Back last fall, the city of Richardson approached RISD requesting that we grant an exemption from the ad valorem tax of “freeport property,” which refers to business inventories destined for out-of-state shipment as allowed by section 11.251 of the Tax Code.

The purpose of the exemption would be to promote economic development. While Richardson currently has a healthy economy, many surrounding cities such as Plano, Garland, Allen, McKinney and Frisco are wooing our Telecom Corridor companies with promises of a “triple freeport” tax exemption from city, county and school district taxes.

With the recent announcements of moves by Alcatel and Ericsson to areas just north of us, it is easy to see how RISD must be responsive to competitive forces. Thus freeport is becoming an economic necessity to preserve our existing tax base.

Since the decision to exempt freeport property is irrevocable, we studied the impact of this action very carefully. In addition, our staff sought advice from Moak, Casey and Associates, L.L.P., and Strasburger & Price, L.L.P.

Here’s what we found:

  • The tax revenue generated by freeport doesn’t stay in RISD because it passes directly to the state as part of the “Robin Hood” recapture calculation.
  • Our recapture amount is based upon last year’s tax revenues, so we would have to remit freeport money to the state next year even if we don’t collect it this year.
  • In subsequent years, freeport exemptions and recapture funds would be a wash.
  • Thus, in the first year RISD will have a freeport shortfall of $1 million. Thereafter there will be no financial impact on our general fund tax revenues.

We then approached our 10 largest freeport-affected taxpayers and asked them to help minimize our first year loss. All these taxpayers agreed to contribute an amount equal to their tax exemption, which equals 80 percent of the total shortfall. As of March, we closed the gap to only a 10 percent shortage.

At the March 1 meeting, we voted unanimously to grant the freeport tax exemption for the tax year 1999 and all subsequent years.

RISD appreciates the support we received from our taxpayers. We find that granting this exemption will not harm the education of any of our students. Further, we believe it will strengthen, stabilize and encourage growth in the RISD tax base.