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Wednesday, February 10, 2016 by Jo Clifton

Pilot Knob deal turmoil continues

At Tuesday’s work session, Mayor Steve Adler launched a discussion on the Pilot Knob planned unit development with a spirited defense of City Council’s now controversial decision to redirect the PUD’s water and wastewater impact fees to the city’s affordable housing trust fund. The fees would normally be paid instead to the Austin Water utility.

First he apologized to his colleagues, repeating a statement he recently made on the City Council Message Board concerning the lack of information when Council voted on Dec. 17: “In retrospect, we should have more clearly communicated the mechanics of the agreement and the broader policies implicated in the days leading up to the council meeting and from the dais at third reading,” he wrote. “I take responsibility for not taking the opportunity to explain the deal in greater detail.”

Six Council members told the Austin Monitor in late January that they did not know how much the fee waivers would be when they voted on the item in December. On Tuesday, some Council members said they had just learned the extent of the fee waivers – up to $81 million from the water utility plus up to about $25 million from the Development Services Department – from a detailed and lengthy memo they received from city management late Monday.

Council Member Ellen Troxclair put a resolution on this week’s Council agenda to direct the city manager to provide a financial analysis and briefing related to those utility fee waivers and to reconsider the deal, which was crafted by staff from Adler’s office and Council Member Delia Garza’s office in concert with the developer. Troxclair told her colleagues she wants to send the PUD deal through the boards and commissions process, have the item put on the Council agenda again and have a full discussion about whether it is the right way to fund affordable housing.

Because of the memo provided to Council Monday night, Troxclair and her cosponsors – Don Zimmerman, Leslie Pool and Ora Houston – may already have achieved much of their goal of understanding what happened. One big takeaway from the memo is that neither the staff of the water utility nor financial managers were ever informed about the cost the utility would be asked to absorb as a result of diverting the impact fees.

Troxclair, Mayor Pro Tem Kathie Tovo and Pool made especially strong comments Tuesday about the cost to the water utility and to water customers as well as the possible financial impact that diversion of the impact fee money might have on future bond ratings.

Adler said both in writing and in person that the deal is fiscally sound and “makes meaningful progress on one of our city’s top priorities – affordability – and does so in a way that does not irretrievably divert any money from the City’s water or any other department.”

There is considerable disagreement among Council members, of course, about whether the money, once put in the affordable housing fund, could in fact be returned to the water utility and how that might happen.

While urging more transparency for future deals, Adler pushed back at the idea that the permanently affordable housing at Pilot Knob would be accomplished the wrong way. In fact, he said he would be happy to have $400 million to put into the affordable housing fund.

Garza also defended the deal, remarking that her District 2 has the most families. When she first looked at Pilot Knob as it was originally proposed, she said she was not happy to see that many of the families in her district would never be able to afford living there.

Garza noted that Pilot Knob was this Council’s first PUD “but not the staff’s,” seeming to imply that there had been other deals like this one, though there have not. The mayor pointed out that in developing the PUD affordable housing proposal, his staff and Garza’s were following the city’s guidelines for SMART Housing. Those guidelines provide for 100 percent fee waivers and fast-track review if the builder provides 10 percent affordable housing for the land trust. They were just following the SMART Housing rules, he argued. (“SMART” refers to “safe, mixed-income, accessible, reasonably priced and transit-oriented” developments.)

In this case, the developer will provide 650 homes that will be permanently affordable, and the impact fee money from all 6,500 homes in the development will go into the housing trust fund.

Under questioning from Troxclair, AW Director Greg Meszaros told Council he would not have recommended diverting the impact fees away from the utility, based solely on the utility’s interests. He estimated that at a 20-year build-out rate, the diversion of funds would cost the typical customer about $1.39 per month; at a 30-year build-out rate, that cost would drop to $.92 per month.

Meszaros noted that Council adopted a policy in 2013 of collecting 100 percent of all capital recovery fees in response to the water utility’s deteriorating financial position. He said that the utility is still under a “negative bond watch, and I would urge caution in moving fees out of the water utility at this time.”

Fees went from about $1,500 per unit to about $7,600 per unit, Meszaros said. That’s why the fees being waived at Pilot Knob are as great as they are, he noted.

Also in response to Troxclair’s questions, Meszaros said he had known from reading in the media that utility fee waivers were being discussed, and he had met with staff from the mayor’s office and Garza’s office to give them information; however, he was “not aware that a decision had been made to waive all the fees” until after the Dec. 17 meeting.

Pool also expressed concern about the fee waivers, saying, “100 million here, 100 million there – pretty soon we’ve got a utility that is bankrupt.” She also said she would prefer to take the question of funding affordable housing to the voters in a bond election. Austin voters approved $65 million in general obligation bonds for affordable housing in 2013. However, voters rejected $78 million worth of affordable housing bonds in the 2012 election.

Tovo noted that she is “very, very committed to affordable housing. But I do want to make sure that we’re spending our investment in the right ways, and I’m really concerned about a program where we are really having ratepayers invest in market-rate housing for someone else.” She was referring, of course, to the nearly 5,900 market-rate units planned for Pilot Knob.

She said, “When I get calls – and have in the past – about utility bills from constituents, they are often people who won’t qualify for 80 percent (median family income) ownership opportunities,” which is what is planned for the affordable units at Pilot Knob. “Yet if we have a SMART Housing program that is relying on an increase in rates,” she continued, “then those are the people who are already struggling with their bills and are now going to be struggling with increases to help pay for new housing for someone else – that doesn’t seem like a right path for affordability. So I hope we can generally look at our SMART Housing program in a careful and thorough way and just figure out how we can help that program continue to be successful and make sure it’s calibrated for the benefit that the city is getting.”

There has been discussion about doing similar fee waivers for other affordable housing projects. Attorney Richard Suttle, who represents Pilot Knob developer Brookfield Residential, also represents the developer for Sun Chase, a Southeast Austin municipal utility district. Both Suttle and water utility staff said that that project will not involve SMART Housing. The project and the utility have agreed that the developer will build a wastewater treatment plant, which will then be turned over to the water utility to operate. In order to pay for that, the utility will not collect the usual impact fees. Ten percent of the housing at Sun Chase will be affordable for first-time buyers, Suttle said.

Memo addresses problems with Pilot Knob process

The memo Council received on Monday was written by Chief Financial Officer Elaine Hart and assistant city managers Robert Goode, Bert Lumbreras and Sue Edwards. Addressed to City Manager Marc Ott and sent to Council late Monday, it concerns the process preceding the now controversial approval of the Pilot Knob PUD and responds to questions posed by Tovo, Pool and Adler.

The memo notes that the process that led up to the approval – “involving multiple Council offices, staff and external parties” – was unique because “staff played a more limited role in the negotiations than is typical in these types of agreements.”

The memo cites a need for more effective collaboration between departments and City Council offices. It suggests “establishing a coordinated staff team approach to this process. This approach would feature a specific lead individual responsible for oversight and ensuring all team members are adequately involved. It is our expectation that the team’s work would involve a financial analysis resulting in a fiscal note prior to projects being placed on an agenda.”

Waiver of water and wastewater fees for Pilot Knob will cost the city utility an estimated $81.472 million, according to the memo. In addition to the utility fee waivers, it estimates that the Development Services Department could waive between $18 million and nearly $25 million during the anticipated 20- to 30-year build-out of the project.

Instead of going to the departments, the fees will be put into the city’s Affordable Housing Trust Fund to fund 650 affordable housing units at the development, to be called Easton Park. The PUD is within five Pilot Knob MUDs, which will be fully annexed into the city “no later than December 31, 2047 or possibly earlier if the MUD debt is paid off and the city chooses to annex” the area.

Troxclair put an item on this week’s Council agenda to reconsider the deal, telling the Austin American-Statesman that she was more concerned with the process than the outcome of the vote. Adler and his chief of staff, John-Michael V. Cortez, have taken responsibility for not explaining the deal properly to other members of the Council but argue that it is still a good deal and a model for future affordable housing development.

Throughout the memo, the writers stress that city staff – with the exception of Neighborhood Housing and Community Development staff – was not involved in the negotiation and writing of the deal. “Austin Water Utility staff or management were not involved in negotiating the proposed fee waivers nor were they provided copies of the proposed agreement,” the memo says. In addition, AW “was not asked to provide a formal recommendation regarding the specifics of the fee waivers.”

Neither the Law Department nor Development Services, nor Planning and Zoning, were involved in the negotiations, either. However, the Law Department did assist in drafting the PUD ordinance at the request of the Neighborhood Housing staff.

Tovo asked why Council was not provided with a financial analysis. The memo reports, “Because zoning cases generally are just a change in zoning and have no fiscal impact, a fiscal note is not provided for zoning cases.” That will obviously change now, at least for SMART Housing.

Photo by Larry D. Moore, CC BY-SA 3.0, https://commons.wikimedia.org/w/index.php?curid=5020231. Map courtesy of the city of Austin.

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Key Players & Topics In This Article

affordable housing: This general term refers to housing that is affordable to Austinites, with or without subsidy.

Austin Water Utility: AWU is the municipal utility that provides water service for the City of Austin.

Planned Unit Development: A zoning classification designated by the city to allow greater flexibility for projects within its boundaries.

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