The lobbying over annexation, water service and growth continues hot and heavy in anticipation of the city's expansion -- whether in or out of the municipal limits -- and the two sides are near an all-out war over the issues.
The two sides are, perhaps not surprisingly in El Paso, developers.
"Everybody who is interested in annexation proceeding and not proceeding is lobbying. Basically, developers," said Mayor John Cook. The City Council will consider the issues raised, and its approach to growth policies, at a special meeting Thursday (Sept. 8). [link]
Ranchos Real, a development company with thousands of acres on the East Side just outside the city limits, precipitated the discussion by seeking approval from the city for a Municipal Utility District, or MUD, a private company that would provide water and sewer service. Ranchos Real is basically Foster-Schwartz, the company that built most of East El Paso on a business model of cheap land, affordable homes and steady, contiguous growth, which critics now are calling "build at the end of the road."
The most vocal critics are from the Hunt Building Corporation, an El Paso-based company that made a fortune developing military housing and now is in the civilian development business in El Paso. Hunt owns thousands of acres -- serviced by a MUD -- just outside the city limits and due south of the Ranchos Real property. Hunt already has begun building on its land, called Paseo del Este.
Hunt Corporation is owned by Woody Hunt, who has taken an active role in public policy discussions in El Paso, with particular attention to water, growth and economic development issues.
The company calls "build at the end of the road" a business strategy designed to profit the developer, who is able to push growth outward with little capital investment upfront, leaving the city to play catch-up in a struggle to provide services.
Hunt supports "master planning," a process in which an area the size of a small town is planned in detail and the developer of the land must follow the plan. The company's property was master planned by the Texas General Land Office, which owned the land before it was sold to a group of investors that includes Hunt.
"It's sort of the antithesis of how El Paso has been developed over the past 50 years, which is let's put the most profitable next-up product at the end of the existing road. So a new urban concept says let's define what the village is going to look like when it's built out and put things in a finished condition where they should be rather than the cheapest place to put it today," said Gary Sapp, an executive with Hunt Corporation.
"They Have Their MUD"
Doug Schwartz, however, sees the discussion in a different context. It's not just about policy, he says.
"Gary Sapp is talking from a point where he doesn't want any growth because it's competition. They have their MUD, they have an agreement, what we're asking for is the same thing they got," said Schwartz, an owner of Ranchos Real.
Hunt's Paseo del Este was granted approval from the city for a MUD, and entered into an agreement with the Public Service Board to buy water and sewer service from the El Paso utility. In addition, the PSB committed to building millions of dollars worth of infrastructure to support the development, something Schwartz and other builders say is more than they're asking for.
Bobby Bowling IV, whose family owns Tropicana Homes, has the rights to build on a piece of the Hunt property, but also owns about 600 acres adjacent to Schwartz and plans to seek approval for a MUD.
"Our position on MUDs is that a precedent has been set (by the Paseo del Este agreement) and there's been a modus operandi at the PSB for several years now and that policy that has been in effect in the last couple of years has been in place," Bowling said. "To the extent they are considering changing policy it would be an egregious error and mistake and might even invite a liability on the PSB for changing their policy as set by the precedent."
Master Plans and Profit Margins
Ed Archuleta, general manager of the El Paso Water Utilities, which is overseen by the PSB, said several things made the Hunt development different from those proposed by Schwartz, Bowling and other property owners in East El Paso outside the city limits.
"There's a major master plan associated with that that must be followed by the developers of that property (Paseo del Este). So that's one thing that makes it different," Archuleta said.
He said that the utility was seeking to recover costs for capital investment. "We embedded those costs into the fee for wholesale water," Archuleta said.
He said that Schwartz and Bowling simply didn't want to cut into their profit margins by paying what he considered a fair fee to receive service from the El Paso utility.
The PSB commissioned a study that found it would cost the utility about $2,000 per lot to extend service to new homes outside the city limits. Schwartz and Bowling said the survey was flawed because it included the cost for such items as developing new water resources for the entire city, which they said should be shared by the entire city.
"The PSB is trying to put the costs for everybody on the backs of the new homeowners," Schwartz said. He called the proposal an illegal "impact fee," meant to recover the costs to a city for providing service to new developments and strictly regulated by the state.
"Basically it (PSB fee) is extortion, they're saying if you want water or sewer from us you're going to pay a fee. It is an impact fee. If it walks like a duck and quacks like a duck it's a duck. Technically they're getting around the law by saying if you want to be annexed you have to pay this fee," Schwartz said.
Sapp said it was a matter of simple mathematics.
"The best quote on this whole subject I've heard was two weeks ago in Ed Archuleta's office. I thought it was brilliant in its simplicity. He said there were two sales of land recently to two developers interested in the same product, high density affordable housing. One was 450 acres in Northeast El Paso at a public sealed bid. They paid an average of $32,000 an acre.
"The other sale was about 1,400 acres of Texas Pacific Land Trust on the far East Side of El Paso outside the city limits, a similar competitive sealed bid process. The winning bidder paid about $13,000 an acre. Ed Archuleta looks at those two sales and says what's the difference. The difference is one is entitled to water delivery and the other is not.
"So if Foster-Schwartz and Bobby Bowling bid $32,000 where they knew water was available and $13,000 where water is not available it looks to me they have about $19,000 per acre to buy water. If he wants to build a new house and the cost is the same in one location and the other, shouldn't he be able to pay the city $19,000 per acre for the water and still make the same profit?
"Even at the represented numbers of annexation at seven units per acre, at $2,000 per unit that's $14,000 an acre the PSB is asking for. It looks to me that Schwartz and Bowling still have $5,000 in their pocket. What are they complaining about? The answer is they want more," Sapp said.
Fort Bliss Commitment
Schwartz and his allies have been lobbying council members steadily, using a blend of issues: What they call the precedent set by Paseo del Este; the fee proposed by the PSB; and the fact that El Paso's already healthy housing market is set to expand with the influx of Fort Bliss troops.
Ray Adauto, executive vice president of the El Paso Association of Builders, wrote in a column [link] in the El Paso Times Monday that "In this urgent time of growth for El Paso, including the 16,000 new troops now scheduled to come to Fort Bliss, it is urgent that city leaders do all they can to ensure that home builders can build affordable homes that we promised the DOD."
Adauto argued, as have Schwartz and Bowling, that adding $2,000 to the price of a lot is enough to price out homebuyers at the bottom end of the military pay scale.
Archuleta said that is a scare tactic meant to pressure the City Council into not fighting against the MUD and to annex the area into the city without charging a fee.
"We're just trying to recover a fair share from these guys because everybody wants service. They say 'Fort Bliss' and 'we have a crisis on our hands.' I don't see a crisis. The city really needs to engage in planning, in smart growth, and not rush to start building in areas that aren't planned out," Archuleta said.
Schwartz said his land is planned out and would be easy to serve.
"Actually, ours has all the infrastructure to it already, because it's contiguous to current development," he said. "They make that argument when it's convenient, like saying PSB land in Northeast is easier to serve. The PSB owns all the land inside the city limits. If they were not a government entity it would be almost an antitrust issue."
"I Can Do A MUD"
Schwartz requested city approval for the MUD, which is allowed to tax residents within its boundaries to pay for water and sewer service, in spring. The city had 120 days to decide, which was up Aug. 23. Schwartz postponed for three weeks, and if the city takes no action at that meeting he can apply to the Texas Commission on Environmental Quality, setting up another 120-day period after which he can begin setting up the MUD.
The MUD issue puts some negotiating leverage on the developers' side as far as annexation is concerned. In 1999, when the city annexed just under four square miles on the East Side, the developers dropped their request to form a MUD and asked to be annexed instead. Schwartz says that's a mistake he won't make again, because that gave the city the upper hand, and the developers ended up paying water and sewer connection fees, as well as fees to the city to offset the cost of municipal services.
This time around, the developers have not asked to be annexed, and will not drop their plan to create a utility district.
"The bottom line is I can do a MUD and I don't have to pay the $2,000 fee," Schwartz said.
State law gives more power to the city when the developer initiates the request for annexation, as opposed to the city initiating the process. [Texas Local Government Code]
Some consider Schwartz's position a bluff, thinking they won't want to spend the millions necessary for the infrastructure for their MUD. Schwartz and Bowling say private companies will do it for free and cost them nothing.
"The whole thing is you don't have to put that money up front. You have other companies that do that. I would not have to come out of pocket to build water and sewer," said Schwartz, pointing out that "Eco Resources already does that in Sunland Park and Horizon City."
Growth Writ Large
The discussion gets to the core of one of the main functions of municipal government, which is to control land use through zoning and other ordinances that relate to public safety and welfare. The city has limited powers to affect the land outside its boundaries, which is one argument for annexing Schwartz's and other developers' lands.
How spaces relate to each other -- through street connections, through public parks and buildings, through landscaping and other aesthetics, through division of uses like residential and commercial -- is a function of the interaction between government regulation and market forces.
Market forces include home buyers choosing a certain type of product, typified since the late 1940s as suburban single-family homes segregated from other types of uses like commercial, the developers and builders who provide the product, contractors who build the highways that serve the developments, and the supply chain of materials like lumber and sheetrock.
So while competition on the East Side is part of the context in which the fierce battle of MUDs and annexation is waged, so too is the larger issue of what type of communities El Paso will incorporate within its metropolitan area.
"There's just a perception, I don't know if it's true or not, that a lot of the direction in development has come from the developers' side and I think everyone wants a balanced approach on this," said Beto O'Rourke, South-West city representative. "They say people are already voting with their dollars. It is a powerful argument. That's another thing they leveled at me -- you want to dictate to the market? But it's not just the market, it's where those guys have been able to build homes the cheapest."
He recalled telling a lobbyist during a recent meeting, "We may or may not annex, or may or may not approve the MUDs coming forth. But the big thing is you are going to be sitting across the table with whoever takes my place two years from now and you're going to have the same conversation. What is the big picture solution?"
Sapp said: "The real issue is, let's measure the cost of servicing the development with the revenues generated by the development and make sure we have a net positive outcome. That's the definition of smart growth, growth that adds prosperity and not growth that consumes real estate."
Reports Questioned
Part of ascertaining whether the city comes out a net winner in new growth is assessing the impact of growth previously.
The city commissioned a survey in spring that looked at the 1999 annexed areas and whether the city came out ahead. The survey found that property taxes did slightly exceed cost to provide services in the annexed areas, and projected that in the areas under consideration the city would come out ahead.
Cook said he plans to ask for another survey.
"From a public policy issue what I think I'm going to be asking Ms. Wilson to look at when I see her on Tuesday is hiring an independent third party to really look at annexation for us and I'm not sure the one we got who did the last study, I don't think he was an expert in the field in my own humble opinion," Cook said.
John Neal, who did the survey, said although he knows there are questions about it he stands behind the work, which he points out was vetted by city staffers. Neal, a member of the City Plan Commission, said he was approached by City Manager Joyce Wilson to perform the study because of his professional background.
Neal said he was assistant to the city manager in Oklahoma City, and was city manager in El Reno, Okla.
"What people think about (the report) is their opinion. I was charged with giving it as accurate a picture as I could. If they want to debate it they can," Neal said. "Every item is open for debate and discussion and I'm prepared to defend it, and I'm perfectly confident we have the best numbers we can get."
Cook said the study was partially based on numbers provided by the developers.
"You don't go ask the guy who wants to be annexed what number he should use to see what the impact of annexation is going to be. The developer wasn't going to give us a number showing we're going to lose money by annexing," Cook said. "If you ask how much the average home in the development is going to cost, and they say $250,000 but it's $80,000 or $110,000, that changes the numbers significantly."
The numbers on both sides of the issue will continue to be debated, but one thing is certain -- the discussion about El Paso's future development is in full bloom. Policy and politics are intermingled: What the city will look like, where will the resources -- human, environmental and financial -- be focused, what role will the government play in the development market, and, possibly, who will be in the best position to build the next generation of homes in El Paso, are all under consideration.
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Related article: MUD Pies and the Dirty Work of Annexation (August 25, 2005)