of the sale tax rebates cities receive from the state. However, the way the monies can be used and the procedures the corporation must follow differ in some ways. “When established, KEDC had only one option and that was to go 4A,” said Amanda Nobles, KEDC executive director. “Right after we were established, the Texas Legislature approved 4B corporations.”

Bearden said the 4B option was approved primarily “because the city of Arlington wanted to build a new ball park (for the Texas Rangers).”

Under the law, 4A corporations can use funds mainly for economic development and the creation of so-called primary jobs.

“The major focus of the 1989 Legislature that established the 4A development corporation was to use the corporation and its funds for recruiting manufacturing and industrial facilities,” Bearden said. “Prior to this legislation there were no public funds available for economic development.”

He said under the guidance of then-Sen. Bill Ratliff, the legislature approved the 4A development corporations “to help rural communities have a funding mechanism” for economic development.

Bearden said 4A funds can be used for manufacturing facilities, research and development facilities, recycling facilities, distribution centers, small warehouse facilities and military facilities.

Projects included in the 4A funding category also include primary job training facilities, corporate headquarter facilities, job training classes, career centers, telephone call centers and business infrastructure.

“In 1991 the 4B was limited to metro areas,” Bearden said. “But in 1993, the legislature expanded it (the 4B option) to be available statewide.”

Bearden said the 4B option provides a wider range of uses or the tax revenues because “it’s intended to give cities an opportunity to undertake projects for quality of life improvements.”

He said “parks” is one of the key words used in the 4B legislation.

Bearden said 4B tax revenues “can be used for the same things as 4A tax funds” but also includes retail business incentives if the city population is less than 20,000; sports and athletic facilities; entertainment, tourist and convention facilities; public parks and related open space improvements.

He also noted that 4B funds can be used for “affordable housing” as defined by the federal government and, with voter approval, for water supply and conservation programs.

Three differences other than the use of revenues separate 4A and 4B corporations: board composition, public hearings and a waiting period/petition provision.

Bearden said 4A corporations, like KEDC, must have at least five directors.

“There are no residency requirements for directors of 4A corporations,” he said. “On the other hand, 4B boards must have at least seven directors, not more that four may be from the city staff or council and they must reside in the county” or within ten miles of the city.

Before undertaking any project, 4B corporations must conduct at least one public hearing on that project. The 4B corporation must post a public notice about the project and publish it in a local paper for at least four weeks. Citizens who are against the project have that time to get a petition with signatures from 10 percent of the voters to call a special election to oppose a project.

As a 4A corporation, KEDC board members can approve projects and present them to the city commission for approval without the need for a public hearing. There is no provision for petitioning under the 4A guidelines.

However, if a 4A corporation wants to fund a 4B project, it can do so by getting the permission of the voters.

In Texas, municipal elections may only be held the second Saturday in May and in November.

“So if you want the people to vote on any matter, it may take a while to do so because of the state’s election laws,” Bearden said.

KEDC board members were concerned about the confidentially factor involved in economic development negotiations if a 4B corporation was established.

A 4B corporation would “need to have a public hearing, post notices and wait 60 days before any action can be taken,” Nobles said. “That poses a problem when we’re working with industries who demand confidentiality during the negotiation process.”

She also noted that the same actions would give other area economic development corporations a heads up on the prospect and they could “undercut our incentives.”

Bearden assured the board that open meeting laws apply equally to 4A and 4B corporations.

Bearden said cities have the option of having a 4A or 4B corporation or splitting the funds and having both a 4A and 4B corporation.

He said cities can also switch from 4A to 4B but it has to be done in “a single ballot proposition.”

“(If the 4B option is approved) the 4A corporation continues to exist until all its debts and obligations are satisfied. Then the corporation transfers any remaining assets to the city and the 4A corporation is dissolved.”

Bearden said from then on future allocations would become 4B revenues.