MISSING OUT
This Texas tax incentive boosts development. But who is really benefiting from it?
Glory Medina woke up staring at the sky, her head spinning.
She couldn’t recall falling. But as she sat up in the grass at the Bellaire Transit Center, her memories started to return.
“I just need water,” Medina rasped. The Puerto Rico native had just donated plasma and had been waiting at bus stops near her Gulfton apartment that had no benches, no shade and no shelter amid July’s record heat wave.
Her water bottle was empty, and she was dizzy from the heat. She hoped the air-conditioned ride to the transit center would let her recover enough to buy more water at the next stop.
It didn’t. Medina, 45, passed out just before she tried to cross Bellaire Boulevard.
“It’s really hard to wait for 20 minutes standing in the sun,” she said. “I get heat stroke at least once in a year.”
Two miles from where Medina collapsed in the punishing heat, there’s no shortage of amenities in the trendy neighborhood of Uptown. Its grand thoroughfare, Post Oak Boulevard, is lined with millions of dollars in pedestrian improvements — 12-foot-wide sidewalks, covered bus stops and 1,000 oak trees.
Yet in Uptown, luxury cars often outnumber pedestrians.
In neighboring Gulfton, meanwhile, one out of three workers — many of them new immigrants and refugees — depend on transit or other forms of transportation besides a car. Less than half the bus stops in Gulfton have shelters — while most of the stops in Uptown do.
These disparities don’t exist entirely by accident. In 1999, City Council gave Uptown a guaranteed fountain of cash that Gulfton, and most of the rest
of the city, lacks. This spigot of taxpayer funds comes from an obscure financing tool known as a TIRZ — a tax increment reinvestment zone.
Here’s how it works: In a TIRZ, part of the city property taxes generated each year are set aside to be spent only within the zone, rather than sent to City Hall to be spent anywhere in Houston. Sometimes, county government or the school district chips in, too, cranking up the cash available for projects.
The idea is that subsidizing new streets, sidewalks and parks will spur private investment and revitalize stagnant areas. But like other tax incentives in Texas, TIRZs often have strayed from the vision lawmakers described decades ago in launching the program.
Over the past year, a Houston Chronicle investigation has revealed how the state’s biggest economic development programs are showering tax dollars on the politically connected while leaving out everyday Texans.
In this installment, the Chronicle found that tax increment financing is riddled with the same problems, trapping public funds in stable or even thriving neighborhoods while needier areas compete for scraps in strained city budgets.
Nowhere is this dynamic more evident than Houston, the TIRZ capital of Texas.
By nearly any measure — annual revenue, revenue per capita, the share of land or property value inside zones — Houston stands alone with 26 TIRZs that encircle nearly a quarter of the city’s tax base.
Texas lawmakers initially pitched tax increment financing as a way to redevelop blighted areas. But some zones have enriched wealthy areas instead.
When the Uptown TIRZ was created around the Galleria, it encompassed land worth nearly $2 billion. Two decades later, the state’s most prosperous zone has trapped nearly $6 billion in property value and produced hundreds of millions of dollars to be spent within its borders.
TIRZs are supposed to be temporary, spurring growth in areas that would otherwise stagnate and then, once they’re thriving, generating a windfall of new tax dollars to help the whole city when the zones expire.
But Texas lawmakers never set a time limit on TIRZs, so the zones’ spigot of cash can run forever.
Houston has relied on this loophole more than any other city. Originally, two-thirds of the city’s zones were to expire by 2030. But over the years, the City Council lengthened the duration of nearly all of them, often adding decades to their life spans. Now, only four will be gone by then.
There are nearly 400 zones in Texas. Of the 11 that are slated to run more than 45 years, eight are in Houston.
State law also lets TIRZs annex new territory. Houston has tripled the footprints of its TIRZs over the last decade — to roughly 100 square miles, the size of Sacramento, Calif. Houston also has created five new zones during that time; only one has ever expired.
Nearly a dozen times, in fact, the City Council has acknowledged its zones succeeded at spurring development — and then, rather than disbanding them, used that success as a justification to perpetuate them, with a new list of projects unrelated to their original aims.
Houston leaders for years justified TIRZ expansions partly because they believed that ending a zone wouldn’t do anything to boost the city budget. But it’s now clear city officials were misreading their own rules — an oversight that may have caused Houston to miss an opportunity to recapture more TIRZ funds.
The complexity of TIRZs often obscures their importance to both voters and policymakers, but the $270 million in city, county and school taxes the zones now generate each year in Houston is becoming impossible to overlook. The captured city tax dollars alone are enough to run all of Houston’s parks and libraries and still have tens of millions of dollars left over.
What’s more, 2023 will bring a Legislative session amid growing bipartisan skepticism of tax incentive programs, as well as an open election in Houston for the city’s next mayor — a position that wields immense power in encouraging, or curtailing, tax increment financing.
State Sen. Paul Bettencourt, a Houston Republican who chairs the chamber’s Local Government committee and is a key voice on tax issues, said he plans to ask the attorney general to opine on whether extending TIRZs in perpetuity violates the state Constitution.
“If we’re going to extend the lifetimes of these entities indefinitely, then we’re plowing taxation back into specific areas, and it’s a real serious longterm question for me,” said Bettencourt, who repeatedly has filed bills to restrain TIRZs. “This was never designed to have an unlimited life span.”
Supporters say the city’s long-lived TIRZs are justified and point to the marquee parks projects and millions of dollars in road repairs they have funded. The zones, they add, helped the city prevent all of Houston’s growth from flowing to the suburbs and played a crucial role in revitalizing neighborhoods such as Midtown, Gulfgate and parts of Washington Avenue. And some TIRZs, under a quirk in state law, have generated millions for affordable housing — though the resulting programs have hadmixedresults.
“The city of Houston was not investing in the infrastructure that was desperately needed in this area,” said John Breeding, the longtime administrator of the Uptown TIRZ. “All that this TIRZ has done is invest in that infrastructure. Those tax dollars are out there in concrete.”
But critics question whether Houston is using such a powerful tool in areas that truly need it. While upscale districts from Uptown to Memorial City to Upper Kirby hit the TIRZ jackpot, countless Houston neighborhoods remain impassable when it rains. Grass grows knee-high in local parks. Citywide, recycling trucks run chronically late, and response times to 911 calls keep rising — even as some zones pay for extra police patrols within their boundaries.
“At the end of the day, it’s undemocratic and it really hurts neighborhoods that are struggling,” said Orlando Sanchez, a former city councilman who voted against the Uptown TIRZ and others like it. “And that’s not fair because there are so many needs across Houston.”
Acute needs
Mayor Sylvester Turner speaks passionately about inequality and presides over a council with a Democratic supermajority.
But Turner and other Houston leaders long have said scrapping TIRZs wouldn’t net them a penny for neighborhoods in greater need. That’s because the city’s voter-imposed revenue cap, which limits what Houston can collect in property taxes each year, exempts the cash these zones generate.
If the city disbands a zone, officials thought the council would have to slash the city tax rate to avoid collecting that money and stay under the cap. Most of Houston’s TIRZ expansions came after city officials first realized in 2014 that the revenue cap would affect the city budget.
Turner has said Houston “has been trying to minimize the impact of the revenue cap” through its zones, which he has called “inherently, structurally unfair.” Turner’s TIRZ czar, Andy Icken, has labeled the situation “strange” and “dysfunctional.”
Yet this entire discussion may have been misguided.
This summer, the Chronicle found language voters approved in 2006 as part of a tweak to the revenue cap indicating that Houston could collect revenues “resulting from termination of or reduced participation” in a TIRZ.
In response to the Chronicle’s questions, City Attorney Arturo Michel confirmed this language means that disbanding a zone would, in fact, let its revenue flow back to City Hall to be spent anywhere in Houston. Michel said the city first made this discovery in 2018. But five former city officials and three current TIRZ administrators said it was news to them.
Annise Parker, who was mayor when Houston hit its revenue cap and oversaw most of the growth of Houston’s TIRZs, also was surprised to learn the city could recapture TIRZ revenues.
“I wouldn’t have been looking for ways to dissolve them because, once they were created, I thought that money would then fall into the rev cap and it’d be lost to us,” Parker said.
Still, Parker said a clearer understanding of the policy may not have changed her decisions about TIRZs. Icken said he would have done nothing differently. Turner didn’t respond to questions asking whether he would have approached TIRZs differently had he known the city could recapture some of their revenues and spend more in needy areas
And few areas of Houston have more acute needs than Gulfton.
Nearly half of all households in Gulfton earn less than $25,000 a year. Some 60 percent of Gulfton residents, crammed into dozens of aging apartment complexes in the densest corner of the city, were born outside the United States. All that concrete makes the area one of Houston’s worst heat islands compared to neighborhoods with more shade trees.
Gulfton has the highest transit ridership in the city, yet a third of the blocks there lack sidewalks, according to a 2018 study by the Kinder Institute, a Houston-based civic think tank.
Much of the neighborhood is in the flood plain. And much of it was deemed to have a “high” or “very high” need for green space in Houston’s 2015 parks master plan.
Despite these
Gulfton native Sandra Rodriguez said years of nonprofit and government efforts have residents feeling that change is coming.
“There’s been a lot of investment in the people,” said Rodriguez, a longtime leader of the Gulfton Super Neighborhood Council. “Now we need investment in the infrastructure.”
The city just rebuilt Hillcroft Avenue along Gulfton’s western edge with new bus shelters, wider sidewalks and a new traffic signal near a Fiesta Mart so shoppers don’t have to sprint across Hillcroft, she said — but the need remains enormous. Local advocates persuaded County Commissioner Jack Cagle to earmark money for a master plan for the area’s main green space, Burnett-Bayland Park, but funding for renovations remains uncertain.
“In all these apartment complexes, there’s no safe space for our children and families. They wind up playing in the parking lot,” Rodriguez said. “That’s where a TIRZ can have a huge impact in a neighborhood that’s so diverse and has so much potential, if only provided the opportunity.”
Truly blighted?
Houston’s journey into the arcane world of tax increment financing began in the early 1990s. Montrose homeowners in the Avondale neighborhood had just submitted a petition to City Hall requesting a TIRZ. Merchants in what was then called Old Chinatown, east of downtown, were lobbying the mayor for a TIRZ. City officials heard more petitions were in the works elsewhere.
It was 1992, and Houston had only one such zone, formed two years prior. So city planners produced a report on how Houston should approach this relatively novel tool.
The planners recommended that Houston set clearer policies “to ensure that the areas which will most benefit, and from which Houston will most benefit, are afforded this assistance. The whole issue of equity for the citizens of Houston is one to consider carefully.”
“Is the area truly blighted,” they asked, “and is the creation of the zone the only alternative for assisting in the redevelopment?”
In Avondale, they said, the answer was no. The area’s subpar lighting, drainage and sidewalks didn’t satisfy the criteria council had adopted when it formed the city’s lone TIRZ in 1990.
Those guidelines — which the planners said should be adopted as an ordinance to give them the force of law — said zones should be created only in areas with poor infrastructure where property values had fallen by at least 20 percent over the prior decade.
“In terms of equity and degree of need, it may be unreasonable to describe Avondale as blighted and deserving of this type of public financial assistance,” they wrote.
Avondale didn’t get its TIRZ, but none of the report’s other recommendations were adopted.
Then Houston received a TIRZ petition from a much different kind of neighborhood.
In 1999, the land around the Galleria was already among the most desirable real estate in Houston. Property owners there had pooled their money into the so-called Uptown District, which had installed shiny halo street signs above key intersections.
Yet Breeding, the Uptown administrator, flanked by executives with the Hines Corporation, which owned the Galleria, told City Council that for the area to have “a fighting chance” against new suburban malls, Uptown needed its own TIRZ — and the $235 million subsidy for streets, sidewalks and parking garages that would come with it over the zone’s 30-year life.
Neither Avondale nor Uptown had sufficient sidewalks, but it seemed the latter neighborhood might get its wish, despite the city’s 1990 policy and the subsequent recommendation by city planners years earlier to use TIRZs only in “blighted” areas.
That term had been at the heart of the debate about TIRZs since the 1970s, when the push to bring tax increment financing to Texas began. Initial versions of the state’s TIRZ legislation explicitly stated that a portion of a neighborhood had to be “blighted” to be eligible for the incentives.
But voters rejected the constitutional amendment that would have enabled that 1977 law — voters needed to exempt TIRZs from the constitutional rule that taxation be “equal and uniform” — so lawmakers tried again in 1979 and 1981.
The revised amendment still mentioned “blight.” But when voters finally approved the measure in 1981, lawmakers added new language — TIRZs could now also aid “unproductive” or “underdeveloped” land.
This new language proved invaluable for proponents of the TIRZ in the Galleria area.
Uptown’s main problem, Breeding and others argued, was that it lacked a sufficient street grid, and the resulting traffic congestion risked strangling what one Hines executive called the city’s “golden goose.” Without action, they said, the Galleria might follow Gulfgate and Sharpstown malls into decline, taking millions in city sales tax dollars with it. Uptown retail sales, they noted, had been trending downward over the prior decade.
City planning director Bob Litke — who had been sent a copy of the 1992 memo in which planners worried TIRZs could become engines of inequity — backed Uptown’s proposal. An “inadequate sidewalk or street layout,” he noted, was among the criteria state law offered to justify creating a zone.
The law, in fact, lets petition zones be formed anywhere — blighted or not — as long as the paperwork is signed by the owners of a majority of the area’s property value. In Uptown, Hines’ tracts alone comprised 30 percent of the zone’s value.
That wasn’t Uptown’s argument, though; its leaders said substandard infrastructure justified their request.
Not everyone bought that argument. Three council members pushed back on Uptown’s reasoning, pointing out that poor infrastructure was a challenge in nearly every part of Houston. Why was the Galleria more deserving of a TIRZ than other parts of the city?
Councilman Rod Todd also pointed to the law’s requirement that zones be formed only in areas where “development or redevelopment would not occur solely through private investment in the reasonably foreseeable future.”
“You would have to be clinically insane,” he said, “to conclude the Galleria area qualified.”
Uptown certainly didn’t satisfy the guidelines the city planners had cited in rejecting Avondale several years before. But the council had simply voted to waive those rules for the last dozen zones it had created, and it would do so for Uptown and the next dozen zones it created after that.
Reinventing themselves
TIRZs are supposed to be temporary, expiring after their purposes are fulfilled and their projects are paid off so that the whole city can benefit from the redevelopment they have fostered.
Yet Houston has repeatedly justified extending the life of its zones precisely because they fulfilled their original goals.
At least 11 times, from 2009 through 2020, the city extended nine zones — from Uptown to Upper Kirby, Downtown to Midtown to East Downtown — because “the magnitude of … development within and adjacent to” the zone had created a need for more projects.
“This is really bassackwards of what needs to occur,” Bettencourt said. “Once the mission of the TIRZ is complete, it needs to be reviewed and shut down.”
Icken, the city TIRZ chief, disagreed.
“If the TIRZ has been successful at spurring growth and has additional projects that would continue this growth, it is not in the city’s best interest to discontinue that TIRZ,” Icken said.
Sometimes, zones were given mandates unrelated to their original plans, partly so they could fund projects the city otherwise would have to pay for.
The Memorial Heights zone initially was formed to turn a polluted tract along Washington Avenue into a mixed-use development. But later plans expanded the zone’s boundaries, extended its life and put it in charge of unrelated efforts: Bike trails along White Oak Bayou and, now, a huge $119 million reconstruction of Shepherd and Durham.
The Gulfgate TIRZ initially included only the dilapidated shopping center and a few acres around it. The original plan was for developer Ed Wulfe and the city to share the cost of redeveloping Houston’s oldest enclosed mall.
But in 2014, the zone’s boundaries exploded to more than 12 square miles and its life was extended by 17 years as the city sought to spark development across southeast Houston and improve Broadway Street.
And in 2011, Buffalo Bayou Park was removed from the Memorial Heights zone and handed to the Downtown TIRZ so the latter agency — which got an 18-year life extension in the deal — could maintain the renovated park; it then rebuilt Allen Parkway.
Uptown, too, had its life extended 11 years and its boundaries expanded in 2013 to help fund a sweeping renovation of Memorial Park and the new Silver Line bus rapid transit project on a rebuilt Post Oak Boulevard.
Icken said state law does not require TIRZs to expire. A zone’s life span, he said, is dictated by the value of its work.
“The city has found that long-term commitments to TIRZs have produced the best results,” he said.
Still, most city and TIRZ officials acknowledged the zones should be temporary — but said the expansions were justified because they enabled valuable projects.
“A well-run TIRZ gets things done,” said Sherry Weesner, president of the Memorial Heights TIRZ. “And I think that building infrastructure in the city is an important piece of making the city a great place to be.”
Parker, who as mayor oversaw most of Houston’s TIRZ expansions and life extensions, said the zones should be regularly reevaluated.
“You didn’t create a TIRZ so that it could be self-perpetuating; you created a TIRZ to do specific things that were needed by the city,” she said. “Uptown, Upper Kirby, Downtown TIRZ, those have been allowed to constantly reinvent themselves — but, I think, to the long-term benefit of the city.”
A lack of will
When Uptown’s spending plan was last updated along with its expansion and life extension in 2013, the plan contained an estimated $684 million for projects.
Since its inception, Uptown has rebuilt all or part of 16 streets; added lighting, wider sidewalks and landscaping to 18 streets; improved six local
parks; and wired the signals at
“This is an example of investment in the long-range planning of a neighborhood which would not happen but for a TIRZ.”
Anne Whitlock,
Connect Community director
two dozen intersections into a system that eases traffic by gathering data and adjusting signal timing.
Gulfton, meanwhile, has languished.
In the last 15 years, city records list just four street or drainage projects in or around the neighborhood and $2 million spent in the area’s main park, Burnett-Bayland.
One of the street projects was built with the help of a TIRZ — the Southwest Houston zone, which borders Gulfton to the west. Hillcroft, the border between the neighborhoods, was rebuilt this year with wider sidewalks and a protected bike lane, a project that included $1.2 million from the Southwest TIRZ.
That agency also is funding half of a $150,000 master plan for an area just west of Gulfton centered around the city’s Southwest Multi-Service Center and library, a Legacy health clinic, and a coming 77-unit affordable housing development.
The nonprofit behind that development, Connect Community, serves Gulfton and neighboring Sharpstown. When its leaders were seeking a site for the apartments, they deliberately looked west of Hillcroft because they knew the land was in a TIRZ.
That was prescient: The Southwest TIRZ wound up buying the $3.1 million site on Connect Community’s behalf while the nonprofit gathered the necessary funds for the housing project.
“This is an example of investment in the long-range planning of a neighborhood which would not happen but for a TIRZ,” said Connect Community director Anne Whitlock. “It made a huge difference in how we approached the project.”
Some Gulfton leaders have floated the idea of seeking a TIRZ for their area or of extending the Southwest zone eastward to encompass their neighborhood.
One irony of TIRZs is that when they are created in truly blighted areas like Fifth Ward or northeast Houston, property values sometimes grow too slowly for the agencies to generate much cash for projects. But in Gulfton, there is evidence that a zone — drawn around ZIP code 77081, essentially the boundaries of the neighborhood — could work.
If a zone had been created there in 2006, the oldest year for which the Harris County Appraisal District has reliable data, the zone would have trapped enough property value by last year to generate $7.4 million in city taxes. That would have been the 10th-highest annual total among the city’s 26 zones that year.
David Hawes, who administers the Southwest TIRZ and five others in Houston, said it could make sense for that zone to extend eastward to cover Gulfton. Breeding, too, has mused about expanding Uptown to the south to encircle Gulfton — although he said it would have to happen years from now after Uptown pays off its other obligations.
“Do I think that would be good public policy? Absolutely,” Breeding said.
Glory Medina just wants someone to invest in her neighborhood. Medina would prefer more small parks to one large tract like Gulfton’s BurnettBayland Park, where she said the vast emptiness saddens her.
“We don’t have a lot of land available here in Gulfton, but we have places that are abandoned. The city can take these places and say, ‘You know what, it’s abandoned, it’s full of roaches and garbage — I’ll take it,’” she said. “It will be little, as little as my apartment, but make it beautiful: a good tree, some benches, maybe a fountain.”
Medina has seen what TIRZs can do. She took her daughter by bus to Levy Park — an ambitious $15 million project of the Upper Kirby TIRZ — and was amazed by its creative design.
Medina blames complacency at City Hall for Gulfton’s lack of green space, shade and sidewalks. No one, she said, should suffer in the heat like she did and pass out waiting for a bus.
“I feel like the city doesn’t have the will,” she said. “If they want something, they do whatever they want.”