This is one of the most important, best written and researched investigative journalism stories I have ever read. Steve Miller deserves a Pulitzer Prize.
HOW A FEW RENT-A-VOTERS IN A VACANT LOT LEAD TO MILLIONS IN BONDS FOR TAXPAYERS
To get to Dan Spiecher’s trailer, you’d better be ready to muddy your boots. Southern Oaks Drive in Conroe is just a trail of dirt awaiting the asphalt trucks. The 150-foot driveway winds through an opening in the tree line, across a ribbon of Little Caney Creek and into a clearing for the mobile home.
Someday very soon, Spiecher will be long gone, and in place of the gray-paneled trailer he temporarily lives in will be homes selling for hundreds of thousands of dollars with payments up to ten times higher than the $150 a month in rent paid by Spiecher, a 56-year-old cabinetmaker, and his wife, Deborah, 52, who works at a Boot Barn in Houston.
It’s unlikely they would want to live here permanently. These homes will spring up on thickly forested, earthy green pinelands owned by Friendswood Development, which will make millions on luxury that can be afforded by folks looking for the good life, which is trailer-free.
But nothing happens without the Spiechers, the lone voters in the district, who are perched at the edge of an 82-acre tract of prime land for a little while longer.
The Spiechers in November endorsed the issuance of $500 million in bonds for the tract, also known as Montgomery Municipal Utility District No. 148, which was approved by lawmakers in early 2015. The proposed outlay included $268 million for water, sewer and the inevitable administrative costs and $200 million for paving those dirt roads. The debt will be repaid through a tax levied on those new district homeowners.
They also voted for five board members, all of whom ran uncontested and list as their address the Coats Rose law firm in Houston, one of the major players in the special-district industry. Those directors were given one-quarter-acre plots of land before the election to ensure they could call themselves landowners. They include a real estate banker and a developer.
In all, “borrowed” voters — including the Spiechers and four others — signed off on $1.1 billion in tax debt in three special-district elections in Harris, Fort Bend and Montgomery counties, carrying on a Texas tradition of passing the buck from a “temporary residential manufactured home,” which is how the trailers are described on their certificate of occupancy, to homeowners. Such districts are legislatively created and developer-administered entities that carry on their backs an entire industry worth billions of dollars.
And they come with powerful protectors. When state senator Jane Nelson floated a bill in 2011 to require voters like the Spiechers to live in a district for at least a year before massive tax debt could be approved, legislators and lobbyists, including then-senator Dan Patrick, objected vehemently and successfully.
Knock on the door of the Spiecher trailer and you get no answer, although the porch light is on day and night, a television plays inside, and next to the trailer door, a blue garbage bin sits full of freshly emptied beer cans. We tried to reach the Spiechers several times, without success.
There’s another, more important sign of life 30 feet from the trailer. Seven feet up a 25-foot-tall pine tree, about nine inches around, is a piece of paper wrapped in clear cellophane tape. It’s a notice to all who are interested that the Montgomery County Municipal Utility District No. 148 is taking applications from those who wish to serve on the district board. To be considered, prospects can head an hour south to Coats Rose, which occupies an 11th-floor suite in a glimmering office tower in Greenway Plaza.
The Spiechers are considered rent-a-voters by foes of a political system that allows temporary voters to approve millions in taxable debt. By the time earth is turned on the new development, the couple will be long gone. The name “MUD 148” will be replaced by a name flowery and utopian, and the developers will be on to the next project, maybe looking for the Spiechers again.
Seven feet up a 25-foot-tall pine, a piece of paper tells all who are interested that the Montgomery County Municipal Utility District No. 148 is taking applications to be on the district board.
Utility districts are the big brother of management districts, which are created to provide services to businesses inside legislatively doctored boundaries in exchange for a levy, usually between 12 and 25 cents per $100 valuation.
For the utility districts, which usually begin on raw land with no residents, there’s even a company to assist in the rent-a-voter process: Stingray Services. Here’s a typical promotion: “Stingray Services specializes in providing turn-key voter trailer installation services and election services. We have completed over 70 trailer installations in Texas over the last 10 years and have supported nearly 100 elections.
“We locate residents, perform landlord services, support residents in changing their license and voter registration, and assist with the district election. We have worked with a host of major developers and engineers including Lennar, Toll Brothers, Friendswood, Land Tejas, Taylor Morrison, Pate Engineers, Brown & Gay — to name just a few.”
Stingray operates out of an 1,800-square-foot, three-bedroom, two-bath single-story house at 20615 Marilyn Lane in Spring. Since the late 1990s, 115 voters have listed their mailing address as 20651 Marilyn Lane in Spring, records show, including the Spiechers. The voters hailed from as far away as Grayson County, 60 miles north of Dallas, a long way to come to collect your mail.
(It should be noted that Stingray didn’t invent the borrowed-voters approach. For the Woodlands Development Company in the late 1990s and early 2000s, there were four residents “with four houses in the middle of a bunch of trees,” said Paul Lazarro, who spent a decade as the development company’s vice president of marketing and public affairs. “They were the voters. I do not know if the rent was free or cheap, but the ulterior motive was, obviously, they would vote for the district.” )
So who are these people claiming to live in this low-slung house set behind an industrial drive? “They are tenants,” one woman, who answered the door at the house on Marilyn, said. “This is just their mailing address,” said another. “You should talk to the lawyers,” added a man, indicating that the conversation was over.
They would know the Spiechers as tenants or users of a mailing address from a couple of years before. In 2013, the Spiechers moved into a trailer in Montgomery Municipal Utility District No. 132, leased by KB Home, a developer, from Stingray. That November, the Spiechers, the lone voters in the district, elected a board, approved the issuance of $33.6 million in bonds for roads and parks, and authorized taxes of $1.50 per $100 valuation for the roads and ten cents per $100 valuation for the parks.
To well-heeled developers and their administrative entourage, renting voters to secure that sweet public finance obligation is all part of doing business today as a developer in Texas.
“[Special districts] are absolutely necessary because, who else is going to pay for it?” Scott Norman, executive director of the Texas Association of Builders, told the legislative committee on special-purpose districts in February. “You have to have water and wastewater to build, to sell houses…[and] they are going to pay for it somehow.” Special districts are, he insisted, the most efficient way to pay for construction, “particularly in unincorporated areas.”
Hugh Coleman, a Denton County commissioner, has trekked to Austin over and over in the past five years, beseeching anyone from the North Texas delegation to address the problem of proliferating special districts and the assertions of Norman.
“All of these developers want to attach to a municipal utility district to sell government bonds,” said Coleman, who was first elected to office in 2008. “And these districts are allowed to buy anything they want for infrastructure without bids.”
For his efforts to thwart districts, Coleman this month found himself running in his Republican primary against an opponent with a newfound source of campaign funding — cash from developers and other parties with interests in special districts, to the tune of $186,000. Despite this windfall to his opponent, Coleman prevailed in the race.
Utility districts require an election — with the help of people like the Spiechers — to assemble a board of directors, while the leadership of management districts is first appointed in the creating legislation, then confirmed by the local city council. Both are implemented with the help of a state lawmaker. And both are almost impossible to thwart.
Most management districts can be willed into existence with the agreement of just 25 business owners within a geographical boundary, but can be dissolved only with the submission, via petition and verifiable signatures, of 75 percent of all landowners.
Utility districts issue bonds with the promise of flashy new homes and eager buyers, who are taxed to pay for the infrastructure, a levy that comes on top of the regular city/county/airport/fire service/policing and whatever else. Once issued or sold, they cannot be stopped or rescinded.
Since 2003, taxes levied by special districts have increased by 106 percent, according to the state comptroller’s office, almost twice as much as those levied by schools and more than those imposed by cities and counties.
Texas now has more than 2,600 special districts that charge for anything from mosquito control to installation of bike racks. And all of them are fiercely protected by developers, service providers and the politicians who love them.
“I can’t speak for all the others, but the districts I have done are very good,” said state representative Garnet Coleman (no relation to Hugh, the Denton County commissioner), who says with pride that he may be responsible for more management districts that any of his statehouse colleagues.
Coleman said the management districts, in particular, have allowed enclaves of the city that might otherwise be ignored with regard to services to remain in relatively good shape.
“These districts are doing a good job, although sometimes I think they should do more. But there are none that I know of that are doing a bad job.”
When Senator Nelson proposed her voter residency requirement in 2011, Patrick, now lieutenant governor, quickly responded: “The reaction of my constituents and my folks would not be in favor and my folks would be not in favor.” Patrick, who successfully sponsored seven bills to create special districts during his eight years in the Senate, added: “Most of our folks [special districts] perform well, and for me personally, it would be hard to see something like that pass.”
He was followed to the dais that day by Joe Allen, from the Allen Boone Humphries Robinson law firm, which represents dozens of districts in the state, who said the districts are “very important to the land development practice and the home-building industry in this state, and if this bill passes, it will be extremely detrimental to economic development in the state.”
When a reform measure was again attempted last year, there was more pushback from the special-district lobby. The measure was before the same house committee — the Special Purpose Districts Committee — that had heard happy-developer talk earlier in the session.
The reform bill proposed that a majority of property owners in the district — a management district in this case — be required to approve a new district. After a parade of supporters for the measure, Trey Lary, another attorney with Allen Boone Humphries Robinson, told the committee: “In many instances, [special districts] transform the community and are very [much] supported by the property owners, who are very much involved with them.”
The state House Committee on Special Districts heard 158 bills last session, mostly related to the creation and powers of new districts. There was one “nay” vote during the hearings, cast by a little-known lawmaker from Tarrant County named Jonathan Stickland, who quickly changed his tune after briefly going negative on a bill expanding the territory of a Harris County special district.
Like several elected officials and public figures, Stickland did not return a call for this story. Former state comptroller Susan Combs, who issued a politically timed report in 2012 on the evils of districts when she was pondering a run for the lieutenant governor’s seat, is now silent on the districts, and did not return a call. Nor did state representative Dennis Bonnen, who last session authored a bill to increase the salaries of one district board while signing on as joint author of the measure to increase the number of property owners needed to establish a management district.
Three of the most highly regarded special-district lobbyists in the state were contacted, and none responded to an interview request. The Texas Municipal League, which has supported districts at legislative hearings, also did not respond.
In fact, to speak poorly of districts can get a person in a lot of trouble, as it has Woodlands businessman Jim Jenkins.
The state’s Court of Criminal Appeals last month pondered the curious case of Jenkins, who along with eight other voters in 2010 tried to upend the power structure of The Woodlands Road Utility District No. 1, a widely spun district that for years had the same board members, who are elected in a contest overseen by law firm Schwartz, Page & Harding, which handles legal affairs for the Road Utility District as well as for Woodlands Township and several other districts in The Woodlands.
Jim Jenkins tried to upend the power structure of The Woodlands Road Utility District No. 1. The consequences were significant.
Jenkins and another voter, Adrian Heath, received prison sentences for their attempt to join the board, the result of a prosecution that was carried out at the behest of the utility district, which alleged they had moved into the district temporarily to vote without maintaining a residence there.
“Which, given what these utility districts have done for decades, is an unfair reaction,” said Jenkins, who was convicted and received a three-year prison sentence.
Sitting in the wood-paneled criminal appeals court, just behind the state Capitol, Jenkins displayed the same look of bewilderment he has carried during the entire four years since he cast his vote.
Both attorneys got 20 minutes to argue the point of contention in Jenkins’s appeal, which in this case was whether Jenkins knew he was acting illegally when he moved into a hotel on district grounds and voted. Jenkins contends he was told by the state that residency is not clearly defined by law.
“He admitted he was not a resident, but that doesn’t prove that he knew it was against the law,” Judge Lawrence Meyers said at one point. “The state would have to prove he knew it was against the law.”
By the time the attorneys had finished and the judges posed their questions, it seemed, at least for now, that the justices had serious questions about how voting laws in the districts work and what exactly their boards were doing.
“They make it so you cannot become a board member if you think differently, if you want to see what exactly is going on inside these districts,” Jenkins said after the hearing. He has spent into the six figures for his defense.
Dan and Deborah Spiecher’s trailer is at the end of a long dirt road in Conroe.
Becoming a member of the board of directors ofthe Montgomery Municipal Utility District No. 148 is not an easy enterprise.
Asking the receptionist at the Coats Rose law firm in Greenway Plaza (again, an hour’s drive south of the notification posted on the Spiechers’ tree) for an application to serve on the board prompted this exchange:
“Which one?” she asked. She looked down a list of districts run by the law firm that spanned at least three pages single-spaced.
She then called Mallory Craig, an attorney in the public finance section of the firm.
“Can you have a seat?” the receptionist asked. “Someone will be out to see you.”
Waiting. Then a call came back to the receptionist. She got her instructions and turned toward me. “Are you a landowner in the district?”
“Are you a resident?”
More waiting. Finally, another call, and she presented Craig’s phone number on a blue Post-it note. “Call her to find out about how to apply for the board,” the receptionist said.
Craig never returned the call.
Clearly, utility districts intend to guard closely the fact that board members are pliable allies.
Unlike with most of the other special districts, in a municipal utility district, board members are required to own land in the district. In the freshly minted utility district in which the Spiechers live, each board member was deeded in August a one-fourth-acre lot, called a director’s lot on the deed, for $10.
“They have to have a board of directors sympathetic to their development cause to get the bonds issued, “ said Mitch Hausman, who has served on the board of Montgomery Municipal Utility District No. 40 since late 2014. With a background in mergers and acquisitions, Hausman was plucked from a field of five to be part of an effort to consolidate the 11 municipal utility districts in The Woodlands that were created in the ’70s and ’80s. It can be hard to get rid of a taxing entity once it is established, even when it has paid off its debt.
“I said I would only be part of the board to fill an unfinished term and be part of this consolidation,” he said. “We had 55 MUD directors in this one area, and each gets paid to attend meetings.”
The districts want reliable mainstays on their boards in case they need to issue more bonds or engage in any trading, Hausman said. “And some of them have been on these boards since the start,” he added.
Any insurrection striving to trump the power of the special districts has to contend with the army of lawyers that has the ear of legislators to protect the districts’ interests.
“That’s why no one ever talks about the MUDs in the legislature,” said one former lobbyist. “They are protected, with full-time lawyers working with the legislators to make sure nothing changes that would impact their pocketbook.”
The sheer amount of money approved for bonds puts Texas on par with the municipal bond cash issued in Nevada and Florida that led up to the housing crash in 2008. Special districts in Texas issued $2.5 billion in bonds last year, the most since 2007.
“They have so much money, it’s insane,” said Hugh Coleman, the Denton County commissioner. “I don’t know if there is even a way to stop them.”
There are inquiries, studies and promises of reform of the special districts stretching back a decade from local officials, state lawmakers and gadflies. Legislative reports have determined that action needs to be taken to rein in this taxing movement, often using boilerplate language that sounds tough but has no impact.
In an interim legislative report issued in November, one charge concerns special districts: “[C]onsider any reforms to special district laws to make them more responsive to Texas taxpayers and citizens [and] identify issues regarding special purpose districts that may be appropriate to investigate, improve, remedy, or eliminate.”
It’s hard to get any geekier than to listen to the proceedings of the Senate Select Committee on Property Tax Reform and Relief. In a green-carpeted conference room last month at the University of Texas in Harlingen in the Rio Grande Valley, the committee pored for five hours over the various tax increases hitting Texans. Members watched a PowerPoint presentation that included an eye-popping slide: Special-district levies had increased 106 percent since 2003.
From the lawmakers and onlookers, there was no response. Special districts are the phantom that comes and takes some cash that goes into the pockets of lawyers, managers, developers and engineers. And the trains run on time.
“People don’t want to talk about it, and that’s one of the reasons we’re studying it,” said state senator Paul Bettencourt, who heads the select tax committee. “In my mind, we need to be working with these law firms.”
He promised more hearings this summer, speaking of sunset provisions for the utility districts.
The special districts have become a “cottage industry,” Bettencourt said. “No one would have ever approved this whole process if they knew that just a few voters were going to be able to approve so much debt.”
But it was Bettencourt who successfully authored two bills that created utility districts and sponsored another creating a public improvement district in his first term last session. He blamed that on the last-minute rush at the end of the session, when everyone was scrambling to commit politics.
Places need water, Bettencourt added, and sometimes the utility districts offer the most efficient way of providing it.
Included in those districts: Montgomery Municipal Utility District No. 148, home of the Spiechers.