Dubious Deal

Special tax zones are already stimulating growth-a thriving cottage industry of attorneys, lobbyists, high paid consultants, developers and questionable financial projections

"It takes government money out of the hands of the government and puts it into the hands of these boards. I have real problem with that," says County Commissioner Steve Radack, who has found much to dislike with the city's TIRZ policy. "When elected officials send authority somewhere else, where that board is not answerable to the public through the voting system, then I think you're asking for trouble."

Indeed, redevelopment boards are subject to very little oversight and are free to dole out management and development contracts without first taking bids. Moreover, thanks to a recent change in the state TIRZ law, redevelopment authority board members aren't public officials and therefore aren't accountable to taxpayers.

Not surprisingly, perhaps, the chapter of the state law that governs redevelopment authorities was authored by Robert Randolph, who, as it happens, provides contract legal services to more than half of the city's 17 existing TIRZs. According to state ethics commission records, he also lobbies the state Legislature on behalf of a half-dozen tax-increment zones.

The city's TIRZ policy is increasingly controversial: On July 20, 1,200 people protested a proposed TIRZ for the Memorial City area.
The city's TIRZ policy is increasingly controversial: On July 20, 1,200 people protested a proposed TIRZ for the Memorial City area.
Vinson & Elkins attorney Robert Randolph provides legal services to nearly a dozen TIRZs while helping legislators broaden the state law on tax-increment reinvestment.
Phillippe Diederich
Vinson & Elkins attorney Robert Randolph provides legal services to nearly a dozen TIRZs while helping legislators broaden the state law on tax-increment reinvestment.

State Representative Garnett Coleman, whose inner-city district includes the Midtown and Market Square TIRZs, says Randolph has written many of the tax-increment reinvestment-related bills the legislator has sponsored.

"Robert Randolph is a genius," Coleman says, "and his genius has worked very well to really create some good opportunities at a time when there were no opportunities."

With Coleman's enthusiastic support, Randolph has helped shape the TIRZ law to address a wide range of problems far beyond its original intent to redevelop "unproductive, underdeveloped or blighted" urban areas. In particular, the Brown administration has taken aim at so-called major activity centers such as the Galleria and Memorial City. The theory is that by subsidizing new streets and other public improvements, TIRZs will spawn new office buildings and retail shopping outlets.

"If the city wants to maintain places like the Galleria and Memorial City as healthy and viable," Randolph says, "they have to put the streets in. There's not going to be anyone else to do it."

It's a little ironic that Randolph is now trying to protect the city's tax base by encouraging taxpayer-funded redevelopment of shopping malls. In 1995, Randolph and his V&E partner, Joe B. Allen, lobbied the Lanier administration to cut "industrial district" contracts with four petrochemical companies rather than annex their land, a deal that cost the city $30 million in property tax revenue.

During the last legislative session, while Randolph was writing amendments to the state law, Allen was lobbying for Enron. Among his interests was creation of a management district for east downtown, including land that Enron was in the process of purchasing. Last month, City Council approved that land for the East Down-town TIRZ. Plans for the zone include $15 million in street and infrastructure improvements east of Enron Field.

In a letter to city officials urging approval of the TIRZ, Enron vice president Stephen Barth wrote that the zone was "essential in supporting our effort to attract high-end developers to this area."

One of those potential "high-end developers" is the Mills Corporation, which has been negotiating with Enron to develop an open-air retail project east of Enron Field. Mills is the developer of the Katy Mills megamall, which, according to Randolph and other TIRZ supporters, will be a serious threat to the Galleria and Memorial City Mall when it opens in the fall.

It should be noted, however, that the city sold the taxing rights to 408 acres of its extraterritorial jurisdiction to the city of Katy less than two years ago so Mills would have the land to build its mall. It was an unusual transaction, and not only because the city let the land go for a measly $1.25 million. The Mills lobbyist was none other than Randolph's partner, Joe B. Allen, who convinced City Council not to seek future sales tax revenue generated by Katy Mills as part of the land sale.

Randolph isn't the only hired gun touting the widespread use of tax-increment reinvestment. Two of the most visible players are Patricia Knudson and David Hawes, former city employees who have each formed a business that shops tax-increment reinvestment to wealthy property owners who want to carry out large-scale construction projects. Knudson and Hawes specialize in identifying tracts of land that might be eligible for a TIRZ then preparing project plans that include a certain amount of public improvements.

The plans are then presented to the city planning department for evaluation before going to City Council. Since the city created its first TIRZ in 1990, Council has yet to reject any of the the planning department's recommendations. That's good for Knudson and Hawes: Invariably, once a redevelopment authority board is appointed, their familiarity with the project plan makes them logical candidates to manage the day-to-day operation of the TIRZ. Depending on the size of the zone and the scope of the redevelopment planned, they earn fees ranging from $5,000 to $10,000 a month for their services.

Knudson actually wrote the city's first TIRZ policy, back in 1989, when she was director of the planning department. She never saw it carried out, though, at least not as a city employee. In October 1990, Knudson resigned after admitting to then-mayor Kathy Whitmire that she had accepted money from a city contractor.

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