August 5 was just another day at Harris County Commissioners Court. After awarding millions of dollars in contracts and quickly dispatching other routine business without a second look, the commissioners moved on to the part of each week's agenda devoted to matters affecting each of the county's four precincts. Checking his short list, Commissioner El Franco Lee informed his colleagues that the first item for his Precinct 1 might warrant some discussion.
And a discussion of sorts did ensue.
What Lee was proposing that the county do was legal, declared Richard Huff, a lawyer with Fulbright & Jaworski.
It would be good for the county, said Lee.
Harris County would not be responsible if the project failed, Huff emphasized.
After about 15 minutes of more informal banter, the discussion petered out and Lee asked his colleagues to approve the item. County Judge Robert Eckels seconded Lee's motion, then recited the familiar litany that might as well be a single word, "Allinfavor?Opposed?Motioncarries."
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The deal was done. The Court had approved Lee's item with about the same degree of nonchalance it displays in okaying requests to install buried telephone cable.
As is sometimes the case with Harris County government, however, the brevity and casualness of the public discourse belied the significance of the vote. But the talk was incidental, anyway, since the deal that the commissioners unanimously approved on August 5 had been wired far out of public view, long before the public's representatives gave it their perfunctory stamp of approval. What the commissioners had done was vote to create a local government corporation to help subsidize a private, for-profit developer. The corporation would enable an outfit calling itself Professional Players Club to finance a $50 million golf course and hotel complex in northeast Harris County with tax-exempt bonds -- instruments that are traditionally issued to fund projects that serve a public good, such as roads, jails and hospitals. Not golf resorts.
The golf course and hotel deal had been in the works for three years by the time it was set before Commissioners Court, but few people who live and work in the area of the proposed site had known anything about it until it surfaced on the Court's agenda. And the project still might not have raised many eyebrows were it not for its magnitude -- the complex will occupy 400 acres and include two 18-hole golf courses and an upscale 200-room hotel and conference center.
Commissioner Lee, in whose precinct the complex will be built, called it "about the biggest thing that's happened in the last 50 years, and probably the biggest thing that will happen in the next 50 in that region in terms of development."
That sentiment carried the day, although some reservations were expressed at the meeting. Rose Garcia, an assistant county attorney, told the Court she didn't think the use of the particular provision in the Transportation Code under which the corporation was formed allowed for golf courses or hotels. County Auditor Tommy Tompkins noted that the county was indirectly competing with the private sector and suggested that commissioners might consider setting guidelines for creating such nonprofits.
Even the commissioners showed some reluctance to move ahead. Eckels asked whether the developers shouldn't just borrow money from the bank like everyone else. Steve Radack raised the possibility of holding the item for a week, and Lee said he was "tempted to honor that request, simply to give the Court more time to look at [the issue]." After all, despite the assurances that the deal was going to spur development in the area and return handsomely on the investment, none of the commissioners had seen any actual numbers to back those claims.
The county's involvement also brought another gift for the developers. Because the bonds sold through the corporation would be tax-exempt, the golf courses and hotel financed by them would also be exempt from paying property taxes to the county and the Sheldon Independent School District -- a fact of which Lee and others familiar with the deal claimed to be unaware until after the commissioners' vote
Lee and other supporters of the project have since argued that the jobs and revenues from sales and hotel taxes the development will bring, as well as additional development it supposedly catalyzes, will more than offset the uncaptured property tax revenue. And they point out that though the government corporation will own the facility, there's no risk to the county if the project fails, because the deal is structured so that bondholders will take the hit instead.
"It's a no-brainer," Lee insists.
In truth, the numbers are inconclusive. Jim Robinson, the chief appraiser for the Harris County Appraisal District, estimates that the property taxes on the golf courses and hotel would come to roughly $1 million annually. The developers, meanwhile, project revenue of $450,000 from hotel taxes and the creation of 280300 jobs, so whether the county would come out ahead or behind would depend on a variety of variables.
Conjecture about the project's financial impact, however, is almost beside the point. More pressing are the questions that the commissioners flatly ignored in agreeing to help underwrite the project: What's to prevent anyone who wants a tax-exempt golf course, housing development or other private venture from requesting a similar deal from the Court in the name of economic progress? Will the county begin forming government corporations with the frequency it now awards tax abatements, and what will the cumulative effect be? And where is the line between promoting ventures that have a legitimate public purpose and subsidizing private enterprises that should be left to the market?
One doesn't have to look far to see just how relevant this last question is -- just about five miles down the road from the proposed Professional Players Club site, at the Channelview Golf Course. Built by Howard Hughes in the 1940s on land now owned by Lyondell Petrochemical, the course has been operated by the Channelview Golf Association, which has kept its fees affordable for the area's many senior and moderate-income residents and opens the course free to three area high school teams. Last year, the course hosted 42,000 rounds.
But Lyondell has announced plans to expand its plant that would require the relocation of the course. Armed with a $1.25 million construction loan cosigned by Lyondell, the association went to the county to ask for financial assistance with the new course. County officials didn't flatly refuse, but wanted Lyondell to donate the land to the county in exchange, and also insisted on control of the operation.
"That didn't really appeal to us," says course manager Damon LaBouve. The association moved forward without county assistance.
Lyondell is generously taking most of the risk on the loan, but the company asked five of the association's board members to absorb the first $50,000 of the load if the course fails. Except for one businessman, says LaBouve, the cosigners are "just workin' folks."
That risk is more significant than it would have been in the past. Lyondell offered to lease the association another tract of land for a nominal amount, but the association will have to pay property taxes and other expenses that will increase its annual costs by $100,000, on top of the debt service.
No one will claim that the Channelview Golf Course will spur economic development or compete with Professional Players Club for conference business. But the association's public purpose -- to provide an affordable recreation option for the citizens who live in the area -- is as legitimate as that of a resort development those citizens may not be able to afford. And the dual golf courses and hotel complex may well attract some Channelview players and have an adverse impact on the association's ability to pay off its debt. "We're certainly concerned," says LaBouve, a sentiment expressed more strongly off the record by other Channelview principals.
How Professional Players Club won approval for its proposal -- which will clearly benefit certain interests if not the county's -- while Channelview could not, provides a textbook lesson in the way Harris County government operates. If you know the right people and work the proper channels, you're in.
If not, good luck.
Gary Light had an idea. The president of Southern Resort Golf Development, which has built and remodeled cour-ses around the country, Light conceived of a golf and hotel complex with ties to professional sports leagues. A chain of them, in fact, spread from coast to coast in major metropolitan areas.
Light had the sports connections to pull it off: Old Baylor buddy and ex-Oiler Don Trull was on the board of the National Football League Alumni, a nonprofit collection of former NFL players that holds celebrity golf tournaments for charity. Carl Warwick, a Trull acquaintance who played in the outfield for the Colt .45s and Cardinals in the 1960s, had a similar position with the Major League Baseball Players Alumni Association. The two secured the necessary support from their respective groups for Light's proposal.
Both Trull and Warwick live in Houston, as does Light's business partner Les Hill. So Houston, its year-round playing conditions an added bonus, seemed a logical place to try a prototype. The four teamed with Galveston attorney Gary McEldowney, another Baylor grad and Light associate, and Professional Players Club was ready to move forward.
Professional Players lined up Cumberland Securities, a firm that had worked with Light in the past, as the underwriter. It identified an ideal site in Commissioner Jerry Eversole's district, commenced negotiations and found Eversole's ear receptive. But the site was owned by a family whose members couldn't agree to terms, and after almost two years PPC abandoned the effort.
At the same time, developer Rick McCord was trying to find a way to build a golf course in Summerwood, a 1,500-acre development due north of Sheldon Reservoir where construction had just started on the first of what McCord hopes will eventually be 3,700 homes. McCord was working with Benchmark Hospitality, a Woodlands-based company with a national reputation in resort management and development. Benchmark owner Burt Cabanas, who had been looking for an opportunity in that part of Harris County, had hooked up with McCord in early 1996.
But Cabanas and McCord hadn't finalized a deal when about a year later someone suggested that Light, who was still struggling to find a location for PPC, contact Cabanas. Realizing that an association might be mutually beneficial, Cabanas brought together McCord and Light.
"I thought, maybe if I could make these two things work together, it would be great," says Cabanas. McCord and PPC worked out an agreement to build the complex on land adjacent to Summerwood that McCord had an option to buy.
The only thing missing was political grease for the wheels. The group approached Judge Eckels and other county officials to line up support for the project. In particular, the developers were hoping to finance PPC by selling tax-exempt bonds and needed a public vehicle to gain the tax exemption, which makes the bonds more attractive to investors. Without it, the bonds would be more difficult -- if not impossible -- to sell. "Our underwriter felt that a tax-exempt offering would be received more favorably than one that would be taxable," Light says cautiously.
The county in turn referred the group to Richard Huff, an attorney with Fulbright & Jaworski, one of the three firms that handles all of the county's bond business. Fulbright & Jaworski, like Vinson & Elkins, is especially adept at using obscure provisions in state laws -- which the firms sometimes help legislators craft -- to work deals.
Over several months, Huff pieced together the proposal to finance PPC using the Transportation Code provision, then carried it to the state attorney general's office to obtain a legal stamp of approval. That done, he appeared at Commissioners Court on August 5 to answer questions and assuage all doubts.
The group also needed the stamp of approval of El Franco Lee, since the PPC site is within his precinct. Once a commissioner has signed off on a project in his precinct, his colleagues will rarely object. To research the deal, Lee hired Jim Lemond, the commissioner's former chief of staff and an attorney who does lobbying and consulting work for Lee and the county. Lemond is also often attached to county bond business as co-counsel for either the county or the underwriter, as he was -- along with Huff -- for the recent $150 million issue for toll road financing. Lemond, says Lee, concluded that the PPC deal was a potential winner.
By the time it got to Commissioners Court, PPC was nicely packaged for easy consumption. At least, that's the way it was supposed to go down. Instead, assistant county attorney Garcia and County Auditor Tompkins started asking their pesky questions. Eckels and Radack added reservations, though they were well padded. That put Lee in the awkward position of defending the project when he was apparently ignorant of some of its basic features, such as the property tax exemption. When Garcia noted that the corporation would not be subject to competitive bidding rules, Lee countered that there is "nothing magical about the bid process." Later, he compared the PPC project to the county jail, which was financed through a different type of government corporation, even though the two projects have almost nothing in common.
After Eckels gently pointed that difference out, he and Radack backed off.
"What's your pleasure today, commissioner?" Eckels asked Lee.
"I like your precinct," said Radack. "I think it's a good precinct."
Whatever the Professional Players Club deal yields the county -- good, bad or indifferent -- a few people stand to benefit nicely from the Commissioners Court's gift. The list is longer than the principals of PPC, though that group has prearranged a management contract once the complex is built.
At the top of the list sits Rick McCord, the developer who owns the Summerwood housing development abutting the planned site of the complex. At no cost to him, McCord gets two plum golf courses next door to Summerwood that would otherwise cost him dearly. The complex will no doubt act as a magnet for prospective Summerwood buyers. Even Commissioner Lee acknowledges the project "will speed up" Summerwood's development. (Lee, by the way, says he doesn't know McCord, though the developer contributed a total of $3,000 to the commissioner's last two campaigns.)
In addition, McCord will turn a profit selling the land to the government corporation, which will pay $2.1 million for the 400 acres, or $5,350 an acre, according to a letter of intent McCord prepared on July 10. The land is part of an 1,800-acre tract that is currently assessed for tax purposes at $871 an acre, though more than half of it is wetlands and not developable. But that hasn't been an obstacle to McCord in the past: He was recently cited by the Army Corps of Engineers for filling in 21.5 acres of wetlands in Summerwood. Whether or not he chooses to obey the law, by exercising his option and flipping a chunk for PPC he'll end up having paid very little for about 400 acres of usable land.
McCord Development president Chip Hamilton says no decision has been made on what might happen to the rest of the tract, though a preliminary map of the area shows PPC surrounded by development (with no sign of wetlands). And Professional Players Club has noted that "the residual property in the 1,800-acre parcel is presently proposed to become an office park/commercial property."
McCord may stand to prosper the most from the deal, but all the players have a piece of the action. While Benchmark Hospitality will actually run the day-to-day operation, says Gary Light, PPC has a contract with the corporation to "manage the asset," which he says essentially means ensuring that Benchmark is doing what it's supposed to do. Since Benchmark is a national leader in resort management and development, PPC's work may be very simple indeed.
In addition, Light's company, Southern Resort Golf Development, would act as the golf course developer (though Light says his company will bid out the actual construction).
Not to be left out once the deal is signed and sealed, Richard Huff of Fulbright & Jaworski will continue to collect fees as bond counsel -- on top of the countless hours he's invested doing the legal chores for PPC.
County officials unanimously argue that the corporation will act as a watchdog to protect the county's interests and ensure that any transactions and contracts are fair, even if they don't have to be competitively bid. When McCord flips his land to the corporation, says County Attorney Mike Fleming, "The board will have to determine if the price they're paying for the 400 acres is reasonable."
But that price has already been set by McCord and agreed to in principle by Light's group, as has most of the prepackaged deal. It's highly unlikely that the board, which consists of staff members and friends of Eckels's and Lee's, will challenge the sale terms with McCord, or the appointment of Huff, or the contract with Light, or the agreements with the football and baseball alumni associations, all of which have been set in stone but would allegedly be in the board's purview.
Eckels now agrees that the Court was perhaps too hasty in approving the creation of the corporation before some of the pertinent questions had been answered. It wasn't clear whether the project could have been developed privately, nor did the Court consider any guidelines by which such a deal should be measured (including the tax history of the principals -- Warwick, Trull and corporation board member Travis Cooper have been sued in the past for delinquent property taxes).
"You want to have a set of rules," Eckels says. "What we did not have in this case was a set of rules."
Eckels and Steve Radack say that ultimately the decision came down to the fact that El Franco Lee wanted the project passed.
"El Franco said it would be good for his precinct and all that," Radack says.
Lee refuses to shoulder the responsibility by himself, however.
"I don't know how this became my deal," he says, though he handled the arguments on its behalf during the August 5 meeting.
The project and means of financing it have countywide implications, Lee correctly points out, and besides, any of the commissioners could have delayed a vote for a week or two until some of the issues had been further studied. None did. "I have not heard them say shit since then, either," says Lee.
Eckels plans to push for a more formal process to evaluate other similar proposals, should others come before the Court in the future. And others will come. As Dennis Ohlweiler of PPC underwriter Cumberland Securities notes, "This concept is the one that has the greatest payback."
But having already set the standard, it will be difficult for the Court to pull back from the line drawn for PPC.
Unless, of course, the applicant doesn't know the right folks.
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