Annexation Issues and SB 6

Annexation Issues and SB 6 SAFE-D Last Monday Webinar November 27, 2017

2017 Legislation Affecting Municipal Annexation Regular Session - HB 299 by Larson, Lyle(R) and Relating to municipal annexation. Extensive rewrite of the state annexation laws. Would have eliminated limited purpose annexation areas Would have required full purpose annexation of current limited purpose areas. Would have allowed non-continguous annexation within ETJ.

2017 Legislation Affecting Municipal Annexation Regular Session - SB 715 by Campbell, Donna (R) and Relating to municipal annexation. Died by Filibuster at Midnight May 28 th in Senate Similar to HB 299 Would have removed limited purpose annexation, except for water district SPAs.

2017 Legislation Affecting Municipal Annexation Regular Session HB 2596 by Larson, Lyle(R) Relating to certain notice of the extent of a municipality or its extraterritorial jurisdiction. Regular Session SB 655 Bettencourt, Paul(R) is Identical Would have required city to make digital map of city limits and ETJ available on website and at city without charge Would have required notice to each property owner in new city limits or ETJ area.

Legislation Affecting Municipal Annexation Regular Session - SB 1878 by Menendez(D) and Relating to the service plan for the annexation by certain municipalities of territory included in an emergency services district. Effective 9/1/2017 Expands population bracket to extend provisions on ESD annexation to San Antonio in addition to Austin.

1 st Special Session Governor s Supplemental Proclamation (cont.) Legislation reforming the authority of municipalities to annex territory, to exert control over territory, or to regulate the use of annexed land or land in a municipality s extraterritorial jurisdiction. Targeted at HB 299 and SB 715

2017 Legislation Affecting Municipal Annexation Special Session SB 6 by Campbell (R) and Relating to municipal annexation. Effective December 1, 2017 Extensive rewrite of the state annexation laws

ANNEXATIONS AND ESDS

City Annexation into ESD Cities may annex into the city and EITHER: Choose to remove the annexed territory from an ESD; or Leave the annexed territory in the ESD. Certain procedures apply to annexation process ESD entitled to compensation under certain circumstances

City Annexation into ESD Generally Annexed area must be in ETJ ETJ varies by city population Annexed area must be contiguous SB6 does NOT affect all annexations Unaffected cities in two categories: Home Rule (authority from Charter and limited by statutes) General Law (authority only from statutes) Consequently, different annexation rules for each circumstance

City Annexation into ESD Generally This presentation DOES NOT cover all the various procedures for annexations by cities For more details, see TML s updated guidelines on annexation at this link: https://www.tml.org/p/annexation%20paper%20tml %20September%202017.pdf See Texas Local Government Code, Chapter 43 at this link: http://www.statutes.legis.state.tx.us/docs/lg/htm/lg.43.htm

SB 6 IMPACT ON ANNEXATION

SB 6 Annexation Process Requires certain cities to receive voter approval of annexation either by: Election, or Petition Expedites voluntary annexation when cities and landowners can agree on services Tier 2 city may annex if each owner of the land in the area requests the annexation

SB 6 Annexation Process Tier 1 county (a) population less than 500,000; and (b) that is not a county that contains freshwater fisheries center operated by the Texas Parks and Wildlife Department (Henderson County).

SB 6 Annexation Process Tier 2 county not a Tier 1 county; or Tier 1 county in which a majority of the registered voters of the county have approved being a Tier 2 county at an election ordered by the commissioners court on the request by petition of a number of registered voters of the county equal to or greater than 10 percent of the registered voters of the county. Initially includes Henderson, Travis, Tarrant, Harris, Fort Bend, El Paso, Denton, Dallas, Collin, and Bexar Counties

SB 6 Annexation Process Tier 1 municipality wholly located in one or more Tier 1 counties that proposes to annex an area wholly located in one or more Tier 1 counties. Tier 2 municipality (a) wholly or partly located in a Tier 2 county; (b) or wholly located in one or more Tier 1 counties that proposes to annex an area wholly or partly located in a Tier 2 county.

SB 6 Annexation Process Tier 2 municipality annex area with population <200 only if the municipality obtains consent through petition: signed by more than 50 percent of the registered voters of the area, and if the registered voters of the area do not own more than 50 percent of the land in the area, the petition is signed by more than 50 percent of the owners of land in the area.

SB 6 Annexation Process Tier 2 annex an area with population 200 only if the municipality holds an election in the area proposed to be annexed: Majority of voters in the area must approve, and If the registered voters of the area do not own more than 50 percent of the land in the area, municipality must obtain consent to annex the area through a petition signed by more than 50 percent of the owners of land in the area.

SB 6 Annexation Process Tier 2 Notice and Public Hearing Municipality must adopt resolution with: detailed description and map of the area, an description of the service to be provided and schedule. Municipality must mail notice to each resident and property owner in the area no later than the seventh day after the date the governing body adopts the resolution. Public hearing must be conducted not earlier than the 21st day and not later than the 30th day after adoption of the resolution.

Pre-SB 6 Annexation Process Tier 1 Annexations, generally - Exemptions from 3-Year Annexation Plan requirements: Annex an area with <100 residential dwellings Annex an area by petition of >50% of land owners Only requires Adoption of Service Plan Notice, and Two public hearings Many other specific statutory exemptions related to General Law and Home Rule cities (See Local Government Code, Chapter 43)

Pre-SB6 Annexation Process Tier 1 Annexations, generally - Requirement for 100 residential dwellings Fewer than 100 tracts exempt More than 100 tracts, but less than 100 tracts with dwellings exempt

Pre-SB6 Annexation Process Tier 1 Annexations, generally - To annex an area with 100 residential dwellings requires 3-year Annexation Plan process Add area to Annexation Plan and notify land owners, service providers and railroads Prepare Inventory of services Notice of hearings Hold two public hearings Negotiate services with land owners Can complete annexation 3 years after area added to Annexation Plan

SB 6 Notice to Public Entities Tier 1 and Tier 2 Notice to Public Entities Municipality a must provide written notice of the proposed annexation to any Public Entity within the same period as notice for the first hearing. Municipality that proposes to enter into a strategic partnership agreement must provide written notice of the proposed agreement within the period for providing the first hearing. Public Entities include ESDs

SB 6 Notice to Public Entities Tier 1 and Tier 2 Notice to Public Entities Notice must contain Description of the area proposed for annexation, and Description of any financial impact on the public entity resulting from the annexation, including any changes in revenues or maintenance and operation and costs, including any proposal the municipality has to abate or reduce any financial impact. Municipality may not proceed with the annexation if it does not provide the required notice.

SB 6 Annexation Enforcement Enforcement relates to ANY Annexation (including Pre-SB6) Only through mandamus or declaratory or injunctive relief. Political subdivision s immunity from suit is waived. Court may award court costs and attorney fees to the prevailing party.

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ANNEXATION SCENARIOS

Removal of Territory by Municipality City Must: Complete all other municipal procedures necessary to annex territory in an ESD, AND If City intends to provide emergency services to the territory by the use of municipal personnel or by some method other than by use of the ESD, send written notice to the Secretary of ESD board by CMRRR.

Removal of Territory by Municipality The territory remains part of the ESD and does not become part of the City until the secretary of the ESD board receives the notice. On receipt of the notice, the ESD board must immediately change its records to show that the territory has been disannexed from the ESD and is prohibited from providing further services to the residents of that territory.

Removal of Territory by Municipality Holders of any outstanding and unpaid bonds, warrants, or other obligations of the ESD, including loans and lease-purchase agreements, are not impacted by annexation, BUT The municipality must compensate the ESD for share of those obligations immediately after ESD disannexation of the territory. ESD must apply compensation to the payment of the annexed territory's pro rata share of the ESD s obligations.

Compensation for Removal The amount of compensation is determined by District s Debt x ( AV of Annexed Area AV of District) District's Debt determined at time of annexation AV determined based on the most recent certified county property tax rolls at the time of annexation. Total indebtedness includes loans and lease-purchase agreements, but does not include: a loan or lease-purchase agreement the district enters into after the district receives notice of the municipality's intent to annex district territory; or any indebtedness attributed to any real or personal property that the district requires a municipality to purchase.

Purchase of Property On the ESD s request, a municipality is required to purchase from the ESD - at fair market value - any real or personal property used to provide emergency services in the disannexed territory.

The Result

City Annexation within ESD If City inside an ESD wants to annex territory within the ESD Same Procedures and Requirements Apply City may remove annexed territory from ESD

City Annexation within ESD City may not want to remove area from ESD if does not provide those emergency services City property tax rates apply within annexed area and must be consistent with rest of City City sales tax expands with City, with some exceptions

Annexation Challenges ESD needs revenue to operate, especially given $0.10 ad valorem tax cap City wants to promote economic development through tax abatements and other agreements City wants additional tax revenue to keep City s ad valorem tax low

Sales Tax Challenges What if City within ESD wants to annex for sales tax revenue? What if remaining 2% local sales tax is already committed to ESD? ESD is authorized to have non-uniform sales tax ( carve out )

Sales Tax Challenges Annexation results in reduction of ESD (or other political subdivision) sales tax to amount required for total local sales tax to equal 2%, BUT

Sales Tax Challenges Comptroller must withhold from the municipality's monthly sales and use tax allocation an amount equal to the amount that would have been collected by the entity had the municipality not imposed or increased its sales and use tax or annexed the area in the entity less amounts that the entity collects following the municipality's levy of or increase in its sales and use tax or annexation of the area in the entity.

Sales Tax Challenges Comptroller is required to withhold and pay the amount withheld to the ESD under policies or procedures that the Comptroller considers reasonable. This results in City not receiving full additional sales tax from annexed area that remains in the ESD

Sales Tax Challenges This process does not apply if and during any period in which an ESD has outstanding indebtedness or obligations that are payable wholly or partly from the sales and use tax revenue of the entity.

Solutions But, the law provides options for resolving challenges through: Sales Tax Sharing Agreement Economic Development Agreements Other Interlocal Cooperation Agreements

Solutions Sales Tax Sharing Agreement Authorized by ESD Statute Allows City and ESD to agree to allocation of sales tax revenue in the annexed area Comptroller must pay out sales tax pursuant to agreement

Solutions Economic Development Agreements Under City s general authority for these types of agreements 380 Tax Agreements 312 Tax Abatement Agreements 311 Tax Increment Financing Others

Solutions Interlocal Cooperation Agreements Shared programs Service related Communications Fire Code/Fire Marshal Administration More

Things to Remember Communication is Key Early and often Keep Perspective City focus on City residents and taxpayers ESD focus on ESD residents and taxpayers These are not necessarily the same group Vision Think outside the box to achieve win-win

Questions?