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Dubious Deal

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"You can say, 'Why don't the developers pay for it?' But the reality is they can't," says Robert Randolph, a municipal-finance lawyer with Vinson & Elkins. "The money is not there to pay for it, and whether the fault lies in local government not requiring developers to plan the streets at the time an area was developed, the problem is there now, and there's no way to fix it."

Tax-increment reinvestment was among the tools used by former mayor Bob Lanier to reverse the 25-year trend of Houston losing residents and businesses to other parts of the county.

Lanier resisted creating TIRZs until a group of landowners from Midtown, 800 acres of abandoned buildings and vacant lots between downtown and the medical center, approached him with a plan in 1994. Today, it's difficult to deny the transformation going on in Midtown. Four large apartment complexes, totaling more than 1,800 units, and two retail centers are under construction. Dozens of town homes are planned, or already under way, in the eastern part of the TIRZ, as is plenty of commercial construction throughout the zone.

It's difficult to predict whether this boom would have occurred on its own. Certainly there was no evidence that anyone was anxious to tear into Midtown before Lanier turned it into a TIRZ. That, in time, might have changed: Metro and the city had already planned $50 million worth of streets, storm sewers, water lines, bus shelters, landscaping and sidewalks.

No doubt the TIRZ accelerated the public works, and with most of the heavy lifting being done by Metro and the city, the Midtown TIRZ could focus on specific amenities for developers. According to city records, the TIRZ is paying for landscaping and irrigation, pedestrian lighting, trees, fencing and brick sidewalks. The TIRZ has also picked up the tab on hundreds of thousands of dollars in impact fees. While these could, in some sense, be considered "public improvements," they also make the complexes more marketable, and therefore more profitable, for the developers.

But that's part of the "synergy" that makes tax-increment reinvestment so wonderful, says Charles LeBlanc, executive director for the Midtown Redevelopment Authority, the nonprofit corporation that oversees the TIRZ.

"This zone has been very proud of its accomplishments," LeBlanc says. "The proof is in the pudding. We're exceeding expectations."

The apparent success in Midtown might be the shining light of the city's use of tax-increment reinvestment, but some of the zone's corporate behavior is, at times, a little shadowy.

Until last March, the Midtown Redevelopment Authority was chaired by Doug Williams, the deputy special assistant for housing and inner-city revitalization under Lanier. Since Brown has been mayor, Williams has had a consulting arrangement with the quasi-public Houston Housing Finance Corporation. Though he's paid with public funds, Williams is not considered a city employee.

That distinction became important to Williams when he hired on as a paid consultant to Columbus Realty and Camden Property Trust, both of which had development agreements with the Midtown Redevelopment Authority. While that might appear to pose a conflict of interest, Charles LeBlanc says Williams didn't advise the developers on their Midtown projects, nor did he participate in any board discussions involving their development agreements.

"Mr. Williams would leave the room — completely," LeBlanc says. "Most of the time, I don't even think he attended the meetings if they were on the agenda."

Likewise, LeBlanc insists it was made "very clear" to the Midtown board that its legal counsel, Robert Randolph, the V&E municipal-finance attorney, owned an interest in land inside the TIRZ, including a parcel that was sold to an apartment developer in 1997.

None of these potential conflicts were reported to councilmembers. That's not surprising: Once a TIRZ is formed and a redevelopment board chosen, the only responsibility left to councilmembers is to approve TIRZ budgets every year. While most councilmembers say they don't have a problem with the arrangement, maybe they're just used to it. Some elected officials aren't convinced it is good public policy, though.

"It takes government money out of the hands of the government and puts it into the hands of these boards. I have real problem with that," says County Commissioner Steve Radack, who has found much to dislike with the city's TIRZ policy. "When elected officials send authority somewhere else, where that board is not answerable to the public through the voting system, then I think you're asking for trouble."

Indeed, redevelopment boards are subject to very little oversight and are free to dole out management and development contracts without first taking bids. Moreover, thanks to a recent change in the state TIRZ law, redevelopment authority board members aren't public officials and therefore aren't accountable to taxpayers.

Not surprisingly, perhaps, the chapter of the state law that governs redevelopment authorities was authored by Robert Randolph, who, as it happens, provides contract legal services to more than half of the city's 17 existing TIRZs. According to state ethics commission records, he also lobbies the state Legislature on behalf of a half-dozen tax-increment zones.

State Representative Garnett Coleman, whose inner-city district includes the Midtown and Market Square TIRZs, says Randolph has written many of the tax-increment reinvestment-related bills the legislator has sponsored.

"Robert Randolph is a genius," Coleman says, "and his genius has worked very well to really create some good opportunities at a time when there were no opportunities."

With Coleman's enthusiastic support, Randolph has helped shape the TIRZ law to address a wide range of problems far beyond its original intent to redevelop "unproductive, underdeveloped or blighted" urban areas. In particular, the Brown administration has taken aim at so-called major activity centers such as the Galleria and Memorial City. The theory is that by subsidizing new streets and other public improvements, TIRZs will spawn new office buildings and retail shopping outlets.

"If the city wants to maintain places like the Galleria and Memorial City as healthy and viable," Randolph says, "they have to put the streets in. There's not going to be anyone else to do it."

It's a little ironic that Randolph is now trying to protect the city's tax base by encouraging taxpayer-funded redevelopment of shopping malls. In 1995, Randolph and his V&E partner, Joe B. Allen, lobbied the Lanier administration to cut "industrial district" contracts with four petrochemical companies rather than annex their land, a deal that cost the city $30 million in property tax revenue.

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