Economic Development Corporation Report, 2022 to 2023 Executive Summary

All corporations combined reported increases in personnel, administration, marketing and promotion, direct business incentives, job training, capital costs and other. However, for debt service, affordable housing, and payments to taxing units, all corporations combined spent less from fiscal 2022 to fiscal 2023 (Exhibit 3).

Type A and Type B corporations reported similar patterns in increases and decreases from fiscal 2022 to fiscal 2023. They saw an increase in spending for every category except debt services, affordable housing and payments to taxing units. Meanwhile, direct business incentives saw an increase in the Type A expenditures for fiscal 2022 to fiscal 2023, while the Type B decreased during the same period (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. For example, Type B corporations spent a much larger percentage of their total expenditures on capital costs than Type A corporations (Exhibit 4). In fiscal 2023, Type A corporations spent 22 percent on capital costs, while Type B corporations spent 40.8 percent. On the other hand, from fiscal 2022 to fiscal 2023 Type A corporations saw an increase in direct business expenses from 26.4 percent to 31.7 percent of expenditures compared to Type B, which saw a decrease from 13 percent to 8.5 percent in this category (Exhibit 4).

Exhibit 4: Uses of Funds as a Percentage of Total Spending, Type A and Type B Economic Development Corporations, Fiscal 2022 and 2023

Expenditures	All Corporations		Type A Corporations		Type B Corporations
	2022	2023	2022	2023	2022	2023
Personnel	7.8%	7.7%	8.9%	8.3%	7.2%	7.3%
Administration	8.7%	8.0%	8.1%	7.2%	9.0%	8.5%
Marketing and Promotion	2.9%	3.1%	4.2%	4.2%	2.3%	2.4%
Direct Business Incentives	17.4%	16.6%	26.4%	31.7%	13.0%	8.5%
Job Training	0.3%	0.4%	0.4%	0.4%	0.3%	0.4%
Debt Service	21.3%	15.2%	25.4%	16.7%	19.3%	14.4%
Capital Costs	26.2%	34.2%	16.5%	22.0%	31.0%	40.8%
Affordable Housing	0.3%	0.2%	0.2%	0.1%	0.3%	0.2%
Payments to Taxing Units	4.0%	3.3%	2.3%	1.5%	4.8%	4.3%
Other	11.0%	11.3%	7.6%	7.8%	12.7%	13.2%
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 2022 indicate that 7 of the 200 Type A corporations spent more than 10 percent of their revenues for marketing and promotion. Five Type A EDCs exceeded 20 percent. Of the 521 Type B corporations reporting in fiscal 2022, 37 exceeded the 10 percent threshold and 19 exceeded 20 percent of revenues (EDC Report Data Dashboard).

In fiscal 2023, 11 of the 197 Type A corporations reported marketing and promotion expenses above the 10 percent cap, with 5 exceeding 20 percent. For the 521 Type B corporations reporting that year, 47 exceeded the 10 percent limit and 22 exceeded 20 percent.

The average expenditure for marketing and promotion for Type A corporations was 4.4 percent of total revenues for fiscal 2022 and 5.3 percent in fiscal 2023. For Type B corporations, the average was 6.2 percent of total revenues in fiscal 2022 and 6.2 percent in fiscal 2023.

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, 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:

… 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 2022 and 2023, 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 was 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 2022 and 2023 Economic Development Objectives

	Total Fiscal 2022	Total Fiscal 2023	Type A Fiscal 2022	Type B Fiscal 2022	Type A Fiscal 2023	Type B Fiscal 2023
Job Creation/Job Retention	544	542	179	365	176	366
Tourism	285	292	46	239	44	248
Sports Facilities/Recreation	280	284	34	246	33	251
Infrastructure Projects	576	583	162	414	161	422
Other	157	168	28	129	31	137

---

Types of Capital Assets

In fiscal 2023, 570 of 718 corporations reported capital assets. The most common capital asset was land, including both acreage and lots, reported by (384) EDCs. Other capital assets included buildings (188), equipment (157), industrial parks/sites (142), other (134), commercial buildings (140), and recreational facilities (121). The number of reported assets exceeded the total number of corporations because many corporations reported owning more than one asset type.

There was a slight difference between the share of Type A and Type B corporations reporting capital assets. In fiscal 2023, 167 or 84.8 percent of the 197 Type A corporations reporting owned capital assets, compared to 403 or 77.4 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 2023. The largest disparity is found in two categories pertaining to the ownership of recreation facilities and industrial park sites. Ownership of industrial parks/sites was much more common among Type A corporations (18 percent) compared to Type B corporations (8 percent). Ownership of recreational facilities was more common among Type B corporations (13 percent) compared to Type A (3 percent). Type A corporations had a greater share in the categories of land and commercial buildings. Type B corporations more commonly owned equipment and “other.”

Exhibit 6a: Capital Assets, Type A Corporations, Fiscal 2023

Asset	Number	Percent of total
Building	57	14%
Commercial Building	58	14%
Equipment	42	10%
Industrial Park Site	75	18%
Land	131	32%
Recreation Facility	11	3%
Other	35	9%
Total	409

Exhibit 6b: Capital Assets, Type B Corporations, Fiscal 2023

Asset	Number	Percent of total
Building	131	15%
Commercial Building	82	10%
Equipment	115	13%
Industrial Park Site	67	8%
Land	253	29%
Recreation Facility	110	13%
Other	99	12%

---

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 2022, the 171 Type A corporations reporting had combined fund balances of $703.8 million. This total increased to $868.4 million for the 173 Type A corporations reporting fund balances in fiscal 2023.

The 447 Type B corporations reporting in fiscal 2022 had total fund balances of nearly $1.3 billion. For fiscal 2023, 442 reporting Type B corporations recorded year-end fund balances totaling more than $1.3 billion.

In all, Type A and Type B corporations reported fund balances of nearly $2.2 billion at the end of fiscal 2023.

Trends Impacting the Economic Development Sales Tax

Between fiscal 1997 and 2023, there was a net increase in EDCs of 382, for an average increase of 14.7 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 718 by fiscal 2023.

Exhibit 7: Number of Economic Development Corporations, 1999 to 2023

Year	Type A Corporation	Type B Corporation	Total
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
2022	200	521	721
2023	197	521	718

One factor affecting the rate of decrease 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, the city of Comanche abolished its Type A and adopted a Type B sales tax in fiscal 2023. During fiscal 2023 the city of Bartonville reduced the sales tax rate for its Type B EDC and the city of Copperas Cove reduced the sales tax rate for its Type A EDC to increase its sales tax rate for street maintenance and repair.

By the end of fiscal 2023, 359 Texas cities had adopted the sales tax for property tax relief, 232 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 that corresponds to their sponsoring city. Of the 718 corporations reporting in fiscal 2023, 657 or 91.5 percent listed Oct. 1 through Sept. 30 as their fiscal year. Nineteen corporations, or 2.6 percent, used the calendar year as their fiscal year. Seventeen, or 2.4 percent, began their fiscal year on July 1. Fifteen corporations, 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.