Arlington Mayor Jim Ross is furious.

“Are they gonna bleep me?” he asked at the end of his interview.

He sat down recently with the CBS News Texas I-Team to talk about the real estate deal that’s cost his city and local government entities more than $1.7 million a year in revenue.

“I think it’s inappropriate, at best. It’s underhanded,” he said. “I was pissed. I still am.”

Ross said it all started late last year when TDI, a Dallas-based real estate developer, approached Arlington’s Housing Finance Corporation about getting a tax break in exchange for a pledge to make the Jefferson North Collins apartment complex affordable.

Under Texas law, cities and counties can create HFCs, which serve as independent non-profits capable of buying property, exempting it from all taxes, and allowing companies to own developments on them that pay no taxes at all.

When the city declined the proposal, the developers traveled 400 miles west to Pecos, a small Texas town with fewer than 13,000 residents, but with an HFC willing to approve deals all over the state.

How HFCs became controversial

For decades, municipalities have used HFCs as a tool to create affordable housing for low-income residents in their areas. 

In 2023, though, while researching a similar tax entity, the I-Team found records showing the Cameron County HFC in Brownsville approving dozens of deals all across Texas. 

Critics have questioned whether an HFC can legally operate outside the bounds of the government that created it. Williamson County recently sued Cameron County alleging it can’t. Others have asked the Texas Attorney General’s office to weigh in.

In the absence of a definitive answer, more small governments have adopted the so-called “traveling HFC” model, reviving long-dormant HFCs to raise funds by operating far outside their boundaries.

Pecos HFC and its impact on North Texas

The town of Pecos’ HFC became active in October of 2024 when the town voted to bring it back in order to raise funds for its own housing issues.

“We need to be innovative in finding ways of subsidizing our housing authority,” said one city leader prior to the city council’s vote. 

In the months since the Pecos HFC has approved more than a dozen deals in North Texas alone. 

They include Innova, a $95 million complex near Uptown Dallas that markets itself as “luxury apartments”. In 2024, it paid just shy of $2 million in taxes.

Now, as a Pecos HFC property, it will pay zero.

Also on the list is Lumen, a $79 million property in Irving’s Las Colinas community. It also markets itself as having “luxury apartments.” In 2024, it paid more than $665,000 in taxes. 

As a Pecos HFC property, it too will pay zero.

The I-Team found similar deals Pecos HFC has undertaken in Fort Worth, Grand Prairie, Lewisville, Haltom City and Azle. In all, the HFC has removed more than $500 million worth of property off North Texas tax rolls, costing local cities, counties and school districts millions of dollars in lost revenue.

Take a look at the map below to see what other properties are being operated by “traveling HFCs” in North Texas.

Large revenue losses catch cities by surprise

When the I-Team first reached out to Azle City Manager Tom Muir in March, he was unaware that Pecos HFC had purchased vacant land in his city or that any development there could avoid paying any taxes at all.

“You only find out about something after it’s already been done and it’s off your tax rolls,” said Irving Mayor Rick Stopfer.

We learned Irving city leaders weren’t aware of deals in their city either until our story aired in December of 2023.

“The news story mentioned Irving and we, you know, looked it up, and sure enough there are these two complexes that are no longer part of the tax rolls for the city of Irving,” said the city’s legislative officer Jon Weist, while briefing council on the issue in July of 2024.

CBS News Texas sent e-mails seeking comment to Pecos’ mayor, its city council, and its HFC. None responded.

Are Traveling HFCs Making Housing More Affordable?

In a letter to Mayor Ross, the Pecos HFC’s executive director wrote that it aims “to provide housing options for Texas’ essential workers that are often found in the missing middle of the housing affordability spectrum.” 

TDI, the developer it’s working within Arlington, has likewise touted in a press release a new emphasis on workforce housing, saying it plans to provide “essential housing solutions for educators, first responders, law enforcement and other individuals who serve our communities.”

Neither TDI nor Pecos HFC has explained how it is doing this.

A resident at the Jefferson North Collins complex, which has since been renamed Zenith, shared an e-mail she received announcing the development would be “offering select units through the Attainable Housing Program… designed for individuals within the area median income.”

Rica Zahara, who currently pays about $1600 a month for her one-bedroom apartment there, said she likely earns too much to qualify for the program but was happy to hear some of her lower-income neighbors might get lower rents.

At least that was her assumption, but the e-mail never actually mentions it will lower rents. Under requirements set by the Texas Housing Finance Corporation Act, it doesn’t actually have to.

HFCs are only required to ensure half of their units are filled by tenants with a household income of about $88,000 or less.

Its e-mail also doesn’t mention the $1.7 million tax exemption it’s getting in return.

“Oh, I don’t know that. I don’t know that. That’s another thing we have to think about. Because… no paying taxes?!” said Zahara, stunned to learn the complex was getting a deal itself.

How HFCs operate in secret (and what we’ve learned despite that)

The details of agreements signed between developers and traveling HFCs, like Pecos’, remain mostly secret. 

According to the Texas Association of Local Housing Finance Agencies, HFCs are not subject to the Texas Open Meetings Act or the Texas Open Records Act, like government agencies are. That means they don’t have to hold public meetings and can keep most records private, making it hard to know whether they actually create affordable housing.

Mayor Stopfer in Irving doesn’t believe they do.

Traveling HFCs often have little staff and no incentive to keep watch over the developers they work with, but for every deal they sign off on, they get paid by the developers.

“It’s all about the money,” Stopfer said.

In a city council meeting, Pecos city leaders said developers compensate the city’s HFC by paying them a portion of their tax savings. They did not reveal the amounts of those payments or how they’re structured.

However, in 2023, the Cameron County HFCs executive director Mark Yates told county commissions there that it typically collects 15% of what developers save in taxes.

How traveling HFCs impact taxpayers

“The audacity of them to do these deals with either developers or with investors who are coming in and buying this stuff simply for financial gain is ridiculous,” said Mayor Ross in Arlington.

Cities, he warns, will have to make up for the lost revenue somehow and could be forced to either raise taxes on everyone else or cut spending on public services, like street maintenance and public safety.

“You make up for it by either peeling back services, increasing taxes, by not allowing growth in other departments that you otherwise would have to try to keep up with the city demands, or a combination of all of those,” he said.

Weatherford city manager James Hotopp has estimated his city may need to lose six firefighters or six police officers if the Lone Oak Apartments in the city become tax-exempt.

In Euless, the city’s police department is feeling the burden. Police responded to the Oak Park Apartments in Euless 490 times In 2023, an average of more than once per day. The following year, the Cameron County HFC gave the complex a tax exemption, cutting the city’s tax revenue by two percent.

Developers rush to close deals as Legislature acts

Arlington, Irving, and other affected cities are now turning to the Texas Legislature for help.

So far this session, lawmakers have held hearings on two bills involving HFCs, introduced by Houston-area Republicans. Both would ban any future traveling HFC deals, but allow those already made to continue.

HB 21, by Rep. Gary Gates, would overhaul the program by placing stricter requirements on the properties that receive tax exemptions, adding state oversight and increasing transparency. 

“In hindsight, it’s gonna be one of the greatest frauds put on the Texas taxpayers — the introduction of this program and how it’s being abused,” Gates said.

Over the last two years the abuse has exploded, Gates said.

“Last year alone, $7.5 billion in assessed value have been wiped off the tax rolls in the state of Texas. This year, with what’s being processed it’s another $15 billion.”

The I-Team’s review of North Texas deals by traveling in HFC found nearly half were signed since October 2024.

“This has been such a rapid ramp-up,” Gates said. “They’re rushing for two reasons. One it’s so lucrative, why would you not do it? And two, there’s reform coming.”

His bill has drawn some opposition because of how far it goes.  

HB 1585, by Rep. Cecil Bell, appears to have much broader support. It would only prevent HFCS from making any further deals outside of their jurisdictions.

The goal, lawmakers have said, is to get HB 1585 passed as quickly as possible with as large of a majority as possible. If two-thirds of both the Texas House and Senate approve it, the law can take effect immediately. 

At a hearing for HB 1585, more than 80 people registered in favor of the measure, including representatives from Dallas, Euless and Irving. No one registered in opposition.

For mayors like Ross, it all comes down to this. “HFCs need to stay in their own backyard. Bottom line,” he said.

More from CBS News

Andrea Lucia

Andrea Lucia joined CBS 11 and TXA 21 in September 2010, one day before a tornado swept through the area. She’s been covering major stories across North Texas ever since.