Background on Houston Proposition A: Drainage Fee Re-vote

Warning: I’m not making a recommendation in this post. I am just trying to provide background information that may help you understand this issue and why its on the ballot again.

History of the “Drainage Fee”

Historically, Houston issued bonds to finance capital projects related to drainage and street improvements. About a decade ago, a group of engineers worried that we spent too much on interest, perpetually underfunded drainage, and constantly diverted money to less important things. So in 2010, they managed to get a referendum on the ballot that would create a dedicated fund out of current revenue for such improvements.

Ads featured a man who had flooded repeatedly. He blamed politicians who diverted money away from needed drainage projects. He said we needed to create a “lockbox” around future funds to ensure they were spent for their intended purpose.

Voters narrowly approved the Amendment (51-49). Subsequently, the City Council voted to add it to the City Charter (Article IX, Section 22: Dedicated Pay-As-You-Go Fund for Drainage and Streets.)

Court Challenge

The new amendment ran into problems immediately, not because of the supposed lockbox, but because of the way the City worded the summary of the amendment on the BALLOT itself.

The summary simply said, “Shall the City Charter of the City of Houston be amended to provide for the enhancement, improvement and ongoing renewal of Houston’s drainage and streets by creating a Dedicated Pay-As-You-Go Fund for drainage and streets?”

In 2015, the Texas Supreme Court ruled that the summary (not the amendment) was misleading. It failed to disclose that the money would be raised through a new tax/fee on residents. The Texas Supreme Court then remanded the issue back to a trial court. which voided the election and ordered a new one.

Re-vote Confusing

Now, in 2018, we’re getting a chance to vote again on the 2010 measure. However:

• The City claims that a positive vote will affirm the drainage fee, but a negative vote will not invalidate it.
• The wording for the funding formula has changed and no one has yet explained why.
• The vote is being positioned as a chance to create the lockbox promised eight years ago, but the referendum’s wording is virtually identical to the 2010 wording.
• Even though this is popularly known as the drainage fee, the language that created it allows money to be used for a wide range of things not related to drainage (streets, salaries, vehicles, etc.)
• The wording does not define the terms used within the amendment, nor does it specify the percentage of the money that should go toward drainage.

Let’s look at each one of these issues.

Texas Supreme Court and the Do-Over Vote

When you read a summary of any proposed amendment at the ballot box, it’s supposed to be a fair and accurate reflection of the proposal. The Supreme Court ruled that the 2010 ballot language in this case could mislead voters. That’s because it did’t disclose that voters would pay for the dedicated fund with a new tax on themselves.

Justice John Devine said in the conclusion of the ruling (see page 15) that, “The City did not adequately describe the chief features—the character and purpose—of the charter amendment on the ballot. By omitting the drainage charges, it failed to substantially submit the measure with such definiteness and certainty that voters would not be misled.”

The court found no problem with any other wording in the amendment. The new 2018 ballot language DOES disclose the tax on residents this time. Here’s how it reads.

Ballot Language for 2018 Proposition 

[Relating to the Creation of a Dedicated Funding Source to Enhance, Improve and Renew Drainage Systems and Streets]

“Shall the Houston City Charter be amended to establish a Dedicated Pay-As-You-Go Fund, to be used for the enhancement, improvement, and ongoing renewal of Houston’s drainage and streets, funded annually from the following sources: (i) developer impact fees; (ii) drainage charges, to property owners or users, to recover costs of providing drainage to benefitting real properties; (iii) a portion of the City’s ad valorem tax levy; and (iv) third-party contracts, grants, or payments earmarked or dedicated to drainage or streets?”

Vote Could Affirm, But Not Invalidate

After voters narrowly approved the 2010 amendment, a City Council vote actually added it to the City Charter. The City now argues that the Supreme Court ruling does not invalidate the City Council vote, only the results of the referendum. The tax will not go away regardless of how you vote, according to Mayor Sylvester Turner. So why are we having a re-vote if there is no real consequence?

Said Mayor Sylvester Turner in the Houston Chronicle, “We are simply saying in November to the voters: Go and reaffirm the dedicated purpose for which this fee is intended, put a lockbox around it. Voters are not being asked to increase the fee or create another fee, just to reaffirm what already is.”

Does the 2018 Language Create a Lockbox?

According to the Houston Chronicle, Mayor Turner believes that the Supreme Court decision removed a lockbox around the source of funding and that “approving the charter amendment this year would restore it.”

Even though he feels the City does not need voter validation to retain the fee, for some reason, he feels the need for validation to keep the fee dedicated to drainage and streets. Perhaps he feels financial pressures.

Critics claim that revenues have been diverted for unintended purposes in the past. The City is trying to re-sell the concept by saying that a YES vote will create a lockbox around the money and a NO vote will allow money to be used in the general fund. There’s truth to this, and also some scare tactics, especially at a time when the firefighters are asking for large raises. However…

Critics say that there never was an effective lockbox. Moreover, there is NO new language in the 2018 amendment that creates or strengthens one. In fact, the 2018 language  is virtually identical to the 2010 language.

When I asked the Mayor’s office to point out the language in the 2018 referendum that created a lockbox around the money, I received a response from an aid who simply asserted it did so without explaining how.

Equal Vs. Equivalent

One key word has changed out of 518 words in the amendment. Amidst all the talk about lockboxes and affirmation, it has been overlooked.

The formula for allocating money to the fund mysteriously changed.

In section B (iii) the word “equal” became “equivalent.” There has been no public discussion of the impact of this change.

It’s not clear whether any change in the language of the amendment is even legal. The Trial Court’s Final Summary Judgment ordered a new election for Proposition 1 (what it was called in 2010), not a new election on a variation of it.

Here’s the change – in context of the funding mechanism in the bill:

City Charter Section B (iii) as adopted in 2010 (see Article IX, Section 22) reads:

“An amount equivalent to proceeds from $0.118 of the City’s ad valorem tax levy minus an amount equal to debt service for drainage and streets for any outstanding bonds or notes…”

B (iii) in the current 2018 ballot reads:

“An amount equivalent to proceeds from $0.118 of the City’s ad valorem tax levy minus an amount equivalent to debt service for drainage and streets for any outstanding bonds or notes…”

You might ask, “Don’t they mean the same thing?”  Not necessarily.

Equal means exactly the same in number; equivalent means the same value or weight. For instance, one 2010 dollar equals one 2018 dollar. However, adjusted for inflation, that same dollar would now be equivalent to $1.16. Another example: At this moment, $1 U.S. dollar is equivalent to $1.31 Canadian dollars.

Changing equal to equivalent makes me wonder whether something else is changing that could affect the debt-service calculation and therefore the amount that comes out of the city’s ad valorem tax. A change in the property tax rate? Interest rates? Home values affected by Harvey?

Usually when finance people talk about “equivalents,” they adjust for something: inflation, deflation, currency fluctuation, discounts, exchange rates, time value, etc. It’s not clear why they made this change….especially if the election is only to “affirm what is.”

The change might or might not be something crucial. But changing one word out of 518 makes me believe that someone did it intentionally, not accidentally, especially in this age of cut-and-paste.

Lack of Clarity

Vagueness and self-contradictions have plagued this amendment from the start.

• Fees were originally intended for capital projects, but the amendment allows 25% of the money to go toward  maintenance and operations.
• The public knows Proposition A as a drainage fee, but the fee also pays for street improvements. What constitutes a street improvement? New pavement and bigger storm drains? Surveys? Engineering fees? An asphalt patch? A bicycle lane? A bus lane? Stop signs? Traffic lights? Salaries of Public Works employees? The vehicles they drive? Turns out, it’s all of the above. Pretty much anything that touches a street.
• Proponents keep talking about a lockbox. But the amendment contains no provisions for financial transparency, segregation of funds, council approvals, audits, or public reporting that would create a true lockbox.

Early Voting Starts Monday

If you believe money was diverted from this fund to pay for services other than drainage, then Proposition A won’t give you much comfort. The language is virtually identical to the last one.

How you vote will depend on:

• How happy you are with the existing drainage fee
• How much you trust people to do the right thing
• Whether you’re a “something-is-better-than-nothing” person or a “let’s-start-over-and-get-this-right” type.
• Whether you’re satisfied with the speed of mitigation efforts.

Now that you have the backstory, review the original language you’re voting on. Will it do what you want? If so, vote yes. If not, vote no.

Posted by Bob Rehak on October 20, 2018

417 Days since Hurricane Harvey