Council backpedaling on drainage fees and groping for equitable solution

Nonresidential customers who knew got refunds, but not everyone knew

For years the City of Austin has been overcharging some of its customers by levying drainage fees that are too high. All nonresidential customers pay the same rate, currently $51.12 per developed acre. The problem is that the determination of the number of developed acres has not been made consistently for all customers.

Property owners who learned they were being billed for excess acreage and appealed the drainage fee charges had a good chance of getting refunds for overcharges and a lower monthly bill thereafter. Indeed, every year numerous entities have received refunds. For example, according to city records, from Oct. 1, 1998, through Sept. 30, 1999, a total of $282,549 was refunded for overcharges in drainage fees. Among these were many five-figure refunds, including Westwood Country Club, $12,723; Barton Creek Country Club, $15,772; Monte Siesta Retirement Home, $22,003; Lakeline Mall, $26,690; Concordia Lutheran, $30,036; and Central Freight, $22,137. Similar refunds were made in other years.

Property owners who were not aware of the possibility they were overcharged continued to pay the billed amounts, and some of these may be entitled to refunds as well.

"People were getting systematically different charges based on random chance," says Council Member Bill Spelman, who with Council Member Beverly Griffith has been trying to address the situation.

Consultant Chip Morea, a certified public accountant, handled many appeals for large property owners and obtained refunds on their behalf. Morea tells In Fact Daily, "A lot of customers have been overcharged. The utility has done everything it can to keep from giving money back to customers who deserve it."

Council Member Spelman says, "We had a procedure for challenging rates and Chip Morea was looking for cases, so the big dogs ate first, such as Motorola and IBM. Big corporations with big campuses got lower rates faster than small businesses. That strikes me as inequitable also."

Spelman says, "I feel strongly we need to do something."

"We want to be fair and we're going to work on exactly what that means to be fair to everybody," says Council Member Griffith. "I think we're going to have to square up with some people. How far we need to go is not as clear as the fact that we need to square up."

Much of the council's interest in the matter was spurred by criticisms made by Scott Henson of Paper Trail Research Services. City records Henson obtained under the Texas Public Information Act indicate that the city was aware of these problems as early as 1993. Henson is a former investigative reporter who has done considerable opposition research in connection with political campaigns. For example, his research of lawyer Jeff Hart, who represented a rendering plant that had been charged with air-quality violations in Bastrop County, helped Daryl Slusher defeat Hart in a runoff for City Council in 1996. (See In Fact Nos. 45 and 47 of May 29, 1996, and June 12, 1996, respectively.)

Henson waded into the fray on drainage fees after the City Council on April 13 passed an ordinance–which became effective May 23–that establishes a statute of limitations so that overcharges for the drainage fee may be refunded only for the two years immediately preceding the date the user applied for the adjustment. Up until then, if warranted, overcharges could have been refunded all the way back to the date the drainage fee was instituted in November 1991. (See In Fact Daily April 17, 2000.) Indeed, many refunds given by the city were calculated on that basis.

Henson e-mailed the mayor and council on April 17 about the effect of the council's action of April 13. On May 11 he followed up with a memo to the mayor and council members detailing his assessment of the problems with drainage fees, and supplying supporting documentation. In the memo Henson said "city staff has knowingly overcharged large classes of drainage utility fee…ratepayers since the early 1990s, amassing millions in ill-gotten tax funds."

Staff correspondence Henson obtained under the Texas Public Information Act supported his assertion. For example, a November 8, 1993, memo written by Roland Shield, administrative associate in the Public Works and Transportation Department, to the department's chief financial officer, Paul Hofman, outlined voluminous problems with administering the drainage utility fee.

"The city is obligated to pay back all of the ill-gotten money it took," Henson wrote. "To the greatest extent possible, the city should identify all overbilled parties and pay them back of its own volition, not just wait and hope most people never notice it. That's dishonest." He claims that state and local laws would compel corrective action if there were systematic overcharges in water and wastewater bills.

City Manager Jesus Garza responded to Henson's criticisms in a May 25 e-mail to Henson. "When the drainage utility was established in the early 1990s the ordinance stated, and still states, that 'The size of the commercial property which shall be subject to the charge shall be based upon its developed acreage as recorded in the appraisal district property tax records' ( Travis Central Appraisal District, or TCAD). At the time the ordinance was adopted, the city understood the ordinance to mean the total acres of a parcel as indicated in TCAD and used that figure to calculate the fee."

Noting that a number of customers had contested their acreage calculation in the mid-1990s, Garza wrote that in late 1995 the City Council upheld a customer's appeal and "Based largely on that decision, the utility changed its practice and adopted a method that uses a formula to account differently for acreage that is not under impervious cover. This change required the measurement of each commercial parcel."

Garza went onto say the change in practice was in effect a rate change it should have come to the City Council but it did not and was instead implemented "through practice on a citywide basis. By mid-1996, the new practice was fully implemented," he wrote. "Calculating the fee on total acreage on parcels in the early 1990s was not an overcharge; the reduction in the charge was the result of a change in practice."

Henson did not accept Garza's conclusions and wrote a rebuttal memo May 26. Henson notes the ordinance quoted by Garza requires the city to use TCAD figures for developed acreage but asserts there is no such figure in TCAD and each property would have to be calculated independently.

As to the idea the city had fixed the problem by 1996, Henson's memo says that is not the case. Henson supplied several documents to show that the city had given refunds in 1998, indicating that all parcels had not been measured. For example, Melvin Simon & Associates was overcharged for Barton Creek Square Mall for seven years, from November 1991 through November 1998 and obtained a refund of drainage fees totaling $15,772. Trammell Crow Co. gained a refund of $25,305 on Feb. 24, 1998, because a tract at 6800 Burleson Road was being billed for 93.75 acres instead of 33.42 acres. Henson states this proves that Garza erred in stating that the new practice was fully implemented by mid-1996.

"What Scott (Henson) says is checking out pretty well, although there's a lot of rhetoric in the way Scott put it," Spelman says.

Council to take corrective action

Council Members Spelman and Griffith posted an addendum to today's council agenda to:

• Repeal the ordinance that established the statute of limitations on refunds and reenact the old ordinance and fee schedule.

• Direct the city manager to investigate changes to the drainage fee structure and prepare an ordinance for City Council consideration.

Spelman, however, tells In Fact Daily that too many questions were unanswered to act today and the two agenda items have been pulled off. Differently worded items to address the problems will be posted to the June 8 agenda, he says. (June 8 will be Spelman's last council meeting.) Spelman says he is having staff determine how much money would be involved if the City Council were to direct that the city manager figure out the extent of overcharges and to refund all accounts that have been overcharged. "The language of the posting will allow for some form of reform, probably back to the date when the staff changed the policy so that the charge was based on developed acreage. Before that it was chaos, with some billed on total acreage and some billed on impervious cover."

It may be a tremendous chore for the Watershed Protection Department to figure out who should get a refund, Spelman says, but he has asked staff to determine if they can be identified. "If we can," he says, "my gut reaction is to refund them because it's inequitable, once we have a policy in place, to treat these cases differently–and that's exactly what we did. Two owners with the same acreage may have very different fees if we haven't gotten around to measuring what their developed acreage was."

Griffith says, "I'm hoping we can with staff reach an equitable, straightforward solution."

Spelman says the other thing to address is the drainage fee itself. He says that residences make up about 40 percent of the developed area but pay about 67 percent of the drainage fees, based on the 1993 Cost-of-Service Study. "It strikes me this is inherently inequitable," he says. While the rates may need to be adjusted to repair that inequity, Spelman says that Mike Heitz, director of the Watershed Protection Department, has persuaded him that it would be better to wait until the Drainage Master Plan is completed before adjusting rates. The plan will explain what projects need to be done throughout the drainage system and estimate the cost of those improvements, and thus must be addressed in the rate setting. Spelman says the plan is scheduled to be presented in August and finished in September. "After the master plan is adopted we can fix rates so they are equitable," he says.

City missed out on revenue of $1 million a year

In addition to the overcharges, some customers the city had the option to charge drainage fees have never been billed–including the State of Texas, University of Texas, Travis County and the Austin Independent School District. Billing these governmental entities was made possible when the city's drainage management program was declared a "utility" in 1991 under the Texas Municipal Drainage Utility Systems Act, according to a Drainage Management Cost-of-Service Study Phase B Report by Camp Dresser & McKee dated Dec. 30, 1993.

The study indicates the State of Texas had 498 acres of impervious cover, UT 948 acres, Travis County 25 acres, and AISD 233 acres, figures that likely have increased since the study was completed more than six years ago. At today's rate of $51.12 per acre per month, billing these governmental entities for drainage for the 1993 acreage alone would add more than $1 million a year to the drainage fee revenue.

While billing the state could be viewed as an unfriendly move by the State Legislature, Spelman says it's only fair. "Exempting state buildings puts tremendous pressure on the drainage system, and they ought to pay just like they pay for water, wastewater and electricity," he says. Spelman says that charging for electricity doesn't hack off the Legislature and the city can cut off electricity but it can't cut off drainage.

However, citing a 1995 memo by staff, Spelman says the city should give the governmental entities 18 months notice of intent to bill them for drainage fees so they have time to include the charges in their budgets.

Onward and upward…He was an Austin Planning Commission member for nine years and now he wants to be a City Council member–in Wimberley. The newly incorporated Hill Country community in Hays County will hold its first council election Aug. 12 and on May 30 Walter Brown filed to run for office. "Unlike Austin, a council race in Wimberley will not cost hundreds of thousands of dollars…but it will cost 'something,'" Brown says. His day job is with Faulkner Construction Inc. in Austin. Also filing for alderman were Steve Klepfer and Tony McGee. McGee is an attorney and Klepfer is owner of the Old Mill Store. Linda Hewlett, who heads up the Wimberley Library District, filed for mayor, according to Joyce Cowan, Hays County election administrator… Creative graffitti…"A lot of people care for South Austin. And a lot of them work at the South Austin Hospital," according to the billboards. But some creative protester has changed the billboard near Flipnotics on Barton Springs Road to read: "A lot of people care for South Austin. And Gary Bradley is not one of 'em. Save Barton Creek." Whoever changed the sign put in some thought before changing the sign last weekend, because the letters are attached individually on sheets of glossy paper, not painted over the old sign.