Tax zones divide haves, have-nots

Twenty-seven shadow governments control 25 percent of Houston’s revenue stream through the TIRZ program.

Ever wondered why so many of Houston’s streets are gouged and crumbling while others have coherent sidewalks, obedient crossing signals and expertly sculpted landscaping? Every major city has its rough patches where buildings are worn down. In Houston, though, it’s not just the private property but the public realm that is uneven. Why?

The answer has to do in large part with tax increment reinvestment zones, or TIRZs. Houston has 27 and they form a set of shadow governments that keep roughly $270 million out of the city’s general budget. Should Houston shut these entities down, as some demand?

The answer isn’t as clear-cut as we’d like, although clearly, some TIRZs are outliving their purpose and others never seemed motivated by the seminal goal to improve blighted neighborhoods. A lack of transparency makes it hard to monitor the entities and hold them accountable for their use of taxpayer money: While TIRZ board meetings are open to the public, information about complex deals is spread across too many reports to comprehend.

As it is today, Houston could have inspired Dickens’ “Tale of Two Cities.” Take a ride on the Silver Line — buses running along a fixed guideway — and you’ll see the stunning contrasts for yourself. Where it runs along Post Oak Boulevard in Uptown, near the Galleria, the street was rebuilt with sidewalks paved with custom pavers and lined with more than 1,000 cathedral live oaks. One of our board members rides this line to the office and the experience walking along Post Oak is superb, though most of the bus seats are empty. Uptown Houston, which includes a TIRZ, lavished $192 million on the project. When the bus leaves Uptown, however, crossing under the Southwest Freeway and arrives at its final stop, the streets often have no sidewalk. The short walk to the Chronicle building is a terrifying live-action version of Frogger.

These contrasts are common across the city. The very streets teeming with pedestrians and bus riders often have narrow sidewalks that end without warning and bus routes without shelters.

So how does the TIRZ magic wand work and why does it benefit only some parts of Houston?

When a TIRZ is established, the amount of property taxes from the area that go to the city treasury don’t increase even as the value of the land increases. The taxes on that difference in value — the tax increment — instead flow to a special account where the money can be invested within the zone. The TIRZ board, appointed by the mayor and other officials, takes out loans and funds improvements for the area that generally increase property values, and therefore, the taxes collected. The extra money pays off the loans. Usually, the whole cycle starts again with a new project.

It’s like a sibling who gets special treatment. He gets to invest his allowance and earn profits that he can use to buy that gleaming new pair of Air Jordans. His siblings? They are left to pester their parents to replace last year’s ill-fitting, falling-apart pair of off-brand sneakers.

Fair or not, Houston has embraced this concept with more fervor than any other Texas city. The 27 zones created by City Council encompass nearly a quarter of Houston’s tax base. Some do cover blighted areas, but recent Chronicle reporting shows that Houston’s TIRZ program is rife with inequity.

Neighborhoods without a TIRZ fight for scraps from the general budget. Two years ago, Harris County Judge Lina Hidalgo likened the process of allocating then-scarce COVID-19 vaccines to the “Hunger Games.” The same cinematic metaphor might apply to the scramble for public investments in a landscape of disparate opportunities. City leaders have displayed an insatiable appetite for creating and extending the life of TIRZs without following their own policy, adopted by the City Council in 1990, to create investment zones only in areas with poor infrastructure where property values had fallen by at least 20 percent over the previous decade. Time after time, the City Council voted to waive these rules. The result is a mix of success stories — TIRZ funding has given new life to Gulfgate and Midtown, for example — and glaring deficits.

Of course, unlike big brother’s sneakers, Houston’s gleaming new TIRZ-funded amenities don’t benefit only those who live nearby. Any Houstonian can ride a bike in Buffalo Bayou Park, which receives TIRZ funding, or ride on the Silver Line in the Galleria area. It’s fair to imagine that some residents on the other side of the Southwest Freeway go to work every day in Uptown restaurants and shops, strolling along its 12-foot-wide sidewalks and waiting for a bus at one of its cool, covered bus stops.

Still, given the $270 million the zones generate in city, school district and county taxes each year — little of which is going into the general funds of these entities — how can this be justified? State law puts no limit on the life of the zones, and City Council just keeps extending them. Only one zone has been allowed to expire. A maximum of 25 percent of the city’s taxable land can be in TIRZs so, unless more are allowed to expire, many neighborhoods will never get one.

Houston mayors have often criticized TIRZs as candidates only to turn to them as special funding sources for their projects. Mayor Sylvester Turner did so in 2016, calling them a “structurally unfair system“and then leaning on them later to help fill a budget deficit and provide more money for affordable housing.

Another reason for the expansions, though, was that city officials had believed that disbanding a TIRZ would not benefit the general fund anyway because of a revenue cap limiting the taxes the city can collect each year.

In effect, they’re using the zones — whose revenues don’t fall under the cap — as a sort of tax haven. But reporting for the Chronicle, Mike Morris and John Tedesco found language in a 2006 voterapproved tweak indicating that the flow of new revenue from a disbanded TIRZ isn’t subject to the cap.

City officials confirmed this, saying they had been aware of it since 2018; however, in emails shared with the editorial board, they claim ending TIRZs wouldn’t lead to an immediate influx of cash for city coffers because some carry debt that would have to be repaid and because of a separate, state-imposed revenue cap.

The city’s argument about the state cap is “horse manure,” state Sen. Paul Bettencourt told the editorial board, saying the law would also allow revenue from disbanded TIRZs to be rolled into the general fund and only growth in subsequent years would be subject to state revenue caps. Quick to acknowledge that the special zones can do good work, Bettencourt vows to reintroduce legislation that would reign in their size.

We think he has the right idea. TIRZs often complete work at a speed and caliber that traditional government bureaucracy does not, but our elected officials should more directly control major budget decisions.

“I’m just trying to get it back to what it’s supposed to be,” Bettencourt said. “You’ve got a bad area, you need help, reinvest in the area.”

Houston’s leaders should be transparent about the options for shutting down zones that have accomplished their goals, how TIRZ money is being spent and how they can start using such funds to address inequities. The Legislature should clarify the statute to make limits on TIRZs more enforceable.

High-profile projects such as Buffalo Bayou Park and Uptown’s glittering new pedestrian realm are wonderful assets to the whole city, as are funds shared for affordable housing. Yet, the shadowy world of 27 TIRZs — all operating quietly on seed money from taxpayers — is no way to run a city. It’s time for the mayor and Houston’s other elected officials to shine a light on this world and, at long last, have a frank discussion about whether to disband TIRZs that served their purpose.