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Water commissioners hear bad news about Pilot Knob

Thursday, February 11, 2016 by Jack Craver

In another act in the ongoing drama over the Pilot Knob planned unit development, members of the Water and Wastewater Commission spent an hour-and-a-half Wednesday night trying to understand the implications of the controversial deal between the city and a developer that could cost city agencies over $100 million in lost revenue.

“This is a very troubling situation for the utility,” said Commissioner Mickey Fishbeck Maia after listening to staff from Austin Water describe the estimated $81 million the utility could lose because of the deal, which was approved by City Council in December.

In an effort to get the developer of a massive development east of Austin to agree to make at least 10 percent of the residential units “affordable,” the city waived a number of development fees, including capital recovery fees that the water utility depends on to fund its construction of water lines. In lieu of the fees, the developer will make a contribution to the city’s affordable housing trust fund, which the city will use to purchase land reserved for owners with incomes at or below 80 percent of the median family income in the area.

Officials from Austin Water, who have made clear in recent weeks that they were not aware of the fee arrangement devised by Council, did not denounce the deal during their remarks before the commission. They did, however, emphasize that, as is the case with all fee waivers, somebody would have to pay for the lost revenue. In the case of the water utility, that somebody is the Austin ratepayer.

“If you’re not going to have the fees, we have to raise the rates,” said David Anders, Austin Water assistant director of finance and business services.

The development hasn’t always been a bad one for the utility. In fact, back in 2011, Austin Water had crafted its own deal with the developer, Brookfield Residential, aimed at saving money, explained Bart Jennings, Austin Water’s manager of business strategy. The developer agreed to pay over $26 million to build necessary water infrastructure that would have typically been paid for by the utility.

Members of the commission were also hesitant to pass judgment on Council’s decision, balancing the fiscal position of the water utility with the goal of promoting affordable housing.

Commissioner Chien Lee reasoned that if the utility was losing out on $81 million in fees in exchange for the creation of 800 affordable housing units, ratepayers would essentially be paying $100,000 for each unit.

“Is that a good number for this (municipal utility district), or are we treating this MUD better than other similar developments?” he asked.

“It’s a complicated question, and I don’t think we can answer that,” responded Austin Water Director Greg Meszaros.

Commission Chair Bill Moriarty noted that such fee waivers have recently been a staple of economic development initiatives. For a number of years, for instance, the city imposed only 20 percent of the typical waivers on downtown development units in an effort to get housing into the area.

“The purpose of the fee waivers was to get people to live downtown, and by God, that thing worked,” he said.

The Mueller development similarly was subjected to only 37.5 percent of the typical fees.

But commissioners and staff also noted that an ordinance passed by Council in 2013 both raised impact fees (from $1,500 to $7,600 per unit) and undid many of the previous exemptions. Council was aiming not just to shore up the utility’s finances but to shift more of the burden of paying for water infrastructure from users to developers.

The higher fees apply only to properties that were platted after Jan. 1, 2014. Since many properties being developed were actually platted years before, only about a quarter of units are subject to the higher fees, Anders estimated. However, that small portion of all units brings in about three-quarters of fee revenue, he said.

Before the fees were raised, said Maia, consumers were paying for the great majority of the cost of growth in waterlines.

In response to questions about its bond rating, Anders said that the Pilot Knob deal will likely be monitored by rating agencies charged with assessing the utility’s financial position.

“Sometimes they know more about the water utility than we do,” he quipped.

Map courtesy of the city of Austin.

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