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Emails show mayor irked, departments concerned over Easton Park deal

For the soft-spoken Mayor Steve Adler, the email to a top aide in all-caps — widely considered the electronic version of shouting — had an uncharacteristic tone.

“Lots of questions, misconceptions, etc., BUT ONLY ONE IS IMPORTANT … IT’S THE ONLY REAL QUESTION. HOW CAN WE ANSWER THIS QUESTION? After answering it, ALL the other questions have not (sic) real relevance. And IF we had that answer, it needs to be part, the first part, of everything you say…,” Adler wrote to his chief of staff, John-Michael Cortez.

The Jan. 28 email reflected Adler’s frustration after the backlash over a special deal for the Easton Park development, also known as Pilot Knob, which undercut the reputation of a mayor known for trying to foster trust with his council colleagues and build consensus on contentious issues.

Adler’s question: Could the council reshape the deal?

In December, the council approved the zoning ordinance for Easton Park — negotiated by Cortez, one of Council Member Delia Garza’s aides and city housing staffers — that exempted the developer from paying a slate of city fees that would typically help pay for some of the cost of growth, such as expanded water infrastructure and staffers reviewing development.

Instead, developer Brookfield Residential would put an amount of money equal to those fees toward housing that was permanently affordable, not just on first sale. Adler said the deal was a creative way to guard against gentrification by ensuring homes remain in the hands of low-income families.

In January, Austin Water told reporters it had no idea that agreement waived impact fees on all residential units, market-rate as well as affordable, in Easton Park — meaning all water customers would pay slightly higher rates to make up for the loss of $50 million to $80 million to the city-owned utility over the next couple of decades. Council members also said they were unaware.

A batch of emails recently obtained by the American-Statesman show that as the controversy unfolded, the mayor resisted his top aide’s efforts to double down, telling Cortez in an email to “stop defending” the Easton Park agreement. Instead, Adler was focused on whether the council could choose to send the developer’s affordable housing dollars to other city departments, such as the water utility.

The emails also show that key city departments, which have emphasized they weren’t involved in the Easton Park negotiations, had an inkling that significant fee waivers were on the table. The deal relied on the city’s SMART Housing program, which provides for fee waivers on all residential units when 10 percent of ownership units are permanently affordable to low-income households.

“Council and the developer for Pilot Knob are considering a deal to enhance affordability that would result in the conversion of all residential and (multifamily units) in Pilot Knob to SMART Housing status,” wrote Andy Linseisen, a managing engineer in the city’s Development Services Department, to his boss on Nov. 23, about four weeks before the council approved the deal.

“I am very concerned about the fiscal impact to (development services) with this as it is a very large development with a significant workload and as we move to enterprise status it could create a significant revenue gap for (development services),” Linseisen continued. “(Austin Water) will likely object to the fiscal impact and perhaps (development services) should at least point out the expected fiscal impact to our business units.”

City Development Services Director Rodney Gonzales, the recipient of that email, said through spokeswoman Sylvia Arzola that he didn’t notify his bosses in the city manager’s office about these concerns and didn’t know exactly what the fiscal impact would be, as staffers running the SMART Housing program always do that calculation. Arzola said that because fee waivers come up relatively often, the fact that they were being discussed wasn’t in and of itself cause for alarm.

The latest estimate of lost fees for Development Services: $17.8 million over a couple of decades.

Unknown waivers?

The Austin Monitor, an online news site that’s read by City Hall insiders, was the first to break the story on Jan. 27 that Austin Water and council members were in the dark about the amount of the fee waivers. Before then, civic activist Brian Rodgers, who worked on raising impact fees and shoring up Austin Water’s finances, had started raising questions.

Cortez went on the defensive after that story ran, calling it “misleading” and pushing back against Austin Water’s statements that it was surprised by the amount of lost utility fees. (Publicly, Cortez wrote a Feb. 8 Statesman opinion piece apologizing for the “poor job in taking the time to explain this deal.”)

On Jan. 27, Cortez wrote to Adler and other mayoral staffers, “I think we should take up with the (City) Manager our disappointment with (Austin Water)’s statement in the Monitor article given the fact that we proactively reached out and met with them on the potential impact of these fee waivers in November.”

A city manager memo said Austin Water Director Greg Meszaros met Nov. 24 with staffers from the mayor’s office and Garza’s office. The memo said Meszaros estimated that Austin Water expected to receive more than $75 million in fees from Easton Park but “was not asked to provide a recommendation or analysis on any specific fee waiver proposal.”

The day of that meeting, though, Austin Water manager Bart Jennings had sent Meszaros an email saying the Easton Park developer estimated Austin Water might lose $47.5 million in fee revenue to affordable housing.

Jennings told the Statesman that Richard Suttle, an attorney for the developer, had alerted him there might be fee waivers for Easton Park to ensure affordable housing.

But Jennings said he had no idea how Suttle reached the $47.5 million number and that, with no involvement in the negotiations, he had no clue what the “real deal” was.

Typically the city’s Neighborhood Housing and Community Development Department would keep Austin Water in the loop about waivers, said Gina Copic, a real estate and development manager in the housing department. But in this case, staffers in the mayor’s office and Garza’s office took the lead on negotiations, Copic said. The housing department also typically has the authority to approve fee waivers, but since Easton Park is outside the city and might not be annexed until 2047, the council had to approve waivers.

“The actual number of fee waivers is unknown,” Jennings emailed Meszaros Dec. 18, the day after the council’s final vote on Easton Park. Jennings said that, per his reading of the zoning ordinance, 10 percent of residential units would get fee waivers, meaning the loss in revenue to Austin Water could total $4.9 million.

The latest estimate is $51.5 million over a couple of decades.

Though there is a cap limiting the number of fee waivers to 1,500 per year, Austin Water has said it doesn’t budget for that number of fee waivers. Instead, the utility budgets based on projections using recent past number of waivers.

Tweaking the process

Perhaps signaling its trust in Adler, the City Council voted to consider the affordable housing and fee waivers portion of the Easton Park zoning a second time — including clarifications proposed by the mayor that the council can direct the money the developer pays in lieu of fees to “any lawful municipal purpose,” without affecting the number of affordable homes in the development.

Adler has expressed interest in forging similar affordable housing deals for other large, planned developments. Asked if the mayor’s office would handle future negotiations differently, spokesman Jason Stanford said the process wouldn’t be up to elected officials or their aides.

“Because the Council set the precedent for prioritizing permanently affordable housing, we can now let the City staff negotiate these deals with the developers who have shown interest in helping us on affordability,” Stanford said in an email.

City spokesman David Green said the city has set up a team of staffers — including from the city manager’s office, the Development Services Department, the housing department and Austin Water — to review proposals for large, master-planned developments such as Easton Park. The team is also working on systems for reporting fee waivers, Green said.

City Water and Wastewater Commissioner Mickey Fishbeck Maia, who first brought the magnitude of fee waivers to Austin Water’s attention in January, has proposed that her commission recommend a slate of changes to the City Council.

“The reason I brought it forward is to be sure that the council, who are still inexperienced in the area of water and sewer finances because they’ve only been there a little over a year, to make sure we keep them informed about the financial status of the utility and how badly needed impact fees are to help remedy some of the shortcomings that we’ve had over recent years,” Maia said. In 2014, Maia was part of a committee that recommended Austin Water, which was losing money as customers used less water during the drought, slash its budget by $30 million.

Maia’s resolution, among other things, would allow the city to only waive fees for affordable units, not market-rate ones, that are inside the city limits.

Maia said she’d also like her commission to discuss whether city staffers should be allowed to administratively approve fee waivers in the city. The fee waivers amounts “can be so large,” she said, “that it seems like the public might want to know about it.”

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