Segundo Barrio

The TIF District Primer For Gentrification

The Border Health Institute’s (BHI) vision, as proposed by then-mayor Ray Caballero and publicly propelled by Eliot Shapleigh, required land to implement it. The land that surrounded the proposed BHI medical campus around then-Thomason Hospital now the University Medical Center of El Paso (UMC) was the target. It was land owned by long-time predominantly older and poorer Latinos who lived there or owned small businesses in the area. The money had been allocated by the state and El Paso leaders were squabbling over who would use the money, the BHI, Texas Tech or UTEP. For the BHI to become a reality it needed land, but the squabbling over the state funds put the BHI on the backburner.

Caballero needed to put the BHI in front for the state funds. To do so he needed the land to make his vision a reality. But without the money he could not buy the needed land. It was the classic chicken before the egg scenario – that money would be required but the money would not be possible on only a vision, it needed land. To make the BHI vision a reality, Caballero launched a scheme to make the land easier to acquire for the BHI with the use of eminent domain. The scheme involved depressing the values of the land around the BHI footprint thus making it attractive to investors to invest in the land at below-market prices in anticipation of the BHI’s promised economic boom. Caballero also used public funds to buy up land in the area.

The key to eminent domain – the taking of private land for a public purpose – required that the targeted community be classified as “blighted”. Caballero and the BHI supporters needed a vehicle to use for the land. That vehicle was the use of TIF districts, and the term “blighted”.

What is a TIF District?

TIF is short for a Tax Increment Finance District. TIF’s work under the assumption that property values will increase over time. Proponents argue that a TIF district stimulates the area leading to rising property values. As property values increase, the resulting increases in property taxes is used by the city, in the case of the BHI, to pay for the development in the TIF district. Once established, other taxing entities, like the Community College, the El Paso Independent School District (EPISD), El Paso County, UMC, would also turn over their tax dollars drawn from the TIF to be used to pay off redevelopment debt or to pay for new developmental amenities. Many taxing entities, like the school districts viewed the loss of increased revenues from property taxes as affecting their own growth needs so they wanted to have the option to opt-out of the TIF.

During the 2001-2003 BHI controversy, Texas law allowed taxing entities to opt-out of TIF districts but there was one loophole in the state law. The opt-out provision applied to the other communities in Texas, except for El Paso. El Paso taxing entities did not have the ability to opt-out of the TIF created by the Caballero administration. However, the major sticking point for the Caballero TIF districts was the controversial authority – eminent domain.

Under eminent domain, the government can take property for a public good. For example, some of the land used for Interstate 10 was acquired through eminent domain. Under a TIF, the power of eminent domain is expanded to include land for economic development. In other words, land could be taken and given to a private entity or individual to develop for economic development.

The Tax Ramifications of El Paso’s Proposed TIFs

One of the most vocal tax entities opposed to the Caballero TIF districts was the El Paso Independent School District (EPISD).

Then El Paso Independent School District (EPISD) Board of Trustees president, Dan Wever opposed Caballero’s proposed TIFs because it would impact the school district’s finances. At the time of the debates over the proposed TIFs, the school district’s revenues from TIF #3, the 30-year BHI TIF, was $12,768,870 of tax revenue to the school district. If TIF #3 were approved, that amount would be frozen for the school district for 30 years, with the additional taxes generated by the TIF #3 going to the BHI.

Wever was a controversial school board president who told an audience in 2003 that people “should see some of the other stuff” that goes on in the school district, alluding to Eliot Shapleigh’s political influence. Wever did not elaborate, although the question that promoted the comment was about the Community Scholars.

Assuming a 3.3% average in 2002 property value increases, the school district would lose $275,870,041 in tax revenues over the 30-years’ life of TIF 3, argued Wever. Because state funding for schools is tied to their revenues from taxes, the school district would also lose state monies. Wever, told our publication then that “if we are forced to join these TIFs we might just as well use the rope to hang ourselves because we will have failed to protect the children’s money.”

On Friday, January 25, 2002, Dan Wever called the talk show radio program KROD 600 AM to talk to then-mayor Caballero, who was the guest. Before social media, much of the political commentary and discussions were had on talk radio. Weaver told Caballero that EPISD could not afford to be a part of the TIF districts because of the losses on tax revenues. Caballero’s response to Wever was, “Mr. Wever, I think the first thing I told you was that we’re going to try and help you get a legislative fix in 2003” to allow the school district to opt-out of the TIFs. Wever replied, “but mayor, I can’t gamble with the children’s money on you saying that you are going to go to Austin and get those East Texas hill people to do something that’s going to help.” Caballero’s reference to “a legislative fix in 2003” was a reference to then-state senator Eliot Shapleigh’s plan to implement a state income tax for public school funding.

However, El Paso remained the lone exception to taxing entities being allowed to opt-out of the TIF districts, making EPISD’s opt-out option almost impossible.

Because of the controversy with EPISD, Caballero told the other taxing entities that he would allow them to “opt out.” The problem was that as the state law was written for El Paso, it did not allow opting out of the TIF. There was no exception to the provision and Caballero could not go above state law. But Shapleigh was spearheading legislation that would implement a state income tax to fund school districts in Texas. It was the “fix” that Caballero was apparently alluding to. None of that stooped the Caballero administration from promising to allow EPISD and others to opt-out of the TIFs.

As the controversy over the TIF districts intensified, the Caballero administration told the other taxing entities that they could opt-out if they wished. The State Attorney’s Office had stated that the city had the ability to allow other agencies out of the district, but it was difficult to do so, but possible. The first taxing entity to enter into an agreement with the City to opt-out of the TIF district was EPISD. An analysis of the agreement between EPISD and the city showed that the city was allowing taxing entities to withdraw from participating in the TIF districts by declaring that the TIF districts were valid and promising not to challenge their validity through litigation.

The second requirement, as the EPISD agreement showed, was the requirement to forgo any representation on the board of the TIF districts. This provision effectively made the City of El Paso the only authority to appoint members to the TIF board.

But the most controversial issue of the TIF districts was the eminent domain provision. Under the TIF, private property could be taken by the City and given to a developer to build on it. Proponents of the TIF districts pointed out that no determination had been made on whether any property will ever be condemned or not.

The BHI TIF District

By late October 2002, the attempt to kill the Caballero TIF district intensified before city council. On a razor thin margin, city representatives were trying to end the TIF districts. However, Caballero had made it clear that he would veto any attempt to kill them. Although it had been suggested that the school districts and the Community College could opt-out of participating in the two TIF districts, the word on the street was that it was not going to be possible because of the state laws governing TIF districts, even with the EPISD agreement. None of the schools had been officially released from the TIF districts by official action by the city council.

Caught in the latest TIF debate was then city council representative John Cook who had voted to impose the TIF districts about two months earlier but was now trying to rescind them. Cook had defended his vote for the TIF districts earlier by saying he “loved” Larry Medina. To overcome a Caballero veto, city council needed six votes. Caballero had the unwavering support of Jan Sumrall, Larry Medina and Paul Escobar. Dan Power and John Cook were signaling a change of heart over the TIF districts, while Anthony Cobos and Luis Sariñana wanted to kill the TIF districts.

Medina was amid a recall signature gathering campaign because of his votes for the TIF districts. By October 2002, over 1,200 signatures have been gathered by recall supporters from District 3 voters.

By November 2002, the TIF districts had consumed El Paso politics. The May 2003 elections were on the horizon. Larry Medina, the face of the district 3 TIF now faced a political challenger, restauranteur Jose Alexandro Lozano, owner of Alexandro’s Restaurant. The challenger ran on a platform of doing away with the TIF districts as soon as he was elected. Lozano went on to defeat Medina.

The TIFs Are Repealed By City Council

On May 3, 2003, Ray Caballero los his reelection bid to Joe Wardy 36% to 58% of the vote. Although Caballero had lost, he was still in office until June. On May 13, 2003, Cobos and Sariñana put in a motion on the city council’s agenda asking for a vote to repeal the Caballero TIFs. Medina, with a second from Cook moved to have the agenda item postponed by two weeks, when the Wardy administration took over. The Medina motion carried on a vote of 6 to 2. Cook and Medina wanted to force the incoming Wardy administration to deal with the Caballero TIFs instead of having the lame-duck Caballero administration repeal of the TIF districts as their last official action.

Cook said after the postponement vote that it was Shapleigh who had called him to postpone the item.

On June 10, 2003, on the first day of the Wardy administration, the two ordinances to repeal the TIF districts were introduced by city council. On July 1, 2003, the final vote to repeal the TIF districts were approved by city council with only Paul Escobar voting against the repeal.

The Kelo Decision

The national controversies over the power to take private property through eminent domain led to a Supreme Court decision in 2005 (Kelo v. New London) ruling that says that the taking of private property to give to a private company does not violate the Constitution’s prohibition against the taking of private property. (The Fifth Amendment) As a result, the Texas legislature strengthened private property rights in 2005 (Senate Bill 7). A 2007 stronger bill was vetoed over concerns on how to compensate landowners.

Texas has yet to deal with the “blighted” designation often misused for take private property for economic development. Although Texas law generally bans eminent domain, it has a loophole being used by El Paso officials in the ongoing controversies over downtown redevelopment. Texas allows the use of eminent domain if “economic development is a secondary purpose” to blighted communities. Thus, the blighted community remains an important designation in Texas for the use of eminent domain.

The El Paso Downtown Redevelopment Plan requires large tracts of land currently owned by private individuals or businesses. To acquire the necessary land, El Paso created the Tax Increment Reinvestment Zone (TIRZ) to “facilitate and accelerate the implementation of the Plan” by having the city partner up with “a real estate investment, management and operating company.”

Under TIRZ, the city can use eminent domain for clearing “slum and blighted areas” for public use if they have in place a plan – like the El Paso Downtown Redevelopment Plan.

Eminent Domain And The Dallas Cowboys

Private developers across Texas have been using the power of eminent domain to build sports stadiums. The Dallas Cowboys built the so-called “JerryWorld” stadium in 2009, after 58% of Arlington’s voters approved the proposed stadium as an economic engine. It cost over $1 billion. [1]

Between 1998 and 2003, “over 10,000 actual and threatened uses of eminent domain for private commercial uses occurred.” [2] The BHI was one example. “Cities use trigger words such as ‘economic development,’ ‘urban revitalization’ and ‘capital improvements’ to justify” taking private land for economic development. [2]

The Dallas Cowboys stadium is constructive to understand for El Paso as the model for using eminent domain as an economic engine after the Kelo ruling and Texas’ subsequent attempt to limit taking private property for economic development.

In August 2004, a meeting was held “behind closed doors” to discuss the potential stadium. Although there was an area in Dallas to put the new stadium without having to take homes, Jerry Jones and the City of Arlington, nonetheless, put the stadium project on the ballot for November 2, 2004. [2]

At the time that the stadium item was added to the November 4 ballot, the location for the proposed stadium had not bee released. In October 2004, the City of Arlington told voters that it was considering a “blighted” area near the Texas Rangers field, adding that “eminent domain was not necessary” for the stadium. [2]

Arlington voters approved that stadium ballot measure by less than ten percentage points. By December 2004, the City of Arlington and Jerry Jones had approved a final master plan, whereby the city would own the stadium and Jerry Jones would lease it and manage it for the city. Arlington residents perceived city officials as “secretive” and did not know where the stadium would be built. [2]

It wasn’t until May 2005, almost six months after the ballot measure was approve by voters and about nine months after the first “secretive” meeting took place that residents learned where the new Dallas Cowboys stadium would be built. Even then, city officials argued that eminent domain was “a last resort”. [2]

Between June and September of 2005, the City of Arlington condemned 75% of the properties they acquired during that time for the stadium [2], after telling voters that eminent domain was going to be a “last resort”.

The political rhetoric between the proponents and opponents of the stadium was between “necessary for economic development” and that the project “primarily served the elite class while negatively impacting poor and minority classes because of displacement without fair compensation”. Although both groups were competing for power, it was the city that “had a disproportionate amount of power compared” to the poor minorities whose properties were targeted with eminent domain. [2]

Now replace Jerry Jones with Woody Hunt and the City of Arlington with the City of El Paso and the scenario plays out the same. Except that in El Paso it was first the BHI, followed by the Chihuahuas’ stadium and the ongoing battle over the proposed 2012 Quality of Life bonds for a downtown sports arena. The marginalized community is the Segundo Barrio. For the BHI, it was the community around then-Thomason hospital, a community that remains under threat today with the Medical Campus of the Americas (MCA).

The battle over the TIF districts organized many viejitos in the targeted communities to organize in defense of their homes. Among them was incoming city councilwoman Vivian Rojas whose mother’s home was targeted. In Friday’s installment we will look at how the viejitos rallied to defend their homes.

Editor’s note:
Martín Paredes extensively covered city politics from 2001 through mid-2005 for the online publications: El Paso Metro and the El Paso Tribune. Unless specifically noted, the information presented in this article comes from contemporaneous notes taken by the author at the time of the events depicted here.

Footnotes:

  1. David Humphrey, “Jerry Jones gave Texas more than the Cowboys. Don’t forget JerryWorld,” Star-Telegram, August 1, 2017.
  2. Kim Probasco, “For the Greater Good or Greed? Redistributing Private Space Through Eminent Domain Power: Relocating The Dallas Cowboys Stadium To Arlington, Texas,” Thesis, Master of Arts In Urban Studies, The University of Texas at Arlington, May 2007.

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