Public Facility Corporations and Richardson

Richardson ISD Student Density

The Richardson City Council held a short meeting on February 19, 2024, where most of the substantive discussion took place behind closed doors, in executive session, which the public (and by that, I especially mean yours truly) was not privy to. So the rest of this blog post is based on conjecture.

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The City Council agenda stated the topic of the closed session:

• Consultation with City Attorney
    — Certain Economic Incentives
• Deliberation regarding economic development negotiations
    — In the area of W. Spring Valley and Coit Road

That's all the agenda said. What Mayor Bob Dubey said at the meeting was different, and more revealing. Mayor Dubey said the topic was "Consultation with City Attorney regarding Public Facility Corporations."

What's a Public Facility Corporation, you might be asking. I did. Googling, I found a revealing 2020 report from the University of Texas at Austin's School of Law's Entrepreneurship and Community Development Clinic (whew, that's a mouthful) titled "Public Facility Corporations and the Section 303.042(f) Tax Break for Apartment Developments: A boon for affordable housing or windfall for apartment developers?" (whew, an even bigger mouthful).

The way a Public Facility Corporation works is this: in exchange for the tax break, "a private apartment developer transfers land to a public facility corporation (PFC) set up by a local government entity — such as a public housing authority, county, or city — which then leases the land and any buildings on the land (including those built in the future) back to a limited partnership controlled by the developer. The local government entity gets paid to participate in the venture."

In short, a Public Facility Corporation is a means to give a tax break to apartment owners.

What's significant about the area of W. Spring Valley and Coit Road? The RISD-supplied map above shows a hot spot right in that area. Yellow areas indicate a higher concentration of student population, e.g., apartments.

So, just conjecture here, but it's possible that the City of Richardson is deliberating the possibility of buying an apartment complex through a Public Facility Corporation and leasing it back to the apartment owner.

What the apartment owner gets is pretty clear: a tax break. They no longer own the property, so they don't owe property taxes.

What the City gets out of this is unclear. Because the apartments in that area already exist, the City won't be getting any new apartments, "affordable" or otherwise. The City will collect a leasing fee, but whether that income makes for a good investment in this property all depends on the numbers. Because this is all conjecture, the numbers are unknown, but if the UT-Austin report is accurate, they likely won't be enough. According to the report, "In the projects approved to date, the amount of revenue flowing to PFCs from these deals pales in comparison to the value of the property tax exemption."

The report's bottom line: "The Section 303.042(f) exemption fails to serve the state's affordable housing needs."

So, what's going on? Maybe nothing. Maybe the apartment owner learned of this tax break and approached the City to gauge the City's interest in participating. Maybe at this executive session, the City Council quickly shot down the apartment owner's deal. If so, maybe that's the end of it and we'll never learn the details.

Or maybe the City of Richardson cobbled together this deal in response to the City Council's adopted tactic, "Explore opportunities for federal and state housing grants." The Section 303.042(f) exemption might fall into this category, even though no Councilmember has ever identified it as a "housing grant" that is at the heart of this tactic.

No matter how the topic ended up on the City Council's agenda, I hope the City Council is doing due diligence before handing an apartment owner a big tax break. They'll need to present a solid case to the public to overcome all the red warning lights flashing in the UT-Austin report about Public Facility Corporations.

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By the way, that map above is from Richardson ISD, for whom those apartments on both sides of Spring Valley Rd are a big part of a district plan to close schools. Many of those apartments have been in non-contiguous attendance zones for elementary schools far outside their neighborhood. Beginning in the 2024-2025 school year, affected students will be rezoned to their neighborhood school, Dover Elementary. But that's a topic for another day.

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"City contemplates
Property tax exemption.
Apartments in play."
—h/t ChatGPT