TX House gives each state representative power to choose or veto housing tax credit developments

An eleventh hour amendment to the Texas Department of Housing and Community Affairs (TDHCA) Sunset bill by a strong opponent of housing tax credits gives each member of the Texas Legislature unprecedented power to choose the winning tax credit application in their district or to effectively block affordable housing tax credit developments altogether. The amendment removes from the bill the Sunset Commission recommended reforms that would have transferred the primary authority to award public input points for housing applications to local elected bodies (city councils and county commissioner courts) from homeowner associations and state representatives.

The author of the amendment is Representative Debbie Riddle (R-Spring). Representative Riddle has been an outspoken opponent of government subsidized affordable housing in her district. In 2011 she explained her opposition to affordable housing during a budget hearing for the housing department (video below). Riddle asked the housing agency director, “Why do we have building going on with new apartment units by CHDOs and others in areas of Texas where they are not wanted and being fought… District 150 [Riddle’s legislative district of suburban Houston] want’s you all gone [the state housing agency that administers housing tax credits].”

The TDHCA Sunset bill, as it came to the floor of the Texas House of Representatives this week, contained two key reforms stemming from a report by the Texas Sunset Commission. The reforms have to do with how applications for low income housing tax credits are scored  and awarded. The awards process for housing tax credits is highly competitive, with a single scoring point often determining the winners and losers. The Texas Legislature mandated a prioritized 228 point scoring process that, as implemented by TDHCA, assigns 24 points (the second highest scoring category) to “quantifiable community participation based on letters from neighborhood organizations” and 16 points (the sixth highest scoring category) to the “level of community support based on letters from state legislators.” Both of these categories award more points than do the rents charged tenants, the cost of the development and the services provided to tenants. Thus, under existing Texas law the interests of non-tenents about where housing is located is prioritized over the affordability, cost and quality of the apartments provided to the low-income families living in them. But I digress.

The Sunset Commission recommendations in the bill would have addressed two serious problems with the letters from the neighborhood organizations and with the letters from elected officials while maintaining their preeminent  priority in the awards process.

The neighborhood letters of opposition have become a severe problem. There were allegations that developers created shell neighborhood associations just to provide letters of support to balance letters from other neighborhood associations in opposition. There were allegations of money changing hands between developers and neighborhood association leaders. Frequently, there was knee jerk opposition to proposed developments from neighborhood associations because it was “low income housing”. Both developers and housing advocates noted that this opposition was often based on racial and ethnic prejudice against minority tenants who could live in the apartments. In order to avoid having their project scuttled by being penalized 24 points because of a letter of neighborhood opposition developers adapted by searching for sites outside developed areas, farther and father away from schools, jobs, transportation and all the things that tenants depend on. If you see a new multifamily development setting by itself out in a cotton field way outside town, it is probably a housing tax credit development.

There is real legal exposure to the State of Texas under the Fair Housing Act in maintaining the veto power of any neighborhood organization over the allocation of tax credits. The first warning came in the form of  a federal judge’s ruling last year finding that TDHCA had engaged in unlawful discrimination through excluding housing tax credit developments from majority white areas. State officials and the housing industry leaders know that the Dallas lawsuit could have easily been filed in cities across Texas, as do those of us who are advocates of Fair Housing and civil rights.

In the measured words of the Texas Sunset Commission…

State law requires the awarding of significant points during the tax credit application process for letters from neighborhood organizations; however, the Sunset Commission found that these letters are not always representative of the community as a whole, and are regularly contested. As a result of the number of points awarded, neighborhood letters outweigh other important criteria for a tax credit project.

With regard to neighborhood organization letters of opposition, the Sunset Commission report recommended…

1.1 Replace neighborhood organization letters with voted resolutions from local city council or county commissioners courts as a principle tax credit scoring item, but continue to consider neighborhood organization letters as a lesser scoring item.

This recommendation would adjust the tax credit scoring process to give greater weight to local voted resolutions and reduce the weight for neighborhood organization letters. Voted resolutions would replace neighborhood organizations letters as the second highest scoring criterion required by statute for tax credit applications. The Department would award points to applications for supportive voted resolutions from a city council, or if none exists, the county commissioners court in the area of the proposed development. The Department would continue to score letters from neighborhood organizations, but as the last statutorily required item in the tax credit scoring process.

Before the Sunset language was removed from the bill by Representative Riddle’s amendment that reform was on track.

The second related Sunset Commission recommended reform has to do with the 16 points awarded for the “level of community support based on letters from state legislators.”

This is the issue that gets legislators like Riddle most excited. In coming weeks we will publish our study documenting the widespread extent to which these letters are used to kill proposals for affordable housing in some member’s districts. There is no disputing that elected official letters are today already often a make or break determinate of whether a housing development is built.

The point and the danger is that this is an unprecedented power conferred upon single legislators. There is no other thing the state does in which an individual member of the state legislature exercises the sole executive authority over.  This is for good reason. It can get elected officials in a lot of trouble.

Consider what happened in Dallas. That city adopted a policy of granting exclusive zoning and development approval authority with relation to tax credit developments to the city council member whose districts contained the proposed development site. The council member on their own decided whether a development could go ahead. One tax credit developer competing with another became disgruntled when he lost out in the resulting “pay to play” system and went to the FBI and agreed to wear a recording device to record conversations with the a Dallas city council member and his appointed member of the planning commission. The trial shook Dallas and sent the council member, the planning commissioner and others to federal prison.

There are important reason that decisions over multi-million dollar government contacts are usually made in the open by a body of elected officials and not by a single elected official in a private meeting with a developer — except, of course, currently under the Texas housing tax credit program.

In the wake of the Dallas FBI investigation and resulting conviction of local officials for bribery the Texas Sunset Commission report sought to transfer authority to local elected bodies — acting as governmental bodies and not as individuals — to provide scoring points in the award of housing tax credits.

Prudent state representatives usually choose to not take part in the scoring of the applications by refusing to write these make or break letters. The reason they cite is their inability to properly choose between the complex competing proposals, the pressures placed on them by competing developers and to protect themselves from accusations of the type of illegal activities that beset the tax credit program in Dallas.

The Texas Sunset Commission report recommended…

1.2 Eliminate the requirement for letters of support from state senators and representatives.

This recommendation was based on the Sunset Commission’s finding that the law governing the tax credit awards process was the only state law that required state representatives and senators to provide letters in support of, or opposition to, development projects of this nature. The Commission concluded that given the size of many electoral districts and the short application timeframe, elected officials were often not in a position to meaningfully evaluate a proposed development or obtain community input sufficient to draft the required letters. Given the point value associated with these letters, if officials opt not to provide letters, projects, especially in the most competitive areas, will almost certainly not be funded.

This week when the Texas House of Representatives took up the TDHCA Sunset bill Representative Riddle filed an amendment to remove these Sunset recommendations from the bill. Upon final reading the amendment was revised and passed as reproduced at the bottom of this post. The amendment makes the existing law substantially worse that it is today.

The amendment swaps the relative importance of state representative letters and neighborhood association letters. Neighborhood association letters go from 24 points to 16 based on the current TDHCA scoring system and state representative letters go from 16 points to 24. Given the small number of points that always separate competing applications, his gives individual state representatives the absolute ability to pick which tax credit development in their district is funded or prevent any from being built.

As I mentioned, most members of the Texas Legislature wisely refuse to provide letters because they lack the information to judge one development’s merits over another or they want to avoid the appearance of pay-to-play. Under the Riddle amendment legislators who write letters get even more power to pick or block the project. If a Senator refuses to write a letter but a representative writes a letter for or against, the representative’s letter scores all 24 points.

Only if both the Senate and the House member refuse to write a letter does the city council or county commissioner’s court get to provide the public comments. Under the Sunset recommendation recall that these elected government bodies would solely have the power to award these points.

So the Riddle amendment not only removes the Sunset reform but it makes worse the problem the reform was designed to address.

The result is a perversion of proper government process — an usurpation of executive powers by individual members of the legislative body. It lays the individual representative open to acting on their own to create a major fair housing violation with consequences to themselves individually and the State of Texas. It reproduces precisely the set of incentives which in Dallas led to a major public official bribery scandal.

There is reason to seriously doubt that most members of the texas House understood the impact of the Riddle amendment when they voted this week. Watch the video of the House floor debate we posted earlier and judge for yourself.

Let’s hope that when the Texas Senate takes this matter up in the coming weeks that they remove this ill-conceived amendment and restore the Sunset Commission reforms.

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