• Texas Legislative Alert: Bills to Save 380 Agreements
  • November 28, 2005 | Authors: Deborah C. Ryan; Rafael M. Anchia
  • Law Firm: Patton Boggs LLP - Dallas Office
  • Cities in Texas regularly use Chapter 380 Economic Development Agreements ("380 Agreements") to attract employers and encourage development in economically depressed neighborhoods. Under a 380 Agreement, a city provides loans and grants of public money, as well as municipal personnel and services, to a business or developer, in return for that business or development project's location within certain areas of the municipality.

    However, a recent Texas district court case styled Save Our Springs Alliance, Inc. v. Village of Bee Cave, No. GN400441 (250th District Court, Travis County, Tex. Feb. 18, 2005) (the "Bee Cave Case") held the 380 Agreement in question unconstitutional under Article XI, Section 5 of the Texas Constitution, which prohibits a city from creating debt unless the city identifies a new source of funds to retire the debt. Specifically, the Bee Cave court found that the "chapter 380 Economic Development Agreement does create an unconstitutional debt and is therefore void." (Emphasis added).

    As a result of the Bee Cave Case, the Texas Legislature responded by passing two bills during the recently-concluded 79th Legislative Regular Session: (1) HJR 80, and (2) HB 918.

    HJR 80 is a proposed constitutional amendment clarifying that only a pledge of ad valorem taxes or bond financing is considered a creation of debt for purposes of the Texas Constitution. HJR 80 specifically exempts from the constitutional prohibition an economic development program that rebates a portion of sales tax to a developer pursuant to a 380 Agreement. HJR 80 passed in both houses and has been sent to the Texas Secretary of State to be placed on the November 8, 2005 ballot.

    HB 918 settles another issue in the Bee Cave Case by making it clear that 380 Agreements may include areas of limited purpose or extraterritorial jurisdiction of a municipality. HB 918 passed both houses of the Texas Legislature, was signed by the Governor and made effective immediately on May 17, 2005.

    Call to Action: Municipal and development communities need to mobilize their constituencies to vote in favor of HJR 80 on November 8, 2005, so that the 380 Agreement will remain a viable tool for economic development.