In use in Texas for the last several years, PFCs allow private apartment developers to receive huge tax breaks in exchange for providing affordable housing. To get these tax breaks, the developers must transfer land to a public facility corporation set up by a local government entity. This could be a public housing authority, county or city. That corporation then leases the land and any buildings on it back to a limited partnership controlled by the developer. The public entity gets paid to be in the partnership.
In exchange for being taken off the tax roll, the developers must provide some units at affordable rates.
Bettencourt says these deals are ripe for abuse and need to be made more transparently. On the phone with the Observer on Tuesday, Bettencourt took aim at the Houston Housing Authority, claiming it didn’t hold public meetings for deals granting developers tax breaks for between 75 and 99 years. In addition, developers weren’t always setting aside the number of affordable units the deals called for, he said.
That’s why Bettencourt filed Senate Bill 805, which seeks to repeal the section of the state’s local government code that allows municipalities to use public facility corporations to take properties off the tax roll. “We need major reform in this area,” Bettencourt said. “The problem we’ve got is that these PFCs in other areas of the state are being created like popping popcorn, and it’s going to eventually take a ton of property off the tax rolls and cause a tax shift.”
Another problem, Bettencourt said, is that other governmental entities that lose out on the tax money, such as school districts and counties, don’t get a say in the deals. “That has to stop because we can’t have one entity determining the fate of everyone else, especially when these deals aren’t even going through elected official approval,” Bettencourt said.
Under the local government code that Bettencourt is trying to repeal, developers who participate in these deals must set aside at least 20% of their units for public housing. Alternatively, they can designate at least half of their units for people making less than 80% of the area median income."It’s exploded into effectively rampant commercial use." – Sen. Paul Bettencourt
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Bettencourt says these public facility corporations are failing to do this. He referred to a report by The Texan that found some public facility corporation deals in Houston were setting aside only 10% of units for low-income households earning less than 60% of the area median income. In one deal, according to The Texan, a property received tax exemptions valued at $48 million but was leasing about 66% of the units at market rates instead of reduced rates.
Public facility corporations have been around for some time, but it was a 2015 law that allowed them to give developers 100% property and sales tax exemptions for apartment complexes. At the time, Bettencourt said, the idea was that PFCs would be used for charitable purposes. “That’s clearly not what’s happened,” Bettencourt said. “It’s exploded into effectively rampant commercial use.”
Additionally, Bettencourt said these deals are often made without public input. To him, that’s unacceptable.
The city of Dallas has its own public facility corporation. It’s called the Dallas Public Facility Corp., not to be confused with the Dallas Housing Finance Corp., which also grants tax cuts to developers in exchange for affordable housing. Members of the Dallas Public Facility Corp. are appointed by City Council members. The Dallas Public Facility Corp. can dish out tax exemptions to properties under the section of Texas local government code that Bettencourt is trying to repeal. This is different from the Dallas Housing Finance Corp., which provides tax-exempt mortgage revenue bonds to support housing for people making 60% or less of the area median income. All of these deals have to be approved by the City Council.
Last November, the Dallas City Council unanimously approved a deal with its PFC for the construction of a 300-unit, four-story apartment complex called the Standard Shoreline. The deal removed a seven-acre plot of land at Garland and Centerville roads in East Dallas from the tax roll for 75 years. In exchange, the developer, Ojala Holdings, would provide 51% of the units to people making 80% of the area median income or less. That property was initially owned by a church and already wasn’t providing any tax revenue.
At City Hall this week, Dallas City Council members will consider another PFC deal for a 175-unit residential development at 3802 W. Northwest Highway. It’s being called the Bluffview Highline project. Nearly all the units, 170 of them, will be one-bedroom apartments; the rest will be two-bedroom units.
At least 18 units will be available to rent to households earning less than 60% of area median income. Another 70 units will be available to rent to households earning less than 80% of the area median income. The rest will go for market rates.
A 2020 report from The University of Texas at Austin School of Law discussed how PFCs work, along with their pros and cons. The university found a few big problems with these corporations. For one, the rent restrictions don’t take household size into account.
As a result, “the exempt properties end up largely targeting middle-income renters making 100–115% of the area median income (AMI) — a group of renters adequately served by the market,” according to the report. The university’s report also said the benefits of these deals are outweighed by the loss in property taxes.
However, the report doesn’t suggest doing away with these kinds of deals altogether. Instead it recommends, among other things, expanding the level of affordability they are meant to provide, implementing safeguards to ensure transparency and ensuring that all parties are holding up their end of the bargain.
For starters, the university report recommends annual audits to ensure compliance and requiring developers to set aside at least 25–50% of units for households making less than 60% of the area median income.
If passed, Bettencourt's bill would take effect Jan. 1, 2024. However, it wouldn't apply to deals that were made before the law was implemented.
