Texas Double Tax: Transportation Reinvestment Zones (TRZ) to build toll roads and more

Texas is in for a showdown between those who insist on raising taxes and those who refuse. In a state that brags about its conservative credentials, it’ll be interesting to watch the outcome.

By Terri Hall | May 7, 2013

While the Texas House and Senate are busy competing over which chamber can come up with the most funding for public schools, another top priority of state government has taken a back seat – roads. Though roads are needed to get to school, work, and make our economy thrive, state lawmakers continue to demonstrate that roads are NOT a top funding priority for state government. Instead, lawmakers are content to push the state’s obligation to fund our state highway system down to the local level by using LOCAL sales tax and property tax to build STATE highway projects.

Senate Bill 1110 that recently passed the Texas House will go straight to Governor Rick Perry’s desk. The bill gives local authorities the ability to use property tax and sales tax to build TOLL projects. So the road would be built with tax money, but Texans would be charged a toll to actually use the road.

The mechanism is called a Transportation Reinvestment Zone (TRZ) and SB 1110 authored by Sen. Robert Nichols and carried in the House by Rep. Joe Pickett (who authored an identical house bill), expands their use to capture sales tax as well as property tax. A city or county can establish a zone and use or pledge the property tax appraisal increases to fund a state highway project, including toll projects, for 40 – 50 years until the bonds are paid off. If a toll project needs tax money to subsidize it, the toll is no longer a user fee, but a tax.

Though the zone is supposed to expire once the bonds are paid off, there’s nothing to prevent the government from refinancing and endlessly pushing out the pay-off date to extend the TRZ into perpetuity. It also expands the definition of a transportation project to rail, transit, and other boondoggles.

The Texas border city of El Paso, crossroads for two proposed NAFTA Superhighway trade corridors – Camino Real and Spirit – expects to benefit from these legislative measures. El Paso was the first in the state to set up a TRZ. Feeding on property tax values, the El Paso City Council moved in November 2008 to establish TRZ Corridors, in effect facilitating eventual ‘open borders’ through transportation with a $3 million loan to the “fledgling Camino Real Regional Mobility Authority.”

Tax Increment FinancingTRZs are to be created in commercial, retail, and industrial areas, but the bill doesn’t limit the zones to such areas. There’s nothing stopping these cities/counties from creating them in residential areas. Texans are already hot about what’s been dubbed ‘appraisal creep,’ which is how government squeezes more property taxes from homeowners, not by raising the actual tax rate, but by increasing your appraised property value upon which they base your tax bill. So property tax bills can nearly double every ten years, which is killing the family budget and Texans are increasingly struggling to keep up and hang onto their homes.

Texas voters already said ‘No!’

While the bill calls for a public hearing prior to the TRZ being designated, a mere public hearing is NOT the equivalent to public approval of such a use for property/sales taxes. Texans had a chance to vote on a similar measure in November 2011 on the Constitutional Amendment Proposition 4. The enabling legislation involved TRZs and expanding their use to toll projects – Texas voters resoundingly defeated the amendment. Also, one area of a city or county could be targeted for the zone, so it would be VERY difficult for that one targeted area to stop a vote of the whole city council or commissioners court from designating the zone over their objections.

The bill’s author claims that expanding the use of TRZs potentially reduces the number of toll projects needed by tapping local tax revenues to build the project, but the bottom line is, most of these zones will likely be created in residential or already heavily congested areas in hopes of getting some money to fix the problem areas. But the TRZ likely won’t be able to generate enough revenue to pay for the project alone, even greenfield projects that attract a retail or industrial base may not generate sufficient revenue, so local government will turn to toll revenue bonds to get the funds for the remainder of the project cost to get it built – hence a DOUBLE TAX on Texans.

Most Texans would like to see their property tax bill go down or go away altogether. Rep. George Lavender introduced a bill in the Texas House to eliminate property tax and replace it with a sales tax based system. But the likelihood of that happening is slim-to-none, if property taxes are already obligated to a 40 or 50 year transportation project.

Hijacking the affordable option

Meanwhile, the most conservative and fiscally responsible solution to the road funding shortfall, HB 479 that would dedicate a portion of the existing vehicle sales tax to roads, is being bottled up in the House Appropriations Committee. The primary user fees that have built both the federal and state highway systems are the gas tax and vehicle registration fees, which haven’t been raised or even adjusted for inflation in 20 years. This has created a significant road funding shortfall that has, up until now, been addressed in short term fixes using debt to avoid tax hikes. But lawmakers have also practiced the bad habit of diverting gas taxes to other purposes, further exacerbating the problem.

Rep. Drew Darby is attempting to hijack the vehicle sales tax bill conservatives want by trying to hitch it to his own wagon – an unpopular doubling of the vehicle registration fee that conservatives have vowed to vote down. The theory is, if he attaches a bill conservatives want to a bill they don’t want, it can save Darby’s fee hike bill and make it out of the House.

However, Texas Governor Rick Perry, the Republican State Party Chair, and a slew of freshmen members of the House have all publicly stated they will NOT support ANY fee hikes. The irony is that even doubling the vehicle registration fee is not sufficient to raise the $4 billion the highway department needs. It would take a $200 vehicle registration fee increase or a gas tax hike of more than 40 cents/gallon to raise $4 billion.

But dedicating existing vehicle sales tax to roads, which currently generates about $3.3 billion/yr, and ending gas tax diversions would raise $4 billion without raising taxes or more borrowing. So, existing taxes MUST be part of the solution.

Absent a long-term funding solution, the state will continue to kick the can down to the local level, will find a way to borrow more money or tap the Rainy Day Fund, and seek every source of local tax revenue it can get its hands on, like property tax and sales tax, to fund state highway projects so the state doesn’t have to.

So Texas is in for a showdown between those who insist on raising taxes and those who refuse to do so. In a state that brags about its conservative credentials, it’ll be interesting to watch the outcome.

Terri Hall is the founder of Texans Uniting for Reform and Freedom (TURF), which defends against eminent domain abuse and promotes non-toll transportation solutions. She’s a home school mother of eight turned citizen activist. Ms. Hall is also a contributor to

SFPPR News & Analysis.