During a Houston City Council meeting last month, resident Christine Butler told council members that last December, HHA approved new mixed-income apartment properties for 100 percent tax exemptions for periods of 75 to 99 years, effectively reducing local annual tax funding by $11 million.
“The Deerwood Project alone removes a $34 million property from the tax rolls, permanently eliminating about $760,000 of annual tax funding available to the City of Houston, Harris County, [Houston Independent School District,] the county flood control district, and Houston Community College and other taxing jurisdictions,” said Butler.
Under state code, local government authorities may create a public facility corporation (PFC) to purchase property, which is then leased back to a private developer or owner. The property is exempted from all taxes if some rental units are set aside for “affordable housing.”
According to statute, developers must designate half of the units for persons who earn less than 80 percent of the area median income (AMI). Those residents are then charged 80 percent of local average rent.
In some agreements, only 10 percent of the units are set aside for low-income households earning less than 60 percent of AMI.
Some of the PFCs are planned for affluent Houston neighborhoods where the AMI is nearly $180,000 per year.
In a years-long investigation, reporter Wayne Dolcefino found last year that HHA has often re-approved existing properties originally designated solely for persons making below 60 percent of AMI. The re-approvals were under new company names, some located out of state and not subject to Texas transparency requirements, with only 10 percent of units set aside for low-income residents earning less than 60 percent AMI.
In one instance, Lakeside Place PFC received a tax exemption valued at $48 million, but records showed that in December 2021, about 66 percent of the property had been leased at market rates, not reduced rates.
Through open records requests, Dolcefino also found that in some cases developers had agreed to pay HHA 25 percent of the calculated sales taxes the property saved through the tax exemption.
Developer Alan Atkinson, who has sued HHA over violations of the Texas Open Meetings Act, told The Texan that the city’s reapprovals have had the effect of reducing the availability of affordable housing through PFC arrangements.
“The HHA board actually moved backwards when it converted 60 percent AMI units to 80 percent AMI units,” said Atkinson. “This was done with no rescoring of the property, no cross-reference to the prior approval vote, and no explanation for why the extra revenue was being gifted over to the newly constituted partnership.”
Atkinson says records indicate HHA has removed $5.1 billion of local property tax valuation through PFC approvals, impacting multiple tax districts, including 12 area public school districts.
In addition to depriving local government organizations of tax revenue while not necessarily increasing access to affordable housing, Atkinson notes that the program distorts the housing market by giving approved developers and owners a financial advantage through hefty tax breaks.
According to documents from the Harris County Appraisal District, few PFCs report on the percentage of units leased to low-income persons, but there is no evidence that the county has requested revocation of the tax-exempt status for any of the properties.
During the recent council meeting, Mayor Sylvester Turner told Butler that the city was merely employing a program created by the state legislature.
“The city council, City of Houston didn’t set up this mechanism,” said Turner. “This mechanism was set up by the Texas Legislature. They didn’t seek approval from the City of Houston.”
The HHA’s board of commissioners is appointed by Turner and does not publish details of PFC agreements with private partners.
Houston City Council Members Mary Nan Huffman and Sallie Alcorn noted that they had difficulty in getting information from HHA on the agreements with private partners. Council Member Tiffany Thomas said she would be inviting HHA board members to address a meeting of the Housing Committee scheduled for February 7.
Turner then said he would halt further PFC approvals.
“I’m calling to put a hold on it for now to get a much better understanding, because if, for example, a developer is getting the possibility of getting tax credits for 100 percent and only providing 10 percent affordability … that is not a good deal.”
Following Turner’s announcement, state Rep. Mano DeAyala (R-Houston) announced he would be filing reform legislation, saying, “No longer will an out-of-control Housing Authority be able to unilaterally strip millions of tax dollars from our city, county, and schools.”
A University of Texas School of Law analysis from 2020 concluded that the PFC program as structured failed to meet affordable housing needs and that any benefits were outstripped by property tax losses.
In 2021, state Sen. Paul Bettencourt (R-Houston) and Rep. Armando Walle (D-Houston) each proposed legislative reforms to the PFC program, but neither bill progressed to law. Bettencourt’s legislation twice passed the state Senate and was referred to the Calendars Committee but was not considered by the full House for a vote.
Rod Bordelon, Distinguished Senior Fellow on Regulatory Affairs for the Texas Public Policy Foundation, told The Texan that PFCs are just one of many state special purpose districts in need of reform.
“With most local government organizations, with the cities or counties or school boards, they’re elected by the populace and so there is some accountability,” said Bordelon.
Special purpose districts created within the executive branch of the state government are subject to an extensive review process every few years while local districts are not.
“These districts are created with the power of law,” explained Bordelon. “They can in many cases acquire property, can impose taxes and fees, and issue ordinances. In the case of PFCs they can acquire property and take them off the tax rolls and there’s simply not enough oversight of these organizations.”
Last September, the state Senate Committee on Local Government heard testimony from Bordelon, Dolcefino, and others on the need to reform the PFC program. Rep. Jon Rosenthal (D-Houston) has filed legislation seeking more stringent requirements for approval.
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Holly Hansen
Holly Hansen is a reporter for The Texan living in Harris County. Her former column, “All In Perspective” ran in The Georgetown Advocate, Jarrell Star Ledger, and The Hill Country News, and she has contributed to a variety of Texas digital media outlets. She graduated summa cum laude from the University of Central Florida with a degree in History, and in addition to writing about politics and policy, also writes about faith and culture.