Now that Lewisville’s third Tax Increment Reinvestment Zone is set to become a reality, I wanted to get into a more detailed breakdown of what a TIRZ is and how exactly this is going to work.

A TIRZ is a designated area in which property taxes are rearranged to go toward debt on public improvements, in such a way that they are contingent on those improvements. The taxing entities agree to limit the amount of taxes they receive from a given area. As property value, and therefore tax revenue, increases, a percentage of the increased tax revenue will be put into the TIRZ fund. That money will go toward debt for the area improvements which are making that property value increase.

This graph, taken from the TIRZ 3 project and financing plan, visualizes how TIRZ money works. Taxing entities still collect the base value, and the increased value goes toward the TIRZ fund. Once the TIRZ ends, taxing entities begin to collect the full value again. (Chart courtesy City of Lewisville)

Let’s take the new TIRZ as an example. Right now, according to the reinvestment projection plan, that property currently represents $434,297,188 of taxable value. Current tax rates for Lewisville and Denton County, which would be the primary local taxing entities on this area, are about 44 cents and 27 cents, respectively, per $100 worth of value. For every $100 a piece of property is worth, the owner will owe about 44 cents to the city and about 27 cents to the county. The combined tax rate for Lewisville ISD, the other primary taxing entity over this area, is $1.43 per $100 valuation. The amount paid in actual property taxes tends to increase each year as property value rises, but the actual tax rate is unlikely to change much.

Currently, the property encompassed by Lewisville’s new TIRZ, which be established with the Castle Hills annexation that is tentatively planned for 2021, will owe about $9,293,960 in property taxes — about $6,210,449 to LISD, about $1,910,907 to Lewisville and about $1,172,602 to the county.

With the TIRZ, taxes will continue to be levied and the amount of money owed by the owners on that property will continue to increase with the property value, but Lewisville and Denton County will forgo all or most of those increases. Lewisville will contribute 100 percent of its increases to the TIRZ fund, and Denton County will contribute 80 percent. This money will first go toward paying off the Castle Hills districts’ current $65.31 million in combined debt and then toward reimbursing the developer for up to $88.686 million.

By 2028, the area encompassed by the TIRZ will have a projected $2,245,205,042 in taxable value. That means, assuming the tax rate doesn’t change, the owners of that property will owe a combined $48,047,387 in property taxes — but Lewisville will still only collect $1,910,907 of that. The rest of the money collected by Lewisville’s 44 cent tax rate, about $7,897,116, will go toward paying off the TIRZ.

Denton County, which is only contributing 80 percent of tax increases, will collect about $2,794,103 and contribute about $3,267,950 to the TIRZ. The city and county will not see a full share of the increased tax revenues until the combined $154.996 million is paid off. Then, after that, Lewisville and Denton County will begin collecting the full taxes on the area. According to the financing plan, the TIRZ will cross that threshold with $158,551,622 in cumulative zone revenue by 2035.

LISD, which is not participating in the TIRZ, will draw about $32,106,432 from the area in 2027. A lot of that money will pass right through LISD and to the State of Texas due to nuances in school district finance law, but we’re including it here as a reference to how much tax revenue is expected to increase in the area.

This becomes Lewisville’s third TIRZ. TIRZ 1 has helped fund public improvements in Old Town since 2001, with the city forgoing 100 percent of increased property value and the county participating at a decreasing rate over the TIRZ’ life cycle — Denton County is currently participating at 80 percent, which will go down to 75 percent in 2021. This TIRZ has $5.5 million in remaining debt.

TIRZ 2 was established in 2008 to fund development near Hebron Station, mostly in the large block between Hebron Parkway and Sam Rayburn Tollway northeast of I-35E. While the other TIRZ zones are paying off debt for existing development, this TIRZ is collecting cash to pay up front for future development in the area. The city and county are both participating in this TIRZ at 80 percent. According to the original project plan, this TIRZ was projected to collect $1.7 million in revenue by the end of fiscal year 2019.

While Castle Hills annexation currently looks imminent for 2021, it’s a moving target, and there’s still a lot that could change between now and then. You can read more about Castle Hills’ complicated legal status and the nuances involved with annexing it here.

In addition to establishing a third TIRZ, Castle Hills’ annexation will also change the makeup of City Council by adding geographic districts to each council seat, a charter amendment voted on by Lewisville citizens last year. Currently, all council members can be elected from anywhere in the city, but once Castle Hills is annexed, they will be elected from residential districts, but will be voted on by all the citizens and represent the whole city.

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