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Should Houston Tap Into Its Special Tax Zones To Pay For Harvey Recovery?

A state legislative committee is studying how to change the tax increment reinvestment zone system


Tax Increment Reinvestment Zones, or TIRZ for short, are obscure governmental entities that not many people may have heard of but which are regularly the subject of criticism.

Most recently by Harris County Treasurer Orlando Sanchez, who was testifying in a hearing of the state Senate's committee on property tax reform.

"The unintended consequence is that we've created what I call ‘enclaves of opulence,'" he said.

He was referring to how some of these zones are not in "blighted" areas as city of Houston policy dictates.

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Sen. Paul Bettencourt chairs the tax reform committee.

"Unfortunately, what's happened is that taxing jurisdictions like the city of Houston have just blown past the stop sign of what ‘blighted' means and they've put these TIRZs in very high-dollar areas," he said.

That includes such neighborhoods as the Galleria area, Uptown or Memorial.

But let's dial back for a moment. What exactly is a TIRZ or Tax Increment Reinvestment Zone?

Simply said, it's an area designated by the Houston City Council to attract new investment.

"So if the TIRZ builds a park and property values go up," explained Bob Stein, political science professor at Rice University, "and as property values go up because a new park is there and people want to move there, the increment on tax revenues that's made from building that park that's acquired from property values that went up and taxes increased, that goes back to the TIRZ for reinvestment in the community or to pay off bonds and borrowing that was used to build that park."

That revenue, by the way, is exempted from the city's cap on property taxes.

Criticism of this mechanism is as old as the TIRZs themselves. The biggest point of contention is that money that the city could use – for fire, police or other services – is off limits because it belongs to these individual zones.

"Over $100 million of property tax money that used to go into the general fund are now going into the tax increment reinvest zones around the city," Bettencourt said. "And it's a big structural reason why the city complains that they're short of cash."

And, he said, that money would help with recovery from Harvey.

"The tax increment reinvestment zones had over twice the amount of cash on hand during that disaster than the entire city's fund itself," he said. "So my question was, why can't we go to the TIRZs and get the money we need for disaster, especially of the scale of one of Harvey?"

Houston City Council member Dwight Boykins has a different opinion. His District D touches three tax increment reinvestment zones, including the Sunnyside TIRZ, whose creation he pushed.

Boykins said the TIRZ money is not supposed to pay for disaster recovery. That should come from the federal government.

"We can use those federal dollars – that are taxpayers' dollars, let's be clear – to address these issues, and then use the TIRZ dollars for their purpose, which would be to help with infrastructure, beautification, lighting," he said.

Others have urged Gov. Greg Abbott to tap into the state's rainy day fund to help with Harvey recovery.

Bettencourt agrees but he said receiving that kind of funding takes time and that's not helpful after a disaster.

"If you are desperate for money, and at that point of time it certainly sounded like the city was, then why can't we use the money that's sitting in the bank account to get the job done?" the senator said.

Both elected officials agree that the TIRZ system is not perfect.

Boykins would like to see some fund-sharing between the different zones, because it takes a long time for TIRZs to accumulate increment.

"So if Dwight Boykins' TIRZ over here has $100 million in it annually," he said, "instead of looking for projects in the boundaries which you're overlapping – and every year you're looking for something because you build out everything you needed – take some of that excess money and place it in John Doe's TIRZ that's newly created."

Bettencourt, for his part, has previously filed bills to reign in the power of TIRZs, but without success. His tax reform committee has been studying ways to change the current TIRZ system.


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