RRISD Freeport Tax Exemption Supported by Round Rock Chamber

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Feb 26th, 2015

ROUND ROCK, Texas – The Round Rock Chamber of Commerce & Economic Development Partnership today announced that it is supportive of the Round Rock Independent School District (RRISD) Board of Trustees voting to exempt the freeport tax liability of area businesses. The freeport tax is a property tax on goods and materials used in the manufacturing process for products that will be shipped out-of-state no later than 175 days. The chamber has long advocated that the tax is highly detrimental to economic development projects related to the manufacturing sector.

“The freeport tax puts Round Rock in a significant competitive disadvantage when it comes to retaining, expanding, and attracting manufacturing-related companies,” said Ben White, the chamber’s vice president of economic development. “With the RRISD exemption, we would immediately put ourselves in a favorable position with a number of high-quality prospects, which would further grow property tax revenue for the district.”

The tax, which can be collected by governmental bodies in the state, was eliminated by constitutional amendment in 1990. A provision within the amendment, however, allowed taxing entities to “opt in” to continue collections with the ability to exercise an irrevocable exemption if they chose to do so in the future. The City of Round Rock exercised this exemption in 1990, while Williamson County followed suit in 2010. When all three entities (i.e., city, county, school district) offer the exemption, it is generally referred to as a “triple freeport” community. Most communities surrounding Round Rock, including Cedar Park, Hutto, Leander, and Pflugerville, have a “triple freeport” status.

A recent analysis performed by Moak, Casey & Associates, an expert in school financing, identified that there are forty businesses within the RRISD’s coverage area that have a 2015 freeport liability. Based on the current tax rate, that liability equals approximately $5.9 million, which includes both the maintenance and operations and the debt service on capital-related bonds. In order to ensure that the district doesn’t experience a revenue drop in the short term after offering the exemption, the chamber has proposed asking affected companies to sign a payment-in-lieu-of-payment (PILOT) agreement. These five-year contracts would require the companies to pay their full tax amount in 2015, but would only be required to pay the debt service portion (approximately 25 percent) in years 2016 through 2019. The state’s funding formula would increase to replace the lost maintenance and operations dollars based on a recalculated property tax liability. Beginning in 2020, all affected companies would be exempt.

The five-year timeframe would allow the chamber to attract other manufacturing-sector companies; thus increasing the RRISD tax rolls above the debt service levels. Based on the chamber’s current economic development prospect pipeline, the organization stated that they are extremely confident that they would far exceed the necessary revenue targets.

The chamber presented their PILOT plan at the January RRISD board meeting. Their hope is that the board will vote to offer the exemption in the very near future.

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