Working Every Angle

The city of Houston is exploiting loopholes in state law to lavish big bucks on private developers

While there is apparently nothing in the state TIRZ law that prohibits it, Brown's scheme to milk the maximum amount of TIRZ revenues out of HISD is yet another manipulation of the state law. Indeed, the flurry of TIRZ activity this summer was an attempt to cash in before September 1, when an amendment to the statute eliminated the right of school districts to exclude TIRZ land as part of their taxable value. That means any school district that now chooses to participate in a TIRZ will actually lose state funding.

Representative Scott Hochberg was one of the sponsors of that 1997 amendment. Hochberg generally supports TIRZs -- his district includes the South Post Oak zone, which, he says, is needed to spur development in a decaying area of town. But, he says, the city and HISD may have gone too far by what he calls "double-dipping" into the school-financing pool. According to Hochberg, legislators never anticipated that a city would amend TIRZ agreements to suck more money from the school districts before the September 1 deadline.

"Somebody read the law, and they read it very carefully, put a good mind to it and came up with a loophole," Hochberg says. "That was not something that we considered and decided was okay. What we were trying to do was shut this stuff down in the long haul, and I don't believe anybody discussed the possibility of this happening, in committee or otherwise."

Upper Kirby property owners  claim that the bustling district  is "unable to compete in the marketplace."
Upper Kirby property owners claim that the bustling district is "unable to compete in the marketplace."
"TIRZs work," says state Representative Garnet Coleman. But he has concerns about how they are being used by the city.
"TIRZs work," says state Representative Garnet Coleman. But he has concerns about how they are being used by the city.

Hochberg believes Brown's ploy opens the door for a school-finance watchdog group, such as the Equity Center of Austin, which has brought suit to guarantee equal funding for schools, to challenge the maneuver in court.

"I would think," he says, "that if there was a significant finding that the transaction amounts to a sham -- that is, is it a transaction that is specifically created just for the purpose of avoiding the school-finance law -- then it would not be unreasonable for someone to go to court and say, 'That action was illegal.' "

For weeks the board of trustees for the Spring Branch Independent School District was consumed by the Memorial City tax-increment zone. Rarely had the trustees been confronted by an issue so divisive. The TIRZ literally divided the community. Residents north of I-10, which splits the zone, saw the TIRZ as a way to funnel more resources to their declining neighborhoods, as well as to correct the perception that SBISD provided superior educational facilities south of the freeway.

Meanwhile, the more-white-collar residents south of I-10 were outraged to learn that the major beneficiary of the Memorial City TIRZ, Metro National Corporation -- which owns nearly half of the developable land in the zone -- had plans for $1 billion worth of new real estate projects on that side of the highway.

In Metro National's view -- or more precisely, in the opinion of former city planning director Patricia Knudson, a consultant who prepared Metro National's TIRZ proposal -- without the zone, those projects were in trouble: "[A] growing shift in the tax base and sales tax revenue to surrounding suburban communities Š threatens the continued viability of this area," stated the proposal. "[U]nless the mobility and utility infrastructure issues are addressed, the forecast for the Memorial City area economy is, at best, stagnation."

Despite vehement opposition from a group of residents representing neighborhoods adjacent to the proposed zone, City Council approved creation of the Memorial City TIRZ on July 28. However, the city's contribution to the 30-year zone would pay for only a portion of the proposed $98 million in public improvements. The most significant contribution would come from SBISD, which took up the Memorial City TIRZ at two meetings early last month.

On August 9 opponents of the TIRZ put on a 30-minute presentation for SBISD trustees that argued, among other points, that the zone did not meet the requirements of the state Tax Increment Financing Act. The residents reminded trustees that the state law had been challenged on constitutional grounds before and, in fact, Harris County Attorney Michael Fleming had recently asked the state attorney general's office to rule on the legality of TIRZs in areas that were clearly not "unproductive, underdeveloped or blighted."

The opponents also pointed out that if Metro National believed the market would support $1 billion in new development projects, why did the company need a public subsidy?

It was a compelling presentation that resonated with SBISD trustees. A week later, on August 16, the board members reconvened to vote on the Memorial City TIRZ. They had arranged to move the meeting from district headquarters on Campbell Road to the auditorium at Memorial Middle School. More than 800 people, most of whom opposed the TIRZ, crammed the room. Less than an hour later they were on their feet, cheering the trustees, who voted 5-2 to decline SBISD's participation.

As it happened, the intense lobbying of trustees by Metro National and its consultants may have had diminishing returns for the corporation. Several trustees complained that in the days leading up to the board vote both Metro National and the city were clearly desperate for SBISD's approval. The TIRZ plan seemed to change daily, they said, with ever-greater compromises, not to mention more promises of vast new wealth for SBISD, being offered. Moreover, trustees were apparently told by Metro National that the TIRZ would likely proceed without SBISD participation, so the district may as well join in.

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