Hays County joined the growing chorus of Texas communities scrutinizing the quiet rise of the housing finance corporation tax loophole.
The county where San Marcos is the county seat is pushing back against so-called “traveling” housing finance corporations, filing legal challenges against two far-flung out-of-county entities it says are still siphoning tax revenue without local accountability, the Austin Business Journal reported.
The county recently requested temporary restraining orders against the Pecos Housing Finance Corporation and the Pleasanton Housing Finance Corporation after the groups acquired properties in San Marcos and Kyle with plans to claim property tax exemptions by designating them as affordable housing.
If successful, the moves could remove roughly $230 million from the county’s tax base, according to County Judge Ruben Becerra.
“These organizations are operating without our input, our support or our authorization,” Becerra said. “They are pulling hundreds of millions of dollars in property off our tax rolls, money we depend on to fund public safety, health and other essential services.”
The case echoes a similar legal battle in neighboring Williamson County, which secured a temporary restraining order in March against the Cameron County Housing Finance Corporation. That injunction has since been extended through the start of next year, giving time for a broader lawsuit to proceed.
“Traveling” HFCs, a term used derisively by local officials and lawmakers, are often hundreds of miles from the communities where they arrange these deals. In this case, Pecos is about 400 miles from Hays County, and Pleasanton is about 100 miles away.
The Pleasanton corporation lists Pleasanton’s City Manager Johnny Huizar as its registered agent, while the Pecos HFC is tied to the executive director of the Pecos Housing Authority, John Salcido, according to public records.
Created under Chapter 394 of the Texas Local Government Code, it’s uncommon for HFCs to be run as quasi-governmental nonprofits and run by people who serve in municipal roles.
Critics argue that the entities exploit legal loopholes that allow them to approve tax-exempt deals for apartment developers in exchange for hefty fees, often without materially improving affordability. They also do so without the knowledge or approval of local governments who stand to lose millions in property tax revenue.
Legislation now under consideration in the Texas Legislature would curtail such arrangements.
Rep. Gary Gates, a Republican from Richmond, has sponsored several proposals. Gates has cited internal research estimating that nearly $12.5 billion worth of property has been removed from local tax rolls statewide by finance corporations and related public facility corporations. Some of that may involve legitimate affordable housing projects, but watchdogs say bad actors are undermining the system.
Recently, Pecos also partnered with Dallas-based S2 Capital to do a sale-leaseback of the Kendrick Apartments at 7324 Skillman Street in Northeast Dallas, an asset S2 has owned since 2022.
— Judah Duke
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