Type A and B Economic Development Corporations Overview
The Development Corporation Act of 1979 gives cities the ability to finance new and expanded business enterprises in their local communities through economic development corporations (EDCs). Chapters 501, 504, and 505 of the Local Government Code outline the characteristics of Type A and Type B EDCs, authorize cities to adopt a sales tax to fund the corporations and define projects EDCs are allowed to undertake.
Statutes governing EDCs
- Local Government Code, Chapter 501
- Local Government Code, Chapter 504
- Local Government Code, Chapter 505
Type A EDCs — Developing Industries
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.
Type B EDCs — Developing Industries & Cultivating Communities
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.
There are some limitations on how sales tax revenues can be used to fund a project. Eligible expenditures include:
- acquisition of land;
- machinery and equipment;
- construction costs;
- planning and professional services related to the project;
- financial transactions and reserve funds; and
- administrative and other necessary expenditures.
Primary Jobs Requirement
The main requirement is that the businesses bring new money into the community. In 2003, the Legislature voted to require that certain projects create or retain primary jobs. A primary job is one at a company that exports a majority of its products or services to markets outside the local region, infusing new dollars into the local economy. Primary jobs are further limited to specific industry sectors such as agriculture, mining, manufacturing and scientific research and development. Those industry limitations can be found in.
EDCs cannot simply gift sales tax proceeds to businesses. 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.