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Memo brings questions about affordability, public benefits for Statesman redevelopment

Friday, July 22, 2022 by Chad Swiatecki

A new memo that forecasts significantly higher costs for affordable housing and other public benefits proposed by the city for the largest development project in the South Central Waterfront has raised a number of questions as the planned unit development process moves forward in the coming weeks.

City Council was scheduled to conduct the second reading for the PUD that is being led by Endeavor Real Estate Group at its meeting next Thursday, though a request from a residents group could delay it into August. That could give Council members, city staff and Endeavor representatives more time to work through the findings of California-based Economic & Planning Systems. On July 8, the group shared an analysis with Rosie Truelove, director of the Housing and Planning Department, that said an anticipated shortfall needed to cover public benefits on the former site of the Austin American-Statesman will far exceed the $146 million estimate published in a 2020 analysis.

The memo also said six requests the city has made as part of the negotiations for height and density entitlement changes on the project would add nearly $350 million to the cost of the $2 billion project, likely making it economically impossible without further public contributions to pay for parks, roads and transit projects. Much of the $350 million is tied to requirements around affordable housing that Endeavor would have to provide either on the Statesman site or within the larger district.

Last week the Community Development Commission voted to restate its December recommendation that pushes for 20 percent of all housing in the South Central Waterfront District to be priced at affordable levels. Members of that commission also criticized a potential reduction in the number of affordable units tied to the project and the possibility of using fee-in-lieu payments from Endeavor to fund affordable homes for purchase elsewhere in the district.

Council Member Kathie Tovo, whose district includes the waterfront area that has been primed for redevelopment over the last decade-plus, said she wants to learn more about the base financial information used in the new analysis as well as the 2020 study published by ECONorthwest, both as products contracted by the city. Tovo questioned the high costs and projected funding gaps for a for-profit development that is continuing to move forward.

“I find it enormously curious that the memo we received continually refers to the infeasibility of the Statesman PUD, because if the planned unit development is truly infeasible, you wouldn’t see a developer moving forward with it with investors still in place,” she said. “Thus far we haven’t had access to the financial modeling that’s giving rise to a certain set of assumptions that is the basis from which this memo is drawing its conclusion. It all rests on some information that we’re not receiving that we haven’t received.”

While affordability and public parks remain Tovo’s two highest priorities for ongoing negotiations on the project, she said there is room for discussion on possibly including more rental units in the project instead of affordably priced condos that are problematic for lower-income families because of high fees and homeowners association dues. On the possibility of Endeavor making fee-in-lieu payments to fund affordability elsewhere in the district instead of on the Statesman site, she said those payments tend to not produce the desired number of units in the long run.

One of the sideline issues also playing out regarding the Statesman project is the proposed creation of a tax increment reinvestment zone (TIRZ) that would fund some of the public benefits and other amenities on the project using revenue from the gradual increase in property values there. That structure has brought some criticism from those who object to using city tax revenues to partially fund a private development, with the TIRZ creation stalled while alternatives, including a potential extra tax levy on the property in the form of a public improvement district, are considered.

“There are certain district-wide improvements that we may not be able to do if we don’t identify a public funding source, because they may not be possible,” Tovo said. “It may not be the will of the community to make those district-wide improvements, and we will not be able to achieve the South Central Waterfront vision in totality without some of those public investments. It is something where we need to be in step with the community about that. If that’s no longer what people want to see in that area, we need to rethink it.”

Richard Suttle, an attorney representing Endeavor in the PUD process, said the company is willing to work with the city on the number of affordable rental units on the Statesman site but stressed that there is a need for some public money – from a TIRZ or other mechanism – to cover the funding gap created by the city’s public benefit and infrastructure requirements.

“The South Central plan had the gap factored in and said there would be (tax increment financing) or TIRZ so there would be public money to cover the deficit for all of the things they want. They underestimated the deficit and we are willing to absorb some of that underestimation, but someone asked me, what if there’s no TIF or TIRZ … I responded this project doesn’t work.”

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