Public Facility Corporations, or PFCs, are an important but complex new tool for producing affordable multifamily rental housing in Texas. HB 2071, which passed during Texas’ 88th Legislative Session in 2023, provides significant reform to the PFC tool, while also falling short of all of the needed reforms to make the tool work for low-income people who need housing. This post breaks down PFCs and the new changes to the tool.
Prior to the session, PFCs have been mired in controversy: In exchange for an extremely generous 100% property tax exemption for the life of the property and 100% sales tax exemption for construction materials, PFCs were only required to make 50% of units affordable to households making 80% area median income (AMI) or below. Many, including Texas Housers, argue that 80% AMI is not low enough to meet the actual need for income-restricted units, which is significantly greater at 60% AMI and below.
Additionally, there was no regulation stating that PFCs had to operate inside their jurisdictional boundaries, a loophole that was exploited by some developers to take properties off the tax rolls across the state with no input or recourse from impacted governments. PFCs were not required to accept Housing Choice Vouchers. The program also struggled with a lack of accountability and transparency requirements.
HB 2071 reforms the PFC tool in a number of ways:
AFFORDABILITY
- Improves affordability at PFCs by requiring 10% of units to be affordable for renters at 60% of area median income (AMI) in addition to 40% of units affordable at 80% AMI.
- Acquisition deals must dedicate at least 15% of the cost of the property for rehab. Acquisitions may avoid the rehab requirement by increasing the share of units affordable at 60% AMI to 25%, only with approval by the elected body over the PFC.
- Income-restricted units must make up a proportionate share of each unit size.
- For acquisition deals only, a meaningful benefit test is required that shows that 60% of tax benefit is going toward reducing rents in income-restricted units.
- For new construction deals, the PFC user must show that the development would not be feasible without the use of the PFC structure.
ACCOUNTABILITY
- For PFCs operating under a Public Housing Authority (PHA), the elected body over the PHA must approve each PFC deal.
- For all deals, a 30 day notice must be given to all impacted taxing entities.
TRANSPARENCY
- An annual compliance audit is required, and must be reviewed by TDHCA. Requires developers to show the difference between market rent and income-restricted rent.
- The Legislative Budget Board will conduct a one-time study to assess the fiscal impacts of the tool on property taxes.
CURBING ABUSES
- PFC deals may only occur within the jurisdictional boundaries of the PFC sponsor.
- For acquisitions, the PFC exemption expires after 30 years. For new construction deals, the exemption expires after 60 years. The exemption may be extended with approval from the same entities from which initial approval is required.
TENANT PROTECTIONS
- Requires that PFC developments must accept Housing Choice Vouchers. The PFC user must affirmatively market to voucher holders.
- Provides a baseline of tenant protections, including just cause eviction protection and the right to organize.
The bill falls short in three critical ways:
- PFC developments are still not required to reserve any units for renters earning 50% AMI or below
- Unlike acquisitions, new construction deals are not required to show that a specific percent of the tax savings has gone toward reducing rents in income-restricted units.
- Audits are conducted by auditors hired by property owners and only reviewed by TDHCA, rather than being conducted by TDHCA.
Overall these reforms go a long way toward assuring that this generous tax exemption is only granted in cases where developers deliver a meaningful public benefit in return by providing decent, affordable housing. Additionally, with the new accountability and transparency measures, going forward we will be able to monitor PFC developments with much greater accuracy, which will provide some amount of clarity regarding the need for further reform of the tool to ensure that PFC developers are contributing as much deeply affordable housing as possible.
For more information, please email ben@texashousing.org.
