Texas Senate Bill Would Close Affordable Housing Property Tax Loophole

Texas Sen. Paul Bettencourt has filed a bill to repeal housing authorities’ ability to use Public Facility Corporations, which allow properties used for affordable housing to avoid paying taxes.

Senate Bill 805 is consistent with a longstanding position of Bettencourt’s to reform property taxes and benefit the commercial real estate industry. The Houston-based Republican, who is also CEO of Bettencourt Tax Advisors, filed a similar bill during the 2021 legislative session.

The number of PFCs and what Bettencourt calls “PFC abuse” has exploded since the last attempts to reform the process in 2021, he said. 

Texas law permits property tax and construction materials sales tax exemptions for PFCs, which are nonprofit institutions, to provide for the construction, acquisition or repair of property that will be used as a public facility. Government entities, including school districts, municipalities, counties and housing authorities, can create PFCs. 

SB 805 would repeal that section of the law, though it would not apply to leaseholders granted before an effective date of Jan. 1, 2024. The bill has not progressed past introduction. 

To receive the tax exemption, private apartment developers transfer the land to the PFC, which leases it back to the developer. The government entity gets paid to participate, according to  a 2020 study by University of Texas School of Law.

The exemption comes with no restrictions other than a requirement that at least 50% of the units in projects sponsored by housing authorities’ PFCs be reserved for occupants earning less than 80% of the area median income, according to the study.

The study found that the average tax break is about $1M per property, or $7.4K a year per income-restricted unit. 

“The costs of the tax breaks are large, and, on scrutiny, the public benefits are comparatively few,” the executive summary of the UT Law study stated. 

According to the study, the ability of public housing authorities to approve exempt projects is “particularly troubling” since the authorities are run by unelected officials who lack political accountability to taxpayers.

“PFC deals are being cut in opaque settings in the supposed name of ‘traditional public housing,'" Bettencourt said in a texted statement to Bisnow. "When in reality, unelected Housing Authority and taxing authority bureaucrats are taking BILLIONS of Dollars of property value off the tax rolls and not meeting the low-income unit requirements.”

In a release, he pointed to the Houston Housing Authority using PFCs to give 75-year to 99-year tax exemptions to properties worth $5.1B total as an example of abuse. Some of the properties had only 10% of units set aside for low-income residents, the release said. 

“This process completely bypasses elected officials and that has to change,” Bettencourt said in the release.

UPDATE, FEB. 14, 1:35 P.M. CT: This article has been updated to include a statement from Bettencourt.