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Texas lawmakers are considering a handful of bills to end or restrict the use of public utilities or PFCs – an affordable housing tool that has been scrutinized to steal millions of millions of dollars in property tax revenue from public corporations in San Antonio and other cities in Texas.
In San Antonio, increasing numbers of residential real estate proponents are calling for the city of San Antonio to stop using the tool, arguing that developers are filling their pockets with profits that they would otherwise not get if they had to pay property taxes while gentrification continues, which increases property taxes for others. Another point from them: Much of the homes that PFCs help build are not affordable for the average San Antonian.
"We do not believe that such deals should move forward at all," said housing activist Sofia Lopez after a protest on Saturday. "They are undermining the public sector on several fronts and building things that drive up costs for everyone else."
Most, if not all, of the developers working with PFCs say the property tax exemption is necessary for the projects to work financially. They also argue that PFCs help revitalize parts of the city that have long been ignored by developers and private investment.
Such arguments raise the question of the real purpose of PFCs: are they affordable housing or an economic development tool?
On site, PFC deals have played a major role in the redevelopment of the inner city. The Baldwin in downtown east and the Cevallos Lofts in Southtown are two examples of the San Antonio Housing Trust PFC's work with Cleveland developer NRP Group. The two companies have also partnered on The Flats at River North, the monolithic mixed-use building that is nearing completion on the northwest corner of Broadway and Jones Avenue.
How PFCs work
As of now, the PFC tool works like this: A developer is working with a public agency to build an apartment complex that will receive full property tax exemption under Texas law as long as half of its units are rented to those who are up to 80 % of Area Median Income (AMI), or $ 57,600 in the San Antonio-New Braunfels metropolitan area for a family of four. Housing officials and building contractors often refer to this level of living as housing for workers. Often units are offered to people who earn up to 60% AMI.
(Scroll down to see a graph showing the AMI values.)
There is no limit to the other half of the apartments so the developer can calculate whatever the market will carry or what is known as the market price.
The PFC, which is technically a not-for-profit organization established by a government agency, owns the land and rents it to the development partnership, which also includes PFC.
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In San Antonio, these are the public facilities with PFCs:
»City of San Antonio» San Antonio Housing Trust Corporation for Public Agencies
"San Antonio Housing Authority" San Antonio Housing Association, Las Vargas Public Facility Corporation
»Hemisfair» HemisFair Park Society for public institutions
Alamo Colleges District ACCD Society for Public Agencies
The San Antonio Housing Trust PFC has produced the most homes – 16 developments across the city so far for a total of 4,371 units. Of this unit, 24.6% was customary, 18.5% for households with an AMI of 80% or less; 50.1% at 60% AMI or less; 6% at 50% AMI or less; and 0.6% at 30% AMI or less.
Another eight PFC developments from the Housing Trust are due to be completed this year. This is intended to bring the total number of homes since the program began in 2011 to 6,271, while maintaining roughly the same percentages.
(Download a list of the San Antonio Housing Trust PFC projects.)
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In San Antonio
On Saturday, around eight protesters held signs in front of the H-E-B SoFlo market to inform drivers and passers-by about PFCs. The group, which includes Lopez, a former SAHA commissioner, and Housing Commission chair Jessica O. Guerrero, has sent letters to Mayor Ron Nirenberg and the city council demanding that San Antonio end its PFC dealings . Five council members are the PFC board of directors of the San Antonio Housing Trust – Roberto Treviño (District 1), Rebecca Viagran (District 3), Dr. Adrianna Rocha Garcia (District 4), Shirley Gonzales (District 5), and John Courage (District 9). – and ultimately decide which projects the city should support. The SAHA, Alamo Colleges District, and Hemisfair PFCs have their own governing bodies that make similar decisions.
The advocacy group, which has not decided on a name, accuses PFC deals of helping raise property taxes in the areas where they were built. The tax exemption means that the land the homes are on does not contribute to the tax roles of various public entities such as Independent School Districts, the City of San Antonio, Bexar County, the University Health System, and the San Antonio River Authority. Many of the leases with PFC's own land and property developers have a term of 75 years. While the partnerships don't pay taxes, their mere presence drives up land values and associated taxes, say opponents.
Critics of PFCs also argue that nearly half of the units produced are offered at market prices or for those with an AMI of up to 80%, which is widely recognized as being above the true average San Antonio inflated, given that New Braunfels is also in the US included is calculation. While housing may still be needed for people with an AMI up to 80%, it is still the upper limit on rents that many San Antonians cannot afford, they say. The Census Bureau's American Community Survey estimates the median income in San Antonio to be $ 52,455 for 5 years.
(Read: The Median Income Of San Antonio-New Braunfels Rises To $ 72,000 So It's Important)
Treviño said the PFC discussion was worthy but should wait until after the May 1 elections for voters to be asked to change city rights. If approved, the amendment to the charter would allow future voter-approved borrowing dollars to be used for affordable housing initiatives. Should voters disagree with the change, Treviño said the PFC would be one of the city's few remaining methods of producing housing for people earning below the area's median income.
"I don't know that I can just say we should ban PFCs now," said Treviño. "We're better off having this discussion after (the city elections)."
(Read: Charter Amendment To Add "Affordable" Housing In San Antonio. Here's What You Will Vote On In May.)
In recent years, the PFC board of directors of the San Antonio Housing Trust has been calling for agreements with developers and their investors to be more affordable. In addition, the Housing Trust's PFC board recently passed a tenant protection policy prohibiting future developments from denying a voucher holder a lease under Section 8, as well as prohibiting insufficient rental and credit history as the sole grounds for denying a lease.
The changes have occurred since local media – mostly the San Antonio Express-News, which first wrote about esoteric PFCs in 2018, followed by the Heron – shed light on the once opaque residential real estate incentive process.
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Proponents like Lopez say the level of homes producing below-market PFCs barely matches San Antonio's real housing needs, as noted by the Mayor's Housing Policy Task Force in 2017, an external consultant began to recalibrate housing goals .
While the task force identified a need for 18,681 affordable units, the recalibration effort more than doubled to 47,686. These figures were presented to the public last summer. The Heron asked the NHSD on Wednesday for updated numbers that the department has not yet provided.
The updated numbers show a target of 22,430 over the next 10 years in homes priced for people with an AMI of less than 30%, which is less than $ 21,600 for a family of four.
"We've known what affordable housing we need for far too long and we've avoided it," said Lopez, a housing researcher. "Sure, it's hard. But hard things take work. Things like PFCs take so little work. A developer hires the Housing Trust or SAHA with a deal – that's not good enough."
In Austin
In Texas law, two competing bills have received support from stakeholders such as the NRP Group, the most prolific developer of PFC complexes in the state, and Texas Housers, an affordable housing advocacy group. Both would impose stricter transparency requirements on PFC deals and respond to criticism that they are carried out with little public input or control. However, they differ in the affordability that they would require.
The NRP Group is campaigning for a bill by Senator Paul Bettencourt, R-Houston, that would not change, but tighten, the affordability requirements for complexes built in partnerships between private developers like yourself and cities and counties built like SAHA.
Jim Plummer, a local attorney who spearheaded the use of PFCs and is negotiating with developers on behalf of the San Antonio Housing Trust and SAHA's PFCs, has also voted in favor of this bill.
Another bill, tabled by Rep. Jon Rosenthal, R-Houston, and backed by Texas Housers, would require all PFC complexes to offer apartments at lower prices than current law. The Rosenthal bill would require that half of the below-market units – or 25% of the total – be reserved for those that account for up to 60% AMI, the threshold than that set by the U.S. Department of Housing and Urban Development (HUD) defines "affordable." Of the affordable units, 20% would have to be rented to tenants with vouchers.
"Whether teachers or bus drivers, caretakers, consultants, cafeteria workers, many people penetrate this area from 60% to 80% (AMI)," said Rosenthal in an interview. “Many of them spend half their income or even more just to have a roof over their heads. It is a challenging situation for many voters in my district. "
As originally written, the Bettencourt bill would have required that one eighth of the below-market units in PFC complexes be reserved for those with an AMI of up to 60% and another eighth for those with an AMI of up to 30% . After discussions with the NRP Group, however, the bill was changed so that only the housing authorities face new requirements.
At committee hearings last week, Plummer and Debra Guerrero, senior vice president of strategic partnerships and government relations for the NRP Group, argued that introducing such restrictions on all PFC deals would hinder their use as an economic development tool.
They say PFC complexes shouldn't be viewed as "affordable housing". Rather, the complexes offer “workforce housing” within the budget of middle-income tenants.
PFC deals can also be used to build homes in areas where investors were unwilling to risk their money. Once the complex is open, other investors can see how well it is doing and have the confidence to build nearby.
"In San Antonio we have a public facility that is consistently used for economic development in urban areas that have not been developed for 30 years," Plummer told the House's local government committee last Monday. "By using the PFC tool, we are bringing about the development and redevelopment of urban areas that the city wants to target."
As an example of this way of using the PFC tool, Guerrero cited the Salado in Red Berry, a complex recently built by the NRP Group on the Red Berry Estate on the East Side.
The Bettencourt bill would impose stricter affordability restrictions on housing authorities that use PFCs, as the purpose of those authorities is to create affordable housing, said Brian Thornton, its assistant legislative director.
In fact, the bill would give the PFC tool different purposes depending on who is using it. It would be an affordable housing tool for housing agencies, while it would be an economic development tool for cities and counties.
Heather K. Way, a professor at the University of Texas at the Austin School of Law who recently studied PFCs, suggests that PFC complexes do not create permanent jobs, which is typically seen as a purpose of economic development.
Guerrero declined to comment on this story, and Plummer did not respond to requests for comment.
SAHA has dealt with PFCs. Aspire at Tampico is a $ 33.6 million development that Housing Authority PFC is working on with locally based developer Mission DG. It has been criticized by West Side activists for no longer offering affordable units in line with the median West Side income. The housing authority has also partnered with Lynd Company at 210 Josephine Apartments, two blocks west of the Pearl, in a 259-unit complex that will reserve 10% of the units or 26 units for households that are up to 60% AMI.
In a January interview, SAHA Interim President and CEO Ed Hinojosa Jr. said that SAHA's current partnerships are required to accept Section 8 coupons. He also said that all future partnerships must include a significant amount of public housing.
"We will do all we can to increase the number of public housing in San Antonio," said Hinojosa. "We'll ask for that for new transactions and new deals."
Is It Really Affordable?
Way, the UT professor, said the reasons behind the economic development of PFC deals are "very problematic". Last summer she published a study on PFC deals, which found, among other things, that her low-income apartments are often no cheaper than units in nearby market price complexes.
“The starting rents aren't even affordable for teachers or cops who are starting out. So it is questionable: when we talk about serving the workforce, what part of the workforce are we talking about? "she said in an interview.
In the redevelopment of the Friedrich Lofts on the East Side, a partnership between the Dallas developer Provident Realty Advisors from Dallas, the American South Real Estate Fund from Atlanta, and the San Antonio Housing Trust PFC, a studio apartment for a single person with an AMI of up to 80% is expected to be $ 1,100. A bedroom for a household in the same income bracket would range from $ 1,375 to $ 1,420.
(Read: "Analysis: It's Time to Call BS About Workforce Housing" ")
For this project, the Housing Trust PFC decided not to adhere to the rent limits set by HUD. Pete Alanis, executive director of Housing Trust, told the Heron last year that higher rents would be needed for financial data to work on the long-stalled Friedrich, a decision influenced at least by the American South Real Estate Fund of Atlanta equity providers .
"It is the deal that will finally allow this project to go ahead, and we will finally get Friedrich done," Alanis told the heron in June. "Otherwise it just wouldn't have happened."
Thereafter, Alanis said, future Housing Trust PFC partnerships will adhere to HUD's rental limits.
In a statement accompanying the article, Alanis welcomed other PFC policies from Texas lawmakers, including "Lowering Income Targets, Standardizing Rental and Income Requirements, Improving Section 8 Accessibility for Voucher Holders, and Improving Tenant Rights".
Another bill tabled by Rep. Gary Gates of Fort Bend would abolish the PFC tool altogether.
"I looked up each of these projects – I've probably looked up over 30 of them – and we did a rental comparison of free market rent and the vast majority of times the free market rent was at or less than those projects," Gates said. "So I don't think there is any really affordable housing stock in practice."
Christina Rosales, assistant director at Texas Housers, said Gates' bill was a "reasonable bill." However, Texas Housers is fighting for a reform of the PFC tool as the organization believes that effort is a more achievable goal given the NRP Group's influence on Texan lawmaking.
"I hesitate to say it, but they came with a lot more force," said Rosales of the NRP Group. "You have a lot more leverage over lawmakers, to be honest, and I'm just not sure we can handle it. That's why we're talking about reform."
Way said she found the Rosenthal bill "the most comprehensive" for fixing the problems with the PFC tool.
"Even the Bettencourt bill is a big step in the right direction and there are a lot of really great, positive reforms out there," she said. "It's disappointing to see the spin-offs for the city and county sponsored projects, but I still think there are a lot of good things. I'm really excited that this conversation is taking place in the legislature. This is a conversation , that should have taken place when this was originally proposed in 2015. "
"Every deal is just a little different"
Treviño said the Housing Trust's PFC partnership income has helped fund other urban housing initiatives, such as more than 1,000 home repairs through the Under One Roof program. "Much of this is funded by the PFC," said Treviño. "The minor home repairs (program) – a large part of it is funded by the PFC."
A question that seems to be in the air: Can developers still build without the property tax exemption?
Project pro formas, the financial document that shows whether a project is working financially or not, are hard to come by. Several Heron open records requests for PFC Pro Formas have been challenged by various developers with the Texas Attorney General.
"It's hard to know when they're not showing their pro formas to anyone," said Paul Demanche, housing advisor and vice president of the San Antonio Housing Trust Foundation, the administrative unit that runs the Housing Trust, at the rally on Saturday. “Should we believe a company that is profit-oriented, take its word for it? And I don't think the five councilors who make these decisions should take their word for it. "
Treviño said the councilors who approve PFC partnerships will see the pro forma of a project.
“We review these projects one by one, so we meet regularly to review the projects going on in our district and understand the numbers,” said Treviño. “There are a number of projects that just don't get out of hand and don't come to the PFC. There's a certain amount of trust we need to put in Jim Plummer.
“Every deal is just a little different. One of the things that I've been very adamant about is this: Depending on where you're building, it can be more expensive to build the same number of units in one place compared to another. "
Doesn't go far enough
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The PFC tool was "quietly built" in 2015 with the passage of a motion in the Texas Senate that incorrectly portrayed it for nonprofit only, according to Way's report. Plummer had previously testified in the committee that the bill brought about no significant changes and described it as a "cleanup bill".
At the time of Way's report, at least 30 apartment complexes had been built or renovated under PFC deals, removing an estimated $ 1.2 billion property value from tax rolls across school districts, cities, counties, healthcare systems and other public Facilities caused high costs.
The report identified other issues with the tool: it doesn't require complexes to carry rental restrictions or adjust household size within their income limits, as is the case with most affordable housing programs. The process of processing PFC transactions is usually ad-hoc without an invitation to tender.
Rosenthal's bill would require PFC complex owners to limit rents in the income-restricted units to 30% of the income limit. For example, a tenant living in a unit reserved for someone who earns 60% of the area median income would have to pay a rent less than 30% of that 60% income minus a utility allowance.
Both Bettencourt's and Rosenthal's bills would require PFC complexes to accept housing choice vouchers in response to another concern Way cited in their report.
Rosenthal said he wants to coordinate with Bettencourt to put together a bill that could make it through the House and Senate, and that he is willing to compromise with NRP and other stakeholders.
"The goal would be to make these stakeholders happy and help them become allies rather than opposition," he said. “You have to be open to compromises. I don't know what the compromise looks like. I would argue that it doesn't go far enough where we are with this matter. It's a gradual change. "
Coverage by former Heron intern Carson Bolding in 2020 also contributed to this report.
This story was originally published by San Antonio Heron, a nonprofit news organization dedicated to educating readers about what's changing in the downtown area and the surrounding communities.
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