Economic Development Corporation Report,
2018 to 2019Executive Summary

All corporations combined and Type A and Type B corporations separately reported increases in expenditures for administration, marketing and promotion, direct business incentives and payments to taxing units from fiscal 2018 to fiscal 2019. Similarly, all corporations combined and Type A and Type B corporations separately reported spending less on job training and capital costs.

Type A and Type B corporations saw divergent trends for each of the remaining expenditure categories. For example, Type A corporations boosted expenditures for personnel by $1.7 million, debt service by $48.1 million and affordable housing by $181,000. Type B corporations saw reductions in expenditures for personnel by $2.1 million, debt service by $244,000 and affordable housing by $276,000. Type A corporations decreased expenditures in the other category by $11.3 million from fiscal 2018 to fiscal 2019, while Type B corporations increased expenditures in this category by $19.1 million (Exhibit 3).

It’s often useful to examine expenditure categories as a percentage of total expenditures to see how categories are changing in relation to one another. Type A corporations spent a much larger percentage of their total expenditures on direct business incentives than Type B corporations.  In fiscal 2018 and 2019, the difference was 15.5 percent and 18 percent, respectively. On the other hand, Type B corporations spent a significantly larger percentage of funds on capital costs than Type A corporations. This category favored Type B corporations by 9.9 percent in fiscal 2018 and 23.2 percent in fiscal 2019 (Exhibit 4).

Exhibit 4: Uses of Funds as a Percent of Total, Type A and Type B Economic Development Corporations, Fiscal 2018 and 2019

Revenue	All Corporations		Type A Corporations		Type B Corporations
	2018	2019	2018	2019	2018	2019
Personnel	7.1%	6.9%	7.3%	7.8%	6.9%	6.4%
Administration	6.9%	7.3%	6.4%	6.6%	7.1%	7.7%
Marketing and Promotion	2.6%	3.2%	3.6%	5.4%	2.0%	1.9%
Direct Business Incentives	13.1%	14.4%	22.8%	25.8%	7.3%	7.7%
Job Training	0.5%	0.4%	0.7%	0.6%	0.4%	0.3%
Debt Service	22.3%	26.7%	22.4%	35.6%	22.2%	21.5%
Capital Costs	34.1%	26.5%	27.9%	11.8%	37.8%	35.0%
Affordable Housing	0.2%	0.2%	0.1%	0.1%	0.3%	0.2%
Payments to Taxing Units	4.1%	4.5%	1.3%	1.9%	5.8%	6.0%
Other	9.3%	9.9%	7.5%	4.5%	10.3%	13.1%
Total	100.0%	100.0%	100.0%	100.0%	100.0%	100.0%

State law caps marketing and promotional expenditures by both Type A and Type B corporations at 10 percent of annual revenues, except under certain circumstances. The limit is 25 percent of revenues for a Type A city that:

• has municipal limits including two counties;
• has less than 24,250 residents, according to the 1990 federal census; and
• is located within 10 miles of a federal military reservation.

Reports for fiscal 2018 indicate that 17 of the 215 Type A corporations spent more than 10 percent of their revenues for marketing and promotion. Two Type A EDCs exceeded 20 percent. Of the 512 Type B corporations reporting in fiscal 2018, 48 exceeded the 10 percent threshold and 25 exceeded 20 percent of revenues (EDC Report Data Dashboard).

In fiscal 2019, 13 of the 211 Type A corporations reported marketing and promotion expenses above the 10 percent cap, with four exceeding 20 percent. For the 515 Type B corporations reporting that year, 49 exceeded the 10 percent limit and 25 exceeded 20 percent.

The average expenditure for marketing and promotion for Type A corporations was 3.3 percent of total revenues for fiscal 2018 and 4.6 percent in fiscal 2019. For Type B corporations, the average was 1.8 percent of total revenues in fiscal 2018, declining to 1.7 percent in fiscal 2019.

While most Type A and Type B corporations appear to be complying with the limitation on marketing and promotional expenses, the act does not require a corporation to prove it qualifies for an exception to the statute, or provide any penalty for those that exceed the limit. Also note that some corporations exceeding the statutory limit may have carried forward unused revenues budgeted for marketing and promotion from previous fiscal years. Attorney General Opinion GA-0086 states that:

… a corporation that chooses to spend revenues for promotional purposes may spend up to 10 percent of its annual revenues for that purpose or may set all or some of these funds aside in a promotional purposes account. A corporation that set aside revenues in such an account could spend those past year revenues along with the allowable percentage of its current annual revenues for promotional purposes without violating the cap.

Primary Economic Development Objectives

In fiscal 2018 and 2019, most EDCs listed more than one primary economic development objective, with only slight variations in selections between fiscal years. Job creation/retention was the most commonly preferred objective for Type A EDCs followed by infrastructure projects. For Type B corporations, the top two choices were the same as those of Type A corporations, but the order is reversed. Sports facilities/recreation and tourism were popular third and fourth choices for Type B corporations, while relatively few Type A EDCs selected these categories (Exhibit 5).

Exhibit 5: Fiscal 2018 and 2019 Economic Development Objectives

Objective	Type A FY 2018	Type B FY 2018	Total FY 2018	Type A FY 2019	Type B FY 2019	Total FY 2019
Job Creation/Job Retention	190	333	523	186	338	524
Tourism	41	219	260	44	224	268
Sports Facilities/Recreation	27	232	259	31	236	267
Infrastructure Projects	160	383	543	165	391	556
Other	24	104	128	26	102	128

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Types of Capital Assets

In fiscal 2019, 536 of 726 corporations reported capital assets. The most common capital asset was land, including both acreage and lots, reported by 356 EDCs. Other capital assets included buildings (170), “other” (145), equipment (144), industrial parks/sites (132), commercial buildings (129) and recreational facilities (98). The number of reported assets exceeded the total number of corporations because many reported owning more than one asset type.

There was a significant difference between the share of Type A and Type B corporations reporting capital assets. In fiscal 2019, 169 or 80 percent of the 211 Type A corporations reporting owned capital assets, compared to 366 or 71 percent of the 515 Type B corporations. This disparity could be the result of some Type B corporations spending funds on assets transferred to the city upon completion, such as park-related projects.

Exhibits 6a and 6b compare assets owned by the two types of corporations in fiscal 2019. The largest disparity is found in categories pertaining to the ownership of real property. Ownership of industrial parks/sites was much more common among Type A corporations (17 percent) compared to Type B corporations (8 percent). Type A corporations also had a greater share in the categories of land and commercial buildings. Type B corporations more commonly owned recreational facilities, equipment and “other.”

Exhibit 6a: Capital Assets, Type A Corporations, Fiscal 2019

Asset	Number	Percent of total
Building	61	15%
Commercial Building	55	13%
Equipment	43	10%
Industrial Park Site	71	17%
Land	133	32%
Recreation Facility	10	2%
Other	39	9%
Total	412

Exhibit 6b: Capital Assets, Type B Corporations, Fiscal 2019

Asset	Number	Percent of total
Building	109	14%
Commercial Building	74	10%
Equipment	101	13%
Industrial Park Site	61	8%
Land	223	29%
Recreation Facility	88	12%
Other	106	14%

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Corporation Fund Balances

Beginning in fiscal 2006, the Comptroller’s office asked each corporation to report its year-end unrestricted fund balance or unrestricted retained earnings (EDC Report Data Dashboard). These are funds that have not been formally designated by the board of directors for a project cost or other expenditure during the fiscal year. Fund balances may carry over from year to year and may be positive, negative or zero, depending on the accounting method used by the EDC.

In fiscal 2018, the 215 Type A corporations reporting had combined fund balances of $646.3 million. This total decreased to $623.3 million for the 211 Type A corporations reporting fund balances in fiscal 2019.

The 512 Type B corporations reporting in fiscal 2018 had total fund balances of more than $732.3 million. For fiscal 2019, 515 reporting Type B corporations recorded year-end fund balances totaling nearly $851.8 million.

In all, Type A and Type B corporations reported fund balances of nearly $1.5 billion at the end of fiscal 2019.

Growth of the Sales Tax for Economic Development

As many Texas cities reach the 2 percent local sales tax rate cap, growth in the number of new Type A and B corporations has stalled (Exhibit 7).

Exhibit 7: Number of Economic Development Corporations, 1997 to 2017

Year	Type A Corporation	Type B Corporation	Total
1997	154	182	336
1998	167	233	400
1999	174	272	446
2000	189	301	490
2001	199	325	524
2002	203	352	555
2003	208	380	588
2004	209	397	606
2005	211	413	624
2006	215	419	634
2007	217	435	652
2008	219	447	666
2009	219	461	680
2010	219	470	689
2011	216	481	697
2012	215	488	703
2013	216	492	708
2014	214	500	714
2015	218	505	723
2016	219	511	730
2017	218	510	728
2018	215	512	727
2019	211	515	727

Between fiscal 1997 and 2019, the total number of EDCs rose by 391, for an average increase of 17.8 per year. Of this increase, 333 were new Type B corporations, for an average of 15.1 per year. For Type A EDCs, the average change was 2.6 per year, for a net increase of 57 corporations. Between fiscal 2018 and 2019, there was no net gain in the number of EDCs in the state. Instead, there was a net gain of three Type B EDCs and net loss of three Type A EDCs.

One factor affecting the rate of increase is competition from other types of sales tax. Sales tax ballot initiatives may take place up to twice per year if initiated by a city council or upon a successful petition by a community’s registered voters. The result may make it impossible to impose any further local sales taxes or may lead to the abolition of existing ones.

For example, in 2017, the city of Big Sandy abolished Type B sales tax and imposed a sales tax for street maintenance and repair. In 2018, the city of Lowry Crossing abolished Type B sales taxes and reallocated the revenue to a municipal development district. The next year, the cities of Sweetwater, Childress and Glen Rose also replaced their EDCs with municipal development districts.

By the end of fiscal 2019, 363 Texas cities had adopted the sales tax for property tax relief, 235 cities had adopted the sales tax for street maintenance and repair, 10 imposed sales tax to fund construction of sports or community venues, and 33 cities had adopted the sales tax for municipal development.

Corporation Fiscal Year

Most corporations adopted a fiscal year corresponding to that of their sponsoring city. Of the 726 corporations reporting in fiscal 2019, 684 or 94 percent listed Oct. 1 through Sept. 30 as their fiscal year. Fifteen, or 2 percent, used Apr. 1 through Mar. 31 as their fiscal year. Twenty-seven corporations adopted other fiscal years, accounting for the remaining 4 percent.

For more information about the authority and responsibilities of Type A and Type B corporations, refer to Comptroller publication #96-302: Economic Development Sales Tax, or contact the Comptroller’s Data Analysis and Transparency Division at 844-519-5672.