Texas Enterprise Fund
The Texas Enterprise Fund (TEF) was established in 2003 to allow the state to respond quickly and aggressively to opportunities to bring jobs and employers to Texas. The funds are used primarily to attract new business to the state or assist with the substantial expansion of an existing business as part of a competitive recruitment situation.
Award dollar amounts are determined using an analytical model applied uniformly to each TEF applicant. This model ensures that the State of Texas will see a full return on its investment within the period of a project contract due to the resulting increase in estimated sales tax revenues. Variations in award amounts are influenced by the number of jobs to be created, the expected timeframe for hiring, and the average wages to be paid. Award amounts typically range between $1,000 and $10,000 per qualified job. In the past, awards have ranged from $75,000 to $40 million.
To be eligible for TEF support, a project must demonstrate a significant return on the state’s investment and strong local support. The review process will consider a variety of factors associated with each project, including job creation and wages, capital investment, the financial strength of the applicant, the applicant’s business history, analysis of the relevant business sector, and public and private sector financial support. The project must have community involvement from the city, county, and/or school district, primarily in the form of local economic incentive offers. Before funds can be awarded, the Governor, Lieutenant Governor and Speaker must unanimously agree to support the use of the Texas Enterprise Fund for each specific project.
In 2018, additional incentive benefits for new TEF grantees were implemented to encourage the hiring of military veterans. New grantees, in addition to being eligible for funding on a per-job-created basis, will be eligible for an additional $1,000 per job filled by a veteran during the first year of job creation.
Chapter 380/381 Financing
Chapters 380 and 381 of the Local Government Code provide legislative authority for Texas municipalities and counties to provide a grant or a loan of city funds or services in order to promote economic development. Local governments have utilized the provisions under this law to provide a wide array of incentives that have drawn businesses and industries to locales throughout Texas. Whether a local government provides any such incentive is completely discretionary.
Economic Development Sales Tax Corporations
Voters in Texas cities have the option of imposing a local sales and use tax to help finance economic development efforts. Cities may adopt an economic development sales tax under Section 4A or Section 4B of the Development Corporation Act of 1979. Chapters 501, 504 and 505 of the Local Government Code outline the characteristics of Type A and Type B economic development corporations (EDCs), authorize cities to adopt a sales tax to fund the corporations and define projects EDCs are allowed to undertake.
Type A EDCs are typically created to fund industrial development projects such as business infrastructure, manufacturing and research and development. Type A EDCs can also fund military base realignment, job training classes and public transportation. EDCs may use Type A revenue to fund land, buildings, equipment, facilities expenditures, and targeted infrastructure and improvements for projects that create or retain primary jobs.
Type B EDCs can fund all projects eligible for Type A, as well as parks, museums, sports facilities and affordable housing. However, Type B EDCs are subject to more administrative restrictions than Type A, such as public hearings and waiting provisions.
An EDC must enter into a written performance agreement with any business enterprise that it funds directly or makes expenditures that benefit an eligible project. At a minimum, the performance agreement must contain: a schedule of additional payroll or jobs to be created or retained; the capital investment to be made by the business enterprise; and the terms for repayment of the EDC’s investment if the business fails to meet the performance requirements specified in the agreement.
The Comptroller of Public Accounts identifies 4A and 4B Development Corporations in its list of cities that have adopted additional local sales and use taxes. Within the Austin metro, Cedar Park and Georgetown have both 4A and 4B corporations. Jarrell and Taylor have 4A Development Corporations. Bastrop, Bee Cave, Buda, Elgin, Hutto, Lago Vista, Liberty Hill, Lockhart, Luling, Pflugerville, Rollingwood, Round Rock, Thorndale, Uhland, and Webberville have 4B Development Corporations.
An EDC may undertake projects outside city limits so long as it is clear that the city benefits from the project. If an EDC undertakes a project outside city limits, it must receive permission to do so from the governing body of the entity with jurisdiction in that area. For example, if an EDC locates a project beyond the city limits, it should seek approval from the county’s commissioners court.
Texas Small Business Credit Initiative
Texas administers two programs under the Texas Small Business Credit Initiative (TSBCI): a Capital Access Program (CAP) and a Loan Guarantee Program (LGP), which are open to eligible new and existing Texas businesses with 499 or fewer employees. These programs assist small business growth and create new jobs through increased access to small business funding. TSBCI programs will assist all small businesses, but will focus on traditionally marginalized and those that have been impacted by the COVID-19 pandemic. Eligible businesses must also be for-profit organizations, domiciled in Texas, and have a minimum of 51% of their employees currently located in Texas.
The CAP supports small businesses by working with financial institutions including banks, credit unions, and community development financial (CDFI’s), to offer small business loans. To encourage lenders to make loans to small businesses that struggle to access capital, the CAP provides matching portfolio insurance premium payments to a loan loss reserve (LLR) account created for each participating financial institution, reducing the lender’s portfolio risk. Loans of $5,000 up to $5 million may be enrolled in the CAP. Both the lender and the borrower must make matching premium payments of up to 3.5% of the loan principal to the LLR account. The State will match the combined amount the borrower and the lender contributed to the LLR.
The LGP supports small businesses by working with financial institutions to offer small business loan guarantees. The LGP provides guarantees of up to 80% of unpaid principal on enrolled loans. By providing loan guarantees, the program provides financial institutions the additional assurance needed to extend loans to small business that otherwise face challenges in accessing capital. Loans of $5,000 up to $20 million may be enrolled in the LGP. Loan guarantees may be up to 80%, but no higher than $4 million. Interest rate and qualifications will be determined by each participating lender.
TSBCI is administered by the Economic Development Finance Division of the Texas Economic Development and Tourism Office, within the Office of the Governor, on behalf of the U.S. Department of the Treasury. Businesses do not apply directly to the TSBCI program for a loan, instead, they contact their preferred financial institution or a registered participating institution.
Texas Semiconductor Innovation Fund
The Texas CHIPS Act, approved in June 2023, creates a $698 million Texas Semiconductor Innovation Fund (TSIF) benefiting companies engaged in semiconductor research, design and manufacturing in Texas. The fund will issue grants to private businesses private business entities planning new or expanded semiconductor manufacturing and design projects. Businesses must have an established presence in Texas[1] and be positioned to advance or sustain Texas’ position as a leader in the semiconductor industry, undertake capital investment, and create jobs. Applications for TSIF grants will be accepted on a rolling basis with no application deadline until TSIF funds are exhausted. A demonstration of local support in the form of local economic incentives is taken into account. Initiatives that have been announced are not prohibited and may be eligible for TSIF funding. Applications are submitted to the Economic Development and Tourism Office in the Office of the Governor.
The Act also provides matching funds to universities and other state entities that invest in chip design or manufacturing projects. The University of Texas at Austin will receive $440 million to build fabs, which will be part of the Texas Institute for Electronics (TIE), a public-private partnership launched in 2022. TIE focuses on advanced packaging systems. Nearby Texas A&M University will receive $226 million to build fabs for quantum and artificial intelligence fabrication, as well as related research activities.
Cancer Prevention & Research Institute of Texas Grants
The Cancer Prevention and Research Institute of Texas (CPRIT) funds awards for cancer research, product development, and prevention. Recipients of CPRIT awards include academic institutions, non-profit organizations, and private companies located in Texas. CPRIT’s Product Development Research Program seeks to support early stage “startup” and established companies in the development of innovative products and services with significant potential impact on cancer patient care.
Company applicants must be headquartered in Texas or be willing to relocate to Texas upon receipt of an award.
Product Development Research awards can be up to $20 million and for a maximum duration of 36 months.
Tax Increment Financing
Tax increment financing (TIF) is a tool that local governments can use to publicly finance needed structural improvements and enhanced infrastructure within a defined area. These improvements usually are undertaken to promote the viability of existing businesses and to attract new commercial enterprises to the area. The statutes governing TIF are located in Chapter 311 of the Texas Tax Code.
The cost of improvements to the area is repaid by the contribution of future tax revenues by each taxing unit that levies taxes against the property. Specifically, each taxing unit can chose to dedicate all, a portion of, or none of the tax revenue that is attributable to the increase in property values due to the improvements within the reinvestment zone. The additional tax revenue that is received from the affected properties is referred to as the tax increment. Each taxing unit determines what percentage of its tax increment, if any, it will commit to repayment of the cost of financing the public improvements.
Only a city or county may initiate tax increment financing. A county can designate by order a contiguous geographic area within its borders as a reinvestment zone. A municipality can designate by ordinance a contiguous or noncontiguous geographic area in its corporate limits as a reinvestment zone. A municipality also can designate a reinvestment zone in the city’s extraterritorial jurisdiction. Once a city begins the process of establishing a tax increment financing reinvestment zone, other taxing units may consider participating in the zone.
Industrial Revenue Bond Program
The State of Texas Industrial Revenue Bond Program (IRB) provides tax-exempt or taxable financing for eligible industrial or manufacturing projects as defined in the Development Corporation Act of 1979. The Act allows cities, counties, and conservation and reclamation districts to form non-profit industrial development corporations (IDCs) or authorities on their behalf to provide bond financing for projects within their jurisdictions. The IDC issues bonds to finance the capital costs for an industrial or manufacturing business.
Generally, the bond debt service is paid by the business under the terms of a lease, sale or loan agreement. As such, it does not constitute a debt or obligation of the sponsoring governmental unit, the IDC or the State of Texas. Tax exempt IRBs for manufacturing facilities and are subject to the state’s volume limitation (“volume cap”) managed by the Texas Bond Review Board. The bond amount cannot exceed $10 million and the total capital expenditure limitation for the project is $20 million.
Exempt facility bonds can be issued to finance facilities for the furnishing of water, sewage and solid waste disposal facilities, electric energy or gas production facilities, local district heating or cooling facilities and qualified hazardous waste facilities. Other exempt facility bonds can be issued to finance airports, dock and wharf facilities, mass commuting facilities and high-speed inter-rail facilities. These facilities must be government owned, but they can be leased or operated by management contractors. Some facility types may be subject to the state’s volume cap.
Businesses interested in applying for an industrial revenue bond should contact the local industrial development corporation as well as legal counsel specializing in the issuance of municipal bonds who will submit application materials on the business’ behalf. Upon adoption of a bond resolution by the IDC or equivalent body authorizing the project and principal bond amounts, an IRB application is made to the Office of the Attorney General and, if applicable, to the Governor’s Office, for approval.
Texas Moving Image Industry Incentive Program
The Texas Moving Image Industry Incentive Program offers qualifying feature films, television programs, commercials, video games, and visual effect projects the opportunity to receive a payment of 5.0-22.5% of eligible Texas spending upon completion of a review of their Texas expenditures. There is no cap on the incentive amount.
Texas appropriations for TMIIIP shot up dramatically in the 2023 legislative session to a robust and competitive $200 million for the 2024-2025 biennium.
Film & television projects are qualified based on at least $250,000 in Texas spending, 60% of total production must be completed in Texas, 55% of paid crew are Texas residents, and 55% of paid cast (including extras) are Texas residents. Texas spending can include eligible pre-production, production and post-production expenditures. Benefits based on in-state spend:
5% for $250,000-$1 million ♦ 10% for $1 million-$3.5 million ♦ 20% for $3.5 million+
Commercial projects (commercials and related; music, educational and instructional videos) are qualified based on at least $100,000 in Texas spending, 60% of total production must be completed in Texas, and 55% of the total number of paid crew, cast & extras Texas residents. Texas spending can include eligible pre-production, production and post-production expenditures. Benefits based on in-state spend:
5% for $100,000-$1 million ♦ 10% for $1 million+
Video game projects are qualified based on at least $100,000 in Texas spending, 60% of total production is completed in Texas, and 55% of paid employees and contract labor are Texas residents. Benefits based on in-state spend:
5% for $100,000-$1 million ♦ 10% for $1 million-$3.5 million ♦ 20% for $3.5 million+
Reality television projects (nationally syndicated reality series, talk shows, and contest or game shows) are qualified based on at least $250,000 in Texas spending, 60% of total production is completed in Texas, and 55% total number of paid crew and paid cast are Texas residents. Benefits based on in-state spend:
5% for $250,000-$1 million ♦ 10% for $1 million+
Animation and visual effects projects (a self-contained production whereby computer-generated images are created or manipulated to integrate with live-action film, television, and commercials) are qualified based on Texas spending of at least $200,000 for film or television projects or $100,000 for commercial projects. At least 60% of total production must be completed in Texas and 55% of paid crew and 55% of paid cast (including extras) must be Texas residents. Texas spending can include eligible pre-production, production and post-production expenditures.
Benefits to film and television projects based on in-state spend:
5% for $250,000-$1 million ♦ 10% for $1 million-$3.5 million ♦ 20% for $3.5 million+
Benefits to commercials based on in-state spend:
5% for $100,000-$1 million ♦ 10% for $1 million+
An Additional Grant Award equal to 2.5% of total in-state spending is available to a TMIIIP project based on meeting one of three criteria:
- Projects that complete at least 25% of their total production days in underutilized or economically distressed areas of Texas
- Projects that hire Texas resident veterans as 5% of their combined total paid Crew and paid Cast, including extras
- Projects that spend 10% of their total eligible in-state spending on eligible expenditures during post-production