Is there really a “But For” test

IS THERE REALLY A “BUT FOR” TEST IN THE TIRZ LAW?

The forthcoming ruling in Bill Bunch’s South Central Waterfront TIRZ lawsuit, which could come down any day now, promises to be a watershed moment for the political struggle over the last few years between the emerging New Austin and the Old.

Bill Bunch has just filed another lawsuit against yet another Endeavor project, this time challenging the zoning for the Borden Plant redevelopment on the Eastside.  There’s no indication he plans to slow down.  All this comes on the heels of recent big wins by Bunch’s compatriot Doug Becker, successfully striking down the City’s 2019 land use rewrite and several piecemeal follow-ups (although the HOME Ordinance has so far gone unchallenged).

Meanwhile the Related Cos. have announced plans to build their own modern mixed-use mini-downtown in the SCWF-TIRZ.  If the SCWF-TIRZ is enjoined, will this project be in jeopardy as well?

If so, a Bunch victory in the SCWF-TIRZ case could force a public reckoning over the direction of Austin growth and development.  A Bunch defeat, however, could go a long way towards moving past this municipal existential crisis.

At present Bunch has the stronger argument in the TIRZ case, because the City Attorney has essentially agreed with his reading of Section 311 of the Texas Tax Code, while asking the Court for “deference” to City determinations.  However, “deference” to City decision making has not been a winning argument in recent lawsuits.

Interestingly, though, the City may not need such deference to be granted, after all.  Section 311 is a very interesting part of the Texas Tax Code, that, when read with Bunch’s and the City’s interpretation in mind, appears to be logically incoherent. This raises the question of whether their interpretation might be incorrect. If it can be shown that a different interpretation makes the entire section become coherent, the very premise of their interpretation could be questioned.

Consider the following two statements:

A) “You may attend tonight’s outdoor concert if you have a ticket”

“However,”

B) “We may cancel tonight’s outdoor concert if it begins to thunder”.

May and if are doing very different things in those two statements.  Now, consider the half sentence in Section 311 on which all of Bunch’s (and the City’s) argument rests:

“(a) The governing body … may designate a contiguous geographic area in the county …. a reinvestment zone to promote development or redevelopment of the area if the governing body determines that development or redevelopment would not occur solely through private investment in the reasonably foreseeable future.”

My Clintonian parsing of this language may seem absurd, but remember that the City Attorney’s argument, partly, rests on the meaning of “solely” and “reasonably foreseeable future”.  And it’s not clear how those words’ interpretations even help her argument, to be honest.

The history of the TIRZ law, which was originally open-ended, then struck down as unconstitutional over this very issue that Bunch is suing over, and then reinstated with a new narrower focus, certainly has led everyone to assume that A) is the proper reading of the crucial half sentence.  Additionally, the Attorney General at the time issued an opinion letter making clear that’s how he interpreted it.

The problem is, under the A) interpretation (the supposed “but for” test) the Section as a whole becomes incoherent.  Let me explain why.

Two sections after 311.003: “PROCEDURE FOR CREATING REINVESTMENT ZONE”, from which the “but for” half sentence comes, comes section 311.005: “CRITERIA FOR REINVESTMENT ZONE”.

It sets out four possible avenues for an area to qualify as a TIRZ:

(a) To be designated as a reinvestment zone, an area must:

(1) substantially arrest or impair the sound growth of the municipality or county designating the zone, retard the provision of housing accommodations, or constitute an economic or social liability and be a menace to the public health, safety, morals, or welfare in its present condition and use because of the presence of:

(A) a substantial number of substandard, slum, deteriorated, or deteriorating structures;

(B) the predominance of defective or inadequate sidewalk or street layout;

(C) faulty lot layout in relation to size, adequacy, accessibility, or usefulness;

(D) unsanitary or unsafe conditions;

(E) the deterioration of site or other improvements;

(F) tax or special assessment delinquency exceeding the fair value of the land;

(G) defective or unusual conditions of title;

(H) conditions that endanger life or property by fire or other cause; or

(I) structures, other than single-family residential structures, less than 10 percent of the square footage of which has been used for commercial, industrial, or residential purposes during the preceding 12 years, if the municipality has a population of 100,000 or more;

(2) be predominantly open or undeveloped and, because of obsolete platting, deterioration of structures or site improvements, or other factors, substantially impair or arrest the sound growth of the municipality or county;

(3) be in a federally assisted new community located in the municipality or county or in an area immediately adjacent to a federally assisted new community; or

(4) be an area described in a petition requesting that the area be designated as a reinvestment zone, if the petition is submitted to the governing body of the municipality or county by the owners of property constituting at least 50 percent of the appraised value of the property in the area according to the most recent certified appraisal roll for the county in which the area is located.

The grammatic ambiguity at the heart of the half-sentence in the Procedural section could have been easily cleared up by making the “but for” test (a determination of developer disinterest) the sole criteria listed here. Instead, this section lays out four different options, of which the City need only choose one, and none of which are a finding or determination of developer disinterest absent a TIRZ.

If these four options were all conditions that would necessarily cause developer disinterest, that would reinforce the A) “but for” reading of the half-sentence, even despite its lack of literal inclusion in 311.005.  However, you will notice that only the first two criteria relate to conditions that might possibly cause a lack of developer interest. The final, fourth option, a petition of property owners, has no obvious connection to a lack of Developer interest.

Additionally, the question must be asked: why would the fourth option, a petition of property owners, be included at all, if that alone was insufficient, absent a finding of Developer disinterest?  How can it be argued there is a “but for” test required, when Section 311.005 does not mention it as any of the four potential criteria, while including an option that has nothing necessarily to do with it?

Even more perplexing is Section 311.004: “CONTENTS OF REINVESTMENT ZONE ORDINANCE OR ORDER”.  The contents it requires are as follows:

(1) describe the boundaries of the zone with sufficient definiteness to identify with ordinary and reasonable certainty the territory included in the zone;

(2) create a board of directors for the zone and specify the number of directors of the board as provided by Section 311.009 or 311.0091, as applicable;

(3) provide that the zone take effect immediately upon passage of the ordinance or order;

(4) provide a date for termination of the zone;

(5) assign a name to the zone for identification, with the first zone created by a municipality or county designated as “Reinvestment Zone Number One, City (or Town,  as applicable) of (name of municipality),” or “Reinvestment Zone Number One, (name of county) County,” as applicable, and subsequently created zones assigned names in the same form numbered consecutively in the order of their creation;

(6) establish a tax increment fund for the zone; and

(7) contain findings that:

(A) improvements in the zone will significantly enhance the value of all the taxable real property in the zone and will be of general benefit to the municipality or county; and

(B) the area meets the requirements of Section 311.005.

(b) For purposes of complying with Subsection (a)(7)(A), the ordinance or order is not required to identify the specific parcels of real property to be enhanced in value.

(c) To designate a reinvestment zone under Section 311.005(a)(4), the governing  body of a municipality or county must specify in the ordinance or order that the  reinvestment zone is designated under that section.

You will notice that nowhere, again, in this section is it required to include in the Ordinance a “but for” determination (finding of Developer disinterest).  Even more shockingly, we are given an all new “test”: whether the development contemplated will “significantly enhance the value of all the taxable real property in the zone and will be of general benefit to the municipality or county”, a reality no one is contesting when it comes to the development plans for the SCWFD.  Finally, notice the strange special treatment the petition option is given.

So, to recap: we have the grammatic ambiguity of the “but for” half-sentence; we have the vanishing of it from anywhere else in the bill, including a no-show in the Criteria section; we have criteria that only partially relate to a finding of developer disinterest, together with ones that seemingly have no connection to it; and then we have a detailed listing of what should be in the Ordinance that again excludes any mention of developer disinterest, and which seemingly sets up an all new, lower threshold, test.

Now consider the entire section with the B) grammatical interpretation. To paraphrase: “A City may (decide to) designate an area a TIRZ to stimulate development if it determines development is otherwise unlikely to occur.”  Under this interpretation the “but for” test becomes merely an explanation of why the Legislature is granting this tax sequestering power, that was previously ruled unconstitutional, to cities.  It’s encouraging its use for this purpose, without shackling the City’s flexibility.  And it’s placing this in the Procedural section, alongside binary rules such as holding public meetings and giving proper notice. The section then proceeds to lay out rules the city must follow in order to use the TIRZ tool, but not strictly along the lines of a determination of developer disinterest. Instead, they are more flexible rules, that track generally with the “but for” concept, but which clearly allow for some leeway and flexibility.  Section 311 is now logically coherent, using this interpretation. And the SCWF-TIRZ Ordinance is compliant.