By: Travis McGee
Over the last several weeks, a controversy has surfaced over a request from the Whitmire administration to award several demolition contracts using funds from the City’s Stormwater Fund. This is a very legitimate and important issue. However, so far, what I have seen is mostly an attempt to politicize the issue rather than have a meaningful discussion.
First, we should begin by acknowledging that the City has a serious problem with dilapidated, abandoned and dangerous buildings. Exactly how many there are is subject to some debate depending on definitions and perspective. However, they certainly number in the thousands. It was one of the most common complaints I heard from communities in my two mayoral campaigns. Efforts by previous administrations to address the problem have been limited, sporadic and, at least in some cases, theatrical.
Demolishing buildings can be surprisingly costly, especially when environmental concerns, such as asbestos, are involved. Historically, the relatively small amounts the City spent on demolition came from the General Fund. But as that fund has come under increasing fiscal pressure, the amounts have trickled down to almost nothing.
In the current budget, the administration proposed that $25 million be spent from something called the Storm Water Fund for “the demolition of dangerous buildings on behalf of the Department of Neighborhoods” (see the notes at the bottom of pg. XI- 10). That budget was approved by the City Council and certified by the Controller.
It is important to understand that the Storm Water Fund (SWF) is a separate and distinct fund from the Dedicated Drainage and Street Renewal Fund (DDSRF) that voters added to the city charter some years ago. The DDSRF has several funding sources, including property taxes, a drainage fee and Metro transfers. The SWF, in contrast, has been funded primarily by the Combined Utility System (CUS). It has also received smaller amounts from the General Fund and the DDSRF, however, the current administration has increased the amount coming from the DDSRF the last two years.
The CUS is the City’s water and sewer system. Its funding comes exclusively from water and sewer fees, along with some grant money from the federal and state governments. In 2004, the City established the SWF to pay for certain flood-mitigation projects due to interactions between the sanitary and storm sewer systems. The City has been in hot water (no pun intended) with the EPA for decades over floodwater intrusions into the sanitary sewer system.
Over time, the amount has steadily increased due to the dire need for drainage infrastructure and the General Fund’s financial straits. Compared to the General Fund, the financial condition of the CUS has been improving due to the dramatic increases in water and sewer rates during the Turner administration. According to the most recent audit, the fund’s net assets hit a historic high of over $4.4 billion.
The only restrictions on the City’s use of the CUS funds is a state law requiring that expenditures from the fund be reasonably related to the operation of the water and sewer system. Also, there are gener- ally covenants with bondholders to the same effect. So, it seems to me there are three issues related to this proposed use of funds from CUS to demolish derelict buildings.
Is it legal?
Whether this use of the funds is legal depends on whether the demolition of buildings is reasonably related to the maintenance of the water and sewer system. The 2004 ordinance provides that SWF funds may be spent on “costs of developing, implementing, and enforcing a storm water management program to reduce the discharge of pollutants from the City’s storm sewer system and protect water quality . . .” The Director of Public Works has told Council that each building is being evaluated individually to determine whether there is a sufficient nexus between any building to be demolished and the extent to which that building impedes drainage of floodwater that might affect the water and sewer system. Assuming that is actually done, it is hard to see how this use of funds is not legal. The City Attorney has opined that under these circumstances the expenditure is legal.
As a practical matter, there is a near-zero chance that either the Texas Attorney General or the bondholders, the only parties with standing to challenge this expenditure, would do so. Also, Texas courts have repeatedly expressed their reluctance to substitute their judgment on such issues for that of a local governing body. So, it does not appear to me there is any serious legal risk.
Will it jeopardize funding for flood projects?
Of course, if Public Works can establish the nexus as the department says it will, then the answer is clearly no. But beyond that narrow question, it should be noted that in this administration’s first two budgets, spending on flood control has been dramatically increased, nearly tripling the amount budgeted. So, the City is clearly spending much more on flood control than the previous administration.
Should the City be spending this much of the water & sewer fund on flooding?
This is a harder question.
Despite the CUS net position being the best in its history, it also faces massive challenges. The City has been under a consent decree with the EPA since the 1980s, because our sanitary sewer leaks so much raw sewage into the environment, including our bayous. Also, about two- thirds of the City relies on a decrepit water plant in the East End that was built in the 1950s. Estimates to properly modernize that plant have been pegged at over $5 billion.
This year, the City budgeted nearly 8% of the water and sewer revenues to the Storm Water Fund. Under the circumstances, I cannot say that is unjustified, but I would be leery about increasing it further.
Note: As I was getting ready to send this out, the City posted this presentation to be made at the Budget & Fiscal Affairs Committee meeting tomorrow.
