AUSTIN — Legislation sent to Gov. Greg Abbott aims to plug a loophole that has collectively cost Fort Worth, Arlington and scores of other Texas cities billions in lost property tax revenue through questionable deals between developers and outlying housing finance entities.
The issue has ballooned into a top legislative priority for many local governments following reports that nonprofit housing finance corporations in scattered parts of the state were teaming up with affordable housing developers in bigger cities to claim tax-exempt status. In many cases, local officials didn’t learn of the arrangements until they discovered gaping holes in their tax revenue stream as a result of the exemptions.
Rep. Gary Gates, R-Richmond, says billions in assessed property value were wiped off the tax rolls in Texas last year as a result of the cross-jurisdictional arrangements. The number could total up to $15 billion in 2025.
“There’s probably two or three a week being done right now as we talk,” the lawmaker said.
Gates has joined with city officials across the state, including Arlington Mayor Jim Ross, to push legislative and legal action against the practice.
“One would think it’s illegal, but it was a loophole they discovered they could do,” said Ross, who welcomed victory on the legislative front recently after the Texas House and Senate overwhelmingly passed Gates’ House Bill 21 with bipartisan support.
“I’m glad we made enough stink about this to put a stop to it,” Ross told the Fort Worth Report. Both he and Gates said they were confident that the Republican governor would sign the bill, despite pressure by opponents seeking his veto.
Gates’ bill was one of several introduced this session imposing tougher standards for housing finance corporations. One bill was authored by Rep. David Cook, R-Mansfield.
Under the bill, an HFC could still engage in residential development outside its home territory but only with approval of the governing body of the new location, according to a bill analysis by the Senate Research Center. Supporters say the new rules enable city and county governments to scrutinize the planned developments instead of being blindsided by disappearing tax revenue.
“We can stop it now where we couldn’t before,” said Jon Weist, legislative officer for the city of Irving.
The bill also requires annual audits and sets new affordability standards.
“People misused this tool,” Gates told the Report. “Once they saw they could get away with it, it’s just been off to the races.”
Created by local governments, housing finance corporations have been in existence since 1979 to promote affordable housing. But there have been mounting calls in recent years to address “traveling HFCs” that operate far outside their own community jurisdiction and cut deals to develop tax-exempt housing with no local oversight.
Euless City Manager Chris Barker, testifying at a House hearing on Gates’ bill, recalled going over appraisal records a few years back and discovering that an apartment complex that had been in the city for more than four decades was now being listed as tax-exempt and owned by the Cameron County Housing Finance Corporation.
“The first thing I discovered is Cameron County is located approximately 536 miles south of Euless, Texas,” he told lawmakers. “They purchased the property in Euless and received a 100% tax abatement with no contact, no notification, no consultation or no consent by the Euless City Council or any other taxing jurisdiction within Tarrant County.”
Irving officials conducted a search after the Euless story was made public and discovered two properties linked to Cameron County and another involving Pecos, with a total revenue loss of about $700,000. Passage of Gates’ bill is Irving City Council’s top legislative priority, Weist said.
Mark Yates, executive director of Cameron County Housing Financing Corporation, acknowledged by phone that “we do have some projects” in part of North Texas.
“Our participation was sought by financing companies, by developers, by contractors,” he told the Report. “We’ve been approached by a lot of different entities because they had a hard time working with their local agencies or their housing authorities, and so they approached us when they couldn’t get an audience at the local level.”
The head of a statewide advocacy organization on housing finance said the group supports the effort to halt HFCs’ cross-jurisdictional activities but opposes Gates’ legislation over other aspects of the bill.
“We are 1,000% against traveling HFCs,” said Todd Kercheval, executive director of the trade group Texas Association of Local Housing Finance Agencies. “An HFC is created locally, designed to work locally and not work outside its jurisdictional boundaries.”
He adds: “But for these traveling HFCs that started a couple of years ago, the HFC program has never been called into question for being a bad actor or anything but a wonderful partner within local communities.”
Natalie Raulston, Arlington’s intergovernmental relations manager, told House members that Arlington officials learned of property removed from its tax rolls after the Pecos Housing Finance Corporation in West Texas partnered with Dallas developer TDI to acquire an Arlington multifamily development, Jefferson North Collins.
The deals have also led to litigation by several city governments across the state, notably in North Texas. Arlington obtained a temporary restraining order against Pecos HFC. Fort Worth has intervened in that case and is seeking its own temporary order against Pleasanton HFC, La Villa HFC and Maverick County HFC to stop tax exemptions for 13 properties that officials say would result in the loss of $3.2 million in property tax revenue.
Ross said other major cities, including San Antonio, Dallas and Houston, have confronted the same problem, facing tax appraisal losses that climb into the billions.
If signed by Abbott, the bill would take effect immediately since it earned support from more than two-thirds of House members.
The Fort Worth Report’s Texas legislative coverage is supported by Kelly Hart. At the Fort Worth Report, news decisions are made independently of our board members and financial supporters. Read more about our editorial independence policy here.
Dave Montgomery is an Austin-based freelance reporter for the Fort Worth Report.
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