Cornyn to tighten rules on tax zones

New spinoff districts won't be recognized; existing ones unaffected


By REESE DUNKLIN / The Dallas Morning News

AUSTIN - Texas Attorney General John Cornyn said he was imposing tighter restrictions to close "obvious gaps" in the regulation of special taxing districts and called on the Legislature to enact broader reforms.

The attorney general's actions will effectively put an end to a tactic that several North Texas developers have been using to create taxing districts without county or state oversight.

Mr. Cornyn announced the changes this week in response to a state senator's request for a review of special taxing districts, which recently have come under intense scrutiny. The attorney general said his inquiry did not cover possible criminal violations because that would be up to local prosecutors.

In recent years, developers have asked an existing Denton County district to annex their land, which was sometimes in another county, then split it off as a separate taxing authority - all for the cost of $100 an acre. They would use bonds sold by these districts to finance construction of luxury subdivisions in the region's booming suburbs.

Mr. Cornyn said his agency, which approves all public bond issues, would no longer recognize such districts or let them take on such financing. The change, however, would not affect existing North Texas districts because newly enacted state laws validated any actions they have taken, he said.

He criticized those laws, saying they have also "cut off and pre-empted" his office's ability to investigate the districts' practices.
"The Legislature has pretty much tied our hands," Mr. Cornyn said.

Denton County Judge Scott Armey said he would meet with District Attorney Bruce Isaacks to discuss whether the prosecutor should launch an investigation. Mr. Cornyn's comments are his first publicly since state Sen. Jane Nelson, R-Flower Mound, urged him to act two months ago after a series of reports by The Dallas Morning News.

The series revealed that North Texas developers had won hundreds of millions of dollars in taxing power from short-time voters whom they housed in trailers shortly before elections and provided financial benefits. Some developers had also placed their employees on the districts' board of directors, despite state law barring such connections.

This week, The News also reported that in at least one instance, the lone voter in a district election said he never lived there and was urged to sign false documents to make things appear legitimate. Representatives of the district's developer, the family of former Dallas Cowboys owner H.R. "Bum" Bright, denied the allegation.

Ms. Nelson said she was pleased with Mr. Cornyn's interim measures and planned to propose new legislation that would "correct what I still believe are serious problems with special taxing districts." Her recommendations would include more stringent conflict-of-interest provisions and voter residency requirements.

"There is a woeful lack of public accountability here that flies in the face of some of the most basic principles on which our nation was founded," Ms. Nelson said in a written statement.

Developers' view

Developers and their lawyers have said the practice of moving voters into trailers has been long accepted as a way to conduct required elections in otherwise uninhabited areas. They also say taxing districts serve a good purpose: building water lines, sewer systems and roads in areas that cities don't want to serve but where people want to live. And those who move in would bear the costs, not the general public.

Chris Bright, the son of Bum Bright and the architect of several taxing districts, said through a spokesman Tuesday that the attorney general's new measures would have "no effect on our business interests," but that his family's company would "comply fully."

One of the districts that supports Mr. Bright's Castle Hills subdivision near Lewisville spun out more than a dozen new taxing entities for other developers in the late 1990s. In addition to paying the district annexation fees - which totaled about $700,000 - those developers also made more than $400,000 in personal payments to Mr. Bright or his company for the service, The News reported Monday.

Mr. Bright's representatives said he acted appropriately. Mr. Bright said he had no plans to spin off more districts.
The developers have said that they pursued this route because it was cheaper and quicker than seeking permission for a new taxing district from the state or a county commissioners court.

Tom Leonard, an Austin-based lawyer who represents the Brights as well as most new taxing districts in North Texas, did not respond to an interview request.

The practices of taxing districts first came to Mr. Cornyn's attention this summer after The News' reports and Ms. Nelson's request for a review, he said. While doing his research, he arrived at one observation: "I find some aspects of all of this a little disconcerting. Some of it just seems a little odd."

The scrutiny "served a useful purpose," he said. "It caused us to go try to figure out what it is we can do to try to be a little more aggressive in filling in some of the regulatory gaps under current legislation."

The new rules

The attorney general's office is charged with approving the districts' bond sales. Districts that are recognized by the attorney general - those that haven't been spun off another district - will face new restrictions: Developers must show that they can finance their projects without raising district taxes to excessive rates and overburdening homeowners, who ultimately must repay the bonds.

As for broader changes, the agency was limited in what it could examine and what it could recommend, Mr. Cornyn said. He cited two new state laws that approved districts' previous actions.

State Rep. Gary Walker, R-Plains, who wrote one of the bills and sponsored the other, said lawmakers never intended to shield special taxing districts from scrutiny. He said he would support Mr. Cornyn's calls for legislative action.

"We'd certainly study that issue," he said.

The attorney general, as part of his legal review, did not investigate potential criminal violations. He said his agency lacked primary jurisdiction and could only assist county district attorneys if asked to do so.

"Local district attorneys are authorized to do" criminal investigations, Mr. Cornyn said. "If you or anybody were to bring them evidence of false affidavits or other criminal activity, I'm sure they would pursue it."

Mr. Isaacks, the Denton County prosecutor, did not return calls seeking comment.

Mr. Armey, the county judge, said it would be "extremely appropriate" for Mr. Isaacks to look into the matter.

"With this indication from the AG, I would want to meet with the district attorney and see if there are some areas we need to work at," said Mr. Armey, who has previously supported the creation of some taxing districts.

Mr. Cornyn's office does not plan to reinstate an old policy of conducting on-site election inspections for district creation elections and bond sales.

Dating to at least the late 1970s, the agency would question voters about their residency and possible connections to developers. The policy was scaled back over the years, before ending altogether in 1995. Today, districts are only required to submit sworn affidavits attesting to a voter's residency.

Mr. Cornyn, who was not in office at the time, said he did not know why the inspections were halted. But starting them again "wouldn't be all that fruitful."

"If someone's going to lie on an affidavit, they're going to lie on an interview," he said.