Development Agreements in Texas and Missouri: The Incentive Tools and How a Developer Enforces Them

A development agreement between a private developer and a municipality or other political subdivision raises a question that an ordinary real estate contract does not: whether the public party’s promises are enforceable if a later administration declines to perform. Public incentive programs in Texas and Missouri are extensive, and a developer can usually assemble grants, reimbursements, tax abatement, and captured tax increment to close a project’s financing gap. The enforceability of the resulting commitments, however, turns on two bodies of law that differ between the states: the constitutional limits on public support of private development, and governmental or sovereign immunity. This article surveys the incentive tools available in each state and the enforceability framework that governs them, written from the perspective of the developer and its counsel.

Scope. This piece addresses development agreements between private developers and municipalities or other political subdivisions in Texas and Missouri: the common incentive tools, the constitutional limits on public support, and the immunity rules that determine enforceability. It does not address federal tax-credit programs (LIHTC, HTC, or Opportunity Zones), the mechanics of bond issuance, or competitive-bidding and open-meetings compliance except where those bear on how the agreement is drafted.

The available incentive tools

The two states reach similar economic ends through different statutory machinery. The governing authority matters to the developer, because it sets both the ceiling on what the public party may give and the mechanism by which the commitment is enforced.

In Texas, the most common instrument is the Chapter 380 economic development grant, which authorizes a city to make loans and grants of public money and to provide personnel and services to promote economic development. Tex. Loc. Gov’t Code Ch. 380; the county analog is Chapter 381. For land in a city’s extraterritorial jurisdiction, the Section 212.172 development agreement governs annexation, land use, and vesting for a fixed term. Tex. Loc. Gov’t Code § 212.172. Inside the city, development participation agreements address cost-sharing on public improvements. Tex. Loc. Gov’t Code § 212.071. Layered on these are tax increment reinvestment zones under Tax Code Chapter 311 and tax abatement agreements under Chapter 312.

In Missouri, the parallel tools are tax increment financing under the Real Property Tax Increment Allocation Redevelopment Act, RSMo §§ 99.800 to 99.865; Chapter 353 urban redevelopment, which abates property tax on improvements in a blighted area for up to 25 years through a for-profit urban redevelopment corporation, RSMo §§ 353.010 to 353.190; and Chapter 100 industrial development bonds, under which the municipality issues revenue bonds, takes title to the project, and leases it back to the developer, so that the municipality’s ownership produces an exemption from ad valorem property tax and its purchase of construction materials produces a sales and use tax exemption. Mo. Const. art. VI, § 27(b); RSMo §§ 100.010 to 100.200. District-level financing comes through community improvement districts, RSMo §§ 67.1401 et seq., and transportation development districts, RSMo §§ 238.200 et seq.

The Chapter 100 abatement is not unconditional, and three points bear on the developer’s expectations. A payment in lieu of taxes is generally negotiated, and since 2018 fire protection and ambulance districts must be reimbursed between 50% and 100% of the revenue they forgo. RSMo § 100.050. The private tenant’s leasehold in the exempt public property can itself be taxable unless the rent is set to confer no bargain element. Iron County v. State Tax Comm’n, 437 S.W.2d 665 (Mo. 1968). And the constitutional term “commercial … purposes” in Section 27(b) is read broadly enough to reach market-rate residential projects, not only manufacturing or industrial uses. StopAquila.Org v. City of Peculiar, 208 S.W.3d 895 (Mo. banc 2006). I have set out the Chapter 100 structure, the PILOT, and the taxable-leasehold issue in more detail in a separate article: Chapter 100 Bonds in Missouri.

Deal goal	Texas tool	Missouri tool
Direct grant or reimbursement	Chapter 380 / 381 grant (Loc. Gov’t Code Ch. 380, 381)	TIF redevelopment agreement (RSMo §§ 99.800-.865)
Property-tax relief	Ch. 312 tax abatement	Ch. 353 abatement (up to 25 yrs); Ch. 100 bond/lease structure (property and sales tax, subject to PILOT)
Capturing incremental tax	TIRZ (Tax Code Ch. 311)	TIF (RSMo §§ 99.800-.865)
District-level revenue	PID / MUD financing	CID (RSMo §§ 67.1401 et seq.); TDD (RSMo §§ 238.200 et seq.)
Land-use and annexation certainty	§ 212.172 ETJ development agreement	Negotiated within the redevelopment agreement

Constitutional limits on public support

Both states prohibit a local government from making an outright gift of public money to a private party. In Texas, article III, section 52 of the constitution bars lending public credit or granting public money to private parties, and section 52-a establishes the economic-development exception on which Chapter 380 rests. Tex. Const. art. III, §§ 52, 52-a. In Missouri, article VI, sections 23 and 25 impose the same prohibition on political subdivisions. Mo. Const. art. VI, §§ 23, 25.

The practical effect in both states is that each dollar the public party commits must be consideration for a public benefit rather than a gift. That constraint shapes the drafting. The agreement should recite the specific public benefits (jobs, public infrastructure, blight removal, or expanded tax base) and make those recitals operative covenants rather than preamble. Payments should be tied to performance triggers the developer must actually satisfy, and clawback or recoupment provisions allow the public party to recover funds if the benefits do not materialize. In Texas, a documented public purpose also supports the immunity analysis discussed below, because it reinforces the characterization of the agreement as a proprietary undertaking.

Governmental and sovereign immunity: the enforcement paths differ

The two states diverge on immunity, and the difference bears directly on how a developer drafts and what remedies it can expect.

Texas: immunity is waived only within statutory limits. Texas cities enjoy governmental immunity, and the Texas Supreme Court has held that immunity turns on whether the city was performing a governmental or a proprietary function, and that this dichotomy applies to contract claims as it does to tort claims. Wasson Interests, Ltd. v. City of Jacksonville, 559 S.W.3d 142 (Tex. 2018). Boilerplate does not resolve the question: a “sue and be sued” clause does not, by itself, clearly and unambiguously waive immunity. Tooke v. City of Mexia, 197 S.W.3d 325 (Tex. 2006). For an in-city agreement, the usual waiver runs through the Local Government Contract Claims Act, which waives immunity for a written contract stating the essential terms of an agreement for providing goods or services to the local government. Tex. Loc. Gov’t Code § 271.152. The waiver is limited, and the remedy is capped: recovery is confined to the balance due and owed under the contract, not consequential or punitive damages. Tex. Loc. Gov’t Code § 271.153; Zachry Constr. Corp. v. Port of Houston Auth. of Harris Cnty., 449 S.W.3d 98 (Tex. 2014).

That framework points to several drafting considerations from the developer’s side. The developer’s obligations can be structured so that what it delivers to the city reads as goods and services, not merely benefits to its own project, and those deliverables (construction and dedication of public improvements, planning and design services, studies) can be tied to the core of the bargain so they are less readily characterized as ancillary, with the city required to pay for them even where payment is in kind. The proprietary character of the city’s participation can be documented by reciting that the decision was discretionary and served the city’s local interests, and by avoiding framing that tracks the governmental functions listed in the Tort Claims Act. For extraterritorial deals, a Section 212.172 agreement is by statute binding on the municipality, the landowner, and their successors for the term, which is a distinct footing from the Chapter 271 waiver. Tex. Loc. Gov’t Code § 212.172(f).

Missouri: immunity is laid aside by entering an authorized contract. Missouri applies the opposite starting point. When a public entity enters a validly authorized contract, it lays aside sovereign immunity and binds itself to performance as a private party would. V. S. DiCarlo Constr. Co. v. State, 485 S.W.2d 52 (Mo. 1972). The developer therefore does not need to draft into a narrow statutory waiver. The operative questions in Missouri are authority and funding: whether the entity has statutory power to enter the specific agreement, whether the deal is embodied in an express written contract (implied or unauthorized contracts do not receive the same treatment), and whether the entity has appropriated or committed the funds so that the obligation does not run afoul of Missouri’s constitutional debt limitations. Because the immunity question is generally resolved by the existence of an authorized written contract, the drafting focus shifts to confirming authority, securing the appropriation, and defining the performance mechanics.

Drafting points common to both states

Several provisions determine, in either state, whether the agreement remains workable when a later administration is less cooperative.

Payment triggers and timing. The developer generally seeks funds tied to definable, objective milestones, while the public party generally ties payment to performance such as commencement, completion, opening, lease-up, and sustained operation. Each trigger should be defined precisely, and hard deadlines carry more risk without an extension right and a force majeure clause.

Financeability. Collateral assignment of the right to receive payments to a lender should be expressly permitted, with the public party obligated to deliver consents, confirmations, and estoppel or comfort letters sufficient for ordinary lender underwriting. Partial and successor assignments should be addressed so the payment stream can move with ownership, and an assignee’s liability can be limited to its period of ownership.

Regulatory certainty. Where the deal depends on land-use treatment, the vested rights and the frozen ordinances should be specified. In Texas, these can be tied to the vesting statute, Tex. Loc. Gov’t Code §§ 245.002, 245.004, and the agreement can include the public party’s commitment not to impose a later moratorium.

Remedies and survival. Notice-and-cure and mediation-before-litigation provisions are common, and in Texas remedies should be drafted against the Section 271.153 cap. Trailing obligations, such as a final-year payment that accrues during the term but is paid afterward, should be drafted to survive expiration.

A recent development affects agreements in which the public party’s “incentive” is coupled with exactions. In Sheetz v. County of El Dorado, 601 U.S. 267 (2024), a unanimous Supreme Court held that the Nollan and Dolan essential-nexus and rough-proportionality tests apply to development conditions imposed by legislation, not only to conditions imposed on an individual, discretionary basis. Where a development agreement incorporates impact fees, exactions, or dedications set by a legislative fee schedule, Sheetz is relevant to whether those conditions satisfy the nexus and proportionality standards. The Court did not resolve whether a fee imposed on a class of properties must be tailored with the same specificity as an individualized condition.

Competing considerations

Several factors cut against drafting these agreements to the maximum developer-favorable position. A development agreement is not an arm’s-length purchase and sale. The public party is not purely profit-motivated, its counsel is often not a transactional specialist, and the relationship is frequently a repeat one across future projects. Terms drafted aggressively in the developer’s favor can fail at the council or commission level, where elected officials cannot be seen surrendering leverage. They can also weaken the public-purpose record that, in Texas, supports both the constitutional analysis and the immunity waiver. And they may be ineffective in any event, because the statutory immunity waivers are narrow by design and drafting cannot expand what the statute allows.

The public party’s insistence on performance-based, milestone-tied payment is not necessarily an obstacle to the developer. It is often the structure required by the public party’s own constitutional constraints, and a structure that documents a genuine public benefit tends to be more durable and more readily enforced than one that maximizes developer-favorable terms. Understanding the public party’s constraints, and documenting the public benefit accordingly, generally produces a more enforceable agreement.

The bottom line

The incentive tools available in Texas and Missouri are broadly comparable in what they can deliver, but the enforcement path is not. In Texas, an in-city agreement is generally enforceable only within the Chapter 271 immunity waiver (or, for extraterritorial deals, on the statutory binding effect of Section 212.172), the developer’s deliverables are best characterized as goods and services to the city, and damages are capped at the balance due and owed. In Missouri, the immunity question is generally resolved once an authorized entity signs an express written contract, so the developer’s attention is directed to confirming authority, securing the appropriation, and observing the constitutional debt limits. In both states, the commitment rests on a documented public purpose, payments tied to objective triggers, financeability preserved through collateral assignment and estoppel rights, and clawback and survival provisions that keep the agreement operative after the officials who signed it have left office.

Citations

Cases

• V. S. DiCarlo Constr. Co. v. State, 485 S.W.2d 52 (Mo. 1972) (a public entity entering a validly authorized contract lays aside sovereign immunity and binds itself to performance; the settled Missouri rule that sovereign immunity is not a defense to a breach-of-contract claim on an authorized contract).
• Sheetz v. County of El Dorado, 601 U.S. 267 (2024) (unanimously holding that the Nollan/Dolan essential-nexus and rough-proportionality tests apply to land-use permit conditions imposed by legislation; the Court did not resolve whether a fee imposed on a class must be tailored with the same specificity as an individualized condition).
• Tooke v. City of Mexia, 197 S.W.3d 325 (Tex. 2006) (a “sue and be sued” clause does not by itself clearly and unambiguously waive governmental immunity).
• Wasson Interests, Ltd. v. City of Jacksonville, 559 S.W.3d 142 (Tex. 2018) (the governmental/proprietary dichotomy governs immunity in the contract-claims context as it does in tort; a city performing a proprietary function is not immune).
• Zachry Constr. Corp. v. Port of Houston Auth. of Harris Cnty., 449 S.W.3d 98 (Tex. 2014) (Chapter 271 waives immunity for written goods-and-services contracts but limits recovery to the balance due and owed under the contract).
• Iron County v. State Tax Comm’n, 437 S.W.2d 665 (Mo. 1968) (in a Chapter 100 structure the municipality’s fee interest is exempt, but the private lessee’s leasehold in the exempt public property is taxable unless it carries no bonus value).
• StopAquila.Org v. City of Peculiar, 208 S.W.3d 895 (Mo. banc 2006) (construing “commercial … purposes” in Mo. Const. art. VI, § 27(b) broadly; a revenue-generating project falls within the constitutional authorization).

Statutes and constitutional provisions

• Tex. Const. art. III, §§ 52, 52-a (bar on lending public credit and granting public money; economic-development exception).
• Tex. Loc. Gov’t Code Ch. 380 (municipal economic development programs); Ch. 381 (county analog).
• Tex. Loc. Gov’t Code § 212.071 (development participation / cost-sharing agreements).
• Tex. Loc. Gov’t Code § 212.172 (extraterritorial-jurisdiction development agreements; binding on the municipality, the landowner, and their successors for the agreement’s term).
• Tex. Loc. Gov’t Code §§ 245.002, 245.004 (vested rights / permitting freeze).
• Tex. Loc. Gov’t Code § 271.152 (Local Government Contract Claims Act; immunity waiver for written goods-and-services contracts); § 271.153 (limits on recoverable damages).
• Tex. Tax Code Ch. 311 (tax increment financing / TIRZ); Ch. 312 (property tax abatement).
• Mo. Const. art. VI, §§ 23, 25 (bar on political subdivisions lending credit or granting public money to private parties); art. VI, § 27(b) (revenue bonds for facilities leased to private persons for manufacturing, commercial, warehousing, and industrial development purposes).
• Mo. Const. art. X, § 6; RSMo § 137.100 (property of political subdivisions exempt from ad valorem taxation).
• RSMo §§ 99.800 to 99.865 (Real Property Tax Increment Allocation Redevelopment Act / TIF).
• RSMo §§ 353.010 to 353.190 (Urban Redevelopment Corporations Law; § 353.110 abatement structure: improvements exempt for the first 10 years, then assessed up to 50% of true value for the next 15 years).
• RSMo §§ 100.010 to 100.200 (industrial development bonds; property-tax abatement through public ownership and leaseback); § 100.050 (cost-benefit analysis, taxing-jurisdiction notice, PILOT, and the 2018 fire-protection and ambulance reimbursement floor).
• RSMo §§ 144.062, 144.054 (sales and use tax exemption on construction materials purchased for the project and on qualifying equipment and machinery).
• RSMo §§ 67.1401 et seq. (Community Improvement District Act); §§ 238.200 et seq. (Missouri Transportation Development District Act).
• RSMo § 537.600 (sovereign immunity, applicable to tort claims and not the contract rule stated in DiCarlo).

Secondary Authority

• Allison Bastian-Rodriguez & Justin D. Pruitt, Texas Development Agreements: Incentives & Limits in Public-Private Partnerships, State Bar of Texas 37th Annual Advanced Real Estate Drafting Course, ch. 18 (Mar. 2026) (Texas statutory framework, immunity analysis, and drafting checklist relied on for the Texas discussion).
• Missouri Department of Economic Development, program overviews for Chapter 353 tax abatement, Chapter 100 industrial development bonds, and tax increment financing (2025) (program mechanics).
• James Neeld, Chapter 100 Bonds in Missouri — Real Property Tax Abatement and Sales Tax Exemption for Developers, The Developer’s Brief (June 9, 2025), https://jamesneeld.com/real-estate/chapter-100-bonds-in-missouri/ (fuller treatment of the Chapter 100 structure, the PILOT, and the taxable-leasehold issue).