New law closes massive tax loophole CBS News Texas discovered that allowed developers to avoid paying millions

CBS News

3 days ago

A new law has taken immediate effect this week with Gov. Greg Abbott's signature, abolishing a loophole in the law that the CBS News Texas I-Team first brought to light over a year ago.
"I'm happy. I'm ecstatic," said Arlington Mayor Jim Ross of the new law.
For months, he's been pleading with Texas lawmakers to put a stop to what's known as "travelling HFCs", a practice that's allowed real estate developers to avoid hundreds of millions of dollars in taxes.
"I was pissed. I still am," he told CBS News Texas in March.
Housing Finance Corporations, or HFCs, are non-profits set up by cities or counties. They're intended to help them create affordable housing in their own communities.
The I-Team found evidence, though, that that's not always what has happened.
CBS News Texas discovered four small Texas cities (Pecos, Pleasanton, Edcouch, and La Villa) and two small counties (Maverick County and Cameron County) – none of them within three hundred miles of the metroplex - have used their HFCS to give North Texas developers huge tax breaks in exchange for money.
In many cases, we learned, they've done it without even notifying the local community, affected by the significant loss of tax revenue.
North Texas city leaders have told us it's forced them to consider raising taxes or cutting back on services.
"We have to find ways to make up the millions and millions of dollars – and if you look statewide, it's billions of dollars - that come off the tax roll," said Ross.
The Texas House and Senate this month each passed House Bill 21 with a two-thirds majority, allowing it to take immediate effect.
It makes it illegal for HFCs to approve any further deals outside the boundaries of the city or county that created them without explicit permission from the affected taxing entities.
The bill's author, State Rep. Gary Gates, said it also puts new requirements on the hundreds of out-of-town HFC deals that have already been made.
"It gives them until January 1 of 2027, so that's about 18 months, to go to the city or county where the property is located and get an agreement to continue," said Gates.
And, if they don't get approval?
"Well, then they'll have to start paying property taxes," said Gates.
The reform bill will put stricter rules in place for traditional HFCs, too – the kind working within the cities and counties that established them.
That's prompted opposition from groups like the Texas Association of Local Housing Finance Agencies, which says no one took issue with HFCs before bad actors began making out-of-town deals two years ago.
"It went far beyond just solving the travelling HFC issue," said TALHFA's Todd Kerchevel of the reform bill.
Any developer getting a tax break through an HFC will now have to prove at least half of the savings they get for a multi-family housing project is used to lower the price of rent there.
The exact dollar figure will change year to year, which critics say could make things tricky.
"They're trying to hit a moving target, by doing that it puts their tax exemption in jeopardy and by putting your tax exemption in jeopardy, you put your financing in jeopardy," said Kercheval.
But, in Arlington, a city with its own HFC, Ross doesn't see a problem.
"Is there any concern that this could stop sort of legitimate affordable housing efforts?" CBS News Texas asked him.
"None. Not from our perspective. We're very confident in our HFC and what they're doing. Other cities around the state are just as confident with theirs," he said.