Created by the Texas Legislature in 2015, the public facility corporation (PFC) program has since drawn increased scrutiny and allegations of abuse as loose standards allowed creation of hundreds of PFCs with paltry commitments to low-income housing and little to no oversight or accountability.
In some cases, special purpose districts such as the SH130 Municipal Management District in Travis County have authorized PFCs throughout the state with no notice to the local county, city, or school districts that are deprived of tax revenue while being obligated to provide services.
In Harris County, the Houston Housing Authority (HHA) has authorized PFCs with 99-year tax exemptions — removing at least $5 billion in local property valuation from the tax rolls — with some apartment buildings only reserving 10 percent of units for low-income households. Furthermore, some existing properties converted to PFC status were already charging below the reduced rent thresholds and could increase monthly rents under the program while receiving tax breaks worth millions of dollars.
Amid the multiple PFC reform bills that have been filed this session, House Bill (HB) 2071 garnered bipartisan support in a lopsided 115 to 20 vote Thursday making the measure effective as soon as Gov. Greg Abbott signs it into law.
Filed by Rep. Jacey Jetton (R-Richmond), HB 2071 initially contained milder reforms. However, Rep. Gary Gates (R-Richmond) successfully tacked on amendments last month that would have forced PFC owners to set aside more units for low-income households, required approval from all taxing entities losing revenue, and created a stringent audit and review process.
After the House approved the amended HB 2071 in a 154 to 5 vote in April, the measure languished in the Senate until last Friday when Sen. Paul Bettencourt (R-Houston) brought the bill forward with a slew of changes.
While the House had approved annual audits of every PFC to be conducted by the Texas Department of Housing and Community Affairs (TDHCA), the Senate version allows PFC owners to choose third-party “compliance experts” to audit and report to the TDHCA.
Gates’ amendments reduced the 99-year tax exemption period to just 12 years for new construction properties and 10 years for acquisition properties, but the Senate revised the terms to give 60 years to new construction and 30 years to acquisitions.
As amended, the law requires an elected — not appointed — body to approve PFCs, and officials may not approve projects outside of their jurisdiction. While the approving body may grant a PFC without approval from the local school district or city, PFCs will no longer be allowed exemption from municipal utility district (MUD) taxes. According to testimony provided to HHA in March, conversions pending approval will remove nearly 25 percent of the tax revenue to MUD 185 in Harris and Montgomery Counties.
Among the more stringent reforms kept in place, a PFC converting an existing property must apply 60 percent of the estimated annual tax savings to reducing rents, but the Senate dropped a prohibition on a “payment in lieu of taxes” that can be offered by a PFC owner to the authorizing government body.
With bipartisan support for reforms, one provision drew a deluge of last-minute lobby activity: making the bill effective immediately. Multiple sources within the Legislature told The Texan that PFC developers had spent as much as $3 million on lobby efforts in the past week, with some lobbyists paid $50,000 for just 48 hours.
“I do not believe for one second that the special interest groups actually care about the enactment language,” said Jetton on the House floor Thursday. “They want to send this bill to conference in order to buy more time in hopes of killing this bill. They want to run out the clock in hopes of nothing passing, which gives two more years of rampant abuse.”
While Gates had fought for more stringent reforms, he also urged the House to unanimously support the amended bill.
“This bill before us today maintains most of the good measures the House incorporated. It’s a step in the right direction to curbing current abuses in the PFC program,” said Gates.
“I encourage you to green light this on concurrence to stop this egregious abuse immediately.”
While several House members expressed opposition to the senate changes, Rep. Cody Vasut (R-Angleton) asked Gates if the current system is corrupt.
“I believe it’s very corrupt,” retorted Gates.
Gates drew praise from both Republicans and Democrats for his knowledge of the issue and his work on the bill. Rep. Ramon Romero (D-Fort Worth) referred to him as “Bulldog Gates” and urged his party to support HB 2071.
Prior to the House vote, it was announced that Rep. Rafael Anchia (D-Dallas), co-founder of a group operating PFCs and seeking a property conversion in Katy ISD near Gates and Jettons’ districts, would be excused from the House on other business and would not be voting.
“Concerned these amendments would put a stop to their billion-dollar scam, a proliferation of up to two hundred projects were being expedited and completed by the effective date of June 1, 2023, if the bill passed with the necessary one hundred votes,” said Gates in a statement.
“What began as two PFC projects in 2016, the first year the loophole became law, has now grown up to two hundred PFC apartment complexes by 2023 – yanking billions of dollars off our tax rolls,” added Gates. “With the passage of one hundred fifteen votes, the bill voided transactions of over $10 billion in assessed values with annual property taxes of $250,000,000 per year. Now, with the Governor’s signature on HB 2071, those transactions will not be completed by June 1, 2023 — leaving all those dollars on our tax rolls.”
Despite dropping some of Gates’ restrictions, the final version of HB 2071 mandates that the Legislative Budget Board conduct a study to assess the long-term effects on the state’s funding and revenue, including funding for public education, to be completed by December 2024 – just before the next regular legislative session.
After the House vote, Bettencourt said in a statement, “It takes lots of perseverance to reform any abused property tax shelter and PFC’s were a tough nut to crack. Billions of dollars of property value had already vanished from tax rolls across the state, and renters had little relief.”
Gates celebrated the House approval of HB 2071 but told The Texan he would continue to work on the vowed to continue his efforts.
“I am committed to working to improve this program whether it’s in a special session or next session,” he said.
Update: Gates has provided a statement to The Texan on HB 2071.
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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.