Capitol Offense

Texas Government's Potemkin Village


Last September, Heath Chandler made an audacious decision, or so it seemed. The Houston contractor chose to break the law. Since 2003, every home builder in Texas has been legally required to register with the state’s most heralded new regulatory agency—the Texas Residential Construction Commission. Chandler had been registered for two years, but had come to view the whole process as a sham—not nearly worth the $300 fee. So when the renewal papers arrived last fall, he didn’t fill them out. This would seem a risky move. Without a valid registration, Chandler can’t legally perform much work.

Yet it hasn’t proven risky at all. Chandler has carried on without a license: building new homes or doing remodeling jobs—whatever comes up. He openly acknowledges to the Observer that he’s been violating the law for months, but no one from the state has come after him. “I’ve not been contacted since [by the agency],” he says. “Honestly, I feel no presence at all.”

Many other builders are deciding TRCC registration isn’t worth the money and are blatantly building without one, according to an Observer investigation. More problematically, some builders whose registrations have been revoked are still working on homes as well. The Observer found that, of the 71 builders whose registrations the agency revoked or canceled last fall, nearly a third were still in business this spring. Moreover, the agency—which has little enforcement power—can’t do much about it. It’s further evidence that the feeble agency, created to protect consumers and regulate builders, isn’t doing very much of either.

On paper, the commission operates like many other regulatory bodies. It dispatches inspectors around the state, it maintains a Web site that warns consumers of looming dangers to their homes, and it blasts out press releases boasting of the many wayward builders it has disciplined.

In reality, the agency is a tissue-paper tiger. The commission is run by and for the very industry it’s supposed to monitor. Consumer groups have long complained that the commission is little more than a trade group for the state’s biggest builders, which also happen to be major contributors to political campaigns.

The commission has two main functions: to license and regulate home construction, and to mediate disputes between homeowners and their builders. It’s been widely reported that TRCC’s mediation process often hampers consumers in their disputes with builders by making it more difficult to find relief through the courts.

The agency hasn’t proven any more effective at the licensing side of its mission, the Observer has found. Just about anyone can obtain a registration by filling out the proper form and paying the initial $500 fee (renewals are $300). The agency pays little regard to the quality of past work. It performs a criminal background check and issues the registration.

The commission does revoke or deny registration if a builder has committed crimes of moral turpitude, hasn’t paid a fine, or has a record of negligent work. Given the commission’s limited investigative ability, how it would discover negligence is problematic.

Few licenses are revoked solely for shoddy work. That’s because the agency lacks the staff, money, and the legal authority to track down bad builders and enforce construction standards. Even when it revokes a registration, the commission doesn’t have authority, on its own, to punish builders who work without a license. The agency has the skin of a regulatory body, but not the muscle.

TRCC spokesman Patrick Fortner says the agency does a good job regulating the home construction industry with the resources it has. “As we become aware of builders and remodelers that are acting as a builder and they are not authorized to do so, you bet, we go after them,” he says. He concedes that the TRCC is reliant on other parts of state government for enforcement. If the agency does happen on an unregistered builder, TRCC refers it to the attorney general or goes before an administrative law judge to compel builders to register. (The Observer repeatedly asked the attorney general’s office for the number of builders it has disciplined on behalf of the TRCC. After a week, the A.G. was unable to provide any details.)

The commission’s licensing system has the potential to work well if it had enough staff, resources, and statutory authority. For four years, consumer groups have urged the Legislature to overhaul the commission. Several reform bills moving through the current session would give the TRCC some of the enforcement power it lacks, though time is running out for passage before lawmakers adjourn at the end of this month.

For some builders like Chandler, a registration with the state, as it currently functions, offers little benefit. “It doesn’t get me a job,” he says. “I’ve been in business for 13 years. … I’ve never not gotten a job because my registration isn’t updated. I have wonderful clients, a portfolio that gets me work. Any customer that looks at my work will know that I’m qualified. I’ve seen some horrible, horrible contractors out there with a license. That makes me wonder how the hell did they got licensed? It’s just more fees to pay for nothing.”

That seems to be the way the big building companies and their legislative allies want it.

The industry hijacked the agency from the beginning. The Legislature created the TRCC in 2003, ostensibly to regulate the state’s many homebuilders and to protect consumers. It quickly became clear that the commission was principally designed to keep large home construction companies out of court.

Much of the bill that created the commission was written by John Krugh, a corporate lawyer for Perry Homes. The Houston company is owned by Bob Perry—one of the state’s most prolific home builders and also Texas’ top contributor to political campaigns. Since 2001 Perry has donated more than $15 million to campaigns in Texas, almost exclusively to Republicans, according to the watchdog group Texans for Public Justice. Perry has contributed $436,800 to the Gov. Rick Perry’s campaign account since January 2004, according to filings at the Texas Ethics Commission. Gov. Perry (no relation) later appointed Krugh to serve as one of the nine commissioners who run the agency he helped create. As the Observer reported two years ago, the commission overseeing the TRCC features not a single consumer advocate [see “The Agency that Bob Perry Built,” February 4, 2005].

The agency was pitched as a place that homeowners could turn to for help when their builders refused to fix obvious defects—a kind of marriage counselor for the construction industry.

State law now requires consumers to complete the commission’s mediation process before they can take legal action. If a new homeowner finds the roof leaks or the foundation tilts or the walls crack, the owner must complain to the TRCC if the builder won’t fix the problems. Only afterward can owners take builders to court or arbitration.

The complaint process is lengthy and costly for homeowners. Even when the agency rules in their favor, it lacks any power to enforce its decisions and can’t compel builders to make repairs. The commission has been a boon to industry giants like Perry Homes, which has faced dozens of lawsuits in Texas in recent years.

While TRCC’s mediation process has garnered media attention, its licensing of home builders has gone mostly unnoticed, though the flaws in the commission’s licensing process are just as glaring. The agency simply can’t do the job the Legislature assigned it.

The TRCC has a staff of 32 people. When the commission began spreading the word in 2004 that nearly all builders in Texas would have to register, agency officials expected to hear from roughly 3,750 builders, Fortner says. So far, about 25,000 builders have registered. The staff can’t keep track of them all. Regulation is cursory: A builder applies, sends in the fee, and presto, they’re licensed to build homes in Texas.

None of that really matters, though. The TRCC doesn’t have the statutory authority to go after unregistered builders.

In an interview for this story, Fortner, the agency spokesman, even asks an Observer reporter if he knows of any builders violating the law.

Suburban Houses

TRCC revoked or withdrew registrations from more than 2,000 builders between late 2004, when the agency began work, and the end of 2006. To test the agency’s enforcement, the Observer contacted the 71 builders who, according to TRCC records, had their registrations canceled or revoked in the final three months of 2006. A reporter called each builder posing as a homeowner in search of a contractor.

Of the 71, the Observer identified at least 19 unregistered builders—27 percent—that were still in business. Many called back offering bids and price quotes for certain types of work. An Observer reporter later contacted all 19 builders, identified himself as a journalist and asked if they were building without a registration. Some refused to comment or didn’t return calls. Others freely acknowledged they were still in business.

Asked if he’s still building without a registration, Don Capehart, a longtime builder in Spring, says, “Oh yeah, I’ve done this all my life. … There are more non-licensed builders than licensed ones. How can they check all that stuff? They can’t, and they don’t.”

Capehart continues to work after losing his registration last year because of what he calls a decades-old dispute. He says a customer who was unhappy with some of his work filed a claim against him 20 years ago. That came up on the TRCC background check and scuttled his registration.

“Anyone can file anything against you at any time if they want to,” Capehart says. “So the state comes up [and] instead of them checking what kind of building you do, the quality of your work, they look at the record and go by it, even if it was 20 years ago.”

The rules governing the commission’s ability to revoke registrations are rather subjective. Texas law gives the TRCC discretion to license builders it deems trustworthy, honest, and competent, Fortner says. The commission can deny a registration because of a criminal history. But the agency can also revoke a registration if it has reason to believe—from complaints to the commission or from lawsuits—that a builder isn’t trustworthy. While Perry Homes has faced numerous legal challenges for lemon homes, it has not lost its license. “There’s been very few complaints, to my knowledge, filed against that particular company with the commission,” Fortner says. “We have to look at every instance on a case-by-case basis.”

What angers Capehart even more is that the agency kept his money after it denied his registration. Builders must pay $500 for their initial registration and a $300 renewal fee every two years. While companies like Perry Homes have no trouble paying, the fee is not inconsiderable for small firms. Some builders wonder what they’re getting in return. The registration is virtually meaningless to consumers because the TRCC isn’t performing actual regulation; it siphons out builders with criminal records, but does little to find out who actually produces good work. “I could be a bad builder today, and they’d never know it and give me a license,” Capehart says. “I thought it was way too much for what you’re getting. The max I’ve ever paid for permits was $200, $300. I thought, ‘Man they’re making a killing off this deal.’ It’s just making money off your occupation.”

The commission is a moneymaker for the state. Fortner says the TRCC’s registration fees generate cash the commission pours back into the state’s general revenue fund. A report by the comptroller’s office last year projected that TRCC would produce more than $5 million in profit in 2007. That money could pay for a robust regulatory structure if state lawmakers simply plowed it back into the agency. So far they’ve chosen not to.

Nevertheless, Fortner says enforcement has improved. The TRCC has begun as many as 1,300 enforcement cases—including fines and registration denials—in the past 18 months, according to the TRCC Web site, for offenses as serious as fraud and as minor as not advising the commission of an address change. “I think we’re doing a pretty good job with the number of folks we have, especially when you see the spike in enforcement activity that the commission has undergone,” Fortner says.

Lawmakers filed numerous bills this session to reform the TRCC. Consumer groups backed legislation by Rep. Senfronia Thompson, a Houston Democrat, that she dubbed a Home Lemon Law. It would provide home buyers more protections, and it is withering in the House. Instead, the House passed House Bill 1038 by Nederland Democrat, Allan Ritter, who sponsored the original legislation in 2003 that created the TRCC.

Though consumer groups aren’t in love with it, Ritter’s bill gives the commission considerably more enforcement power. It would empower the agency to track down builders who haven’t registered or are working without registrations. The commission could send cease-and-desist letters to wayward builders, and could assess fines as high as $1,000 a day on builders who don’t comply. The legislation would also let TRCC force builders to make repairs. The version of the bill that passed the House also boosts the TRCC’s resources: It provides the commission $6 million addition funding, and would require 40 new state employees to investigate and regulate the building industry. As the Observer went to press, HB 1038 was headed for a Senate floor vote.

Meanwhile, Chandler, the Houston contractor, doesn’t see any reason to register unless the TRCC plans to actually regulate the industry. “[There are] no benefits. All you do is get a license number,” he says. “There’s a shitload of contractors out there that don’t know how to build a home but have a license from TRCC.”

Observer intern A.J. Bauer is a very recent graduate from the University of Texas. Intern Jun Wang contributed to this article.