The Law Behind Fulshear's Development Deals: Chapter 380, Explained
If you've followed coverage of the Home Depot deal or wondered why the city "gives money back" to developers, this is the law that makes it all possible — and it's simpler than it sounds.
If you’ve spent any time watching Fulshear City Council meetings — or reading about them here — you’ve heard the phrase “Chapter 380 agreement.” It came up with the Home Depot proposal. It’s behind Fulshear Marketplace. The city currently lists five of these agreements on its website.
But what is a Chapter 380 agreement? Where does the money come from? And is the city “giving away” tax dollars, or doing something smarter than that?
Let’s walk through it in plain English.
The short version
Chapter 380 of the Texas Local Government Code is a state law that lets Texas cities offer financial incentives — grants, loans, even city services — to businesses and developers in exchange for economic development. In practice, the most common form looks like this:
A business agrees to build something in the city. The city agrees that once the business is open and generating tax revenue, it will return a portion of that new revenue for a limited time.
That’s the whole basic idea. The details — how much, for how long, and with what strings attached — are negotiated deal by deal, and that’s where good agreements are separated from bad ones.
Where the law came from
In 1987, Texas voters approved a constitutional amendment (Proposition 4) declaring that economic development is a legitimate public purpose — a necessary step, because the Texas Constitution generally prohibits governments from giving public money to private parties. Two years later, in 1989, the Legislature passed Chapter 380 to put that authority into the hands of cities.
The operative language is remarkably brief. Section 380.001 says a city council:
“may establish and provide for the administration of one or more programs, including programs for making loans and grants of public money and providing personnel and services of the municipality, to promote state or local economic development and to stimulate business and commercial activity in the municipality.”
That’s essentially it. The Texas Municipal League has noted that the statute’s usefulness is “limited only by the creativity of the municipality utilizing it.” Unlike some other economic development tools in Texas law, Chapter 380 doesn’t prescribe eligibility rules, caps, or formulas. It hands cities a blank canvas — which is both its power and, critics would say, its risk.
How a typical deal actually works
Because the statute is so open-ended, cities have developed a fairly standard playbook. A typical Chapter 380 agreement in a city like Fulshear involves a sales tax rebate:
The setup. When you buy something in Fulshear, you pay 8.25% sales tax. Of that, 6.25% goes to the State of Texas, 1% goes to the City of Fulshear’s general fund, and 1% goes to the city’s two development corporations. The city can only pledge money it actually controls.
The deal. A retailer or developer agrees to build in the city. The city agrees to rebate a negotiated share of the city’sportion of the new sales tax the project generates — for a set number of years, usually with a dollar cap.
The performance requirements. The business only gets paid if it delivers: opening by a certain date, building to a certain standard, sometimes creating a certain number of jobs. Well-drafted agreements include “clawback” provisions that allow the city to recover funds if the recipient doesn’t hold up its end.
The Home Depot proposal I wrote about earlier is a textbook example: a 25% rebate of the city’s 1% general-fund sales tax for five years, capped at $2 million — with the city keeping the other 75% from day one, and 100% after the rebate period ends.
Why cities like this structure
Here’s the feature that makes Chapter 380 deals different from a simple giveaway: the money being rebated doesn’t exist until the project does.
If the store never gets built, the city pays nothing. If it gets built but underperforms, the rebate shrinks with it, and a dollar cap limits the city’s total exposure. The city is not writing a check from existing revenue — it’s agreeing to keep a smaller share of new revenue it wouldn’t otherwise have collected for a limited time.
That’s also the honest way to frame the tradeoff. The relevant question is never “why is the city giving money to a profitable company?” It’s “would this project, this revenue, and these jobs exist inside our city limits without the agreement?” Sometimes the answer is clearly yes, and the incentive is a waste. Sometimes a project can just as easily land a mile outside city limits — where Fulshear gets the traffic but none of the revenue. Judging that question, deal by deal, is precisely the job we elect a council to do.
The guardrails
Chapter 380’s flexibility comes with a few important checks:
Council approval in public. A city must establish a 380 program and approve agreements through its governing body. The negotiations themselves can happen behind closed doors — Texas law allows councils to discuss economic development negotiations in executive session — but the vote happens in an open meeting.
Public purpose. Every dollar must serve a public purpose under the Texas Constitution, which is why agreements are built around performance benchmarks rather than unconditional gifts.
A statewide public database. Since January 1, 2022, state law has required every local government to report new, amended, or renewed Chapter 380 agreements to the Texas Comptroller within 14 days, with a $1,000 penalty for failing to do so. Anyone can search the Comptroller’s Local Development Agreement Database online, and cities must link to it from their websites. Fulshear’s agreements — Perry Homes, Highland Homes, Thomas Blackburn, Fulshear Marketplace, and MS Huggins — are also posted on the city’s Chapter 380 page.
The honest criticisms
No explainer would be complete without them. Critics — including the Texas Public Policy Foundation — raise fair points: negotiations happen out of public view until a deal is essentially done; it’s hard to prove a business wouldn’t have come anyway (economists call this the “but for” problem); and neighboring cities can end up bidding against each other for the same store, with the retailer pocketing the difference. Those concerns are why the Legislature added the disclosure database in 2021, and why the quality of any individual agreement — its benchmarks, its caps, its clawbacks — matters far more than the label on it.
The bottom line
Chapter 380 is a tool, not a verdict. It lets Fulshear compete for projects it wants, pay only for performance it actually receives, and attach binding conditions — on infrastructure, operations, even landscaping and lighting — that the city couldn’t otherwise demand. Whether any particular deal is good for Fulshear depends on what the council negotiates into it.
Which is exactly why these agreements deserve our attention every time one comes before council. Now, when you hear “Chapter 380” at a meeting, you’ll know precisely what’s on the table: our city, deciding how much of tomorrow’s new revenue to trade for making sure tomorrow happens here.
Sources: Texas Local Government Code Chapter 380; Texas Comptroller of Public Accounts, Chapter 380-381 Economic Development Agreements; City of Fulshear, Chapter 380 Agreements and Property & Sales Tax pages; Texas Municipal League Economic Development Handbook materials; Texas Public Policy Foundation, “Chapter 380: Economic Development Agreements.”
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