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As recently as two years ago, the number of tax-increment zones in Houston could be counted on one hand. But since 1997, the city's use of this "economic development tool" a term universally applied to the TIRZ concept has increased significantly. To date, City Council has authorized the creation of 17 TIRZs, all but five in the last two years. According to the city, the projects planned for those zones could cost taxpayers almost $2 billion over the next 30years, money that might otherwise go to the city, county and HISD.
The city created its first TIRZ in 1990, back when Kathy Whitmire was mayor. The administration of Bob Lanier used tax-increment financing to, for example, kick-start downtown redevelopment and to launch the huge revitalization under way in Midtown. But neither of those former mayors embraced the concept like Lee Brown, whose administration has brought seven new TIRZ proposals to Council in less than two months. Four of those have already been approved, with three more in the works before the state law changes September 1.
If all goes as planned, the city will have 20TIRZs, totaling more than 6 percent of the city's taxable land, in place by summer's end. Moreover, a recent change in the state law allows City Council to turn control of that land, and the giant sums of taxpayer money it could generate, over to an appointed board. Nothing prohibits those board members from having a financial interest in the land, and in fact most of them will, either through outright ownership or because they'll be involved in the redevelopment projects themselves. While taxpayers might expect such an arrangement to include safeguards, oversight by elected officials will be, at best, limited. According to the state Tax Increment Financing Act, the so-called TIRZ redevelopment authority will have "all the powers of a municipality" without the fuss: Board members are not considered public officials.
How much public money is eventually diverted to redevelopment authorities for TIRZ projects is unknown. Once Council approves a tax-increment zone, the project and financing plans are forwarded to Harris County commissioners and the HISD board of trustees, who will decide on whether to participate. In the past, that hasn't been a problem. The county has committed future property tax revenues to 14 of the 16 city-created zones; HISD has agreed to join every one.
Lately, however, the city's current TIRZ policy has struck some elected officials, including a few councilmembers, as overly rapacious. The city's use of tax-increment financing is also the subject of a legal challenge initiated by Harris County Commissioner Steve Radack. Though Radack has generally supported the county's participation in tax-increment zones, he has opposed the Uptown TIRZ from the beginning. He's also critical of proposed zones in the Upper Kirby and Memorial City commercial corridors, which, according to city officials, need massive public improvements to remain competitive with suburban retail centers.
That may be true, Radack says. But is it legal?
On June 28, first assistant county attorney Mike Stafford wrote a letter to the office of Texas Attorney General John Cornyn, requesting clarification of the state Tax Increment Financing Act, which authorizes the creation of a TIRZ. In his letter, Stafford pointed out that, though the Texas Constitution restricts TIRZ projects to "unproductive, underdeveloped or blighted" areas of the city, the precise definition of what constitutes such an area is "conspicuously absent" from the state law.
That inconsistency has opened a loophole the city of Houston has clearly exploited, Radack says, which may not be in the best interests of the public.
"If the law is interpreted that 'blighted' means traffic congestion, it leaves room for all kinds of abuses of what the law is intended for," he says.
Whether or not the state attorney general will agree with Radack is hard to predict. But until such time, Harris County commissioners are unlikely to join any tax-increment zones coming down the pike from the city of Houston.
That, of course, hasn't stopped the Brown administration. On July 7, City Council approved the creation of two more tax-increment reinvestment zones, including a $410 million TIRZ for the Galleria area. Two weeks later, Council gave the go-ahead for a 988-acre zone that straddles I-10 between Gessner and Beltway 8. The latter project was brought to city officials by Metro National Corporation, which owns more than half of the taxable value of the TIRZ, including Memorial City Mall.
Though both proposals passed easily, they were roundly criticized by several councilmembers, in particular Todd and at-large representative Orlando Sanchez. Todd ridiculed any suggestion that either the Galleria or Memorial City Mall really need public money to better serve their customers. For his part, Sanchez seemed to be looking for a reason to support the projects during public debate. In the end, though, he apparently came to the same conclusion reached by Steve Radack.
"As I read the legislation, a TIRZ is a tool to reinvest in areas that have suffered decline, that are drawing more revenues away in the form of services than they're producing," Sanchez said in a recent interview at his City Hall office. "Not for an area that's a little congested and we're afraid we're going to lose a little sales tax revenue."