A tax loophole inadvertently expanded in Texas could be hamstringing local governments to the tune of "billions and billions," with private developers capitalizing on a provision originally designed for public entities. State Representative Gary Gates, outside his legislative duties, works in real estate and noticed the abuse of the public facility corporations (PFCs) designation meant for entities like school districts and counties building essential facilities, as reported by CBS News.
An amendment in 2015 that was intended "to update and clarify the Public Facilities Corporation Act," according to then-Senator Craig Estes, seems to have confused Texas lawmakers who didn't grasp the full implications, leading to an expanded tax break that Estes assured would not benefit for-profit developers. However, a study by UT law professor Heather Way indicated that the "complicated structure of the 2015 amendment" indeed ended up granting private apartment developers a significant new property tax exemption, which saw hundreds of developers jumping in to take advantage of the tax savings and with these deals in place local counties and school districts could be feeling the pinch as potential revenue slips through their fingers with every new PFC signed off on, as per Spot News.
Investigations led by the CBS I-Team into Plano's PFCs have raised the question of whether these publicly supported deals truly serve the intended purpose of providing affordable housing, or if in reality, they're supporting luxury complexes, with Plano Housing Authority's executive director Dave Young having defended the high-end nature of such developments in Plano. Professor Way's study points to steep savings for developers - to the tune of about $1.3 million in sales tax during construction and a subsequent million annually in property taxes, with no rent restrictions ensuring affordability for low-income renters, according to Spot News.
In response to these revelations and the growing number of these lucrative arrangements, Rep. Gates introduced his amendment this year aimed at tightening regulations by mandating annual compliance audits and requiring local taxing entity approval for new PFCs. This measure alone makes any further PFC deals in Plano unlikely, as confirmed by the city's housing authority executive director, who was skeptical about getting city approval given the recent actions the city had taken. However, this does little to mitigate the impact of agreements already in place which are now locked in, essentially, for a 99-year game where billions of dollars are on the line, with Rep. Gates expressing frustration that much of the public is just beginning to comprehend the depth and longevity of these deals.
Efforts to get comments from former Senator Estes have been met with silence, and PFC-designated apartment complexes have not been forthcoming with their responses either. Meanwhile, the legacy of what some may call an oversight lingers in Texas public finance, casting long shadows over the future fiscal landscapes of local governments and the communities they serve.
