Citizen's Petition Initiatives

Petition for Election on EDC Type 4A Expenditure: 380 Agreement

Petition for Election on EDC Type 4A Expenditure: 2030 Comprehensive Plan

Petition for Election on EDC Type 4A Expenditure: Capital Improvement Plan Phase I & Phase II 

Petition for Election on EDC Type 4B Expenditure: 2030 Comprehensive Plan

Petition for Election on EDC Type 4B Expenditure: Capital Improvement Plan Phase I & Phase II  

Public Notice Requirement and the 60-Day Right to Petition
The public has a right to gather a petition objecting to a particular Section 4B project.194 The
petition must be submitted within 60 days of the first published notice of a specific project or
type of project and must be signed by more than 10 percent of the registered voters of the city.
State law does not indicate what would constitute the first published notice of a project. A city
should ensure that it provides 60 days notice of the specific project or the category of projects.
If a petition is pursued by the public, the petition can ask that the city hold an election on the
issue before that specific project or type of project is undertaken. If the petition is submitted in a
timely manner and an election is required, the corporation may not undertake the project until the
voters approve the project at an election on the issue. If the voters disapprove the project at the
election, the Section 4B tax proceeds may not be used for that purpose.

It is important to note that a petition cannot force an election on a project if the voters have
previously approved the specific project or that general category of projects at an earlier election
called under the Act. Cities that know what types of projects they want to undertake may be well
advised to specifically list each of these types of projects in the ballot wording when the Section
4B tax is first considered by the voters. If the city includes each of these types of projects in the
original ballot proposition, it can assert that the public has already approved that type of project
at a prior election. In this scenario, the city arguably would not be required to call an additional
election even if a petition were submitted regarding the project.


Specific Costs of a Section 4B Project That May be Funded
Cities must understand what general categories are available for expenditures. Additionally, they
need to know what types of specific expenditures are contemplated within each of these
categories. For assistance in understanding what is permitted under the Act, cities should review
the definition of the term “cost” under Section 2(4) of the Act. Section 2(4) of the Act defines
what costs may be applied to a Section 4B project. It states in pertinent part that costs for a
project may include:
Land and facility improvements: the cost of acquisition, construction, improvement,
expansion of land, buildings and acquisition of right-of-way.
Machinery and supplies: the cost of machinery, equipment, inventory, raw materials
and supplies.
Financial transaction costs: the cost of financing charges, certain interest prior to and
during construction, and necessary reserve funds.
Planning costs: the cost of research and development, engineering and legal services,
development of plans and specifications, surveys and cost estimates; and other expenses
necessary or incident to determining the feasibility and practicability of undertaking the
project.
Brownfield cleanup costs: Should the Texas Governor’s office or Texas Commission on
Environmental Quality encourage or request a section 4B corporation to use sales tax
proceeds to cleanup contaminated property, the corporation may not undertake the project until the use is approved by a majority of the qualified voters of the city voting in an election called and held for that purpose. The ballot proposition is as follows:195

“The use of sales and use tax proceeds for the cleanup of
contaminated property.”
Due to the definition of the term “project” and of the term “cost” contained in the Development
Corporation Act, a strong argument can be made that any expenditure by a Section 4B
corporation, other than job training classes, must be related to the acquisition or physical
improvement of land, buildings, equipment or facilities. Of course, an expenditure could also
include administrative or planning costs associated with such an acquisition or improvement.

Administrative Expenses of a Section 4B Project Maintenance and Operating
Expenses
Section 2 (4) of the Act states that the cost of a project may also include administrative and other
expenses that are incident to placing the project into operation. The law provides that these
expenses could include administrative expenses for the acquisition, construction, improvement,
expansion and financing of the project. It is this authority that could be cited for the hiring of
administrative staff to implement the work of the Section 4B development corporation with
regard to its projects. Accordingly, cities that perform some of the administrative functions for
the corporation could cite this authority for reimbursement from Section 4B funds for
administrative costs related to projects that city staff oversee. Additionally, Section 4B(b)
specifically permits a Section 4B corporation to contract with other private corporations to carry
out industrial development programs or objectives. Effective June 20, 2003, should a Section 4B
corporation contract with a broker, agent or other third party for business recruitment, a written
contract approved by the board of directors is required for any payment of a commission, fee, or
other thing of value to the third party.196 Failure to enter into a written contract could result in a
civil penalty not to exceed $10,000.
Additionally, Section 4B(a-2) states that the costs of a publicly owned and operated project may
include the maintenance and operating costs for the project. The Act, however, allows the voters
to object to such an expenditure by submitting a petition of 10 percent of the registered voters of
the city. The public has 60 days from the date when notice is first given that the tax will be used
for this purpose to submit the petition. Such a petition would ask the city to hold an election to
approve the payment of maintenance and operating costs for projects. An election is not required,
however, if the voters had previously approved the use of Section 4B tax proceeds for this
purpose at an earlier election under the Act.
Cities that are aware that they want to use Section 4B tax proceeds to pay the maintenance and
operating costs of projects would be well advised to list this type of expenditure on the ballot
when the Section 4B tax is considered by the voters. By including this provision in the original
ballot proposition, the city can assert that the public has already approved this type of
expenditure at a prior election. Accordingly, if the city uses such a ballot provision, it cannot be
required to hold an additional election even if a petition is submitted regarding these costs.




Promotional Expenses
In the 2001 Legislative Session, the Texas Legislature clarified the use of Section 4B proceeds
for promotional expenses. Now, Section 4B(b) limits Section 4B corporations to spending no
more than 10 percent of the corporate revenues (Section 4B tax proceeds) for promotional
purposes.197 Yet, the Attorney General has concluded a promotional expenditure “must advertise
or publicize the city for the purpose of developing new and expanded business enterprises.”198
Further, a corporation is limited to spending not more than 10 percent of its current annual
revenues for promotional purposes in any given year. Nonetheless, unexpended revenues
specifically set aside for promotional purposes in past years may be expended along with 10
percent of current revenues without violating the cap.199 Additionally, a city council may
disapprove a promotional expenditure.200 If there is some question as to whether a particular
expenditure should be considered a promotional or an administrative expense, the development
corporation should consult with its local legal counsel.

Debt Obligations
The Section 4B development corporation may issue bonds, notes and other contractual
obligations to fund its projects.201 Prior to September 1, 2001, a Section 4B corporation’s bond
and other obligations could not exceed $135 million. This limitation was removed in the 77th
Legislative Session.202 Further, a bond or debt instrument of the corporation is not an obligation
of the city, nor is it backed by the city ad valorem tax rate.203 The tax proceeds received by the
Section 4B corporation may be used to pay the principal and interest on the bonds and any other
related costs.204 The Legislature has not addressed whether a Section 4B development
corporation is prohibited from paying principal or interest on a debt if the debt existed before the
date the city created the Section 4B corporation.