October 29, 2012
By Steve Miller, Texas Watchdog
For decades, Texans have relied on special districts for services that local municipalities can’t provide. Water to an isolated settlement. Crime prevention in a region that can’t afford full-service cops. Flood control in susceptible areas.
But the web of special districts is at times marked by self-dealing and relationships greased with campaign cash, which passes from the firms and developers who make a living off the districts to the lawmakers who authorize them.
These deals result in government that is not always for the people by the people, but instead is driven by special interests — lawyers, lobbyists, and management firms — that make huge profits on the backs of residents.
A consultancy for special districts, Municipal Accounts and Consulting, is owned by attorney Joe Schwartz, whose law firm Schwartz Page & Harding handles the elections and management of several special districts, which give their business to Municipal Accounts.
Schwartz’s office said he sold the limited partnership to Mark Burton, a certified public accountant who was the registered agent of the operation when it began in 2002. Texas Watchdog was unable to locate any state records confirming the sale. The company has an address of 1300 Post Oak Blvd, Suite 1600, in Houston. Schwartz’s law firm occupies the 14th floor.
For years, developers aspired to turn some prime acreage north of Arlington into some Rodney Dangerfield-in-Caddyshack living — “Condos over there! Plenty of parking.”
In 2007, Huffines Communities landed the big fish in the form of Viridian Municipal Management District, which sold bonds for millions of dollars in roads and infrastructure and has broad taxing powers to build everything from playgrounds and amphitheaters to signs and monuments.
The legislation creating the district was sponsored by state Rep. Paula Hightower Pierson, D-Arlington, in April 2007. Eight months later, Hightower-Pierson received a campaign donation of $5,000 from Robert Kempel, president of Huffines, the first of three donations he would make to her through 2010. One fawning story pegs the total public “contribution” at $337 million, “if all goes as planned.”
In late 2006, state Rep. Hubert Vo, D-Houston, received campaign donations of $500 each from Hawes Hill Calderon and Allen Boone Humphries Robinson. Four months later, in March 2007, Vo and state Sen. Rodney Ellis, D-Houston, carried a bill creating the International Management District, which would become a client for both firms. Hawes Hill manages the district, and Allen Boone is a mega law and lobbying firm which handles legal affairs for districts across the state including International.
After the 2007 session, Vo received additional donations, $2,500 in August from Hawes Hill and $500 in September from Allen Boone.
Vo has since received one donation from Hawes Hill, $1,000 in May.
Perhaps even more cozy is the building on Bellaire in Houston that houses the offices of the International Management District; records show that it is owned by ERA Investment, a company registered in 1997 by Vo and his wife, Kathy.
David Hawes, of Hawes Hill Calderon, said the space for the district is donated by Vo, saving the district the $600 a month it was previously paying in rent.
The building was purchased in 2004 by Vo’s company although his financial disclosure for 2007 does not state his interest in the building at 11360 Bellaire. Vo did not return a call asking for a comment.
One of the largest district management firms in the state, Hawes Hill Calderon has been a major player in the explosion of special districts in the state. The Houston-based firm is an efficient and effective team of professionals, handling everything from security to graffiti removal for businesses often located in tough neighborhoods.
“Cities do what they can, but they can’t do everything,” Hawes said. “If I can provide security to drive into these district centers and help, it’s a service to the commercial community.”
Hawes said that in one district, they were able to cut burglaries of businesses by up to 70 percent in a given period.
For graffiti abatement, the city often cites a business if it does not clean up the spray paint in a given time period.
“As a business owner, if you have someone managing the removal, you avoid a fine.”
At the same time, Hawes Hill has contributed to the campaign funds of lawmakers and elected officials who authorize the districts.
“It’s become a cottage industry. There are people making their entire living off these special districts,” said Martha Wong, a former Republican state lawmaker from Houston.
She pointed to Hawes Hill, which wanted her to support a special district in the Montrose area to provide extra publicly-funded services such as police patrol and litter pickup.
“They wanted to me introduce legislation for their management district, but I found out there was a big resistance to it,” Wong said. “My goal was to have 75 percent of the landowners approve it and to make sure every land owner in that area was notified.”
Wong refused to carry the bill because of the overwhelming opposition.
“When you work it out and the neighborhood agrees, I’ll carry it,” Wong recalled telling the district organizers.
The organizers got a more sympathetic hearing from Ellen Cohen, Wong’s successor in the House, who sponsored the bill creating the Montrose Management District in 2009.
Today, that district is being sued by landowners who claim they submitted a lawful petition to dissolve the district’s mayor-approved board, but the board denied the petition’s validity.
Wong said special districts are “good for specific projects, but that’s all they really need to be used for.”
Yet the districts continue to bill residents and business owners for web services, landscaping, advertising; it’s a potpourri of services that often border on questionable, like the branded jump ropes the folks in Brays Oaks Management District ponied up for last year.
Residents of Brays Oaks in June 2011 also paid $5,000 down on the $20,000 lobbying bill for Allen Boone Humphries during the legislative session.
The number of lobbyists for special districts exploded in the early 2000s, jumping from 412 in 1999 to 2,271 in 2004. The number has since fallen, to 610 in 2012.
Trey Lary, uber-lobbyist to special districts and a lawyer with Allen Boone Humphries, received between $50,000 and $99,999.99 for his services to Hawes Hill Calderon in 2005, records show. Three other Allen Boone lawyers worked for Hawes Hill that year, including Joe Allen. All made in the $50,000 to $99,999.99 range.
That year the Legislature created the Greater Sharpstown Management District. The contract to manage it went to Hawes Hill.
Hawes, himself a lobbyist, in 2009 represented the Harris County Improvement District #10B and Harris County Improvement District #6 — later known as the Five Corners and Montrose management districts — as well as some investment groups.
Hawes also lobbied for INCAP Financial Group, which was in the final stages of creating the Dallas North Oak Cliff Municipal Management District in Dallas. Hawes Hill is the manager of that district.
Right now, there are lobbyists working on special district issues for the upcoming session, which begins in January.
Jody Richardson, a veteran lobbyist with Allen Boone Humphries, has helped create special districts since 1982. She has spent time every month this year since February lobbying for special districts, according to her filings with the Texas Ethics Commission.
She attributes the increase in special districts in Texas, up 25 percent in the last 30 years, to land development becoming more “sophisticated.”
“The consuming public wants stuff,” Richardson said. “They don’t just want a house. They want a house in a master planned community, with hike-and-bike trails and amenities. All of that costs the developers money. And they need to put them in place to attract homebuyers.”
As far as the campaign donations from district firms to lawmakers, Richardson said looking at it as trading favors is “simplistic.”
“The reason those lawmakers carry those bills is because that land is in their district,” she said. “If you think a senator or a representative is going to sell his soul for $500 or $1,000 or $2,000, then you must not respect your government very much.”
Richardson sees only a “network of specialists” that cater to the needs of a demanding district system, businesses that are filling a market demand.
Phillip Savoy, of Austin-based Murfee Engineering Co., said in a hearing regarding districts last year that his group has “built an entire engineering business on putting together the process to create these districts. We have found a mechanism to allow communities to expand their infrastructure. Without putting the tax burden on the whole community, it goes to the people who live in the [municipal utility district].”
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Perhaps the granddaddy of special district largesse is state. Rep. Jim Murphy, who earns a six-figure salary to manage Westchase District in Houston. His deal as general manager calls for a monthly fee of $22,491 in addition to other payments for consultancy and an upfront payment of $7,711.
He was first elected to the statehouse in 2006, a Republican from the Houston area and the owner of District Management Services, a sort of one-stop company that manages the affairs of special districts much the same way as Hawes Hill.
But instead of relying on lobbyists to advocate for Westchase, Murphy, who was voted out in 2008, handled the job himself.
In April 2009, state Rep. Scott Hochberg, D-Houston, carried a bill to give broader powers to Westchase, such as the ability to receive money from tax increment finance zones. It authorized the board of the district to change the number of voting directors, “provided the board determines that the change is in the best interest of the district.”
It also gave the district broader powers to tax for services, including infrastructure.
When it came time to hear testimony before the House Ways and Means Committee, there was one witness to testify for the bill: Jim Murphy, who was now a registered lobbyist for special districts and authorities. The bill was signed by the governor in June 2009.
Murphy was re-elected in 2010. In April, as Murphy struggled to retain his seat in the primary against challenger Ann Witt, the district became an issue.
The Witt campaign unveiled a web site and sent out a mailer outlining the numerous Westchase contracts handed out to Murphy donors, including Rehak Creative Services, whose owner, Robert Rehak, has donated at least $7,000 to Murphy’s campaigns since 2005.
Other contract-holding contributors include Phonoscope, BMS Management and Brown & Gay Engineers.
“Double Dipping. Skirting the Law. Bilking Taxpayers. Rewarding Cronies,” a banner at the bottom of one page of the mailer claimed in fairly standard attack ad format.
Murphy did not return a call for comment.
Rehak sued Witt for defamation, claiming Witt’s connecting of dots constituted an unlawful act. A district court judge in Harris County quickly dismissed the case, granting attorney’s fees to Witt. The decision is on appeal.
Witt’s daughter, Ellen Witt, was managing the campaign and felt she had found a wedge issue that would boost her mother’s chances of winning.
It didn’t work. Ann Witt lost 59 percent to 41 percent.
Ellen Witt, former deputy attorney general for legal counsel in the Office of the Attorney General of Texas, feels people aren’t aware of the power of special districts.
The districts often do a poor job of posting their public meetings, she said, and usually use a .com URL rather than the .gov that is used with other taxpayer-funded operations.
For example, for a district outside Denton, public meeting notices are posted to a fence post.
“People don’t understand that these are government entities,” Witt said. “For people to hold government accountable, they need to know that a group is a government entity to begin with. Many of these are operating under the radar. And they don’t seem to want the public to know they exist.”
Indeed, even though taxpayers in a municipal utility district in North Texas had paid off the district’s debt in 2010, the board continued to meet and tax residents. It took a court order and an election to undo the district, which, as far as some residents were concerned, had done nothing to let the public know of its existence.
“We had no idea there was a board that met every month,” said Mary Arceneaux, a resident of the district in Corinth, near Denton. “They had meetings, they were spending our money, they had elections, and we never did find out. That’s how they kept the same people in there on the board for 15 to 20 years.”
Most legislation creating districts names the initial board members. Those members sometimes remain in place for years due to a power structure that can leave little room for new voices.
In the Montrose Management District, two-thirds of the board members are donors or supporters of Mayor Annise Parker, who presides over the City Council, which in turn approves board members.
Once the districts are created, they’re hard to rein in.
Not even the governor could stop a move in 2007 to change the power structure of the Buffalo Bayou district in Houston. Democratic state reps. Garnet Coleman and Ellen Cohen co-authored legislation that reduced the number of board members from 31 to 9. The measure passed, but Gov. Perry vetoed it, pointing out that the amendment would not only decrease the number of board members but also name nine directors “without the approval of the local governing body.” Today, the board has nine members, anyway; three of those named in the vetoed legislation are among them. The other 22 spots are left vacant.
Over the years, lawmakers have reviewed internal, mostly academic reports on special districts that have confirmed their majority view that districts are a good thing. The most this 2002 Senate committee report could muster is that “there was not adequate oversight regarding certain activities by certain special districts … specifically, the ability to divide or convert to another type of district.”
A critical, geeky analysis in 2007 from Fordham Law Review offered a candid look at the problems of districts.
This 2008 assessment by the Texas Senate Research Center offers a dry, academic look at districts, posing few questions but conceding they are an “invisible” layer of government.
A 2001 series in the Dallas Morning News, Government by Developer, exposed a number of questionable elements of the districts. Among them: The moving of money between developers and the lawmakers that author bills creating districts, the relationship between lawyers, lawmakers and developers and the practice of hiring voters to elect a board that suits the power structure of the district.
All three strategies are still rampant. For the third, one need only look as recently as 2010, when a 30-something entrepreneur, Alan John Lesselyong, moved into a FEMA trailer to elect officers and approve $400 million in bonds for a Denton County district.
Lesselyong was the sole voter in the district. He was de facto election judge, from the polling place set up behind the trailer.
Legislators have vowed to look into possible problems with the system of special districts, but so far, done nothing.
State Rep. Dennis Bonnen, R-Angleton, claimed in 2010 that the voter residency laws were “something that needs to be looked at.” Addressing residency laws could make it more difficult for some districts to be assembled.
But when pressed last month about it, Bonnen said he was going to be busy with other things in the upcoming session.
State Sen. Jane Nelson in 2011 tried to convince her colleagues to address the hiring of voters for special districts, giving a half-hearted plea in a hearing.
In 2001, though, Nelson, R-Flower Mound, had co-authored a bill creating the Frisco Square Management District in what has become one of the ritziest of north Dallas suburbs.
Nelson declined to speak to Texas Watchdog.
State Comptroller Susan Combs, eyeing a higher office bid and with great fanfare, recently announced a new web site that allows residents to track the taxing entities in and around their area, including districts. The site was applauded by the conservative Americans For Prosperity group.
Combs considered in March lobbying for a moratorium on the creation of special districts, although she has little jurisdiction in that regard. Nonetheless, she told the Fort Worth Star-Telegram last month that she now favors a more political – albeit likely results-free – path of talking with lawmakers.
Combs declined to talk with Texas Watchdog.
Wong, the former state legislator from Houston, said the whole special district process needs to be addressed in the legislature. “People have tweaked the rules” over the last few years, making it easier to create districts.
Austin is the only place that can change the situation that some feel has gotten out of hand, making taxpayers pony up millions that used to be part of the risk taken by an entrepreneur, a developer, even a lawyer.
“Legislators need to do a better job of letting people know that these are government entities,” added Ellen Witt, the former AG’s office lawyer. “I don’t know why more people haven’t raised this issue with their representatives. “