When the Texas Legislature originally established tax increment reinvestment zones (TIRZs), the intent was to provide a mechanism for underdeveloped areas to retain a portion of the property taxes collected in those areas to invest in projects that would spur development. The statute defined the areas that would qualify for this special treatment as those with a “substantial number of substandard, slum, deteriorated, or deteriorating structures.”
Houston now has 25 TIRZs that raked in nearly $260 million in property taxes in 2023. It is important to understand that this $260 million in property tax revenue was diverted from the general fund of the City of Houston and, to a lesser degree, the general funds of HISD or other sponsoring entities.
About two-thirds of that $260 million went to just seven TIRZs: Uptown, Midtown, Market Square (Downtown), Lake Houston (Kingwood), Upper Kirby (River Oaks), Greenspoint (IAH) and Memorial. I don’t know about you, but when I think about areas in Houston with a “substantial number of substandard, slum, deteriorated, or deteriorating structures,” none of these areas come to mind.
Over the years I have been observing the operations of the Houston’s TIRZs, it has always appeared to me that the bulk of the TIRZ money was going to projects in affluent areas of the City. However, I could never figure out how to prove or quantify that suspicion. Enter the Center for Public Finance at Rice University’s Baker Institute. As you may recall, I shared with you earlier this year that I had joined the Center as a Fellow.
Shortly after I started at the Center, I shared my suspicions about the TIRZs with my colleagues and asked if we could devise a way to test whether the TIRZs mostly benefited more affluent areas of the City. The methodology they developed was to overlay the boundaries of the TIRZs on a map of census tracts using ArcGIS software. The team then grouped census tracts in the vicinity of the TIRZs and extracted median household incomes of these areas from Census Bureau data. This allowed us to compare the household incomes of the areas in and around the TIRZs to the rest of the City and between the individual TIRZs. The results were even more dramatic than I imagined. Here is what they found.
Half of the TIRZs had household incomes higher than the City’s $62,637 median household income. In 11 of the TIRZs, the household income was more than 50% higher than the City’s median, and in three, it was more than double the City’s median.
But the comparison between the TIRZS is even more glaring. Thirteen of the TIRZs have median household incomes above the City’s average. Those 13 TIRZs collected 71% ($184 million) of the property taxes rebated to all TIRZs. The 12 TIRZs with median household incomes below the City’s average only got 29% ($75 million). Three TIRZs (Sunnyside, Leland Woods, and Fifth Ward) have a household median income that is 30% below the City-wide average. Those TIRZs received a paltry 2% of the rebates ($5 million).
Another way to judge the benefit conferred by the tax rebates to the TIRZs is the total amount spent on projects in those TIRZs over their lifetimes. In total, the TIRZs have spent $3.5 billion.1 Of that total, 70% ($2.5 billion) has been spent in the Uptown, Midtown, Market Square (Downtown), Lake Houston (Kingwood), and Upper Kirby (River Oaks) TIRZs. Uptown alone, which is, of course, one of Houston’s toniest areas, has accounted for nearly a quarter of all TIRZ spending. The average of the median household incomes in these five TIRZs is 80% higher than the City’s average ($112,237 vs. $62,637).
The team created this table of some of the key metrics for Houston's TIRZs. Clicking on this image will take you to an Excel pivot table that will allow you to sort the TIRZs by any of these metrics. This is a link to the complete report.
As our team said in its report, it would be a mistake to overly generalize about the operations and financial effects on the City of the TIRZ program. Each of the TIRZs has a unique history and the manner and scope of their operations vary widely. For example, even though Kingwood is an affluent area and has received a substantial benefit from its TIRZ, the City has also consistently shortchanged it on infrastructure investment since its annexation in 1996.
However, the data is clear that the TIRZ program, at least how it has evolved in Houston, has strayed far from the Legislature’s original intent and has become a perverse, regressive redistribution of the property tax burden within the City. Mike Morris at the Houston Chronicle has been making this point for some time.
Hopefully, the current administration and Council, as well as the Legislature, will implement a long-overdue overhaul of this program. Frankly, that should include just flat-out dissolving some of the TIRZs. Uptown would be first on my list.
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Note 1 – The total amount the TIRZs have spent far exceeds the total of their tax rebate revenue because just about all of them have gone deeply into debt. I will be writing more on this soon.
