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Austin may increase some fees for developers, shifting cost of growth

When the downtown Austonian condominium tower went up in 2010, the building’s developers paid the city $112 per unit to tap into Austin’s water and wastewater system. But that was only one-fifth of the actual cost of connecting to the lines, according to city estimates, with the rest of Austin’s homes and businesses picking up the other four-fifths.

That’s been the city’s practice since the late 1990s, when the city decided to charge many developers significantly less than the cost of the water and wastewater lines they needed to make a subdivision or commercial property habitable.

The policy was borne of smart-growth principles — discounts were a carrot offered to developers to lead them away from environmentally sensitive portions of South and Southwest Austin — but some city officials now say the discounts did little to influence growth patterns. They also came with a perverse side effect: shifting some of the cost of Austin’s growth onto people already living here.

“We need to strike the right balance between the ratepayers fronting the money … and the new customers,” said Mickey Fishbeck, a member of the city’s Water and Wastewater Commission.

On Thursday, the City Council will debate how to achieve that balance. A pair of competing proposals would raise the city’s “impact fees” by canceling most or all of the discounts.

One proposal calls for discounts for developments citywide to be canceled. Under the other proposal, the city would continue offering discounts in a few areas where officials want to spur dense development — such as downtown, the Domain in North Austin, East Riverside Drive in Southeast Austin and Mueller in East Austin — but eliminate discounts in most areas. Those remaining discounts would cost the city an estimated $100 million over 10 years, which would be collected from the rest of Austin.

To the typical homeowner, that choice could be summarized as: whether to pay an additional $17 or so a year by 2023 in utility fees, in hopes the subsidy will spur more environmentally friendly clusters of homes and businesses.

Those aren’t huge amounts. But with the cost of living in Austin rising, even as median incomes stay flat, many residents say they are being pinched in part by gradually accumulating fees. Development groups make a similar point about the cost of doing business as they call for the city to keep some of the discounts: eliminate the fees and the cost of new housing will go up, they say.

“There are a lot of strong opinions on both sides,” said Brian Long, the city staff member who has been ushering the proposals through the city’s review process.

Texas limits what cities can charge developers to offset the costs of things like new roads and schools to serve new development. In the case of water and wastewater fees, cities can charge a developer only for costs that can be attributed to a new subdivision, office building or other development, as determined by a state formula. Some cities charge less than the formula allows; some, such as Dallas, charge nothing.

Since Austin decided in the late 1990s to try to guide the city’s rapidly expanding population away from environmentally sensitive areas, the city has adopted a patchwork of water and wastewater hook-in discounts. Outside the city’s “Drinking Water Protection Zone” in West Austin, for instance, the standard discount is 50 percent. In downtown, it’s 80 percent.

The result is that Austin has been charging significantly less than many of its neighbors. Even Austin’s highest fees, for development over the Barton Springs portion of the Edwards Aquifer, are a quarter of Dripping Springs’ charges, roughly two-thirds of Round Rock’s and Leander’s, and four-fifths of Buda’s and San Marcos’, according to a report from Austin’s city staff.

State law requires the city to review its fees every five years. As part of that process, a volunteer committee determined that Austin should cancel all the discounts. The city’s Water and Wastewater Commission agreed. Its formal recommendation states that, “in cities that are attractive for development, the amount of impact fees had little effect” on where development occurred. The conclusion was based on research by Austin-based Duncan Associates, a firm that advises communities around the country on impact-fee policies.

A coalition of neighborhood groups, environmentalists and consumer advocates are urging the council to charge full fees. They say that with water and wastewater rates projected to rise 25 percent over the next five years, anything that shifts costs away from homeowners is necessary.

“We’ve got a lot of people coming to Austin in the next 10 years. And that’s fine, as long as the people who are already here don’t have to subsidize them,” said Brian Rodgers, a civic activist who has been complaining about Austin’s low impact fees for years. “I don’t think you can say these fees will be passed along to the consumer, either. Prices are based on what the market will bear … and these areas are on fire right now.”

Business associations counter that some discounts would entice building in places the city wants to add population, such as the Domain, East Riverside Drive and downtown. They say, among other arguments, that the city’s comprehensive plan calls for such incentives as part of a larger effort to curb sprawl. The city staff is recommending the proposal that keeps some discounts, which, it calculates, would put Austin more in line with other large Texas cities.

“When you look at all the other costs in Austin — other fees, environmental regulations, I’ll call it heavier bureaucracy — we thought we should balance all that in our recommendation,” said Greg Meszaros, director of the Austin Water Utility.

The water and wastewater fees alone might not significantly influence where development occurs, but if the city begins removing incentives, development is less likely to go to desired areas, said Julie Fitch, the Downtown Austin Alliance’s director of economic development and government affairs.

Between canceling the discount and slightly raising the city’s standard fee, downtown developments could see water and wastewater impact fees raised 591 percent, according to Fitch’s calculations, which are backed by the Real Estate Council of Austin, Greater Austin Chamber of Commerce and other real estate groups.

That increase, according to a letter from those groups, “is an unpalatable and dramatic increase in cost that threatens dampening desired development and also affordability for the end user.”

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