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Tax Increment Reinvestment Zone (TIRZ)

Tax Increment Reinvestment Zone (TIRZ) districts have historically been seen as a suitable funding tool to obtain desirable transit-oriented development. The existing conditions of the Downtown and Trinity Mills areas meet the state’s guidelines for a TIRZ in that the age of the infrastructure, antiquated street and lot layouts and the lack of parking hinder redevelopment.

Maximizing the potential value of transit-oriented development is a strategic goal of the City Council. A TIRZ District is one of several financing tools that can be used to assist in creating this value for the city. In return, these investments will yield sustainable uses for the enjoyment of the entire city.

Financing Redevelopment in the Downtown Carrollton & Trinity Mills Light Rail Station Areas

Enabling and attracting high quality, sustainable development near the proposed DART Light Rail Stations will require the city to make investments necessary to ensure a maximum return over the long term. This return will be reflected in increased sales and property taxes to the city. But where does the money come from to pay for the initial investments? A specific recommendation of the Station Area Plans is the creation of a Tax Increment Reinvestment Zone (TIRZ), formerly known as a Tax Increment Financing District or “TIF”, to capture and reinvest the increase in property values within the district.

TIRZ districts are widely used to finance new public improvements in designated areas. The districts are most commonly used to fund street, water and sewer improvements but can be used for street lighting, parking structures, sidewalks and landscaping. Each of these elements contributes to the viability of the neighborhood and promotes quality development.

According to the State Comptroller’s Office, 37 Texas cities have one or more TIRZ districts with the common goal of stimulating or accommodating new private investment and thereby increasing real estate values. When a specific geographic area is designated as a TIRZ, the property values on that date become the “benchmark” or the base values. Only the additional tax revenue generated from new development, redevelopment or increased values on existing development are allocated to the TIRZ. For example, if the TIRZ has a base value of $3 million at the time of its creation and improvements increase the assessed value to $10 million, $7 million dollars is the “captured” appraised value. The property taxes collected on the $7 million incremental increase are placed in the special fund. Therefore, the district does not increase the tax rate but reallocates all or a portion of the revenue from the increased tax base back to the area.

Typical FAQ’s regarding TIRZ Districts

1. Which taxing entities participate in the TIRZ? Any taxing entity can participate; however, due to the change in State Law in 1999, school districts typically no longer participate.

2. How is the TIRZ boundary determined? State Law provides various requirements for determining the appropriate area of a TIRZ, but generally the area must consist of one or more of the following conditions: a) substandard or deteriorating structures, inadequate sidewalks or streets, faulty lot layouts, defective or unusual conditions of title or conditions that endanger life or property, or b) an area which is predominately open and because of obsolete platting, or other factors, it substantially impairs the growth of the area. In addition to a city government, a TIRZ may also be initiated by the property owners who own a minimum of 50% of the appraised value in the proposed district.

3. What is the process for establishing a TIRZ? 

  • City Council prepares preliminary reinvestment zone financing plan 
  • The plan is provided to each governmental entity that levies taxes on real property within the zone 
  • City meets with other taxing entities to discuss boundary of the district and amount of the tax increment contributed 
  • City conducts public hearing and approves boundary of district by ordinance 
  • City appoints TIRZ Board consisting of 5-15 members
  • TIRZ Board prepares a “project plan” and a “financing plan”

4. How much of the incremental tax revenue goes into the TIRZ account? The city can designate all or a portion of the additional revenue to go into the account. Carrollton has elected to allocate 65% to the account.

5. How are the funds spent? Three funding mechanisms can be utilized:

  1. “Pay as you go” uses the funds as they become available to finance projects. This involves the least amount of risk but may not be able to finance larger scale projects. 
  2. Issue bonds and finance project(s) with debt. The expectation is that the sooner the public portion is completed, the sooner private investment begins and the debt obligations are met. 
  3. Reimbursement to developers. The public project is funded and constructed by the private sector; the developer is then reimbursed as the incremental tax revenues are collected. This process is an incentive to the developer to work for a successful project which will grow in value. (Larger projects are commonly funded in this manner to avoid undue risk to the city).

6. How long is the TIRZ in effect? While there is no specific time period for the duration of a TIRZ, Carrollton's will be in effect for a total of 25 years. When debt is incurred, the TIRZ must remain in place for the period to retire that debt.

Other TIRZ Districts

In the DFW area there are numerous TIRZ Districts in existence. Some are nearing completion in terms of streets, utilities, landscaping or parking. Others are in the early development process. The following are examples of the more notable districts in this area:

Dallas: 
    Cedars District 
    Cityplace 
    Oak Cliff Gateway 
    City Center (Central Business District) 
    Farmers Market 
    State Thomas

Farmers Branch: 
    Proposed DART Station Area 
    West Side (Mercer Crossing)

Plano: 
    East Plano (including the downtown DART light rail station area) 
    Willow Bend Mall

Grapevine: 
    Grapevine Mills Mall 
    Gaylord Texan Resort

Irving: 
    Las Colinas

Keller: 
    Town Center

Advantages/Disadvantages of a TIRZ

The most significant advantage is that a TIRZ does not require new taxes or assessments in order to fund improvements. The development pays the costs through increased captured revenue. Depending upon how a project is financed, the risks to the local government can be minimized by placing the burden on the private developers to generate the added value. There is no federal oversight and state review is limited to annual reports produced by the city and presented to the Attorney General’s Office and the Comptroller’s Office.

The primary disadvantage is the complexity of starting a TIRZ including the development of a market analysis, a financial feasibility report and a project plan. Meetings and agreements must be coordinated and approved with the other taxing entities. The creation of a TIRZ zone also creates a new taxing district which must be administered.

Appropriateness of a TIRZ in the Downtown Carrollton and Trinity Mills Station Areas

TIRZ districts have historically been seen as a suitable funding tool to obtain desirable transit-oriented development. The existing conditions of the Downtown and Trinity Mills areas meet the state’s guidelines for a TIRZ in that the age of the infrastructure, antiquated street and lot layouts and the lack of parking hinder redevelopment.

Maximizing the potential value of transit-oriented development is a strategic goal of the City Council. A TIRZ District is one of several financing tools that can be used to assist in creating this value for the city. In return, these investments will yield sustainable uses for the enjoyment of the entire city.

Last updated: 3/26/2013 9:19:58 AM