Midtown Jamboree

Why let a few conflicts of interest get in the way of a grand redevelopment scheme?

Next month, the cash-strapped Houston Independent School District -- which lately can't seem to generate much sympathy for its own plight -- is expected to give a huge financial boost to the single largest redevelopment project in city history.

Trustees will consider forfeiting nearly $100 million in future HISD property-tax revenues to the Midtown Redevelopment Authority, a public-private venture to revitalize a 600-acre stretch of bleak real estate between downtown and the Medical Center.

The school board's decision is critical to the Midtown plan. According to the authority's projections, participation by HISD would nearly double the amount of money available for the redevelopment effort. It is further hoped that support from trustees will draw a few deep-pocket developers out of hiding.

"It's there," says Charles LeBlanc, executive director of the Midtown Redevelopment Authority. "It's going to happen."

Beneath LeBlanc's conviction, however, lies a palpable uneasiness. Indeed, the approval of HISD trustees is the only thing standing between the potential rebirth of Midtown and the total collapse of the redevelopment plan, which was authorized in December 1994, when City Council approved the creation of a tax increment financing district, or TIF, for the area.

Under the TIF, property tax assessments on roughly 1.5 square miles of Midtown land have been frozen for 30 years; any subsequent increases in tax value -- the so-called increment -- are directed to a trust fund, which is to be used for street and utility improvements within the district. Inspired by city contractors building sidewalks and laying sewer lines, private developers will flood Midtown with new construction projects, which will generate even more property-tax revenue for further public improvements -- or so the logic goes.

But to date, about the only thing that's been generated by the Midtown Redevelopment Authority is debt. Last December, the authority borrowed $250,000 in public money from the Houston Housing Finance Corporation, a quasi-governmental agency created by City Council in 1979 to finance low- and moderate-income housing. That loan comes due next month, but the entire note will have to be extended for another year.

Last week, Reliable Life Insurance Company, a St. Louis-based corporation that owns large tracts of land in Midtown, agreed to loan the authority another $250,000. Midtown's nine-member board of directors had asked for $500,000, but after some discussion, the insurance company agreed to fund only half the requested amount. The other half is contingent upon HISD joining the Midtown project.

Both the HHFC and Reliable Life notes are secured by future increments, but so far, the incremental increases have been barely enough to cover the Midtown authority's annual interest. With only the city and county contributing, the TIF realized just $30,000 in new revenue in 1995, its first full year -- almost 70 percent less than projected. Admittedly, any increment is a shuffle in the right direction. But at that rate, Midtown's 1,350 landowners can only hope their heirs live long enough to see the $350 million in new tax revenues projected for the area. (The poor first-year increment convinced at least one bank to reject the redevelopment authority's application for another $500,000 loan.)

If the school district comes aboard, revenue to the TIF would increase from $1.03 per $100 valuation to $1.99. If it doesn't, LeBlanc says, "We're basically talking about doubling the time it takes to reach our projections."

HISD's decision is also a matter of no small import to the planners, architects, financial advisors and other consultants who since 1991 have been putting together an aggressive land-use plan for Midtown. As of this May, most of those consultants had not been paid, and the redevelopment authority owed them almost $400,000 in outstanding fees. In hopes of getting something for their labor, the consultants have agreed to accept about 40 cents on the dollar. Still, neither that settlement nor additional expenses incurred since then have been paid.

Large amounts of debt are not uncommon following the creation of a TIF. Usually, however, the creditors aren't consultants, but investors who buy bonds issued to fund the initial infrastructure improvements. Such was the case of the city's first TIF, the Galleria-area Lamar Terrace, which sold about $2.5 million in bonds to pay for road and sewer repairs.

Without the benefit of bond revenue to entice eager developers, however, the Midtown Redevelopment Authority is, as LeBlanc described it, "a bootstrap, broke organization barely making it from month to month."

That's something HISD might decide it could live with; after all, the situation can't get much worse, and if it does, there simply won't be any future revenue to lose. What should be more troubling for the school district are the ethical questions that shadow the Midtown Redevelopment Authority's operation. Though ostensibly controlled by a nine-person board, the authority is dominated by two men whose professional responsibilities on behalf of the TIF overlap to a nagging degree with their personal interests.

Doug Williams, chairman of the redevelopment authority's board of directors, was a top fundraiser for Bob Lanier during his first mayoral campaign in 1991. Following Lanier's election, Williams was named executive director of the Greater Houston Wastewater Program, where he supervised the performance of the city's management contractor, Montgomery-Watson Americas. After a stint as the city's chief building official, Williams left the city for the private sector in early 1995.

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