Texas Lawmaker Drops Reform of Housing Tax Credit Crackdown

Love it or hate it, Texas appears to be stuck with House Bill 21 for the foreseeable future.

After entertaining an amendment to the law that affordable housing advocates denounced for going too far, the bill’s author, Rep. Gary Gates, closed the book on immediate reforms.

Gates’ proposal would have loosened the newly imposed requirements. But, in an Aug. 22 letter, he said pursuing reforms so soon could “risk undermining the progress already achieved.”

“It took a lot of work to get that bill passed,” said Gates, a Republican from Fort Bend County. “Let’s let it work its way and and let’s see the effects that it’s able to accomplish.”

HB 21 is the result of a campaign to close a loophole in a 1970s-era affordable housing program.

The program, which aims to spur affordable housing, was instead used to buoy multifamily investors staring down the barrel of foreclosure after interest rates raised their debt service payments and historic deliveries depressed rents and cut into their revenues. By partnering with affordable housing entities in far-flung counties, they zeroed their property tax bills while wiping billions of dollars off property tax rolls in Dallas, Houston and Austin.

In addition to closing the loophole, HB 21 requires all properties owned by a housing finance corporation (even the deals done properly) to come into compliance with stricter affordability guidelines.

Gates sought to address the concerns of owners of these existing deals.

His proposal, floated in the Texas Legislature’s recent 30-day special session, would have provided another option for existing HFC properties to come into compliance: obtain approval from Texas Department of Housing and Community Affairs and pay the local governing entity 10 percent of exempted taxes.

The proposal wouldn’t have allayed the concerns of Waterford Property Company’s John Drachman, who said the law is “anti-Texas” because it undermines local control and the decisions of local housing authorities.

“I don’t see any new HFC deals getting done again for a while until it’s very clear what the yearly audit process looks like for in-jurisdictional deals, because the way they changed the law makes it impossible to underwrite right now,” he said.

Meanwhile, Gates has repeatedly called the arguments of his detractors “red herrings,” instead focusing on the closure of the loophole.

“You’re not going to use the state of Texas to cover your negative cashflow by getting 100 percent tax exemption and not giving anything back to the state of Texas and its residents,” he said.