City Council Approves $152 Million in New Debt Without Voter Knowledge or Approval

coh-tirz-snipWith little fanfare and without voter approval, Houston City Council recently signed off on $150 million in new debt, divided up among the over two dozen Tax Increment Reinvestment Zones or TIRZ. The Uptown and Memorial City TIRZs budgets provide for a combined $118 million in new debt in 2017.

The new debt will generally need no further council approval, with total TIRZ debt rising to $620 million during this fiscal year alone.  This seems to stand in contrast to the ReBuild Houston plan of pay-as-you-go financing and the claim of no new city debt.

In a Houston Chronicle Op-Ed last year, (Houston is Taking a TIRZ for the Worse),  I described the rising debt, “mushrooming to almost half a billion dollars.” That trend seems to have accelerated.

 

tirz-debt-recap(Source: City of Houston CAFR 2008, 2010. TIRZ Budgets FY2017)

 

As recently as 2008, TIRZ debt was significant with $177 million outstanding. But by 2010 the balance had jumped almost 40% to $245 million, with no signs of slowing down. Last year the total of  TIRZ “off-the-books” debt had jumped to $465 million, a 162% increase from 2008. Facing serious pension and other challenges, the administration submitted and City Council approved an additional $152.7 million in new debt for 2017.

How did this occur with little (or no)  disclosure or public discussion?

Over the last few months the Mayor’s economic development office submitted to City Council for approval, budgets for two dozen or so Tax Increment Reinvestment Zones or (TIRZ). The TIRZ, are often described as “quasi public” even though they are direct components of the City of Houston and Council is required to approve their budgets every year.

By dividing the debt increases among eight of the twenty-six zones, the impact remained fairly hidden, and it’s likely that even council members were unable to evaluate the total impact as presented.  Attempts to obtain the proposed budgets proved ineffective, as the administration simply did not post the majority of them for the agenda, and declined my email requests for copies.

Thus, $150 million in additional debt, almost the size of the last voter approved bond issue of $160 million in 2012 for parks, escaped any reasonable public discussion.

It’s important to understand that Council Members face a daunting task in collecting, reviewing , and evaluating this information. They are under tremendous pressure to approve the agenda every week, and this has been no different under Mayor Turner than the prior leadership. The effort here is to take a breath, understand what occurred, and ask if this approach is the best financial choice for our future.

TIRZ & COMPONENT UNIT TRANSPARENCY REMAINS LACKING

Transparency is lacking among these entities, and while they have independent governance, with appointed Directors, virtually everything must be approved by City Hall (and as we all understand I mean the Mayor).

The TIRZ transition report developed for the incoming administration reported in detail about the need for better transparency. Subcommittee Four declared:

“Establishing financial transparency and mission transparency are important steps in creating trust and support between TIRZ and neighborhood Stakeholders.”

While the administration and some council members are quick to state that TIRZ financial information and other governing documents are posted on web sites, a thorough review found the effort lacking.

tirz-fin-report-online-eval

(Source: City of Houston Economic Development Office)

Two thirds of the TIRZ simply have no information posted on a unique web site at all. The remaining one third of may have a web site, but the information is often shared with a management district, like that of Upper Kirby or Uptown. None of the TIRZ entities have a “dot gov” domain to indicate it is a government organization, collecting and spending tax dollars, issuing tax exempt debt, and that it is subject to the Texas open meetings and records rules.

Only the Memorial City and Southwest TIRZ post both their annual financial reports as well as other periodic financial reports. Midtown, OST Almeda, and Uptown post a consolidated annual report. The remainder post nothing.

To be clear, these city controlled entities are involved in every facet of city operation from projects for flooding-drainage, to police stations, libraries, parks, streets, and sidewalks. Including the affordable housing portion over $200 million are expected to flow through these “authorities” in the 2017 budget year. This is simply a giant sum of money, and the city must be accountable.

CITY USES REVENUE CAP LOOPHOLE TO CAPTURE TIRZ FUNDS

This comes on the heels of the TIRZ being tapped in budget year 2017 for over $16 million in extra “municipal fees”. Using a loophole, these funds which are exempt from the voter approved revenue cap, are being used to balance the city budget.

Mike Morris reported in the Houston Chronicle earlier this year that during the regular budget cycle, $19.6 million was to be reclaimed from TIRZ funds for public services costs. How that will work, and what exactly the funds will be used for remains unclear. The budgets seems to show only a $16.2 million increase, not the higher amount initially reported.

We do know, the Southwest Houston TIRZ was the hardest hit with all remaining cash flow above debt payments redirected through this higher “municipal fee”.

This action is what prompted this Citizen Journalist to be persistent, gather the budget documents for each TIRZ, and conduct a thorough review. I also worked to gain details from the Southwest Houston TIRZ (No. 20) about a proposed bond refinance and new issue. I’ll have more about this in a subsequent report.

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