Annexation Update

Annexation, Budgets, and Taxes

Wow! Could I possibly pick three less desirable subjects to discuss in this newsletter? Probably not. But they are all related, important, and timely so there’s nothing to do but dive in.

Annexation By now you should be aware that the Board of Directors unanimously rejected a mediated Strategic Partnership Agreement (SPA) with the City of Austin in June 2007. That agreement would have delayed annexation of the residential properties until 2015 but included terms that would have imposed unacceptable restrictions and costs on the District in the interim period.

In December 2006 the district exercised its statutory right to arbitrate a SPA and submitted a proposal to be considered by the arbitrator. The arbitration process was put on hold pending the outcome of mediation. It was resumed after the Board of Directors rejected the mediated SPA. The City then submitted the mediated SPA as their proposal to the arbitrator. On August 31, 2007 the arbitrator, Dean Kilgore, ruled in favor of the City’s offer.

On September 28, 2007 the District filed an appeal of the arbitrator’s ruling on grounds that the arbitrator exceeded his authority in (1) allowing the City to submit a SPA proposal well after the statutory deadline for requesting arbitration, and (2) including in his arbitration award a service plan that improperly pre-empts the District’s statutory right to separately arbitrate the terms of post-annexation services to be provided by the City The District contends that plan is too generic and does not satisfy the requirements of the Texas annexation statute.

Concurrent with the arbitration appeal the district also filed a request for Summary Judgment on the City’s contractual obligation to extend City wastewater service to Lost Creek prior to annexation. The district had previously filed a lawsuit seeking a judicial declaration of the City’s obligation to provide such service.

We are hopeful that initial decisions on both filings will be issued before year-end.

Budgets This brings us to the next concern: the District budget for fiscal year 2007/08 which began on October 1, 2007. We cannot wait for final judicial decisions on the arbitration appeal and wastewater extension to plan for the next year’s operations.

The cost of pursuing our legal rights in annexation exceeded $266,000 last year and is conservatively estimated to be $150,000 in the next 12 months. The cost of needed capital improvements to our facilities and replacement of the playscape in Lost Creek Park add another $230,000 in extra cost to next year’s budget. Meanwhile, the City’s wholesale water rate was increased by 7.4% beginning November 1, 2007. Finally, if the arbitrated SPA goes into effect within the next 12 months, a possibility if we do not prevail in our legal initiatives, we will lose commercial water and wastewater service revenues after January 1, 2008. All these factors conspired to produce a $360,000 shortfall in the FY07/08 budget.

The Board considered many options for addressing the shortfall. Cutting expenses was not an option since we already operate with a lean budget, cannot abandon the annexation initiatives, and plant and recreational facilities must be properly maintained. Capital reserves have been drawn down to a level barely sufficient to fund the expected cost of capital improvements required by the arbitrated SPA if we are not successful on appeal.

Taxes That left increasing revenues. Several combinations of increased rates and taxes were considered. In the end the Board decided to pass the 7.4% increase in wholesale water rates on to residential and commercial customers and recover the remaining shortfall through increased property taxes (applied to residential and commercial properties this year). This continues our practice of selling residential water at the same price we pay the City for it. It also achieves an equitable distribution of annexation costs and capital expenditures across the spectrum of Lost Creek property owners.

So, for FY2007/08, the property tax rate will be increased 47.5% from $0.1164/$100 to $0.1716/$100. For the average residential property, appraised at $$381,239, this will be an annualized increase of $221.00 (deductible, by the way, on your federal income taxes). The water bill for the average water user (30,000 gal/month) will increase about $6.00 per month, effective with billing for November usage and will appear on bills sent on December 1, 2007. Although we obviously prefer not to raise your taxes (ours too), the alternatives are not acceptable.

Watch our web site, the “Update”, and your monthly bills for the latest on annexation progress and other District information.

posted: Thursday, February 21, 2008