Reform TIRZs, Don’t Repeal Property Tax Cap

My former colleagues at the Houston Chronicle editorial board opined this week that the City’s property tax cap should be repealed and that the tax increment reinvestment zones (TIRZs) need to be reformed.  [Click here to read.]  They are wrong on the first count but right on the second one.

To begin, let’s get some facts straight that were mangled in the editorial.

First, the City does not have a revenue cap; it has a property tax cap.  Property taxes make up about 25% of the City’s total revenue.  That is the only source of revenue that is limited under the City charter amendment that was approved by voters in 2004.  The other 75% of revenue is not restricted.   There is a cap on all revenues in the charter that was also approved by the voters in 2004, but because the property tax cap got more votes, the City only enforces the property tax cap.

Repeal advocates insist on mischaracterizing the limitation as a “revenue” cap to mislead the public into believing that the City’s ability to raise any form of revenue is impaired by the restriction.  But since the charter amendment was enacted, City revenues have increased by a whopping $2 billion (67%), including the enactment of the drainage fee, which was the largest single tax increase in the City’s history.

Second, the increase in taxes is not “constrained by an arbitrary algorithm.”  The limit is the lesser of population growth and inflation or 4.5%.  Limiting Council’s ability to increase property taxes to population growth and inflation is a reasonable limitation and should be a rough estimate of the need to increase taxes.  If the City’s population and inflation were growing by more than 4.5%, I would have to agree that the limitation is arbitrary.  But because the City’s population has been growing at a very slow pace and inflation has been low since 2004, the 4.5% limitation normally does not come into play.

Third, and most importantly, the property tax cap repeal advocates always omit that the charter amendment begins with this clause: “The City Council shall not, without voter approval . . .”  In other words, in any year that the Mayor and Council believe that the City needs more tax revenue than the limitation allows, all they need to do is ask for the voters’ approval.  If they feel handcuffed by the charter amendment it can only be because they believe they cannot make a credible case to the taxpayers to pay more.

My former colleagues are right about the detrimental effect the TIRZs are having on the City’s finances.  Last year, the TIRZs collected $132 million in property taxes, nearly 14% of the City’s total property taxes.  That is more money than the drainage fee brought in last year.

They are also correct that the taxes collected by the TIRZs are excluded from the property tax cap.  As a result, TIRZ tax receipts have soared.  Last year the property taxes collected by all TIRZs increased 13%.  The receipts for the six richest TIRZs went up by an astonishing 27%!

Of course, the City has devised a number of clever ways to claw back more and more of this revenue over time and subvert the voters’ intention as expressed in the cap.  Each TIRZ pays the City an administrative fee and most make other contributions toward “shared” expenses.  But there is no question that if the City had all of this revenue back, it would go a long way toward solving its long-term structural deficit.

One of the challenges in bringing any of this revenue back to the City is that the TIRZs have been on a debt binge in recent years.  They currently owe around half a billion dollars.  So, much of their revenue is committed to repaying that debt.  Of course, voters had no say in the creation of this debt, notwithstanding that property taxes will be used to repay it.

There are certainly some good projects that are undertaken by the TIRZs.  But increasingly they are grasping for projects on which to spend their largess; witness the idiotic $200 million bus lane project in Uptown.

Of course, our benevolent State Legislature has its finger in all of this.  All of the TIRZs were created by state statute.  So, the State will have to be involved in any restructuring.  Given numerous conflicts of interests between our local delegation and the TIRZs and their first cousins, the management districts, good luck with that.

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Court Rules Montrose Management District Illegally Collected $6 Million in Assessments

The trail of TIRZ/Management District horrors continues.  This time it is the Montrose Management District (MMD).

The MMD was formed in 2011 from the merger of two earlier improvement districts which had been authorized by the Legislature.  Since the merger in 2011, MMD has collected over $12 million in assessments from businesses in the Montrose area.  Last week, a District Judge ruled that the petition used by MMD to assess a tax against Montrose businesses did not have the requisite 25 signatures.  Of course, the fact that the Legislature passed a law that would allow as few as 25 property owners to authorize a tax on hundreds of property owners is absurd on its face.  But MMD, according to the Court’s ruling, could not even meet this ridiculously low bar.

Most problematic for MMD is that the Court ruled that it must reimburse the $6.5 million in illegally collected assessments.

[Click [here] to see the Court’s ruling.]

Of course, the MMD does not have anywhere close to $6.5 million.  According to its most recent audit, it only had about $600,000 in cash at year-end and according to recent monthly reports, it appears to have even less now.

But MMD’s problems don’t end there.  After it levied the 2011 assessment, property owners in Montrose began collecting signatures to dissolve the MMD.  According to the statute, that requires property owners owning 75% of the land in the District.  Pretty fair don’t you think?  It only takes 25 property owners to authorize an assessment, but 75% of everyone in the district to undo it.  Just in case you had any doubt about our Legislature being in the bag for these special districts.

Over several years, the dissident owners collected nearly 900 signatures which they contend constitutes over 80% of the land in the MMD.  But when they submitted the petitions, MMD took a page out of the City of Houston’s playbook and invalidated about a third of the signatures.  One of the property owners I interviewed said the MMD invalidated his petition on the four properties he owned without anyone ever contacting him to verify whether he owned the properties or had actually signed the petitions.

When you look at how the MMD has been spending its money you can understand why the vast majority of business owners in Montrose want to dissolve the district.  The following is a table of the revenue and expenses taken from the MMD’s audits.

From 2011-2017, the MMD has collected over $12 million from Montrose businesses and has spent about $11.5 million.  Forty-three percent (43%) of its expenditures, right at $5 million, have been for administrative expenses, legal fees and business development expenses.  The management consultant for the MMD alone has been paid nearly $1.5 million and is currently being paid over $30,000 per month.  No wonder the property owners want to get this monkey off their backs.

Management districts and TIRZs were originally formed to assist neighborhoods with redevelopment.  If they are doing their jobs, they should be welcomed by the businesses and residents they serve.  Increasingly though we are seeing situations like the Uptown TIRZ and now the Montrose Management District where these entities are at war with the neighborhoods they are supposed to be serving.  And to make matters worse, the bureaucrats and lawyers running these districts are getting rich in the process.

Hopefully the next Legislature will take a hard look at these special districts.  But given some of the conflicts of interest that abound with respect to these districts in the Legislature, that may be wishful thinking on my part.  More on that topic soon.

The next meeting of the MMD Board is next Monday (November 13) at noon at University of Saint Thomas, Carol Tatkon Boardroom, 3807 Graustark, Houston, TX 77006.  Parking is available at the Moran Parking Garage.  The vast majority of Montrose business owners who are opposed to the continued existence of this district should show up at this meeting and make it plain to the board:  Go away!

HGAC Tables New Funds for Uptown Bus Project

On Friday, HGAC’s Transportation Policy Council (TPC) tabled a funding request from the Uptown TIRZ for an additional $16 million for its Post Oak bus project.

Several dozen Uptown residents attended the meeting, and several addressed the TPC, voicing their opposition to the project and the request for additional funds.  No one, other than Uptown’s executive director John Breeding, spoke in favor of the request.

 

County Judge Ed Emmett, who has opposed the project from the outset, grilled HGAC officials about the process.  Sugar Land mayor Joe Zimmerman also weighed in with a number of questions.  The principal point of concern was that Uptown had issued a press release claiming that the project was “on budget” and “fully funded”, begging the question of why it was asking for more money. HGAC officials struggled to answer Emmett’s and Zimmerman’s questions.  At one point, an HGAC official said that Uptown had told them in 2013 the project was only going to cost $130 million, compared to the current budget of $200 million.  This is, at least, the third explanation that has been offered in an attempt to justify the additional funding.  I have not found any documentation showing that the costs were ever estimated at $130 million.  But if so, it would be gross incompetence to underestimate the cost by over 50%.

It is hard to know what HGAC will do now, but Harris County Commissioner Steve Radack may have put the final nail in the coffin on the request by ominously calling for HGAC to have outside counsel conduct an investigation to make sure that there are no legal problems with the request or the project.  That legal review is likely to raise a number of questions.  For example, I found this statement in Uptown’s most recent audit:

“As of the June 30, 2016, reporting period, the Authority purchased a parcel of land from WMJK, Ltd. The Authority Director and District Chairman is an owner in this property. The Director filed an affidavit and recused himself from the Board vote. Subsequent to the June 30, 2016 reporting period, the Authority purchased an additional Post Oak Boulevard parcel from a District Director. The Authority has chosen to keep the purchase prices for property acquired along Post Oak Boulevard confidential until the Authority closes each parcel, this information is excepted from disclosure under 552.105 of the Texas Government Code. Total cost of acquisition is available upon request.”  Click [here] to see the complete report.  This related party note is highlighted on page 35.

Now, this all may be perfectly legal.  But the optics of a bunch of wealthy landowners coming to HGAC, begging for more state and federal highway funds, which are desperately needed throughout our region, when they are lining their own pockets and then don’t even want to disclose how much they were paid, is, to say the least, unseemly.

There is an old saying: “Pigs get fat, but hogs get slaughtered.”  Uptown’s overreach on this request may be leading it to the slaughterhouse.  TIRZs were originally created to redevelop “blighted” neighborhoods.  That laudable purpose has increasingly been subverted by special interests which have in many cases turned the TIRZs into opaque quasi-governments frequently benefiting a few at the expense of the public.  And, as is the case here, the TIRZs frequent cram projects down the throats of residents and businesses despite their vehement opposition.  As one of the speakers said on Friday, “This is Robin Hood in reverse.  We are stealing from the poor and giving to the rich.”

It is past time that we re-examine the whole TIRZ/Management District paradigm.  I am sure there is some good work that is carried out by some of these organizations.  But the case for their existence – as entities wholly unaccountable to taxpayers or the public – is becoming increasingly tenuous.

 The Texas Monitor has more at https://texasmonitor.org/uptowns-funding-bus-project-shelved-john-breeding/.

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