Economic Development Corporation Report, 2020 to 2021Executive Summary

All corporations combined and Type A and Type B corporations separately reported increases only in personnel expenditures. However, for direct business incentives, job training, debt service, capital costs and payments to taxing units, all corporations combined and Type A and Type B corporations separately spent less from fiscal 2020 to fiscal 2021.

Type A and Type B corporations saw divergent trends for each of the remaining expenditure categories. For example, Type A corporations boosted expenditures for administration by $2.4 million from fiscal 2020 to fiscal 2021, while Type B corporations reduced spending in this category by $6.6 million. For marketing and promotion, affordable housing and the other expenditure categories Type A corporations reduced expenditures while Type B corporations spent more between fiscal 2020 and fiscal 2021 (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 (Exhibit 4). In fiscal 2020 and 2021, the difference was 25.9 percent and 17.3 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 18.3 percent in fiscal 2020 and 11.5 percent in fiscal 2021.

Exhibit 4: Uses of Funds as a Percent of Total, Type A and Type B Economic Development Corporations, Fiscal 2020 and 2021

Revenue	All Corporations		Type A Corporations		Type B Corporations
	2020	2021	2020	2021	2020	2021
Personnel	6.6%	7.8%	6.4%	8.0%	6.8%	7.6%
Administration	6.8%	7.3%	5.4%	7.3%	7.7%	7.3%
Marketing and Promotion	3.4%	3.2%	5.6%	4.5%	1.9%	2.4%
Direct Business Incentives	20.6%	16.9%	35.9%	27.7%	10.0%	10.4%
Job Training	0.5%	0.4%	0.6%	0.6%	0.4%	0.3%
Debt Service	22.4%	23.4%	22.0%	24.9%	22.7%	22.5%
Capital Costs	25.4%	24.9%	14.5%	17.7%	32.8%	29.1%
Affordable Housing	0.2%	0.2%	0.1%	0.1%	0.2%	0.3%
Payments to Taxing Units	3.8%	3.5%	2.2%	1.8%	5.0%	4.6%
Other	10.4%	12.5%	7.3%	7.5%	12.5%	15.4%
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 2020 indicate that 17 of the 207 Type A corporations spent more than 10 percent of their revenues for marketing and promotion. Four Type A EDCs exceeded 20 percent. Of the 519 Type B corporations reporting in fiscal 2020, 40 exceeded the 10 percent threshold and 19 exceeded 20 percent of revenues (EDC Report Data Dashboard).

In fiscal 2021, 13 of the 204 Type A corporations reported marketing and promotion expenses above the 10 percent cap, with three exceeding 20 percent. For the 521 Type B corporations reporting that year, 49 exceeded the 10 percent limit and 20 exceeded 20 percent.

The average expenditure for marketing and promotion for Type A corporations was 5.9 percent of total revenues for fiscal 2020 and 3.6 percent in fiscal 2021. For Type B corporations, the average was 1.7 percent of total revenues in fiscal 2020 and fiscal 2021.

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 2020 and 2021, 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 2020 and 2021 Economic Development Objectives

Objective	Type A FY 2020	Type B FY 2020	Total FY 2020	Type A FY 2021	Type B FY 2021	Total FY 2021
Job Creation/Job Retention	530	543	184	346	181	362
Tourism	272	279	42	230	44	235
Sports Facilities/Recreation	271	269	33	238	33	236
Infrastructure Projects	570	580	165	405	166	414
Other	136	145	27	109	28	117

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Types of Capital Assets

In fiscal 2021, 528 of 725 corporations reported capital assets. The most common capital asset was land, including both acreage and lots, reported by 365 EDCs. Other capital assets included buildings (180), equipment (158), industrial parks/sites (136), other (136), commercial buildings (132), and recreational facilities (111). 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 2021, 164 or 80 percent of the 204 Type A corporations reporting owned capital assets, compared to 364 or 70 percent of the 521 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 2021. 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 (18 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 2021

Asset	Number	Percent of total
Building	59	15%
Commercial Building	54	13%
Equipment	43	11%
Industrial Park Site	72	18%
Land	130	32%
Recreation Facility	10	2%
Other	36	9%
Total	412

Exhibit 6b: Capital Assets, Type B Corporations, Fiscal 2021

Asset	Number	Percent of total
Building	121	15%
Commercial Building	78	10%
Equipment	115	14%
Industrial Park Site	64	8%
Land	235	29%
Recreation Facility	101	12%
Other	100	12%

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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 2020, the 207 Type A corporations reporting had combined fund balances of $707.6 million. This total decreased to $647.3 million for the 204 Type A corporations reporting fund balances in fiscal 2021.

The 519 Type B corporations reporting in fiscal 2020 had total fund balances of more than $918.9 million. For fiscal 2021, 521 reporting Type B corporations recorded year-end fund balances totaling more than $1.1 billion.

In all, Type A and Type B corporations reported fund balances of nearly $1.8 billion at the end of fiscal 2021.

Trends Impacting the Economic Development Sales Tax

Between fiscal 1997 and 2021, there was a net increase in EDCs of 389, for an average increase of 16.2 per year. However, as many Texas cities reach the 2 percent local sales tax rate cap, growth in the number of new EDCs stalled (Exhibit 7). The total number of EDCs peaked at 730 in fiscal 2016 and declined to 725 by fiscal 2021. Despite this negative trend, the number of Type B EDCs continues to increase while the number of Type A EDCs has declined each year since 2016.

Exhibit 7: Number of Economic Development Corporations, 1997 to 2021

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
2020	207	519	726
2021	204	521	725

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 2021, the cities of Von Ormy and Fate abolished the economic development sales tax to increase the general revenue sales tax. The same year, the city of Argyle abolished a Type B sales tax to impose a Municipal Development District Sales Tax.

By the end of fiscal 2021, 360 Texas cities had adopted the sales tax for property tax relief, 228 cities had adopted the sales tax for street maintenance and repair, 10 imposed sales tax to fund construction of sports or community venues, and 35 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 725 corporations reporting in fiscal 2021, 665 or 91.7 percent listed Oct. 1 through Sept. 30 as their fiscal year. Eighteen, or 2.5 percent, used the calendar year as their fiscal year. Seventeen, or 2.3 percent, began their fiscal year on July 1. Fifteen, or 2.1 percent, began their fiscal year on April 1. Ten corporations adopted other fiscal years, accounting for the remaining 1.4 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.