Racing Towards a Crash

image

Four of us were living in a one bedroom apartment. Shoreline Apartments, which used to be located off East Riverside just past I-35, was mostly full of poor Mexican families who probably had less money and were packed in even tighter than us.

The complex was a pile of crap. Every night, crackheads and other losers from the streets of East Riverside would come into our parking lot and smash car windows for a cigarette or some change. Naturally, the cops didn’t do shit, and the complex managers would just point to the sign that said how they’re not responsible for anything. They knew the complex was going to be demolished in a month and they were just gonna ride it out.

Shoreline was owned by a Houston-based company called Grayco Partners that’d been trying to demolish the complex since 2009. They went to the City Council that year to ask for a variance, an exception to the normal building rules—they wanted to build higher than they would normally be allowed to since the property was so close to Town Lake. Their plan was to wipe the area clean of the Shoreline Apartments filth and construct a 200 million dollar “mixed-use” luxury condo, apartment, and shopping development in its place. We were all getting kicked out.

A normal development is what’s considered single-use: all residential, all office space or all shopping, etc. But a mixed-use building is something you’d normally see more in bigger cities like New York. It’s where they take one building, put shopping on the street level, office space above that, and some apartments and condos above that. These types of buildings tend to be more expensive than single-use properties and they’re popping up literally everywhere you look in Austin.

Mixed-use is what was going in the place of Shoreline Apartments, and mixed use is what’s rising out from the rubble of old affordable housing on South Lamar. Right now, four different complexes are being built there. All of the new developments describe themselves as expensive or upscale, and only two of the complexes will even have apartments (the rest will be condos). What kinds of people can afford to live in these complexes? Nobody that used to live at Shoreline Apartments, that’s for sure.

Like I said, Shoreline was full of poor people. So when Grayco went to the City Council to get their building height variance, they threw in a couple things to get the Council to say yes. They promised to spend at least 90,000 dollars to help the previous residents find new places to live, to chip in towards affordable housing someday in the future, and set a handful of the apartments aside for low-income people. The Council liked what they heard and agreed to everything.

But when it came down to it and we got our demolition notices, Grayco dragged their feet with the move-out help. And a lot of the people in the complex were having serious problems finding places to live.

My neighbor was particularly pissed off about the eviction. Although I thought of Shoreline as a total dump that was cheap and in a good location, a lot of other tenants had been living there for easily a decade. My neighbor was the PTA leader at Sanchez Elementary, where his son went. Shoreline was his home and he knew that he wasn’t going to be able to afford anything near the school he’d put so much time into. Like most of the Shoreline residents, his case was yet another example of poverty in the city.

Low-income housing activist Ruby Roa helped the Shoreline residents organize against Grayco. We ended up getting our couple of hundred dollar move-out checks. Finding a new place was almost impossible, though. We talked to some realtors, but they basically laughed at us when we told them our price range: “you’ll never find that here!” We eventually found a place by calling every single apartment complex we could find. If it was this hard for us to find a place, a couple of white people, imagine how hard it must’ve been for some of the Shoreline residents. Some of them were disabled, most of them were poorer than us, and they were competing against a tough August student rent crowd with deep pockets.

I talked to Ruby Roa, recently, to find out what happened to some of the Shoreline people. She tried to keep tabs on us to make sure we didn’t get screwed by Austin Energy or end up homeless. She said a lot of people ended up moving out of Austin, into trailers. Now they commute into the city for work. The people who stayed, are all paying more and getting less. “The average increase in rent,” she told me, “was from 150 to over 200 dollars for smaller apartments.” Roa also told me that some of the families had to get a two bedroom apartment together and split it, one family per room.

This is starting to be an Austin norm. In 2011, 41% of people here were spending more than a third of their income on rent. Travis County has a higher percentage of people below the poverty line than Texas, too. Housing is getting destroyed, leaving the poor with two shitty options: pay more and get less, or move out of Austin.

But poor people aren’t the only ones getting shoved out into the county. Middle class families are getting forced out in a slightly different way.

image

Tax, Tax, Tax (The Middle Class)

The numbers don’t lie: families with kids are moving out of Austin and into the suburbs. When AISD threatened to shut down Central Austin elementary schools (Becker, Zilker, Dawson, etc.) it wasn’t only because of a budget deficit. The City looked at population projections for the near future. There simply aren’t going to be enough kids living in the city center to fill all those schools, while the schools on the outskirts of town are projected to be bursting at the seams with kids.

Families aren’t leaving because Central Austin isn’t a good place to raise a kid, or because those inner city schools suck. They’re leaving because they’re getting priced out of town. Property taxes have gone up by some huge percentages across Austin over the past decade.

Before I talk about property taxes, though, I have to make sure everyone is on board with me. You have to understand the technicalities. So here’s a quick crash course for those who don’t already understand how property taxes work:

Property tax is a tax that the City, the County, and organizations like schools and hospitals charge property owners in a given area. For general purposes, we’re talking about inner Austin. Here, the City has its own tax, the Austin Independent School District has its own tax, Austin Community College has its own, and Travis County has its own. These organizations have budget committees who decide how much money they’re going to need every year. They calculate a tax rate, which generally looks like a certain amount of cents charge for every 100 dollars your house is worth. The more your property is worth, the more you pay.

The Texas Constitution sets some basic rules here: 1) “Taxation must be equal and uniform” (translation: if your house is twice as valuable as your neighbor’s, your bill should be double) and 2) “generally, all property is taxable at market value” (translation: all bills should be based on what their properties are really worth). These are the rules that everybodyhas to follow.

Let’s do an example. Let’s say your property is worth $50,000. And let’s say the City is charging ten cents per every $100 your property is worth (known as valuation). Your property tax for the year would be $50. If your property value doubled next year, up to $100,000, then you’d owe $100.

According to the City of Austin budget, in 2001, the “typical” Austin tax payer paid roughly $703 dollars in (property) taxes. In 2012, they forked over $915. These numbers are a little misleading because they’re based on median property values. Median values are usually a lot lower than the average values, because they don’t take into account the ultra-high or ridiculously low values. These numbers also include all of the super cheap houses that are scattered throughout the slummier parts of outer Austin. In 2012, the median home price was $189,733, but you’d never find a home that cheap anywhere close to inside Austin. A normal inner-Austin home is around $250,000 or above.

What all this means for the typical middle class family is that life in Austin is getting less and less affordable. Property values have gone up a lot over the past 10 years. With a few exceptions, the City continued raising the property tax rates on everyone, too. So even if you owned your house and didn’t have to make monthly mortgage payments, you’d still owe the City more and more each year.

A home in Hyde Park can easily go for half a million dollars (and rising). Why would a family want to buy a house for that expensive when they could get a bigger one on the outskirts of Austin for easily half? They don’t, and that’s why they’re moving.

I wondered if all cities operated like this, constantly raising the tax rate while property values rose. I looked at our closest big neighbor, San Antonio. Both Austin and San Antonio’s property values have risen in a similar pattern over the past ten or so years. We both started with a total property value in the 35 billion dollar range, and now we’re both in the 80 billion dollar range. But San Antonio managed to do something wild: they kept their property tax rates the same for fifteen years starting in 1993. They gathered more cash from their citizens purely through increased value. This makes sense to me.

What Austin did was wildly shift around the tax rates as property values rose. Because they did this, the property tax bills they handed everyone were jagged, all over the place, and harder to predict. Also, Austin kept on putting a bigger and bigger emphasis on property taxes in their budget. While about a quarter of San Antonio’s budget comes from property taxes, it’s been that way for easily a decade. Ten years ago, in 2001, a little over 25% of our budget came from property taxes, and now we’re at over 40%.

Looking at that, it’s easy to see why the City is now clamping down so hard on the middle class. Austin seems to think that they need more money every year, and that the best way to get it is by increasing property taxes.

Bill Oakey, a consumer advocate and long-time activist, talked to me about Austin budget meetings. He told me that in the 80s and 90s, those meetings would be full of people asking for more money to be put into the budget for their “favorite program.” But that’s changed. He said that last year the meeting was full of speaker after speaker urging the City to “hold the line on the budget.” The consensus was that nobody could afford any more hikes. He continued, “but they ignored everyone and raised taxes anyway.”

The proof is there. Families are leaving the city, choosing to live in the suburbs instead. So why is the city burdening the middle class with such high taxes? Maybe it’s because some people are pushing their share of the tax burden onto the backs of the middle class.

[caption id="attachment_1243" align="aligncenter" width="650" caption="Council Member Mike Martinez' East 11th fortress. Assessed at roughly $800,000 by the TCAD, it towers over its neighbors, mostly a bunch of tiny single story houses. Right after this picture was taken, Martinez’ wife chased our photographer away."][image][][/caption]

Do you own a mansion? A commercial building? You get an automatic discount! (The Upper Class)

Texas is a non-disclosure state. We’re one of the few. This means that property sales are considered private information and nobody can force you to tell anyone anything.

Figuring out the value of a property is the job of the Travis Central Appraisal District (TCAD). Let’s say you just bought a regular house in the middle of Austin. Let’s also say you want to try and keep the value a secret so you don’t have to pay a ton of taxes. Well, it’s pretty easy for the TCAD to figure out the value of your home. They can compare it to a similar property that they already know the value of and since there are probably a lot of properties like yours, it’d be easy for them to make an accurate guesstimate about the market value. Even if there aren’t as many comparison properties, they can usually look around and find all scraps of information that lead to what you might’ve bought the house for.

But let’s say you bought a six million dollar mansion located on the water. There aren’t as many properties like yours to compare it to, so it’d be harder for the TCAD to make an accurate assessment. Also, someone who has a lot of money is probably going to run a tighter ship, so there will be less info for the TCAD to go on. This gets even trickier when you get into the upper-upper end of real estate, office buildings and high rises.

What it comes down to is that a lot of high end properties owners, in Travis County and all across Texas, aren’t paying taxes on the real, fair value. The Texas Association of Appraisal Districts (TAAD) did a study on what’s called “undervaluation.” They found the price of properties that ended up publicly listed and checked what the local appraisal district valued it at. On average, middle class families basically pay what they should: their properties are appraised at about 98.25% of their sales price in Travis County. High end residential properties (mansions) got a better deal: their properties were only appraised at about 76% of their real value on average. The best deal went to commercial property (high rises, office buildings, etc.) owners: their properties were only appraised at about 63% of their real value.

You might be thinking, “big deal, Brandon. Who cares?” Well here’s the killer. The TAAD report listed specific properties, their actual sales prices, and the price they had to pay taxes on (appraisals). One property was an office building that sold for 167 million dollars. The TCAD only appraised it at $105 million, so the owner got a 62 million dollar tax discount. In 2006, the year this was found, the City’s tax rate was 44.3 cents. If you do the math, the property owner should’ve paid an extra $274,660 in taxes. Instead, this cost was basically pushed onto the backs of the middle class. This discount was the same as letting 360 typical Austin homes get away without paying any taxes. That’s not just and it’s not fair.

2006 is a ways back, now, and the subject got a little bit of press attention back then. News articles sounded like the Appraisal District was going to fix the problem. So I did a little bit of my own research to see if undervaluations were still going on. I went looking for mansions that were listed for sale in online realtor databases, and I checked what they’d paid in taxes for the last few years. One thing I found was an enormous 15 million dollar palace that overlooks Lake Travis. Its owner was only paying property taxes on 4.6 million dollars of value. If that listing wasn’t 100% pulled out of someone’s ass, the owner is getting a huge write off for no good reason.

But these residential discounts are small compared to the numbers we get into with serious downtown commercial real estate. In 2010, the Statesman reported on a downtown property the City had just bought. In the years before the sale, the owner was paying taxes on 7.6 million dollars. Do you think that was what the City bought it for? Hell no. They hired pros to appraise it and ended up buying it for $21.75 million.

The whole appraisal system is skewed in favor of the rich. If the City decided that it’s not going to have enough money next year to keep everyone employed, they probably won’t turn to the high-end real estate people and say, “Alright, it’s time to pay up. We really need it and the middle class is over extended.” No, they’ll just ignore all the people and raise taxes anyway. It’s almost like they’re saying, “You can’t afford it? Then move away! We’ll find someone who can.”

But property tax isn’t the only system built with an upscale bias. All the local taxpayers, rich and poor, are being forced to shoulder the costs of some ultra-rich corporations that are coming here.

image

One Bad After Another. We’re Bleeding Money. (The Elite)

Accepting bad deals presented by developers seems to be ingrained in the operations of the City Council. Everyone knows about The Domain deal, where we agreed to hand sales taxes and property taxes over to the developers, a company called Endeavor, for 20 years. Just like Grayco, Endeavor promised great things, but once the deal was made, the whole thing flipped against the City. Endeavor sold the property to a company called Simon Properties. Now Austin’s taxpayers are handing over money, which would normally go towards police, roads, and schools, to Simon Properties, one of the biggest real estate & mall corporations in the world. Why are we subsidizing this place so Austin can go shop at Gucci and Louis Vuitton? (It’s estimated that by the end of the deal, taxpayers will have paid Simon Properties 67 million dollars.)

That should have been a big enough warning to our elected officials. Look into the deal before you sign it next time! But, for some reason, all they got from this is, according to Mayor Lee Leffingwell, we don’t subsidize retail anymore. Now we’re seeing similar deals going through.

Circuit of the America’s Formula 1 track is coming to Austin. Well, actually Elroy, but we’re taking the credit. Leffingwell told us in his TV debate with challenger Clay Dafoe that this Formula 1 deal would bring in twice as much money as SXSW does. I don’t know how he expects anyone to believe that. Obviously he hasn’t worked in the service industry during March. It’s totally insane.

Leffingwell also said that we never paid anything for the Formula 1 deal. Let’s look at that. The City of Austin agreed to pay the Circuit back for the full cost of building the water and sewer pipes that the track needs to operate. It’s estimatedthat the construction will cost 13.5 million dollars, but who knows what the end price will be. We gave them a blank check.

They’re saying it’s in our best interest because now we get to develop way out there. A cost analysis by Fodor & Associates found that although the City toyed with the idea of development in that remote area, “the results of a City study showed that the cost of providing basic infrastructure to the area (roads, water and sewer mains, and drainage) would be about $569 million. These costs were found to greatly exceed any revenues from fees and taxes.”

Then the Circuit went to the County, asking for them to pay for the construction of the roads that will lead to and service the track. It was a split vote, but the commissioners agreed to it. It’s estimated the construction will cost 8 million dollars. But, again, who really knows.

Most recently we had the Apple deal, where the City offered the company a property tax break. Supposedly this is “huge” (again, Leffingwell) and will bring a ton of jobs. But will those jobs even go to people who live in Austin?

Eight million here. Ten million there. 67 million over there. The money goes fast. Is anyone looking out for the taxpayers, the ones whose money it actually is, in these transactions? It feels like the City is taking extreme steps to try and transform this town into a mini New York and quick. But, seriously, that shit wasn’t built in a day.

Imagine austin

Caption: The Imagine Austin Project Plan envisions an Austin where cars are no longer used. Apparently people will still be roller blading in the future.

Austin’s Mixed-Use Utopia

Austin marches forward with the Imagine Austin Comprehensive Plan. (This is a master plan that the City is creating. When it’s approved, it will serve as a sort of visionary roadmap to base future development on.) It revolves around the idea that suburbia is a flawed development pattern and that by building everything in mixed-use blocks, you give people more options for transportation. If things are closer together, then we won’t have to drive as much.

The City honestly thinks that this mixed-use plan is not only the right path to take, but that it will help make the city compact, sustainable, and affordable. That’s why we’re seeing so many of these developments going up. The City has made that form of construction a priority.

But like I said earlier, mixed use is expensive. Especially at first, when it’s new. Although the City splattered the word “affordability” throughout their Imagine Austin Plan, when I look at how this plan is being carried out, I don’t see any room for affordability in there.

Right now, everything the City is doing is forcing people out. By destroying older, cheaper apartments, they’re forcing low-income renters out. By constantly raising taxes they’re forcing middle-class families out. By gifting giant sums of money to huge corporate developers and making the remaining Austin taxpayers pay for it, they’re burdening even further a population that’s already maxed out.

In the place of cheap Austin, we’re getting new, luxury Austin. Housing and rent prices are going up fast. They’re already starting to go way above what normal people who live and work here can afford. It’s obvious that all of this new development isn’t tailored for our current population. It’s for the idealized future population, the one that Austin is crossing its fingers for.

Bill Oakey called me one morning urging me that Austin’s economy is setting itself up for a fall. He said that by getting rid of all these longtime, loyal tax payers and hoping to replace them with a young, rich demographic of “whiz kids,” we’re gambling everything. If these new ideal rich people don’t come fast enough, where will that leave the City financially? If taxpayers can’t take more increases, then the City, possibly the biggest employer in Austin, would start laying people off. This would take a huge chunk of money out of the local economy, forcing more businesses to lay people off. If this happened during a major slump time, like the summer, the effect could be much worse. That’s when the crash would start, Oakey explained. Once they can’t find enough rich people to come here. Oakey is convinced that all this development is creating a bubble, which is going to burst.

This vision that the City is investing in isn’t realistic. Some parts of the Imagine Austin Plan are cool. Sure, who doesn’t want to ditch their car and four-dollar gas, and just walk everywhere they need to go? But how am I supposed to look at their computer generated case studies, like the one called “South Congress Avenue In The Future,” a CGI photo of a wide-open S. Congress Ave. with no cars in the streets without laughing? Or maybe the joke’s on me and they’re predicting the future that I’m taking about: the one where they kicked everyone out and nobody else came. Who knows?

Correction: The article incorrectly stated that "the City" proposed closing the schools, when it was actually the Austin Independent School District (AISD)

Comments

blog comments powered by Disqus