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Midtown Jamboree

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.

That departure raised a few eyebrows because Williams went to work for OSI, a subsidiary of Montgomery-Watson. Nonetheless, shortly after Williams took the job, Lanier handpicked him to chair the board of the Midtown Redevelopment Authority.

In January, Williams returned to the city as Lanier-appointed deputy assistant to the mayor for housing and inner-city revitalization, a loosely defined position that pays $112,000 a year plus a generous benefits package. Under normal circumstances, Williams's public employment would not require that he give up his seat on a public board. But his salary is paid by the redevelopment authority's financial backer, the Houston Housing Finance Corporation, which means that Williams is a beneficiary of a public agency to which he also has fiduciary responsibility for $250,000 in public funds.

Williams disputes the suggestion that his accountability for the HHFC loan has been compromised by his employment with the agency. He points out that he was not an HHFC employee when he signed the original note, and he insists that he did not discuss the loan extension with his boss, Michael Stevens, president of the Houston Housing Finance Corporation and Lanier's $1-a-year advisor on inner-city revitalization.

"I will say this to you," Williams said recently, "I am not going to sign the new note."

While Williams has Lanier's ear and divine guidance as often as he wants or needs it, the real power of the Midtown Redevelopment Authority comes from its general counsel, Vinson & Elkins attorney Robert R. Randolph. It was Randolph who organized the creation of the Midtown tax-increment financing district in 1994, and continues to establish the legal foundation for everything that happens inside the TIF.

And it was Randolph who, in December 1995, orchestrated the annexation of an additional five million square-feet of land into the Midtown TIF, including an oddly positioned parcel that juts out awkwardly to form the district's northern most boundary. The roughly 113,000 square-foot tract is owned by a group of Vinson & Elkins attorneys that includes Bob Randolph.

The property was originally purchased in 1982 for $1 million by a three-man partnership that included two now-retired V&E partners. Four others, including Randolph, bought out the third partner in 1984 by taking 5 percent stakes. Randolph says he only agreed to join the partnership because the original investors asked him to. "I said, 'God, I'm not sure I want to do that,' " he recalls. "Well, anyway, we did."

While it sounds disingenuous now, there may have been times when Randolph actually regretted buying the land. Like all property in or near downtown, the value of the V&E parcel sank throughout the 1980s and into the '90s. Overgrown and surrounded by a weed-choked chainlink fence, the roughly four-block area is bordered by Bagby and an I-45 ramp on the east and Freedmen's Town on the north and west, where it represents the southeast corner of Houston Renaissance's redevelopment plan for the Fourth Ward.

Randolph even suggests he'll sell his share. "You can take me out for what I paid for it," he says.

Don't bet on that. Randolph retained his 5 percent of the V&E land until December 13, 1994 -- one day before the Midtown TIF was created -- when he more than doubled his interest to 11 percent. It's possible, but unlikely, that Randolph's increased share in the land and the creation of the TIF are mere coincidences. For one thing, Randolph has cranked out a lot of billable hours gathering support for the annexation of about 60 to 70 additional blocks, including the lonesome V&E land, since the TIF's creation.

While most of the property annexed last December 14 -- the so-called Blaffer tract off Bagby at Hadley, for example, and several blocks owned by Bland Cadillac -- is prime for development, inclusion of the V&E tract appears to be an act of gerrymandering. The land is many blocks away from Midtown proper, and is isolated from the rest of the TIF by land to the south owned by the Boy Scouts of America, which pays no property taxes.

It is unclear if councilmembers were made aware of Randolph's partnership when they approved the annexation; the backup information presented to Council that day made no mention of it. It also didn't point out anything unusual or otherwise about a pretty piece of tree-shaded open space near the Blaffer tract. Known as the Oaks, a portion of it is owned by another V&E partnership that also includes Bob Randolph.

 

"That was a dumb bunch of lawyers in 1979 ... that thought that land was going to go up," he says. "I did not participate in the investment decisions. They have several partners that manage the partnership, and their function is to try to come up with good investments."

Randolph and his partners clearly stand to gain by their land's inclusion in the TIF; any improvements will be paid for by city, county and, perhaps beginning next year, HISD tax increments collected from Midtown landowners.

Indeed, Randolph's property values could start rising any day now. Just a few weeks ago, developer Jenard Gross announced plans for a $15 million townhouse and apartment project on the Oaks parcel. It is Midtown's first major residential project since creation of the TIF, but at least two other developers, JPI Inc. and Columbia Realty Trust, have been trying to finalize development plans for the same area.

It was that level of interest that prompted the annexation, Randolph says, not the possibility that it might spur increased value or even development on land he partially owns.

"This area is less blighted, closer to Montrose. Over here," he says, pointing to a map showing the eastern half of the Midtown TIF, "is a black hole. It's incredibly risky to redevelop over here in the first stage. It was apparent from discussions with all potential developers that they wanted to be [on the west side of the TIF]."

Randolph, of course, vigorously denies that he took advantage of his knowledge of developers' intentions when he solicited the support of his partners to join the Midtown TIF. If his dual role as the TIF's legal counsel and Midtown landowner appears to violate a rather basic tenet of the attorney-client relationship -- that an attorney should not serve a client if, while doing so, his own interests are at stake -- he doesn't see it, or won't admit it.

"What you would characterize and suggest is a conflict of interest is a common interest," he argues. "The common interest is to try to do what you can to bring property values back up to the levels that they were before, because if that land goes up in value then the incremental revenues to the Midtown Redevelopment Authority for redevelopment purposes go up as well."

Considering the importance of the upcoming HISD vote, one might expect the Midtown Redevelopment Authority to be on top of its game right now. But along with its financial troubles, the Midtown plan -- the one that presumably will be used to try and convince trustees to join the TIF -- is way behind schedule and a year out of date.

The latest color-coded land-use map, which adorns nearly every wall of the authority's Courtland Square office, doesn't incorporate the annexed territory. As far as projected tax increments and estimated increases in land values, Charles LeBlanc, the authority's executive director, says that the financial data has changed so much that the board is not comfortable sharing it.

"The numbers have been redone and redone," explains LeBlanc, "but right now I don't have permission to give them out, because they're not correct."

One morning last week, LeBlanc couldn't produce a copy of the authority's application to HISD, nor were minutes from the board's meetings readily available for examination. When asked for copies of the consultants' recent invoices, LeBlanc says they don't bill the redevelopment authority because "they know we don't have any money."

To be fair, LeBlanc's performance as chief administrator is blunted somewhat by the shortage of funds. But there's more to the problem than just money. Every time LeBlanc says he's got nothing to hide, the clearer it is that the politics involved in his operation have limited his ability to be entirely open. Given the shortage of solid, up-to-date information on how taxpayers and taxing entities alike will be impacted by the Midtown TIF, it's apparent that this particular public-private partnership leans decidedly toward the private.

That might not be so troubling if the Midtown board was made up of Midtown property owners; one can be relatively sure what the motivation would be in that case. But only two of the nine seats on the board are occupied by landowners. The other seven members are political appointees chosen by City Council, Commissioners Court and state Senator Rodney Ellis and Representative Garnet Coleman, in whose legislative districts the TIF falls.

 

It's little wonder then that, according to at least one member, the Midtown board was assured by Randolph that his land ownership and Doug Williams's lucrative mayoral position, paid for with Houston Housing Finance Corporation funds, do not represent matters worthy of discussion.

"I'll say it like this: [Concern] was expressed," the board member says on the condition that he not be quoted by name. "Legally, there's not an issue there, and that's about as far as it went."

To others, however, the issues are much more personal. Frederic Fleming, a businessman and former proprietor of the Paradise Bar & Grill, was part of the original grassroots group of Midtown landowners who started gathering in the basement of Trinity Church in 1991. They spent three years mapping the area and drawing up a land-use plan before asking Council to approve the TIF in 1994. Since then, Fleming and others have pointed out, any momentum Midtown may have attained slowed drastically when Council turned it over to the redevelopment authority.

"Public officials tend toward paranoia," says Fleming. "They like people they know. If they pursue that far enough, it can be a really crippling limitation on the board. I'm not going to say that Mayor Lanier has gone that far. I'll just reserve judgment on that now.

"But I would say that I share a skepticism about political appointees in the city of Houston."

In all likelihood, that skepticism will not be openly shared by HISD's board of trustees. According to board president Paula Arnold, school administrators have been negotiating the terms of their participation in the Midtown TIF for a year now. During that time, voters have rejected a proposed $300 million bond issue by HISD, and the district has agreed to contribute some of its current and future property-tax revenues to build the convention center hotel and redevelop the Market Square area.

Though critics have argued that the Midtown TIF is too speculative and costly for HISD to even consider joining, at this point Arnold is convinced of two things: the school district won't lose any current revenue to the TIF; and, without some kind of tax subsidy, redevelopment of areas like Midtown will never happen.

"I think that the extent to which we could help our city grow and develop without risking anything for school kids, then I'm willing to do that," she says.

That assumes growth and development actually occur, of course. If it doesn't, school kids might instead be bailing out the Midtown Redevelopment Authority -- which, if you think about it, would be a lesson worth learning.


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