Landmark Legal Decision Exposes the "Clubby" Nature of Management Districts

Robert Rose still remembers the deep-seated anger he felt when he was blindsided with a brand-new management district tax.

“I was appalled and horrified when I found out that my properties were going to be taxed. I didn’t see any benefits,” Rose, a commercial property owner in the Montrose and lead plaintiff in 1620 Hawthorne, Ltd. vs. Montrose Management District, tells the Houston Press. “By the time the letter went out, it had already been passed. It was already law.”

Rose says that by the time a public meeting had been held, the deal of creating a new management district had been done. “It was only about collecting public comment,” remembers Rose.

In 2010, the West Montrose Improvement District (also called the Harris County Improvement District No. 11) became Houston’s newest management district, a tax-collecting body that’s created inside the chambers of the Texas State Capitol in Austin — and not via any type of voter-approved measure. Management districts, which are supposed to act as an economic-improvement vehicle, were inked into the Texas Constitution during the 1999 Texas Legislature under the George W. Bush administration.

Once state lawmakers agree with management-district legislation, management district personnel are tasked with collecting the signatures of 25 real commercial property owners within the specified boundaries in order to make the conceptual district a reality. From there, a city council and a mayor handpick the board of directors (again, with little, if any, input from local taxpayers, aside from public meetings and/or during the public-speaker portion at city council meetings) and taxation begins.

In 2011, the newly formed district merged with the East Montrose Management District (which had been established in 2006) to become the Montrose Management District. Today, there are 51 management districts in Houston alone.

What do management districts do exactly?

“We envision Harris County Improvement District No. 11 to be a well-planned, high-quality community, integrating urban and metropolitan commercial development to enhance the local economy, provide civic improvements, support the arts, and improve the quality of life for residents,” reads the opening salvo of a document acquired by the Press titled Harris County Improvement District #11 Service and Improvement Plan and Assessment Plan.

“The thrust of the District is to promote a sense of place – a concept of identity that calls attention to the area’s unique attributes and their special value to the Greater Houston Metropolitan Region. By emphasizing these attributes, the District serves as a powerful advocate on matters related to public safety, business development, transportation planning, and visual improvements and cultural enhancements.”

Instead of beautifying a neighborhood or improving drainage on a particular street, critics say, a majority of the tax revenue is wasted on vain projects (such as relighting seven bridges above U.S. 59) or paying consulting firms like Hawes Hill Calderon ridiculous fees. Daphne Scarborough, owner of the Brass Maiden, who attends Montrose Management District public meetings, says that Hawes Hill Calderon is paid about $30,000 a month – up from nearly $20,000 in 2012 – to manage the management district.

In 2011, Rose, Scarborough and other Montrose commercial property owners went to work on attempting to dissolve the management district. There are several ways to get rid of a district, but the most realistic method for rank-and-file business owners is to procure petition signatures from at least 75 percent of the assessed value or at least 75 percent of the surface area of the district. A tall feat any way you slice it.

While collecting the signatures – Rose says 80 percent of Montrose’s business owners, or approximately 900 folks, autographed the dissolution petition – Rose and his attorney, Andy Taylor, discovered that “a majority” of the original 26 signatures that helped establish the district in the first place “were from small property owners who ended up on the board,” says Rose. “It felt pretty clubby.”

Remember: The mayor, and not taxpaying citizens, selects the board of directors. According to a 2011 Texas Watchdog report, two-thirds of the 15 Montrose Management District board members appointed by Annise Parker had financial or domestic ties to the Houston mayor.

In the end, the potential conflicts of interest ended up backfiring on the district in the court case, 1620 Hawthorne, Ltd. vs. Montrose Management District.

As reported last week, three of the original 26 petition signers weren’t assessed a tax, which invalidated the original petition, said Harris County District Court Judge Tad Halbach. Two of the three commercial property owners – Randy Mitchmore of Mitchmore Dental and Michael “Tripp” Carter of Bradshaw-Carter Memorial and Funeral Services – are Montrose Management District board members. But neither of them was taxed for two fiscal years, says Rose.

“They were not on the rent roll that was the assessed tax rolls that the board gaveled down on,” says Rose. “They added their names later and paid the taxes, but with no late fees.”

After enduring hearings in district court, appellate court, the Texas Supreme Court and back to a trial court, the plaintiffs finally scored a bench trial in May. In a first-of-its-kind decision, Judge Tad Halbach, on November 29, ordered the Montrose Management District to repay $6.59 million of tax revenue.

The Montrose Management District, in a prepared statement, has contested the judge’s ruling. “No refunds are currently being planned while the case is pending.”
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Steve Jansen is a contributing writer for the Houston Press.
Contact: Steve Jansen