In Texas, a controversial loophole has allowed some special purpose districts to make millions, leaving taxpayers to foot the bill. This case, centred around the SH130 Municipal Management District, is a prime example of how well-intentioned laws designed to promote affordable housing have been exploited by businesses, lobbyists, and lawyers.
The creation of special purpose districts (SPDs) in Texas is common, but the SH130 district has taken advantage of a legal loophole, raising serious questions about government oversight. While the state passed laws aimed at creating affordable housing, what happened in the SH130 district was far from what lawmakers had envisioned. Instead of improving infrastructure and offering genuine affordable housing, the district became a machine for generating profits for a select few—at the taxpayer’s expense.
What Are Special Purpose Districts (SPDs)?
Special purpose districts are local government entities designed to carry out specific tasks in an area, typically focused on infrastructure projects, like roads, water systems, or public parks. They are typically small, independent, and sometimes fly under the radar, making them ripe for exploitation.
Here’s the crux: Texas has over 3,000 of these districts, many of which are virtually invisible to the public. These districts can raise taxes, issue bonds, and engage in various public service projects. However, some are using their power in ways lawmakers never intended.
The SH130 Municipal Management District was one such entity, formed with the goal of improving an underdeveloped area near Austin’s airport. Instead of focusing on infrastructure, it ventured into high-risk financial ventures—making millions while avoiding public scrutiny.
A Loophole That Exploited Affordable Housing Laws
In 2019, a new law was passed in Texas aiming to promote affordable housing through public-private partnerships. This law allowed developers to set up Public Finance Corporations (PFCs), enabling them to partner with local governments to create affordable housing. The twist? These developers could avoid paying property taxes in exchange for building affordable housing projects.
Sounds good, right? Unfortunately, the law didn’t have the checks and balances to ensure its proper implementation. In some cases, developers were able to claim affordable housing tax breaks without actually providing affordable units. Worse, they were even able to claim tax savings on older, already affordable apartments, leaving local taxpayers to shoulder the burden.
The SH130 district quickly recognised the potential to profit from this loophole. By setting up a PFC, they were able to arrange lucrative deals with developers, who paid the district for the privilege of avoiding taxes. This wasn’t the vision that Texas lawmakers had in mind when creating the law.
The Million-Dollar Lobbyists and Lawyers Behind SH130
Instead of focusing on building roads or sewer systems, the SH130 district spent millions of taxpayer dollars on lobbying and legal fees. Over the past two years, the district paid $1 million to lobbyists to push its agenda in front of lawmakers, ensuring its tax-break schemes continued. The lobbyists included heavyweights such as Wayne Hamilton, John Montford, and Mike Martinez, who earned large sums for their efforts.
However, the real windfall came for the district’s lawyer, Adam Harden. In just two years, Harden billed the district more than $14 million, a staggering sum that far outpaces most lawyers working in public service. In addition to his legal fees, Harden created a separate company to oversee the district’s affordable housing projects, billing another $1 million.
As the SH130 district raked in tax savings from developers, those in charge of the district grew richer. Executive Director Aundre Dukes, a relative of former state representative Dawnna Dukes, earned an eye-popping salary of $525,000 in 2023, more than any city manager in Texas. The district spent lavishly on office space, dining, and other perks, including high-end restaurants like Capital Grille and the Four Seasons.
The Growing Problem of Unchecked Special Purpose Districts
The SH130 district is far from the only example of misused special districts in Texas. In recent years, 437 new special districts have been created, a 24% increase, according to the Legislative Budget Board. Many of these districts operate with little oversight, making it easy for the people in charge to line their pockets while local residents remain in the dark about where their tax dollars are going.
The SH130 district’s example highlights a larger trend: The lack of accountability and transparency in these districts can lead to large-scale abuses of power. As former Texas state senator Paul Bettencourt pointed out, the SH130 district is a clear example of a government agency that has veered off course. This district was intended to help build a community, but it became a vehicle for personal gain.
Local Leaders Push Back
Local officials were furious when they learned that the SH130 district had arranged for property tax breaks in their areas without any consultation. San Marcos Mayor Jane Hughson testified before lawmakers, expressing her anger that apartments had been removed from the city’s tax rolls without notice, forcing taxpayers to fill in the gap.
While the district was collecting millions, the cities and counties where these projects were located were left to pick up the slack. In some cases, the properties had to be maintained by local governments, even though they were no longer generating tax revenue.
The Future of Special Purpose Districts in Texas
Texas lawmakers have now moved to close some of the loopholes that allowed the SH130 district to thrive. In 2023, a new law was passed requiring that PFCs only offer tax breaks for projects within the boundaries of the district, ensuring that local governments have a say in which properties receive tax exemptions.
In the wake of public backlash, the SH130 district has attempted to rein in its spending, cancelling credit cards and firing high-paid consultants. Still, the district remains a symbol of how loopholes in the law can be exploited for private gain at the public’s expense.
Conclusion: The Need for Reform in Texas Special Purpose Districts
The case of the SH130 Municipal Management District illustrates the potential for abuse when special purpose districts are allowed to operate without sufficient oversight. While the goal of creating affordable housing is noble, this example shows how easily these laws can be manipulated. Lawmakers must continue to scrutinise special districts and ensure that taxpayer money is being spent appropriately.
It’s time for Texans to demand more transparency and accountability from these local government entities to prevent further exploitation and to make sure that special purpose districts fulfill their original purpose: serving the public.
