"That practice of raising fees controlled by the city to pay for capital projects once reserved for the ballot raises questions about whether drainage fees are becoming a stealth tax."
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July 20, 2014
Drain levy looks like fee, quacks like tax
When Austin City Council members approved $35.5 million in bonds to buy out 142 homes in the Onion Creek flood plain a few weeks ago, they planned to use drainage fees to finance the deal instead of putting it on the ballot. That action illustrates a little-noticed shift in the way the city handles financing for large capital projects in its Watershed Protection Department, which once was a pay-as-you go operation.
Instead of putting large capital projects, such as the buyouts, on the ballot, which permits voters to determine whether they will raise their taxes to pay off debt on specific projects, the city has shifted to using drainage fees, which residents are required to pay on their monthly bills. In the latter case Austin residents have little say over those decisions, as the fees are predetermined by the city and have gone up every year since 2012.
That practice of raising fees controlled by the city to pay for capital projects once reserved for the ballot raises questions about whether drainage fees are becoming a stealth tax.
Much of the drainage fee is used appropriately for flood-related programs, such as maintaining storm sewers and controlling erosion along creeks, and repairing and operating flood-warning systems. But the hefty annual increases have become necessary largely to finance capital projects, said Diane Gonzales, financial manager for the Austin Watershed Protection Department.
Thatís because the city has increasingly focused bond packages that go to voters on transportation projects, a trend that tracks back to 2006, which was the last time a major drain age/flood package was on the ballot, Gonzales said. After that, to make room for transportation priorities, the Watershed Protection Department began withdrawing capital projects from consideration for the ballot, where voters determined their fate, to the departmentís internal budget, controlled by city officials. When budget funds were not enough to cover costs, the department began using certificates of obligations.
Questions about the propriety of using drainage fees for capital projects only will intensify in coming months if the council proceeds with the other part of a plan by Council Member Mike Martinez to buy out 220 homes near Onion Creek and 70 homes near Williamson Creek. His plan calls for the city to borrow about $78 million, again by using certificates of obligation ó bonds that donít require voter approval. Drainage fees also would be used to pay off that debt, just as the with the $35.5 million for Onion Creek home buyouts.
Martinez has been candid about the use of drainage fees in that context, saying it necessary to avoid putting the matter on the ballot because of the risk voters might turn bonds down. In our view, voters deserve a say since paying for his $78 million proposal requires an increase of 75 cents more on their monthly utility bills of $9.20.
We certainly agree with Martinez that something needs to be done for the Southeast Austin community that was ravaged by the 2013 Halloween floods. But we disagree with his prescription, which buries the total price tag of more than $100 million in drainage fees. We have called for the city to put the proposal to a public vote so there is transparency as well as buy-in from the Austin community. Voters have shown a willingness to tax themselves on flood-related projects, including buyouts. And we believe they would approve bonds to purchase properties that would become parkland and open space.
The scrutiny over the cityís use of the drainage fee comes as it scurries to respond to a court ruling that has put the practice in legal limbo. Last month, State District Judge Amy Clark Meachum ruled that the drainage fee was ìinvalid.î That has left the city to figure out its next move, including whether it must change or restructure the fee, offer refunds, or go back to court. But the ruling also has called into question projects financed by the drainage fee, including the On ion Creek buyouts. That uncertainty is another reason for putting such matters on the ballot. And while the drainage fee of $9.20 a month seems small on its face, itís a fee that affects most Austin households. And itís not going anywhere but up.
The fees show up on bills of 300,000 customers. And it is projected to rise to almost $12 by 2019. Even occupants of multifamily properties pay them, about $4.60 per unit. Those fees were at the center of the court ruling on the lawsuit filed in 2009, in which plaintiffs Emily Poole, Lynne Shelton and Mohit Taneja claimed the city was applying the fee unfairly ó essentially by charging some apartment and condo dwellers the same amount as residents of much larger single-family homes. The judge agreed.
The city is mum on what it plans to do next. But there are steps that can and should be taken. The City Council should do its part by insisting that big-ticket drainage/flood projects again be steered to the ballot for transparency and accountability on public dollars. There ís no dressing the issue up: Hiding high-dollar projects in drainage fees is tantamount to a new tax.
AUSTIN RESIDENTS ARE PAYING HIGHER DRAINAGE FEES ON MONTHLY BILLS
*Amounts for fiscal years 2014 to 2019 are estimates based on city projections.The figures above are forhomeowners.Occupants of multifamily properties that have seven or more stories pay $4.60 perunit pe rmonth. Source: City of Austin
Note: Readers should be aware that at this time, the consultants for CodeNext (the City's proposed plan to roll back land zoning) have continued to refuse to accept that dealing with wildfire or flooding is a necessary component of CodeNext.