San Marcos Mercury | Local News from San Marcos and Hays County, Texas

August 19th, 2010
Editorial: Property tax break for residential development is poor policy

By the San Marcos Local News Editorial Board

The Carma Development people are professionals. They first came before the San Marcos City Council four or five years ago, just to say that all of their market research, the work of a thousand land scouts and statistics crunchers, found right here, in San Marcos, the ideal location for residential development.

In 2007, Carma opened Blanco Vista, site of 2,000 future homes, on the north end of San Marcos. Then, the housing crash hit. Not the city’s fault, said Carma. By the December 2008, Carma was pushing a new vision, Paso Robles, before the San Marcos Planning and Zoning Commission (P&Z).

“We’re in for the long haul,” Carma Austin General Manager Shaun Cranston said that night. “We think, overall, the fundamentals are in place for growth in San Marcos and Central Texas.”

Lucky for Carma, that’s not all that was in place. Or, we should say, out of place.

The Carma people are professionals. They develop land for a living. They generate enough money to pour $700 million into Paso Robles. They employ planners, accountants, tax experts and, as they’re called, “consultants,” generally former government employees who cross over to the private side for more fortune and less politics.

After going to the city council and bragging that San Marcos is the future, then opening a development in town that met a housing crash, then coming back with an even larger development proposal — in other words, after giving every indication of courting San Marcos through thick and thin just to avail themselves of our promising market because it is so valuable — Carma now has San Marcos officials acting as though “the numbers just won’t work,” unless the city kicks in a $20 million tax abatement for a $700 million project about five miles out of the city’s development area.

Of course, it doesn’t sound like a tax abatement, even if it is one. Carma is proposing a Tax Increment Refinancing Zone (TIRZ), a mechanism allowed by the state for re-developing blight. Under the proposal, Carma would pay for the infrastructure up front. It’s Carma’s responsibility to pay for the infrastructure, period, but the city isn’t stopping there. No, the city would pay Carma back $20 million from the increased property taxes resulting from the improved property values within the zone.

We might concede that city should pay for some amount of over-sizing if the city needs some amount of infrastructure beyond the needs of the development. But that’s not going to be $20 million. The true amount is unknown, because the city hasn’t broken it down to that level of detail. The question seems to not even arise, though it’s precisely the kind of question the city should raise before giving taxpayer money to wealthy interests from out of town.

What this amounts to, of course, is that the city is out $20 million in property taxes on land Carma would develop whether it gets the TIRZ or not. Our city leadership would have us think that Carma is lending money to the city.

It’s because the Carma people are pros, and our city government, right now, isn’t real high on professional advice. As pros, the Carma people know a patsy when they see one. And they’ve found one.

We like amateur city government, when it works like it is supposed to work. That is, citizens are elected from the body politic to set city policy. To safeguard the city from predators, and to run the operation smoothly, cities across the country typically hire professional city management, people who know the ropes, understand the laws by which cities are constrained and know the game, the players, the tricks. With professional city management, the city can meet pros with pros.

Without professional city management, a city might be taken in, if its wits begin and end with a go-along-to-get-along city council led by a big-spending mayor who is on her way out of office. One imagines it would be easy for a big developer to squeeze a sweet deal out of a city with such defective leadership.

As if to mock the city’s regression in the last few months, it turns out that the defect is in the design. The Carma problem not only is, we believe, the real reason the mayor wanted Rick Menchaca out of the city manager’s office, but it also illustrates precisely why the city needs the kind of professional management Menchaca or his like would provide. Be assured that Menchaca was having nothing to do with a $20 million incentive for a residential development. No self-respecting city manager would. Menchaca was standing in the way. He had to go.

And, as if to further mock our deterioration, the search for a new city manager is being conducted by a rookie consultant who is charged with finding, before October, a winning candidate who isn’t required to have city management experience. No councilmember has ever said, not even under direct questioning, why the city council finds it imperative to cut the general timeline for finding a city manager in half so the person can be in place just before the mayor leaves office and voters decide four council seats in November. The new city manager would work with a council that didn’t hire him. Who benefits from such frenetic foolishness, and how?

In the final months of the mayor’s administration, San Marcos is on a frantic, downward spiral towards being the laughing stock of the corridor. Urbofiles from Austin to San Antonio ask how one city can be so disheveled, so desperately inept.

Pros simply can’t believe that a city would give a tax incentive for a residential development, which are tax-base weaklings that can’t possibly possibly be worthwhile even if every home is valued at $300,000. Tax incentives for residential development are a sign of extreme gullibility, if not worse.

A city might be wise to give tax incentives for commercial development, which doesn’t shove kids into the local school system, pays back with exponentially higher land values and creates bread-winner jobs that turn into homeownership and local sales tax receipts. But cities should do that only for huge commercial projects. Tax incentives are a tool to be wielded wisely and selectively. Start handing them out to residential developments and you’ll never get business locating here without incentives.

Cities and their taxpayers should always hold the local school district foremost in mind when considering property tax incentives, because those incentives always have implications for local school districts, and the local school district is the largest taxing entity. Towards keeping school taxes low, a community is best served by commercial property, which makes large payments without burdening the schools with expenses.

Residential development generates less school money while generating more school students. Because public education is so expensive, residential development is a drain on the property tax base. It makes absolutely no sense to offer property tax incentives for residential development that is going to strain the property tax base.

If a family with two children in school moves into a $200,000 house, that family is paying San Marcos CISD $2,700 next year, based on the school district’s proposed rate of $1.35 per $100 of taxable value. While making that $2,700 property tax contribution to the schools, though, that same household puts a $19,056 drain on the school district, based on a cost of $9,528 per student in public school. That cost comes from dividing San Marcos CISD’s enrollment of 7,434 students into the district’s proposed budget of $70,838,696. Notice that a business with $200,000 of property makes the same $2,700 property tax contribution to the schools, but costs the schools nothing.

We hear that Paso Robles won’t cause trouble for the school district, because the development will consist of $300,000 homes, 60 percent of which are to include at least one resident 55 or older and no residents younger than 18. Suppose that’s true. And suppose, feasibly, that the other 40 percent of the Paso Robles homes will have an average of two kids in school. So, 3,427 homes valued at $300,000 and paying $1.35 per $100 of taxable value to San Marcos CISD will generate $13,879,350 for the school district. Sounds great. But now consider that 40 percent of the homes, 1,371 of them, have an average of two kids in school. That’s 2,742 kids at a rate of $9,528 per kid in the cost to the school district. Thus, the cost to the school district is $26,127,452. Looks like the school district has to close a gap of nearly $13 million per year. We can hope that state funding will cover most of the difference, except that San Marcos CISD is in a bind already when it comes to state funding.

The school district is considered property rich, but not property rich enough to pay into Robin Hood, the state’s program for funding school equalization. One factor that would require San Marcos CISD to pay into Robin Hood would be a tax rate of $1.06 on the maintenance and operations (M&O) side. The school district presently taxes $1.04. But if school officials face $13 million operating deficits, that tax rate is going up. And if it goes up just two cents, then the state will get part of it, anyway.

We’re not saying the city should turn its nose up at Paso Robles. We’re not saying San Marcos CISD would be out of the woods if Paso Robles goes away. We’re not even talking about the very idea that the city thinks it’s fine to greywater a golf course in a development with seven karst features over the Edwards Aquifer. That’s another whole problem. All we’re saying right now is that it’s silly for the city to incentivize trouble for the property tax base.

Further, we’re saying that the city is on the verge of incentivizing trouble because the lead professionals have gone away, the remaining professionals are silenced, and no one stands in the way of amateurs who simply do not understand what they are doing, who are this loose with property tax incentives. The Paso Robles incentive is every bit as poorly considered as the mayor’s drive to give breaks for Springtown Mall development, which would support minimum wage jobs while subsidizing competition for existing businesses. City residents have slowed down Springtown. But the Carma operation is much more formidable.

We can attract high quality housing to San Marcos without giving up city money. The Carma people will build here without city money. They’re putting $700 million into Paso Robles. We’re supposed to believe they would walk away over $20 million?

We understand that people are excited that anyone would talk about housing development in this economy. But we need much better control over our emotions and our purse strings. Come November, we need a city council that will exert that kind of composure by making reasonable policy decisions and well considered choices about the city’s professional management. Until then, we’d be happy just to minimize the damage to come.

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0 thoughts on “Editorial: Property tax break for residential development is poor policy

  1. “The Carma problem not only is, we believe, the real reason the mayor wanted Rick Menchaca out of the city manager’s office, but it also illustrates precisely why the city needs the kind of professional management Menchaca or his like would provide. Be assured that Menchaca was having nothing to do with a $20 million incentive for a residential development. No self-respecting city manager would. Menchaca was standing in the way. He had to go.”

    Really? I think I can hear the black helicopters circling overhead as I type.

    Is it standard for the “professional management” types like Rick to create hostile work environments, belittle staff in public meetings, order staff to revise bid scores on engineering RFP’s, and hide internal investigations which implicate themselves from the council among other shortcomings? I’m sure absolutely none of this had anything to do with Rick being fired. It was all about Carma….silly me.

    Scott and crew, you actually put forth some good discussion on this whole issue. I really hate to see you go so far down the gutter trying to defend Rick and John Thomaides. They are both big boys. Rick will move on and find another city that may be more his style. John will answer to the voters this fall about why he believed Rick was the right man to run our city even in light of all the information that he was privy to about his performance, internal investigations he hid from the council, the way he treated employees, ordering staff to change scores, etc. I never thought that John was the type of person who had those “ethical issues” that Rick demonstrated, but now I wonder.

    I know it is an “Opinion” article, but I really feel you would have a lot more credibility if you would leave the black helicopter conspiracies alone.

  2. Mr. Nichols,

    I submitted a FOIR last month. I received (among other things – 200 pages) a lot of documents related to the problem with the bid scores for the RFP on engineering support. I am basing my opinion on the documents I received. If you have knowledge of documents you think may have been withheld, I would love for you to let me know. A FOIR is a tricky deal when dealing with any government organization. There is always the possibility that some documents were withheld because city attorney decided that they were outside the scope of my request. This is common among almost all government entities. Things are a secret unless other wise proven to be public.

    From reading the stuff about the RFP, I concluded that there was no conspiracy to alter the scores to favor one firm over another. The whole process was screwed up from start to finish. Looking at the raw scoring sheet filled out by the staff, it is obvious that some of them did not understand the scoring process while other did not take the process serious because of the way their sheet were filled in. This in itself shows a scandalous lack of management control and perhaps a completely defective procedure. It does appear that some of the sheets were altered when the reviewer realized that they had not understood or under estimated the importance of the form. Some were just filled out so poorly that they should have been thrown away. This whole deal was what anyone who has ever served in the military knows as a SNAFU.

    Now I am one of the first to look behind the grassy knoll and to look for the black helicopters. I would love to tell you that their was some plot that was run by the illuminati to grasp control of the engineering contract. Alas, it is just not so. Incompetence and sloppy work – yes. Conspiracy – no. Unless you know something that I don’t. I would love to share those documents with you if you like. It might take a few days because there is 200 pages and they are not in electronic form and I have them loaned out right now. Just let me know.

    On your other subject, I also was given the raw evaluation forms that were filled out by the council when they did the 360 review of the ex- city manager. Strangely enough, I was not provided with any evaluation forms by the city staff. There must have been some other wise, why call it a 360 review? I think that I, again, fell victim to not wording my FOIR to hit the sweet spot when requesting documents. Again, you may want to look at the raw documents because there are lots of interesting comments to questions on some of the evaluation forms. Those comments give a little flavor to the review that you kind of miss with just the raw scores. Never the less, here is the total evaluation scores for the city manager just days before he was terminate. 10 is best. 1 is bad. 4,9,7,8,9,7. One really bad review and the rest ranged from pretty positive to excellent. Interestingly enough, all the names of the councilpersons were redacted with a magic marker except for Ryan Thomason. I wonder who in city hall decided to expose Ryan and not the others? That’s my black helicopter tendency. The true answer is that somebody just screwed up and didn’t redact that name. Now if you want a real black helicopter story, some are wondering why my FOIR was delivered by the H.R. dept. instead of the City Clerks office. And then the City Clerk took a new job in College Station much earlier than anybody was expecting. Why was the long blinking light at Hopkins and Cheatham street suddenly turned on? I will bet the Masons know.

  3. Have faith in your council and Mayor
    and the 7-1 vote commisioners made
    they know all the details

    horrible editorial

  4. Brilliant ENCORE! BRAVO!: Journalistis excellence abornin’ right in from of our faces. Puttimg own my best “impartiality” face, and favoring, as I do, analtcical decision-making practices over “Well, what are the neighbors saying? I offer you my highest salute. Reading this Editorial with a determined air of impartiality, I look for balance–every side getting its due. Using facts to balance pro’s and con’s on a touch issue, without seeming to stack the cards in any one fashion. No special pleadings bout personallities, habits, etc. No knee-jerk assumptions about the relatively easy to interpret. (That’s why they are called “Controversies,” Willi Jim and Bertha After Her Grandmother: They create emotion and bias and hard will among neighbors. Also have a habit of ginning up a good bit of truth, once folks get used to the novelty of having something REAL to think about. Current local politics is better than any “Reality Show” on TV–really skilled players in key roles, having chosen to be “Under the Main Big Top, Beneath the Spotlight.”

    Now comes your news team. Eyes and ears and a brain and heart rehab, for the City as its old ones were outworn.
    Deep research into critical issues. Talking across the community–to all sides–thus changing the flavor of a public dialogue that had become horribly mis-shapen. The actual comparison is not intended, and the misfortune is that the principle applies, ONLY as a means of comparison. One must try hard to ignore the familiar myth and image of Mme. Marie Antoinette, late of Paris, France: On being warned of the rising tide of rebellion n the streets over food and housing and jobs and corruption among King Louis”s BFF’s–violence over unconscionable acts of disdain for the “hoi-polloi,” — which cover Decadence in government with the sweet, sick smells of rot and death, and the occasional acrid whiff of gunpowder. In such a situation Marie Antoinette, entirely TRUE to her inner self, suggested a popular diet for the street people, to get them through hard times and allow them to thank her: “NO BREAD, you say? Then LET THEM EAT CAKE.” Very. Bad. Call.

    Your story above had the sweetness of condensing big issues town to core ones, then relating those factually and with clarity–the highest and most important of the civil arts. Then you put it out there, unblinking, for education, discussion, mediation and scrutiny. Pretty high calling, and you guys are impressive in it. (Whoever you are.)

    And Charles seems like the kind of “unusal fellow” who insisted on sitting in your row at the back of the room. A bit cockeyed, maybe a bit unstable, if only in the imagination. Not very flashy or outgoing or bold in appearance–but with high ideals, a gift for irony, and a mind like a Rabid pit Bull. A dedication also, a grimly fearsome commitment to good, fair, and efficient government–especially that part we must watch happen right here under noses and in our pockets. You guys seem, along with many of your reader/commentators, to get the hang of truth in reporting, which is about the only reliable gage of what “they” are really “Doing.” The Only Road to Freedom.

  5. “Have faith in your council and Mayor
    and the 7-1 vote commisioners made
    they know all the details”

    “horrible editorial”


    To you and your ilk:

    You’re goin’ down.

    Have a nice day.

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