Press Release
From the Office of State Senator Eddie Lucio, Jr., District 27

For Immediate Release
Tuesday, May 22, 2001
Contact: Doris Sanchez
(512) 463-0127

Senate approves bill sponsored by Sen. Lucio that tightens reinvestment requirements for Community Housing Development Organizations

AUSTIN,TX--On Monday, May 21, the Texas Senate passed House Bill 3383, sponsored by state Sen. Eddie Lucio, Jr., D-Brownsville, that ensures and establishes a new reinvestment level for Community Housing Development Organizations (CHDOs) in the construction of low-income housing.

A community housing development organization is a nonprofit organization with a 501(c) federal tax exemption. A CHDO's mission must be to provide decent, affordable housing to low-income households. It must serve a specific geographic area, such as a neighborhood, a block of neighborhoods or an entire community. CHDO's work through strong, locally based boards that deliver affordable housing and a variety of services.

"This bill will benefit every Texas community because it ensures that for every low-income multi-family housing unit --of 36 units or more-- operated by CHDOs, that they reinvest a portion of the ad valorem tax exemption they receive from the community," said Sen. Lucio. "This money can and should be reinvested in services, whether they are social in nature like Meals-on-Wheels for the elderly or renovations to children's parks."

Sen. Lucio also noted that the request for legislation with the sort of accountability provisions of HB 3383, filed in the House by state Rep. Yvonne Davis, D-Dallas, was actually made by many CHDOs.

With federal CHDO qualifications so lax, a few unscrupulous property owners have been using their CHDO status to take advantage of the tax exemption. The legislation requires existing CHDO properties to reinvest 40 percent of the tax exemption value on social, educational and economic development services that benefit the communities they serve. They may also invest in capital improvement projects and rent reduction. These reinvestments must take place in the county in which the exemption is granted.

Beginning January 1, 2002, new CHDO projects must reinvest 90 percent of their excess cash flow. The amount invested would be after deducting account expenses for standard property maintenance, debt service, employee compensation, fees required by government agencies, expenses incurred to satisfy lender requirements, insurance and other justifiable expenses.

The Texas Legislature granted CHDO's a property tax exemption in 1997. HB 137 established the exemption to encourage affordable housing development while also building community support for the developments. The ad valorem tax abatement allows CHDO's to offer lower rents for low-income families because they do not have to worry about meeting their property tax liability. CHDOs began acquiring properties, using the tax exemption together with tax-exempt bonds and other financing funds distributed by the Department of Housing.

HB 3383 requires CHDOs to submit a yearly audit to the chief appraiser, the Texas Department of Housing and Community Affairs, Housing and Urban Development or the Internal Revenue Service, depending on the funding mechanism used. These audits will provide the accountability measure for the Legislature that is key to the success of affordable housing

"I am pleased that the accountability provisions in this bill will result in lower rents, cleaner properties and a stronger accountability standard for community housing projects," said Sen. Lucio. "It is not uncommon for abuses to occur when tax exemptions are not backed by rigorous measures, so this bill tightens regulations and enhances the reinvestment program for the betterment of all Texas communities."

Sen. Lucio also added that many CHDOs are already contributing a great deal of services back to their communities. The San Antonio Alternative Housing group rehabilitates projects for AIDS patients, while reinvesting revenue from existing projects in new home construction..

"In a state where we are meeting only 3 percent of our housing needs, we want to ensure the success of programs that promote fiscal responsibility in housing development and improves the standard of living for the most needy of Texans," noted Sen. Lucio.

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Note: Staff member handling legislation is Ms. Monica Bosquez, legislative aide.

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