Divide over tax zones is assailed
Many poor areas don’t benefit as revenue trapped
Oak Meadow Park, in a working-class neighborhood of southeast Houston, has seen better days.
Weeds shroud the sand volleyball court, nearly half the picnic tables are chipped or rusting, and foot-tall grass obscures much of the baseball field. The area’s residents have taken to bringing their own lawnmowers.
Like so many Houston green spaces, this one in Allenbrook has languished as the parks department, squeezed by 15 years of tight city budgets, lost 40 percent of its staff and reduced summer mowing.
Across town, Memorial Park essentially has its own parks director — whose $200,000 salary exceeds that of the city’s own parks chief — and is undergoing a $300 million transformation, one-third funded with tax dollars.
This disparity is attributable in part to Memorial Park sitting in one of Houston’s 26 economic development zones, providing the urban oasis with funding that Oak MeadowPark and others like it do not enjoy.
In these areas, known as tax increment reinvestment zones, a portion of property tax revenues is set aside for reinvestment within the neighborhood, rather than sent to City Hall for citywide projects.
TIRZs are credited with transforming Midtown, funding the construction of Chavez and Westside high schools and enabling numerous road repairs in the two decades since most of them were created. ‘Are they … necessary?’
Yet the zones also have come under intense scrutiny for being maintained in areas — from Uptown to downtown, Upper Kirby to Memorial City — that even city officials acknowledge are not in need of revitalization, the central idea behind TIRZs. The state law that governs the zones is based on the idea that trapping tax dollars within specific neighborhoods is justified only when there is no other way blighted areas can prosper, which has some state lawmakers targeting TIRZ reforms in next year’s legislative session.
In part because of the program’s mind-numbing complexity, however, most residents are scarcely aware the zones exist, let alone that they have undergone a rapid expansion in recent years, as City Council expanded three-quarters of Houston’s TIRZs and created five new ones.
The zones have ballooned to cover 82 square miles — the size of Seattle — and generate $109 million annually in city taxes, up from 24 square miles and $39 million in revenue a decade ago.
Democratic state Sen. Sylvia Garcia is among the local lawmakers worried that the zones — intended to alleviate economic inequality — are instead reinforcing it.
“What we need to do is really take a hard, fast look at: Where are they being created, and are they really necessary?” Garcia said in a recent interview. “Some of those areas are already getting the benefit of a lot of road projects and a lot of attention from City Hall, and all we’re doing is giving them more dollars to do more and to enhance improvements, when other neighborhoods don’t even have the improvements.”
Even less understood than the zones’ breakneck expansion is the crucial role the city’s revenue cap has played in dissuading politicians from reining them in.
Voters imposed the cap 12 years ago to limit what Houston can collect annually in property taxes to the combined rates of inflation and population growth, though the city only hit that ceiling for the first time in 2014.
Before the city reached the revenue limit, disbanding a TIRZ would have resulted in its revenues flowing back to City Hall, to be spent anywhere.
Now, that would no longer happen.
TIRZ funds are exempt from the revenue cap, meaning that if the city were to disband them, every penny of the $151 million in property taxes generated this year by the city’s 26 TIRZs would essentially evaporate.
City Council would be forced to slash its property tax rate to avoid collecting that money, because the cash would exceed the revenue limit.
Think of it in terms of the dam at Lake Houston. The water is the city’s general revenue, and the revenue cap is the lake’s maximum capacity. In a rainstorm, the dam operator must open the gates —City Council cutting the tax rate, in this case — to prevent the lake from surpassing its target depth.
And so piles of cash remain locked in prosperous areas while neighborhoods like Allenbrook fight for crumbs. ‘Inherently’ unfair?
Forty-nine states and dozens of cities in Texas use TIRZ-style programs, and Houston is not the only Lone Star city to face controversy over its development zones. Economic disparities between rich and poor neighborhoods also aren’t new, or unique to Houston. But Houston faces a unique dilemma in that one legal mechanism — the TIRZ program — has locked in economic disparities, while another — the revenue cap — gives city leaders little reason to find a key for that lock.
Perhaps the best illustration of the dilemma Houston faces is Mayor Sylvester Turner’s frustration with it.
Turner speaks passionately about neighborhoods like Allenbrook, about fighting inequality in Houston — and about how TIRZs undermine those efforts. Poor neighborhoods get left behind, he says, either because they have no development zone or because there is too little economic activity in their TIRZ to generate muchmoneyfor improvements.
“As long as some people can hold on to their money and other people are capped by a revenue cap, it is an inherently, structurally unfair system,” Turner said. “People want us to live within our means, and we’re only applying that principle to those that are outside of the TIRZs. Because those people, in many cases, that are outside the TIRZs are your poor and low-income folk.”
The way 20-year Allendale resident Griselda Garza sees it, the city’s relative under-investment in Oak Meadow Park is tied to her neighborhood’s wealth, or lack thereof.
“The neighborhood is poorer; we don’t pay as much in taxes, maybe, or we keep quiet,” Garza, 43, said in Spanish during a midday walk around the park. “I feel like they aren’t interested because we don’t complain.”
Garza looked around at the swaths of mud and sweeping grass: “I wish it were prettier.”
Charlotte Valdez, whose son plays soccer at Oak Meadow, shares similar frustrations.
“I see a little bit of discrimination,” said Valdez, 43, arguing that taxes ought to be redistributed citywide, regardless of neighborhood.
Yet, even Turner does not plan to forgo millions of dollars in revenue by dismantling the zones overnight.
As a quick fix, he did ask the wealthier zones to send an additional $19.6 million back to City Hall this year to cover increases in the cost of basic city services Houston provides within their boundaries.
But the real solution, in Turner’s view, is to have voters repeal the revenue cap in November 2017. That would remove the city’s incentive to maintain economic development zones that have long since met their revitalization goals.
“The City Council has been trying to minimize the impact of the revenue cap by the utilization of the TIRZs — that just points to the structural inequity that exists. But you can only do that for so long without hurting the city as a whole,” Turner said. “So I do think once the revenue cap is removed, then the necessity for the TIRZs is not nearly as great.”
Andy Icken, who oversees TIRZs as Houston’s chief development officer, acknowledges the city would take a different approach to the zones without the revenue cap.
But he said the zones’ growth has not been solely a cash grab. Expanding Uptown to encompass Memorial Park made sense because of its proximity in addition to the improvements that could be funded, he said, just as expanding the downtown zone in order to redevelop Allen Parkway was needed to support Buffalo Bayou Park, used mainly, he said, by downtown workers.
“I participate in every TIRZ budget and see what we’re spending money on. Those are real needs of the city,” Icken said. “Do I wish I had those kind of resources in every part of the city? Sure I do.”
Icken acknowledged some of the zones fit no logical definition of blight. But he said supporting these areas boosts employment centers, providing jobs for Houstonians regardless of where they live.
“The natural effect of (the revenue) cap, if it stays, is we’ll continue to expand TIRZs so we can spend the money in adjacent areas ,” he said. “What we don’t want is to set up an organization that has revenue flowing and can’t figure out what to spend it on. Even under (the revenue) cap, we shouldn’t allow that to happen.” Alarms raised
Houston’s TIRZ predicament has raised alarm on both sides of the aisle not just at the council horseshoe but at the Legislature, where Sens. Garcia and Paul Bettencourt are gunning to reform TIRZs when the lawmakers meet in January.
Bettencourt, a Houstonarea Republican, is among the most vocal critics of how Houston has used the economic development tool.
“The whole theory was that if you had a blighted area and you could put a good group of people in charge, they could do things with their money better than some distant, remote City Council that never drives through the Greater East End,” he said. “There’s no fact or supposition of fact that Memorial City is a blighted area. Neither is the Galleria. Neither is Uptown.”
Bettencourt plans to reintroduce a bill that never made it out of committee last year. The legislation would dramatically rein in development zones by capping their lifespan at 10 years, reducing the percentage of a city’s taxable value that can be in TIRZs and limiting new zones to more commercial areas.
Bettencourt’s bill also would block TIRZ expansion in property-wealthy areas.
Garcia’s concerns are broader. She questions the intent behind some of the zones and expresses concern about their transparency and financial accountability.
“If they’re expanding truly to spur economic development, to help an area that is blighted or distressed, or to grow an area to create more jobs and more vitality in that neighborhood, well then I would be for it,” Garcia said. “But if it’s being done just to enhance the enhancements, if it’s being done to circumvent the cap, if it’s being done just so they can continue to be in their offices and be on the board and pay consultants, well then yeah, I’m not for it.”