Austin’s cost for 650 affordable homes? At least $50 million

What was initially hailed as a precedent-setting affordable housing deal that cost the city nothing is coming under scrutiny after a civic activist started raising questions this month about its mechanics, which could push up water rates for Austin Water customers citywide.

Last month, the Austin City Council agreed to waive a slate of fees for the major Easton Park development in Southeast Austin in exchange for the developer committing to make 10 percent of the housing units affordable. The developer would put an amount of money equal to the waived fees into a fund, and the city or a nonprofit would use those dollars to buy several hundred lots or units within the development. Some of the money could also be spent on other affordable housing programs, such as down payment assistance.

But at the Dec. 17 vote, some council members were unaware that the fee waivers mean the Austin Water Utility will lose out on $50 million to $80 million, the Austin Monitor first reported Wednesday. The water utility also didn’t know those specific figures, the Monitor reported.

The deal, which would divert that money over the next two or three decades, would also cut into smaller development fees that flow to other city departments.

Council Member Kathie Tovo said she’s trying to understand whether securing 650 permanently affordable homes is worth tens of millions of dollars to the city.

“I certainly was in support of having those (units) remain affordable,” Tovo said this week. “Should it have cost $51 million? I’m just not sure.”

Staffers in Mayor Steve Adler’s office and Council Member Delia Garza’s office negotiated the deal on the project, also known as Pilot Knob. All of the council members voted in favor of the project except for Council Member Don Zimmerman, who abstained.

Neither Adler nor Garza mentioned the dollar amount of the fee waivers when the item came up for a final vote, although Richard Suttle, an attorney for the developer, had told the council at an earlier meeting that, if fee waivers were on the table, the “water and wastewater department will probably scream because they’re the ones that are taking the big hit on that.”

Garza released a statement Wednesday afternoon: “We can’t keep using the line that we are the most economically segregated city as a talking point and not use the tools available to help us to achieve permanent affordability. After this process, I do believe we have an opportunity to work with staff to ensure that departments are talking to each other and to improve transparency through the materials we are provided in backup, and we should have a thoughtful discussion among Council about how we talk though similar agreements.”

When the American-Statesman started asking questions about the deal last week, Garza said she was initially concerned about waiving fees, but “we were told it is a 20-year project. It’s not this giant chunk coming out of the budget in one year.”

Council Member Leslie Pool said she wanted to hear from Garza and Adler about “how the deal was structured and get the level of detail we missed back in December.” Asked if her vote would have been different had she known the amount of the fee waivers, Pool said, “I think the conversation would have been very different.”

Gina Copic, manager of the city SMART Housing program that provides for the fee waivers, told the Statesman that she didn’t know whether the waivers for Easton Park were the largest in the program’s 15-year history — but that Easton Park is the biggest project to ever fall under the program. Copic said the city is negotiating two deals that are similar in structure to the Easton Park agreement.

She also said there’s a cap of 1,500 housing units receiving water and wastewater impact fee waivers per year through SMART Housing, and because the up to 10,000 units planned at Easton Park will be developed over many years, the city won’t hit that ceiling. Because of the number of permanent affordable units promised, the city is waiving the fees on all of the units in the project, not just the affordable ones.

“If we thought we were going to exceed the annual cap then … it would become a public discussion,” she said.

Where the money comes from

Civic activist Brian Rodgers, who worked on raising the water and wastewater impact fees paid by developers, said seeing the words “fee waiver” in articles about the deal for Easton Park sparked his interest. He started asking city staffers and elected city officials about it this month.

“I don’t think any of them (the council members) understood they were going to blow a $50 million, $80 million hole in the water utility’s finances,” said Rodgers, who sat on a committee that worked on a plan to shore up the finances of the utility, which has been taking in less money as customers conserve water. “It was up to us to figure out painful ways to generate revenue through rate hikes and possibly cost savings, so when I saw all of our work really was not respected by the mayor and he felt he could just divert the funds … it made me angry.”

Mickey Fishbeck, who recently put an item about Easton Park on the agenda of the Water and Wastewater Commission’s next meeting said, “It seems like they would have told the council and told the public what would be the effect of doing this, and I didn’t see that anywhere.”

John-Michael Cortez, the mayor’s chief of staff, told the Statesman last week the deal was an innovative way to provide permanent affordable housing.

As for the fee waivers leading to increased water rates, “We of course all knew that,” Cortez said. “The money has to come from somewhere. It can come through increased taxes; it can come from other means. In this case, it’s likely going to come through some minimal increase potentially in utility rates.”

Last month, for an article about the Easton Park deal, Cortez told the Statesman, “(The city) is really not putting any cash into this.”

Impact fees cover the cost of new development hooking into the water utility’s system — more simply put, they pay for the cost of new growth. The utility is still trying to determine the specific impact of losing those fees from Easton Park on its budget, utility spokesman Jason Hill said, but “it means there would be a $50 or $80 million dollar hole in the budget, and at the end of the day, it would be made up in rates.”

Hill said the fees for Easton Park would be waived over roughly 30 years, meaning the impact would be up to a couple of million dollars a year. Austin Water’s total budget is $550 million.

Hill said Austin Water talked generally about impact fees with city leaders, but it wasn’t involved in discussions about particular details of the Easton Park deal. Austin Water Director Greg Meszaros told the Statesman last week it was hard to speculate on what he would have recommended to the City Council had he known how much in fees would be waived.

A “late backup” document, which was posted to the City Council’s agenda website when the council considered the Easton Park development for the third time in November, estimated $51 million in fee waivers if the project had 6,500 units. That document didn’t appear on the agenda website when the council took its final vote in December.

Garza said she wasn’t sure of the process for transferring backup information from one council vote to the next, but said she had no intention of hiding any information.

Where the money goes

A total of 6,500 single-family homes and about 1,500 multifamily units are planned at Easton Park, said Logan Kimble, senior development manager for Brookfield Residential. Ten percent of each type of unit would be available to low-income households.

Homeowners would have to earn 80 percent or less of Austin’s median family income, which is $61,450 for a family of four. Renters would have to make 60 percent or less of median family income, which is $46,080 for a family of four.

Brookfield Residential and the city haven’t figured out how much a land trust, run by the Austin Housing Finance Corporation or a nonprofit, would pay for lots or housing units in the development, Kimble said. The trust would own the land, while low-income households would own the home on top but have a requirement to sell it back to the nonprofit or another low-income family.

This arrangement means the homes will be set aside for low-income households permanently. It also avoids what is happening in the Mueller development, where residents of affordable homes are receiving market-rate tax bills because their houses could ultimately sell at a market price.

It’s unclear how the money in the fund for buying lots and other affordable housing initiatives might flow, but Kimble said the developer could sell lots to builders at little to no cost. That would enable builders to sell the homes at an affordable value, he said. Brookfield Residential would then get compensated from the fund.

“If I were to follow a specific dollar, would it end up back in our pocket? There’s a chance, but there’s benefits that spread out,” Kimble said, later adding, “The idea is that nobody takes a really ugly bloodbath on the sale of an affordable unit.”

Suttle, the attorney for Brookfield Residential, said the council renegotiated what was already “the best deal the city has ever done on affordable housing.” That original deal would also have made 10 percent of the units affordable to households making less than 80 percent of median family income, just not in perpetuity.

Garza pushed for a different deal because she wanted the homes to be permanently affordable. She said last week she wouldn’t want to redo the deal.

“We can’t say we’re serious about affordability and not understand some really hard choices we have to make to get that affordability,” Garza said.

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