Texas high court hears challenge to Corsicana, Navarro County economic development grant

May it please the court: advocates for and against the City of Corsicana and Navarro County''s economic-development agreement told the Texas Supreme Court on Wednesday that the key question is how to read Article 3, Section 52(a) of the Texas Constitution against preexisting gift-clause jurisprudence. Petitioner counsel argued the constitutional amendment authorizing economic-development grants authoritatively allows the legislature and local governments to structure conditional grants, while the city and county''s lawyers and the State amicus urged the court to preserve the court''s established three-part gift-clause test (TML/Borgelt) that looks to public purpose and "controls."

Why it matters: the case challenges whether cities and counties may continue to make sales-tax or other incentive payments to private developers years after projects are completed, and whether local taxpayers retain a judicially enforceable protection against grants that function as private gifts.

Petitioner counsel told the court that "the constitutionality of economic development grants is governed by the 1987 enactment of Article 3, Section 52(a) of the Texas Constitution" and urged that the amendment authorized the legislature to permit public loans and grants for economic-development purposes without reopening older gift-clause restrictions. He added that the specific Corsicana agreements required the developer to obtain a $10,000,000 construction loan, build a retail center, and provide regular reports, and therefore met any controls test in practice.

Representing Corsicana and Navarro County, Harry Jacobson acknowledged that courts historically have required controls to prevent grants from becoming private gifts: "the control element ... is absolutely critical to all of this," he told the court. Jacobson argued the interlocal agreement at issue lacked adequate contractual controls tying the redirected taxes to continuing public benefit and that TML and subsequent opinions require courts to scrutinize whether those controls exist and function.

Amicus counsel representing the State emphasized a middle ground: Section 52(a) modulates only the public-purpose requirement of the gift clause, not the remainder of the gift-clause test. The amicus warned that a broad reading of Section 52(a)''one that would permit money to be given under a paper-thin economic-development label''would "permit government entities to give away taxpayer funds under the paper-thin veil of economic development."

The argument turned on several linked issues raised by the justices: whether courts should evaluate the public purpose as articulated at the time the grants were approved, whether the constitution contemplates review of each periodic payment or the program as a whole, and what contractual controls (for example, clawbacks or withholding of future payments) are necessary to prevent a prohibited gift. Counsel for the local governments said the grant was "self-regulating": no redirected tax payments would be made unless the retail center and surrounding development produced sales tax revenues; opponents countered that without explicit, enforceable clawbacks or surveillance mechanisms the public could be left without meaningful remedy.

Background and factual points raised in argument: the agreements at issue date to the early 2000s, required the developer to secure construction financing and to build an 87,000-square-foot retail facility (the Gander Mountain project), and led to periodic payments tied to sales taxes after the retail opening; those payments were made for about 11 years, the parties said. The record also contains a 20-year tax increment financing (TIF) overlay that deferred receipt of certain ad valorem tax increments until the TIF expired. Counsel for the city and county said the payments stopped after Gander Mountain closed and the county ultimately sought judicial relief.

What the court asked: Justices probed whether Section 52(a)'s "notwithstanding" clause displaces the other gift-clause requirements, whether the court should measure the public purpose at the time of the original agreement, and whether courts should permit post-hoc judicial second-guessing that could allow local governments to repudiate bargains after the fact. Counsel debated whether courts reviewing these disputes should be deferential to the local-government determinations of public purpose, or whether meaningful judicial review of the controls element remains essential.

Next steps: The court will decide whether to sustain the Court of Appeals' judgment voiding payments here (and whether to refine the statutory or constitutional test that governs municipal grants). Any reversal or reaffirmation could affect the structure of future local economic-development contracts, the use of sales-tax incentives, and local governments' ability to rely on long-term incentive agreements.

Details: The parties repeatedly referenced Article 3, Section 52(a) of the Texas Constitution, the gift-clause jurisprudence developed in Texas Municipal League (TML) and Borgelt opinions, and cases such as Davis v. City of Taylor and Bullock v. Calvert. The record includes written interlocal agreements and an interlocal clause (section 7) stating the city and county had no obligation to pay unless the retail center was completed. The parties also discussed attorney-general opinions and the Comptroller filing requirements for local development agreements enacted by statute.