Good morning Water Users Coalition,
Below is an article released today, June 9, 2025, in the Houston Chronicle.
Best Regards,
Jerry Homan
HOUSTON CHRONICLE | By Eric Dexheimer and Amelia Winger | June 9, 2025 6:00 a.m.
In their short time in Texas, there has been near-universal agreement that the obscure government agencies known as “traveling housing finance corporations” were a public policy disaster.
A legal loophole allowed HFCs in one part of the state to earn generous fees by granting massive – and secret – property tax breaks anywhere in Texas, often hundreds of miles from their borders. Intended to create affordable housing in exchange for those breaks, they seldom did.
Yet in less than two years they cost Texas cities, counties and school districts hundreds of millions of dollars in lost tax revenue.
As highlighted by a Houston Chronicle series, much of that money went to bail out private developers who had made bad financial bets. A handful of lawyers and financial advisers made piles of money. The half-dozen tiny HFCs that discovered there was cash to be had selling their authority to arrange distant tax breaks collected millions in fees.
Local taxpayers had to foot the massive bills; when one property owner is excused from paying taxes, others must make up the difference. But because no elected officials had a say in the tax breaks, there was no one to hold accountable. So it was left to state lawmakers to clean it up.
Government moves slowly, and it took lawmakers time to turn off the taxpayer-funded spigot. The Texas Legislature meets only every two years. As state senators and representatives convened in January, they set off a high-stakes race with tens of millions of dollars in taxpayer money on the table.
Several bills aimed at shutting the entities down were filed. Testimony was taken, amendments were added, compromises struck.
Meanwhile, as Austin’s law-making machinery creaked along, the traveling HFCs chased as many of the lucrative deals as they could. An analysis shows the cost of the Legislature’s deliberate pace was astronomical.
In the 140 days it took lawmakers to craft and pass a law shutting them down, traveling HFCs closed deals on 236 properties worth nearly $8 billion and eligible for full property tax breaks, an analysis of the six most active entities shows. The last-minute flurry of deals stands to cost local taxpayers who live nowhere near the HFCs $175 million annually.
As loophole closes, a new one turns up
The story of how traveling HFCs exploded into Texas has been a multi-billion-dollar case study of regulatory Whac-A-Mole.
In 2015, state lawmakers developed a new tool to create affordable housing. Local governments could form “public facility corporations” to team up with private developers to build low-rent units. The PFCs actually owned only a fraction of the projects, but the entire property was treated as public – meaning the developer didn’t have to pay any taxes.
Taxes on large housing projects can reach $2 million a year, making the deals incredibly valuable. It didn’t take long for savvy real estate players to spot a lucrative opportunity. A government PFC could earn huge fees by selling its power to create the tax breaks to eager developers. And there was no rule preventing them from cutting the deals anywhere in Texas.
An obscure agency outside of Austin was one of the first to capitalize on it. In 2019, legislators created the SH130 Municipal Management District to help a small group of landowners develop acreage near the airport.
Instead, the tiny entity started its own PFC and began arranging millions of dollars worth of tax breaks across the state. In exchange, the management district – and its financial and legal advisers – collected tens of millions of dollars in fees from grateful developers, lavishing the profits on itself.
Not only did the deals cut local city and county leaders out of deciding if the giant tax-breaks made any sense for their residents; most didn’t even learn about the millions they were losing in revenue until the deals were signed and sealed. Worse, rents for the so-called affordable housing created by the PFC often were no lower than for market-rate apartments.
State lawmakers finally closed the loophole in 2023. Future PFCs could arrange tax breaks only inside their own boundaries unless invited into a community. They also had to produce genuine low-cost housing in exchange for the generous tax breaks.
Houston Republican Sen. Paul Bettencourt acknowledged the long process of cleaning up the mess. “It took three years of collecting actual PFC horror stories, holding hearings to identify problems and passing HB 2071 and other reforms to halt these PFC abuses,” he said.
Yet it turned out that while they were fixated on plugging the PFC leak, legislators missed a virtually identical crack in a similar affordable housing program. It didn’t take long for some of the same people behind the controversial PFC deals to turn their attention to HFCs.
Tiny cities, counties chase new profits
Texas cities and counties have used housing finance corporations for decades to produce low-cost housing for their local residents. Like PFCs, the agencies are considered public so their real estate projects are tax-free.
In 2023, however, many Texas cities began noticing a different type of HFC deal popping up. Instead of being home-grown, they were being arranged by agencies nowhere near them. As apartment complexes became tax-free, millions of dollars in annual revenue vanished from cities, counties and school districts, often without local officials even being aware of it. The tax breaks were good for up to 99 years.
“What the industry did after we did the reforms last session is just jump over to another part of the code because it allows them to do the exact same thing with just a slightly different ownership structure,” said state Rep. Gary Gates, R-Richmond.
The deals were so lucrative – HFCs typically earned about $300,000 for arranging each tax break, plus a percentage of the developer’s annual savings – that several appear to have been created as much to earn income off distant taxpayers as to produce affordable housing.
When Pleasanton officials convened in early 2024 to discuss forming an HFC to do deals across Texas, the stated reason was “possible economic benefits to the corporation and the city of Pleasanton,” according to meeting minutes.
Meanwhile, “(t)he traveling HFC deals did not create any affordability – none,” said Lance Gilliam, former chairman of the Houston Housing Authority.
Cameron County, at the southernmost tip of the state, was one of the first to start inking the far-off deals. The small city of Pleasanton (pop. 11,000) was next, forming its new HFC in February 2024.
A few months later, Maverick County, on the Mexican border between El Paso and Brownsville, began lining up HFC deals. Edcouch, a city of barely 2,500, formed a new HFC in August. La Villa (pop. 3,000) fired up its own HFC in September. Pecos, a city of 13,000 in far west Texas, started an HFC in October.
It was common knowledge in the real estate community that Texas lawmakers intended to move aggressively to close the traveling HFC loophole. Yet the new housing finance corporations worked quickly, even as lawmakers got down to business in Austin, an analysis of their deals shows.
In January and February, they closed just over two dozen deals each month, according to a running tally of the deals kept by Concentric Community Advisors, a Houston affordable housing consultant. In March, that jumped to 60; in April, it was 65. As of May 21, as lawmakers neared the end of their work, 59 of the deals had been struck.
Investor ‘snuck in’ last-minute deals
Elected officials in the tiny cities and counties that formed new HFCs have declined interview requests, so it’s difficult to know how each decided to become statewide players in the tax-break business. “The affordable housing gap is immensely front of mind in Pecos,” an attorney for the Pecos HFC explained in an email.
A council member suggested his city saw other HFCs earning money and wanted in. “When communities started doing this, Pleasanton jumped on board,” Brandon Hicks told the local Pleasanton Express in early April. “I think it was smart.”
Public records show another common thread. Four of the new traveling HFCs – Edcouch, La Villa, Pleasanton and Maverick County – were advised by the same law firm, San Antonio’s Cantu Harden. Attorneys who work on HFC deals say lawyers can expect to collect several hundred thousand dollars per deal.
Cantu Harden had a history with the old traveling PFCs, too. It was paid more than $10 million for its work on the SH130 housing deals, outside of Austin. The firm did not respond to a request for comment.
Brokers earned hundreds of thousands of dollars per deal for pairing the HFCs with private developers – many desperate to rescue housing projects stressed by interest-rate jumps and a softening Texas real estate market. Two California dealmakers set up shop in temporary housing in Pecos just to facilitate the lucrative housing deals.
“We snuck in two traveling HFCs last week, and they cost about $700k each to get done,” David Lilley, a Dallas real estate investor posted on LinkedIn in late May. “Do I feel bad about taking money off the tax roles (sic)? Not really. I’m just getting some of my money back that you misappropriate anyway. Would I have done it if our rents hadn’t declined hundred(s) of dollars per unit? No, I wouldn’t have, but when you are in the business of making money, you will take every edge you can get.” Lilley, who removed the post, did not respond to an interview request.
Several traveling HFCs have disregarded the Texas Public Information Act, simply ignoring requests for records – not only from the Chronicle, but also from government officials. When Euless deputy city manager Chris Barker discovered Cameron HFC had wiped out about 2% of the Dallas suburb’s tax revenue by quietly removing a large apartment project from its tax rolls, he requested information on the deal and received no response, he said.
The secrecy has made it challenging to track how the tiny agencies have used the millions earned from the deals. Cameron’s HFC has said it is spending the money from other jurisdictions to provide affordable housing for its own residents.
Maverick County created its HFC to generate income after several local bond measures were voted down, Commissioner Geraldo Morales said. County Judge Ramsey English Cantu reported that more than $2 million from the other jurisdictions was used to balance his budget.
In statements on her public Facebook page, Pleasanton Council Member Harmony Ratterree said income from its out-of-area deals are being used to keep water rates for Pleasanton residents low. Several city employees also were paid out of the HFC’s proceeds, she added, though she did not reveal how much they earned.
Still, Ratterree assured her constituents the cash flowing into Pleasanton was a pain-free windfall. “NO TAX PAYER MONEY IS USED IN THIS,” she wrote.
HFC deals called ‘absurd,’ ‘perverse’
Local governments whose residents must backfill the millions in the lost tax revenues have seen it differently.
In April, Pecos HFC bought the Shannon Creek Apartments – the City of Burleson’s single biggest property taxpayer. Euless officials calculated that Cameron County’s removal of the Oak Park Apartment complex cost every other single family homeowner an extra $27 a year to make up the shortfall.
Three weeks ago, the city of Rowlett and the Garland school district sued Pleasanton’s HFC. An operation earning “monetary kickbacks” in exchange for removing large properties from local tax rolls without even consulting local elected officials was “absurd” and “perverse,” the complaint said.
“In short, Pleasanton HFC, located over 300 miles away, seeks to single handedly reduce the City of Rowlett’s and Garland ISD’s yearly tax revenue by hundreds of thousands – if not millions – of dollars while they rake in undeserved fees and profits from Rowlett-based properties.”
The city and school district, which have filed a similar lawsuit against the Pecos HFC – about “400 miles away,” the complaint notes – are not alone. Williamson County sued the Cameron County HFC (350 miles) for draining its coffers by removing valuable properties off its tax rolls in exchange for fees.
Arlington has sued the Pecos HFC (400 miles west), claiming its deals were costing the Dallas suburb $2 million a year. Lewisville sued HFCs in Pecos (430 miles) and Cameron (525 miles) claiming four of their deals threatened to drain $4 million from the property tax roll.
In April, a district court judge granted Hays County’s request for a temporary restraining order against Pleasanton and Pecos HFCs. Not only were their deals costing the county more than a half million dollars a year in lost revenue, “these particular developments include properties marketed as luxury living,” County Judge Ruben Becerra wrote on Facebook.
“Our HFC clients are confident that they complied with the laws in effect at the time of the transactions at issue,” Blake Stribling and Daniel Lecavalier, attorneys representing three HFCs in the proceedings, said in a written statement.
‘Everyone knew they were a scheme’
By March, lawmakers had filed five bills that would prohibit HFCs from operating outside their own boundaries, as they had with the PFCs two years earlier.
One, sponsored by Magnolia Republican Rep. Cecil Bell, raced to a quick start, clearing the House in late April before hitting a wall in the Senate. Between then and the end of the session, the traveling HFCs made more than $2 billion-worth of property eligible for a tax break. Bell did not respond to an interview request.
After languishing for a month and a half, a comprehensive bill authored by Gates ignited, racing through the many legislative steps. Like the others, it effectively killed traveling HFCs by limiting their activity to inside their own jurisdictions.
But it went further, adding strict new rules for local, home-grown housing finance corporation projects, too. The additions were controversial among affordable housing developers, who said the new rules were so onerous they would kill good new projects along with the old bad ones. They lobbied for changes.
Gates’s bill landed on Gov. Greg Abbott’s desk May 16; he signed it into law on the 28th. During that time, records show the traveling HFCs closed more than two dozen deals that stand to remove $900 million-worth of property from local tax rolls.
On paper, the new law, which went into effect immediately, includes provisions to help cities and counties kill even the traveling HFC deals that have already closed. It requires property owners who won the tax breaks to get permission from local governments to allow them to continue. Otherwise, they will have to start paying property taxes within two years.
Yet some developers have vowed to challenge the provision, claiming it is unconstitutional for the state to pass a law that retroactively flips previously legal deals to suddenly illegal.
“Traveling HFCs were a scheme, everyone knew they were a scheme, and now they’re gone – fair dinkum,” Hiten Samtani wrote in The Promote, his commercial real estate newsletter. “But clawing incentives back – no matter how ghoulish they were to begin with – might be even worse.”
Rick Ellis
Executive Director
Association of Water Board Directors-Texas
11700 Katy Fwy Ste 450
Houston, TX 77079
v: 281.350-7090
f: 281.350-7092
email: rellis@awbd-tx.org