2021-092 2020 Net Revenue Report on Economic Development IncentivesDate: October 29, 2021 Report No. 2021-092
INFORMAL STAFF REPORT
TO MAYOR AND CITY COUNCIL
SUBJECT:
2020 Net Revenue Report on Economic Development Incentives
BACKGROUND:
In 2009, the Department of Economic Development created the initial “Return on Investment
Report” to examine the fiscal impact to the City made by the businesses that have received property
and sales tax incentives, evaluate the efficiency of the public investment, and to guide future policy
decisions. The following changes have been made to the report over the years:
2010: State of Texas and Denton County Transportation Authority sales tax revenue was
added.
2013: The report was expanded to include the ad valorem revenue for Denton County,
which includes both the incentives in which the County has partnered with the City, as well
as the revenue from the incentives that the County did not invest in.
2015: Inclusion of Denton Independent School District (DISD) information.
2016: The report was redesigned and can be distributed as one-page City summary or
complete report.
2020: The report was redesigned and condensed.
The attached 2020 Net Revenue Report is the eighth update of the report, which provides an overall
look at what the City of Denton received in the way of direct benefits (property and sales tax
revenues) as well as the indirect benefit of new jobs created or existing jobs retained by those
companies and developments that received incentives.
The report covers a tax year schedule, so there is a time delay of when the report is released. The
property tax valuation is based on the values that are released by the Denton Central Appraisal
District (DCAD) for the previous tax year. The certified valuations, released at the end of July, are
compiled from the DCAD website and sent out on a City of Denton Verification Form to the
appraisal district.1 The tax bills are distributed from Denton County in October. The calculations
for the contested properties are prepared upon receipt of the Verification Form from the appraisal
district, which occurs sometime after October until the delinquency deadline in the early part of
the following year, if the property valuation is contested. DCAD also contracts out some of their
accounts to Wardlaw, which may also delay the valuation data for incentives. The remaining
incentive rebates are calculated, checked and processed in the Spring.
The report provides information through 2020 and includes the following:
Property valuation (cumulative since year agreement approved, excluding base year)
Property tax generated (cumulative since year agreement approved, excluding base year)
Sales tax generated – if applicable (cumulative from initiation of sales tax monitoring)
1 The City of Denton Verification Form also includes a request for the breakdown of the Business Personal Property
(BPP) that is not available on the website and a section that notifies the City if the property is being contested. The
incentive calculations occur for the uncontested properties following the receipt of the forms from DCAD. The City
notifies DCAD if the threshold has been met by companies for all of the tax abatements.
Date: October 29, 2021 Report No. 2021-092
Net property and sales tax revenues (total revenues less incentives)
Cost/benefit Percentage (net revenue divided by the incentive and multiplied by 100)
Ratio of Return (net revenue less incentive, then divided by the incentive)
New jobs created by project
Standard economic development practice for impact analysis is 10 years, so the incentives in the
report are tracked for 10 years regardless of the term. For example, an incentive with a term of
seven years is tracked for an additional three years until the 10-year period is reached. An incentive
is not deducted for the remaining three years following the term. This practice allows for more of
a “apples to apples” comparisons between incentives.
Incentives for expansion projects such as Jostens, Peterbilt Motors, and Flowers Foods are based
only on the new value created by the project. The existing valuation that was relative to each of
these projects was not included in the calculations.
FISCAL INFORMATION:
The City has awarded 35 incentives to foster development in the community, with 27 being
represented in this report. The remaining incentives have not initiated, were terminated, or are not
ad valorem or sales tax based. The City has invested $29.9 million in tax-related incentives, and
in return, has benefited from a net increase in property and sales tax revenues of $91.6 million
since the inception of the incentive program in 1999. The cost benefit percentage for all incentives
awarded is 307%. There have been 10,581 jobs created or retained by incentivized projects. The
table, which follows, provides the net revenue summary for the City, County and school district.
City, County and DISD Net Revenue Summaries
Total of all Property Incentives Ratio of
Return City of Denton Denton County Denton ISD
Cumulative Property Valuation $9,444,847,886 $4,306,191,483 $4,469,212,423
Cumulative Property Tax Generated $62,087,732 $10,813,945 $67,618,682
Cumulative Sales Tax Generated $59,417,524 $0 $0
Cumulative Property & Sales Tax $121,505,256 $10,813,945 $67,618,682
Less Incentives $29,886,144 $1,118,570 $621,572
Net Property and Sales Tax Revenue $91,619,112 $9,695,375 $66,997,110
Cost Benefit Percentage 307% 867% 10,779%
Ratio of Return 3.1 8.7 107.8
Date: October 29, 2021 Report No. 2021-092
Denton County has participated in a total of eight Denton incentives, and Denton Independent
School District has participated in two Denton incentives. Texas school districts were at one time
able to offer tax abatements similar to those of cities and counties, but that authority was repealed
by the Texas Legislature.2
CONCLUSION:
Incentives are an important tool that can be used to attract or retain private investment in Denton.
Since the majority of the incentive options available to Denton are tax based, tracking and reporting
on the cost/benefit of the incentives awarded by City Council enhances transparency, supports
fiscal responsibility, and aids in future decision-making regarding incentives.
ATTACHMENT(S):
2020 Net Revenue Report
STAFF CONTACT:
Erica Sullivan
Economic Development Program Administrator
(940) 349-7731
Erica.sullivan@cityofdenton.com
REQUESTOR: Staff initiated
PARTICIPTAING DEPARTMENTS: Economic Development
STAFF TIME TO COMPLETE REPORT: 35+ hours
2 School finance involves a complex funding formula from a number of different federal, state and local funding
sources. It is important to note that the report uses the entire DISD tax rate, which includes the Maintenance and
Operations (M&O) and Interest and Sinking (I&S) tax rates. The M&O portion of the tax rate is used for salaries,
utilities, supplies etc. The I&S portion of the tax rate is used to fund payments on debt service for facilities and is the
only portion of the DISD tax rate that is not affected by funding from the State of Texas.
Report on Net Revenue from
Incentivized Economic
Development Projects
City of Denton
Economic Development Department
2020
2020 City of Denton Net Revenue Report
1
BACKGROUND AND PURPOSE
The City of Denton promotes high‐quality development that improves the quality of life of its residents. The City
uses economic development incentives to stimulate private development and redevelopment, expand the tax
base, generate jobs, and enhance the local economy. Denton is home to several corporate, regional, and
international headquarters, as well as central distribution and maintenance facilities. The City facilitated a number
of these projects by granting incentives to make the project feasible and to reimburse the costs of required public
infrastructure.
In 2009, the City of Denton Economic Development Department created the initial Net Revenue Report to examine
the fiscal impact made by the businesses that have received property and sales tax incentives from the City,
evaluate the efficiency of the public investment and to guide future policy decisions. State and DCTA sales tax
revenue were added in 2010. In 2013, the report was expanded to include the revenue for Denton County, which
includes both the incentives in which the County has partnered with the City, as well as the revenue from the
incentives that the County did not invest in. The report comprised all of the taxing entities with the inclusion of
Denton Independent School District (DISD) in 2015. The report was redesigned in 2016 and again in 2020.
This is the eighth update of the report, which provides a comprehensive look at the fiscal impact made by the
businesses that have received property and/or sales tax incentives from the City and evaluates the efficiency of the
public investment. The total incentive received by the company, the City tax revenues generated since the
agreement was initiated and the cost/benefit of the projects are provided. In addition, the report includes
information regarding state, Denton County Transportation Authority (DCTA), Denton County, and DISD ad valorem
and sales tax revenues created by these developments.
CITY OF DENTON
The City has awarded 35 incentives to foster development in the community, with 27 being represented in this
report. The remaining incentives have not initiated, were terminated, or are not ad valorem or sales tax based. The
City has invested $29.9 million in tax‐related incentives, and in return, has benefited from a net increase in
property and sales tax revenues of $91.6 million since the inception of the incentive program in 1999. The cost
benefit percentage for all incentives awarded is 307%. Chapter 380 sales tax rebate incentives represented the
highest percentage at 335%, followed by Chapter 380 property tax rebates and property tax abatements at 202%
and 298%, respectively. There have been 10,581 jobs created or retained by incentivized projects.
10,581 307% $9.4B $91.M
New Jobs Benefit Property Valuation Net Revenue
Table 1: City of Denton Summary
Total of all Property Incentives Property Tax Totals Sales Tax Total Total
Cumulative Property Valuation $4,469,212,423 $4,975,635,463 $9,444,847,886
Cumulative Property Tax Generated $28,606,136 $33,481,596 $62,087,732
Cumulative Sales Tax Generated $0 $59,417,524 $59,417,524
Cumulative Property & Sales Tax $28,606,136 $92,899,120 $121,505,256
Less Incentives $8,539,236 $21,346,908 $29,886,144
Net Property and Sales Tax Revenue $20,066,900 $71,552,212 $91,619,112
Cost Benefit Percentage 235%335%307%
Jobs Created/Retained 6,861 3,720 10,581
2020 City of Denton Net Revenue Report
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TAXING JURISDICTIONS
The Ratio of Return is included below. See Appendix A for information on the methodology for this report.
3:1 8:7 107:8
City of Denton Denton County Denton ISD
Table 2: City, County and DISD Summaries
Total of all Property Incentives Ratio of
Return City of Denton Denton County Denton ISD
Cumulative Property Valuation $9,444,847,886 $4,306,191,483 $4,469,212,423
Cumulative Property Tax Generated $62,087,732 $10,813,945 $67,618,682
Cumulative Sales Tax Generated $59,417,524 $0 $0
Cumulative Property & Sales Tax $121,505,256 $10,813,945 $67,618,682
Less Incentives $29,886,144 $1,118,570 $621,572
Net Property and Sales Tax Revenue $91,619,112 $9,695,375 $66,997,110
Cost Benefit Percentage 307% 867% 10,779%
Ratio of Return 3.1 8.7 107.8
The 2020 report provides the ad valorem revenue that Denton County received from all of the incentives awarded
by the City of Denton. The cost/benefit is also provided for the seven Tax Abatements and the two Chapter 380
Agreements in which the County jointly participated with the City to stimulate economic growth. Chapter 312 of
the Texas Property Tax Code authorizes taxing entities to provide tax abatements. Chapter 381 of the Local
Government Code authorizes counties to provide loans or grants to support economic development activities.
The County has invested a total of $1.1 million in tax related incentives, and in return, has benefited from a net
increase in property tax revenues in the amount of $9.7 million since the inception of the incentive program in
1999. The cost/benefit for all of the incentives awarded (joint and City only) is 867%. The cost/benefit from all of
the tax abatements and Chapter 380/381 property tax incentives was 526% and 3,038%, respectively.
The report was expanded in 2015 to include the ad valorem revenue that DISD has received from all the incentives
awarded by the City. The cost/benefit is also provided for the two tax abatements in which DISD jointly
participated with the City to stimulate economic growth. (Note: Texas school districts were at one time able to
offer tax abatements similar to those of cities and counties, but that authority was repealed by the Texas
Legislature). It is also important to note that the report uses the entire DISD tax rate, which includes the
maintenance and operations and interest and sinking portions of the tax rate.
DISD has invested a total of $621,572 in tax related incentives, and in return, has benefited from a net increase in
property tax revenues in the amount of $67.0 million since the inception of the incentive program in 1999. The cost
benefit percentage from all of the tax abatements alone was 6,364%. The cost/benefit from all of the incentives
awarded is 10,779%.
2020 City of Denton Net Revenue Report
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DIRECT AND INDIRECT IMPACTS
Graph 1: New Taxable Value Created in Denton
$1,840,438,844
$4,975,635,463
$2,628,773,579
$‐
$1,000,000,000
$2,000,000,000
$3,000,000,000
$4,000,000,000
$5,000,000,000
$6,000,000,000
Chapter 380 Property Tax Chapter 380 Sales Tax Property Tax Abatements
Graph 2: New Jobs Created in Denton
STATE AND LOCAL SALES TAX REVENUES
Table 3 provides the breakdown of the total revenue to City, State, and the Denton County Transportation
Authority (DCTA) from sales taxes generated at the major retail developments that have received incentives from
the City of Denton. The State of Texas collects sales and use taxes from all retail sales and taxable services. The
State has directly benefited from the incentives awarded for these mixed‐use developments. Since 2005, the State
2020 City of Denton Net Revenue Report
4
of Texas has received a total of $246 million in additional sales tax revenues as a result of the incentives awarded
by the City. The state revenues comprise 76% of the total sales taxes generated by these mixed‐use centers.
Table 3: City, State, and DCTA Sales Tax Composition
Rates Totals
Total Sales $3,937,099,600
Total City Sales Tax Generated $0.02 $59,056,494
Total State Sales Tax Generated $0.06 $246,068,725
Total DCTA Sales Tax Generated $0.01 $19,685,498
Total Sales Tax Generated $0.08 $324,810,717
Confidential information has been removed, but is included in the total
Table 4: Total City, State, and Local Sales Tax Cost/benefit
Development Totals
Sales Tax Generated $324,810,717
Less Sales Tax Incentive $20,985,878
Total Net Revenue $303,824,839
Cost Benefit Percentage 1,448%
Chart 1: City Sales Taxes Generated and Rebated
CONCLUSION
Incentives are an important tool that can be used to attract or retain private investment in Denton. Since the
majority of incentive options available to Denton are tax based, tracking and reporting on the cost/benefit of the
incentives awarded by City Council enhances transparency, supports fiscal responsibility, and aids in future
decision‐making regarding incentives.
2020 City of Denton Net Revenue Report
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APPENDIX A
METHODOLOGY
This report represents the eighth update of the Net Revenue Report. The incentives are tracked for ten years
regardless of the term. Standard economic development practice for impact analysis is ten years. For example, an
incentive with a term for seven years is tracked for an additional three years until the ten‐year period is reached.
An incentive is not deducted for the remaining three years following the term. This is standard practice and also
allows for more commensurable comparisons between incentives.
The ad valorem or property tax valuation is based on the values that are released by the Denton Central Appraisal
District (DCAD) for the previous tax year. The certified valuations, released in July, are compiled from the DCAD
website and sent out on a City of Denton Verification Form to the appraisal district. This form also includes a
request for the breakdown of the Business Personal Property (BPP) that is not available on the website and a
section that notifies the City if the property is being contested. The incentive calculations occur for the
uncontested properties following the receipt of the forms from DCAD. The City notifies DCAD if the threshold has
been met by companies for all of the tax abatements. DCAD also contracts out some of their accounts to Wardlaw.
The tax bills are distributed from DCAD in October. The calculations for the contested properties are prepared
upon receipt of the Verification Form from the appraisal district, which occurs sometime after October until the
early part of the following year.
Sales tax is collected by calendar year and is based on the allocation month that the sales tax report from the Texas
Comptroller of Public Accounts is received. Sales tax is generated two months prior to the receipt of the reports
from the state comptroller. Sales tax generated in December 2019 is reported to the City in February of 2020, for
example. Historical tax rates for Denton County and DISD, dating back to 1999, were gathered for this study from
DCAD, Denton County, and DISD. The terms for the incentives were provided by Denton County and DISD, as
several of the agreement terms and investment percentages differ from the terms of the City.
Property tax is included from the base year of the economic development agreements or the first tax year that was
available from DCAD when the initial report was compiled. Sales tax revenue reflects the revenues received since
the initial tracking began or the grant payments were initiated. For example, the Unicorn Lake Agreement was
approved in 2004; however, the first grant payment was made in 2009 after the thresholds were met. Property
valuation for Unicorn Lake is cumulative since 2006 and sales tax is provided beginning in 2009. Sales tax
monitoring for Rayzor Ranch began in 2010 prior to the receipt of the first payment in July 2012 to assist the City
with preparing the 5‐year forecast during the budgeting process. The incentive for Golden Triangle Mall was
initiated in the summer of 2016, so only half of a year of rebates are included in the report. Tracking for the
development began in 2013.
School finance involves a complex funding formula from several different federal, state and local funding sources.
As aforementioned, the report uses the entire DISD tax rate, which includes the Maintenance and Operations
(M&O) and Interest and Sinking (I&S) tax rates. The M&O portion of the tax rate is used for salaries, utilities,
supplies etc. The I&S portion of the tax rate is used to fund payments on debt service for facilities and is the only
portion of the DISD tax rate that is not affected by funding from the State of Texas.
This study seeks to aid in the decision‐making process by providing the net revenue from the incentivized projects.
The calculations for the net revenue and cost/benefit are included below.
Net Revenue = Revenues (property only and or sales tax generated) ‐ incentive
The report carries these calculations a step further to obtain the Cost/benefit of the incentive projects.
2020 City of Denton Net Revenue Report
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Cost/benefit Percentage = Net revenue/incentive X 100
It is important to note that the report only gathers the sales tax generated from the projects which received a sales
tax incentive. These include: Denton Crossing, Unicorn Lake, Rayzor Ranch, Golden Triangle Mall, Buc‐ee’s, WinCo
and O’Reilly. Other projects, such as Schlumberger, generate sales taxes that would not have been generated in
Denton if the business had not located in this community. This study takes a more conservative approach and does
not include the sales taxes for the ad valorem only incentives.
The rate of return provides the net revenue of the taxes generated relative to the cost of the incentive, as a ratio.
The ratio of return for the City in 2020, for example, was 3:1. Another way of putting this is that the City received 3
times the revenue of the incentive forgone. The formula is presented below.
Ratio of Return = Net Revenue (property only and or sales tax generated‐incentive)/incentive
2020 City of Denton Net Revenue Report
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2020 Update Prepared by:
Erica Sullivan, Economic Development Program Administrator
City of Denton
401 N. Elm St.
Denton, Texas 76201
940‐349‐7776