Austin Contrarian

Senator Watson has introduced a bill to strip Council of discretion to grant variances from the Congress Avenue Overlay

Back in the 1980s, the Austin City Council adopted something called the  Congress Avenue Overlay. The Overlay, which applies to both sides of Congress Avenue between Lady Bird Lake and the Capitol, requires any portion of a structure over 90' high to step back at least 60' from Congress Avenue. Its purpose, City code tells us, is to "protect the historic character and symbolic significance of Congress Avenue and to enhance the pedestrian environment of the area."  Austin City Code Sec. 25-2-165(A).

The Congress Avenue Overlay, until now, has been purely a creature of City ordinance, unlike the Capitol View Corridors, which are established by both City ordinance and state statute.

Austin's own Senator Kirk Watson wants to fix this. He's introduced a bill (SB 1272) that would prohibit the construction of new structures over 90' tall within 40' of Congress Avenue's eastern boundary and within 60' of  Congress Avenue's western boundary. This would eliminate Council's  discretion to weigh various public interests and grant variances from the Overlay.

I could understand such a bill being pushed by an Austin-bashing legislator from, say, Dallas, but this seems like a very odd piece of legislation for a former Austin mayor to propose.

I don't say this merely because I believe the Congress Avenue Overlay to be a bad bit of regulation (although I do believe it to be a bad bit of regulation). Fettering Council discretion like this is automatically bad for the City.

Let's assume for the sake of argument that requiring deep stepbacks along Congress Avenue vindicates some sort of public interest in the street's historic character or pedestrian charm or views of the Capitol. There are other interests at stake as well. These include the City's interest in redeveloping stagnant sections of Congress, its interest in encouraging the elimination of surface parking lots along Congress, and its interest in providing more room for hotels and office space along Congress. As things stand now, Council has the discretion to weigh the individual pros and cons of a specific project and decide whether the City's residents will receive a net benefit from a variance. Council also enjoys a lot of discretion to impose conditions on a variance, including design criteria that make the building more pedestrian-friendly. 

Council has granted such variances in the past for buildings on the east side of Congress Avenue -- most notably, the Frost Bank Tower, for which it reduced the setback from 60' to 40'. (I'm sure it's no coincidence that Senator Watson's bill adopts 40' for the eastern setback rather than the 60' provided by City ordinance.) On the other hand, Council recently rejected a variance for a proposed hotel on the west corner of 8th and Congress. In the case of the Frost Bank Tower, Council concluded the benefits from the project outweighed the costs of allowing the intrusion into the setback. In the case of the Austin Hotel, it concluded the opposite.

The point isn't that one decision was right and the other wrong. The point is that Council has a bunch of interests to weigh, and in a specific case, the benefits of allowing a building to intrude into the setback might outweigh the "cost" of the intrusion. A bill like Senator Watson's strips Council of its ability to weigh various interests, and elevates the interest served by the Congress Avenue Overlay (whatever that is) above everything else. 

What's more, Senator Watson's bill has no variance process. Anyone who wants to build in the setback will have to start by finding a senator or representative willing to sponsor a piece of legislation. That's probably too high a hurdle for any development project to jump. Such projects simply will not be proposed. This will make it impossible to track the opportunity cost of the Overlay in the long run. How can you keep a tally of foresaken projects when the projects are never even proposed?

There is value in a city having the right to make its own land-use decisions without having to appeal to state officials. That was obvious enough to Senator Watson yesterday, when he was quoted in the Statesman making similar arguments. Representative Paul Workman has introduced several bills that would limit cities' authority to restrict impervious cover, among things. According to the Statesman:

State Sen. Kirk Watson, D-Austin, the bulwark for Austin against such proposals, said the Legislature shouldn’t step into what he considers a city matter.

“People who oppose development rules that Austin has lived under for more than 20 years have every right to try to change them through traditional democratic means at City Hall,” Watson said. “But when they start to turn legislators — most of whom live a long way from Austin — into a city of Austin appeals court, it starts to look a little undemocratic. That’s why the Legislature has been so skeptical of Austin-bashing bills in recent years. And it’s why I think legislators will be skeptical of these, as well.”

If a city should have the right to regulate impervious cover limits in its boondocks, then shouldn't it have the right to regulate its own main street? I don't understand how Senator Watson can oppose Workman's bills under a "cities' rights" theory while proposing to micromanage his own hometown's  main street. Representative Workman's bills would apply to every city in the state, so they at least have the appearance of being evenhanded; Senator Watson's bill targets a specific street in Austin. 

Austin City Council is more than capable of weighing the various public interests at play on Congress Avenue. The City should be left alone.

Texas Attorney General concludes Austin's project duration ordinance conflicts with state law

I wrote about Austin's project duration ordinance in August. The prompt was a state representative's request for a formal opinion from the Texas Attorney General that Austin is expiring real estate development projects in violation of the state vested rights statute.

The Attorney General yesterday concluded that, yes, the City's project duration ordinance conflicts with state law.  

You can read my original post for more background, but the basic question is, When can a city force a development project to start over under current regulations? The City has a "project duration ordinance" that imposes either a hard three-year or five-year deadline on projects (depending on where they're located) before they must start over under current regulations. The City also has a sort of "dynamic" deadline that purports to require projects to start over under current regulations if a building permit expires.

The AG concluded that this ordinance conflicts with Chapter 245 of the Local Government Code, the state statute that creates vested rights. Chapter 245 allows cities to expire those rights after five years if the developer has made no "progress towards completion of the project." But the statute lists a fairly specific set of things that constitute "progress towards completion." The City ordinance purports to expire projects regardless of whether the developer has met any of those benchmarks. The AG essentially determined (correctly, I think) that the City's ordinance conflicts with Chapter 245 for this reason.

It is important to bear in mind the distinction between a "permit" and "project rights." This opinion does not address what sort of expiration  dates a city can put on a building permit or site plan. But it does mean that if, say, a site plan expires, the city should evaluate a new site plan application under the original regulations unless the project has become dormant, the project has changed, or a Chapter 245 exception applies. Vested rights do not expire merely because a permit or site plan expires.

The AG opinion is merely advisory, of course, but it should still carry some intellectual and moral weight. It will be interesting to see whether the City continues to enforce its project duration ordinance. 

Whittington loses in the end

The City of Austin condemned a downtown block owned by Harry Whittington and developed it as a parking garage for the convention center. The City did this in lieu of requiring the Hilton Hotel developer to build several hundred spaces of underground parking, which it had promised in its proposal for the convention center hotel.

A jury found that the City's taking was invalid because it was not for a public purpose, but really to benefit the developer of the Hilton, and was fraudulent and in bad faith. The Austin Court of Appeals affirmed.

The Texas Supreme Court today reversed, holding that the City's taking was for a public purpose. The City gets to keep the garage. Justices Hecht and Willett dissented in part.

This was always a tough case. On the one hand, a parking garage owned and managed by the city, open to the public, and catering specifically to convention center business seems to be a "public use." Not to mention the chiller plant the City built on site. On the other hand, there was something unsavory about the City's behavior that rubbed a lot of people the wrong way (including the jurors). The City signed a deal with the Hilton developer that committed the developer to provide underground parking. Soon after that, the City decided to let the developer out of that obligation and, in order to close the parking shortage created by its own decision, chose to take someone else's (Whittington's) property. Whittington felt that he'd been screwed by the City so it could make a sweetheart deal with the Hilton developer.

Is Austin illegally expiring real-estate development projects?

State representative René Oliveira has asked (pdf) the Texas Attorney General for a formal opinion on whether the city of Austin is expiring real estate development projects in violation of the vested rights statute, Chapter 245 of the Local Government Code.

You can read the City’s response here (pdf).

The vested rights statute protects “projects” from regulatory change. It does this by freezing the regulations on the date the applicant files a permit application giving fair notice of the project. A development project typically requires a series of permits – preliminary plan, final plat, site plan, building permits, utility service – often spanning years. The vested rights statute requires the city to apply the same regulations (with a handful of exceptions) to each subsequent permit in the series.

The crux of this particular dispute is, when do vested rights expire? That is, when can a city make the developer start from scratch and comply with current regulations?

Austin has a confusing thicket of regulations purporting to dictate when “project” rights expire. The rules vary according to when the project was initiated and where it is located. And, just to make sure things are really confusing, the city doesn’t even enforce some of the rules on the books because -- by its own admission -- some of them conflict with Chapter 245.

Rather than get lost in the swamp, let me focus on two key regulations which the city does enforce, at least on projects initiated after September 6, 1997. First, the city enforces a sort of "hard" expiration date on projects. It requires a developer to obtain all building permits and file a notice of construction within a fixed period of time after the first application. That period is five years in the “desired development zone” and three years in the "drinking water zone." Thus, according to this regulation, once a developer files its first permit application in the series – say, a preliminary plan application – it has either three or five years to get the plan approved, the final plat approved, the site plan approved, the building permits approved and poise itself for construction, or else the project must start from scratch under current regulations.

But a developer isn't guaranteed even this minimum project duration, thanks to another provision, which states that, “If a building permit for a building shown on a site plan or a notice of construction expires before construction begins, the project, including the preliminary subdivision plan, expires.” The City, in other words, conditions project duration on each piddling building permit – if a developer allows one to expire, its project expires and it loses its vested rights. Think of this as a "dynamic" expiration date.

So this is what the City does. The problem is that these project duration limits conflict with Chapter 245, at least as it was amended in 2005.

When it was enacted in 1999, Chapter 245 did not directly address when vested project rights expire. In 2005, the Legislature enacted a couple of major amendments to Chapter 245. One of these added a new section addressing permit and project duration:

A regulatory agency may enact an ordinance, rule, or regulation that places an expiration date of not less than two years on an individual permit if no progress has been made towards completion of the project. Notwithstanding any other provision of this chapter, any ordinance, rule, or regulation enacted pursuant to this section shall place an expiration date on a project of no earlier than the fifth anniversary of the date the first permit application was filed for the project if no progress has been made towards completion of the project.

Tex. Local Gov’t Code Sec. 245.005(b) (emphasis added). This section only applies to permits where the permit application was filed on or after September 1, 2005. A separate subsection provides an explicit list of benchmarks that must be considered progress towards completion of the project.

The italicized language is the key. It really does two things. First, it sets a minimum period (five years) for vested rights. Second, it allows cities to apply this expiration date if "no progress has been made towards completion of the project."  The logical implication, I believe, is that vested rights cannot be expired if progress has been made towards completion of the project.  Why? Vested rights are a protection the Legislature has granted property owners and developers against cities. Cities don't have the constitutional authority to limit those rights. In particular, they can't set an arbitrary expiration date on them; they need the Legislature's permission. The Legislature has given them permission to expire, after five years, projects on which no progress has been made. It has not given them permission to expire any others.

Austin's hard three-year limit on projects in the drinking water zone flatly conflicts with the five-year minimum. But both the city's "hard" and the "dynamic" expiration dates allow the city to expire projects even when progress has been made towards completion. If Section 245.005(b) is given its natural interpretation, the city cannot do this. Vested rights do not expire merely because a building permit expires or a site plan expires. Once progress has been made towards completion of the project, they endure regardless of any city-imposed expiration date on individual permits in the series.

The City obviously does not agree. If you read the City's letter linked above, though, you will see that the City does not address the language in Section 245.005(b), other than to note in a footnote that it applies only prospectively. The City mainly argues that it (and all cities) have always had the authority to put time limits on permits, and that Chapter 245 implicitly recognizes this because it forbids them from retroactively shortening those time limits. Again, though, the City fails to recognize the distinction between a permit -- which is a City creation and therefore can be limited by the City -- and vested project rights -- which are a Legislative creation and  can only be limited as allowed by the Legislature. 

The Attorney General now has a chance to weigh in. The AG does not always render opinions when asked, and its opinions are not binding in any event. I predict the interpretation will eventually be settled by a court. But both Texas municipalities and developers could use some guidance in the meantime. 

Disclaimer: The opinions expressed herein are the author's and do not necessarily reflect the opinions of any other attorney or of any of the author's clients. The opinions offered here are not intended as legal advice.

Give zoning an expiration date

I've been thinking about expiration dates for zoning.  I was prompted by Austin's draft comprehensive plan. There are things I like about the plan -- it advocates increased density on Austin's primary urban corridors, for example. But there’s also stuff to dislike. Such as this:

I’m sure most American municipal comprehensive plans contain one variation or another of the principle, “Protect existing neighborhood character.” Austin is no outlier here.

But this seems to me to be very bad policy for a long-range plan. Zoning’s fundamental problem is that it stifles change and adaptation over the long run; a long-range comprehensive plan should push back against that tendency rather codify it.

More from David Schleicher

Mark Bergen at Forbes has an interesting interview with George Mason law professor David Schleicher, whose paper, City Unplanning, I discussed a couple of weeks ago.  Schleicher's thinking hard about the political dynamics that lead large cities to systematically underzone. He correctly focuses attention on downzonings, which tend to occur quietly (if not stealthily):

1) Here’s the game theory part: Local legislators may prefer more development than we have now to less, but have stronger preferences for stopping development in their districts because these projects would hurt homeowners in their neighborhoods—either directly through things like increased traffic or indirectly through increasing the supply of housing, harming the value of existing houses.

This is a prisoner’s dilemma and absent a political party to organize the vote in local legislatures, one-by-one votes on projects will result in “defect” results, or situations where every legislator builds coalitions to block projects in their own district and nothing gets built. City Councils end up featuring what one journalist called the “ironclad principle of aldermanic privilege” or a norm that Members of the City Council have an absolute power to veto zoning changes in their district.

This makes a big city like a bunch of exclusive suburbs, at least for zoning purposes. Projects that would help the whole city, benefiting economic growth and reducing housing costs for newcomers or renters, lose out because the neighborhood in which they are located doesn’t want them and because each project is presented to the Council seriatim.

2) The process works differently for big developers and small ones. When a big new project is proposed, the politics look pretty ordinary, with a big developer fighting against local homeowners.

But big developers don’t care about “downzonings” or reductions in the size of the zoning envelope to current use, so that no one can build in a neighborhood as of right. The developers don’t care because they haven’t an investment yet, and the only concentrated and political powerful group are nearby homeowners who want to restrict development. These downzonings—which have become increasingly common—really matter because small developers can’t afford to go through the city planning process to get changes made.

Because we consider changes seriatim, small developers can’t piggyback on the lobbying strength of the big developers. Cities end up with a bunch of towers but strong limits on incremental housing growth—small new buildings, granny flats, and the like. This too pushes up housing costs.

That sounds a lot like Austin. Infill development in this town is conspicuous because the projects are so big. What you don't see much of here are small new multi-family buildings or granny flats. Note that downzonings don't have to be formal changes in zoning categories (i.e., from MF 3 to SF 3). The McMansion ordinance was a downzoning -- by drastically restricting the floor space and envelope of buildings, it made granny flats, garage apartments and duplexes less desirable in single-family neighborhoods.  The "superduplex" ordinance was also a downzoning, because it made duplexes more difficult, or at least less attractive, to build.  Austin should be moving in the other direction to permit small, multi-family buildings as of right in more places.

Forbes will publish the second half of the conversation tomorrow.

Central Austin voter's guide

You've probably heard a lot of crazy talk that the San Antonio court has gerrymandered the Congressional districts in Travis County. As you can see, there's simply no truth to this:

It's very simple: Downtown condo dwellers, UT students who live in West Campus, and South Austinites vote with Kerrville ranchers. UT students who live on campus, most of east Austin, Hyde Park and West Lake Hills vote, naturally, with the southern Fort Worth suburbs. The portion of east Austin that doesn't vote with Fort Worth votes with central San Antonio.   And the Triangle and north Austin vote with west Houston.

My take on Edwards Aquifer Authority v. Day

I don't think this characterization by Adam Schwitters at Burnt Orange Report of the Texas Supreme Court's decision in Edwards Aquifer Authority v. Day is right. In particular, I don't think the opinion means that "aquifers and other groundwater features are not treated as a public resource" or that "our limited stocks of groundwater . . . are now subject to the whims of landowners who happen to own property over these features."  

Here's my bird's eye view of the opinion: 

The Edwards Aquifer was being depleted through overuse, so in 1993 the Texas Legislature created the Edwards Aquifer Authority to manage the aquifer.  The Edwards Aquifer Authority Act requires everyone to get a permit from the EAA to pump water from the aquifer (with limited exceptions).  The EAA cannot, by law, permit more than 542,000 of acre-feet of water to be pumped from the aquifer per year.

The issue in Day was, How should the EAA divvy up the permits? There are an infinite ways to do this, but the EAA Act settled on about the dumbest system possible: it assigns water rights based solely on prior use. Hence, a landowner who drew a lot of water in the past gets more water going forward than a landowner who drew just a little water in the past.  

That might sound fair at first blush -- if we're going to ration water, we don't want to cause unnecessary hardship by cutting people off from their supply of water -- but historical use does not require that the use be a current use; the use might have been abandoned a decade ago.  What's more, these permits are transferable, which means that what the EAA is really handing out is the right to a future stream of income. 

So imagine two adjacent 100-acre tracts.  One tract has always been used for cattle ranching and has always drawn a modest amount of water per year. The other tract also has always been used as a cattle ranch except for a five-year period in the mid-1980s when the owner's idiot nephew talked him into trying to grow watermelon and watercress and they pumped 1,000 acre feet per year from the aquifer. The venture failed miserably. But under the EAAA scheme, that five-year span entitles the tract to a huge amount of water in perpetuity while the other tract gets shut out, except for a small amount to water the cattle.

From an equity standpoint, that's a pretty strange system -- the people who were the greediest and most profligate users in the past get the most going forward. And it's an idiotic system from a policy standpoint -- if landowners know in advance that that's the rationing system that will be put in place, they have an incentive to draw as much water as possible to establish high historic usage rights. The common-law rule of capture encourages waste, not conservation, and using it as the basis for a rationing system was . . . unwise.

I do not read Day to hold that the EAA or other groundwater conservation districts cannot cap groundwater withdrawals. On the contrary, the Court said they can.  Nor do I read Day to require EAA or groundwater conservation districts to compensate landowners when they restrict groundwater withdrawals. Rather, I think the Court "merely" held that if the state misallocates water rights among landowners -- by, e.g., allocating water based solely on historic use -- then it might owe some landowners compensation for a takings. 

I put "merely" in quotes because the opinion has created a lot of uncertainty. What permitting system would not subject the state to takings claims? The Court doesn't say. The Court did not even hold that Day has a valid takings claim -- it remanded that to the trial court to determine based on the notoriously vague regulatory takings standard.  Can the EAA permitting system be reformed by the Legislature without subject the state to claims by existing permit holders? Dunno. Will the case generate a lot of takings claims from landowners? Likely, although it's unclear what they'll have to show to perfect a claim.

The EAA permitting system is now a mess. No question about that. One can certainly argue that rectifying the EAA's unwise water permitting system is not worth this mess. On a positive note, though, this will be the last time that water rights are handed out solely on the basis of the principle, "The most to he who used the most."

The risk to building before a final decision on your neighbor's appeal

Account of the demolition via Massachusetts Land Use Monitor, with full background here.

Unplanned Cities (paper)

This paper by law professor David Schleicher (George Mason) is pertinent to my argument against SMDs:

Generations of scholarship on the political economy of zoning have tried to explain a world in which tony suburbs run by effective homeowner lobbies use zoning to keep out development, but big cities allow relatively untrammeled growth because of the political influence of developers. Further, this literature has assumed that, while zoning restrictions can cause "micro-misallocations" inside a metropolitan region, they cannot increase housing prices throughout a region because some of the many local governments in a region will allow development. But these theories have been overtaken by events. Over the past few decades, land use restrictions have driven up housing prices in the nation's richest and most productive regions, resulting in massive changes in where in America people live and reducing the growth rate of the economy. Further, as demand to live in them has increased, many of the nation's biggest cities have become responsible for substantial limits on development. Although developers are, in fact, among the most important players in city politics, we have not seen enough growth in the housing supply in many cities to keep prices from skyrocketing. 

This paper seeks explain these changes with a story about big city land use that places the legal regime governing land use decisions at its center. Using the tools of positive political theory, I argue that, in the absence of strong local political parties, land use law sets the voting order in local legislatures, determining policy from potentially cycling preferences. Specifically, these laws create a peculiar procedure, a form of seriatim decision-making in which the intense preferences of local residents opposed to re-zonings are privileged against more weakly-held citywide preferences for an increased housing supply. Without a party leadership to organize deals and whip votes, legislatures cannot easily make deals for generally-beneficial legislation stick. Legislators, who may have preferences for building everywhere to not building anywhere, but stronger preferences for stopping construction in their districts, “defect” as a matter of course and building is restricted everywhere. Further, the seriatim nature of local land use procedure results in a large number of "downzonings," or reductions in the ability of landowners to build "as of right", as big developers do not have an incentive to fight these changes. The cost of moving amendments through the land use process means that small developers cannot overcome the burdens imposed by downzonings, thus limiting incremental growth in the housing stock. 

Finally, the paper argues that, as land use procedure is the problem, procedural reform may provide a solution. Land use and international trade have similarly situated interest groups. Trade policy was radically changed, from a highly protectionist regime to a largely free trade one, by the introduction of procedural reforms like the Reciprocal Trade Agreements Act, adjustment assistance, and "safeguards" measures. The paper proposes changes to land use procedures that mimic these reforms. These changes would structure voting order and deal-making in local legislatures in a way that would create support for increases in the urban housing supply.

I'd call this an argument for a weak version of "ward courtesy."  The "deal" he proposes would fail in Austin due to the sizable block of voters who lack even a weak preference for an increased housing supply.

By the way, pages 18-30 is a very nice, readable introduction to the law and economics of zoning.

(Aside: My land-use professor, Robert Ellickson, features prominently in the discussion.  He was one of the first to recognize, way back in the 1970s, that the growth controls just then beginning to flourish in places like California not only make housing unaffordable, they are economically inefficient.)

(Aside to the aside:  I participated in the landlord-tenant clinic one semester, as a law student.  We represented poor tenants in New Haven, almost exclusively in eviction proceedings.  In practice, this meant going through the paperwork and finding small technicalities to force the evicting landlord to reissue notice and recommence the proceedings.  Delay offered the opportunity to extract a concession for our clients.

Thanks to the success of prior generations of students, most experienced landlords hired from a small stable of lawyers in New Haven, who charged through the nose but who didn't make stupid paperwork mistakes.  We could still usually find non-frivolous arguments to warrant a hearing, even if the loss rate was pretty high.

We had a weekly seminar as part of the clinic.  Ellickson came to speak once.  He told us that, while we had good intentions, we were just driving up housing costs for the average low-income tenant in New Haven.  We, a bunch of leftist idealists, were skeptical.  But, in retrospect, he was probably right:  in New Haven circa 1990, the standard security deposit was two full months rent.  That's a lot of liquidity for a renter, and I'm pretty confident it was due to the difficulty of evictions.  There would be a lot more people in Austin looking for housing if that was the standard here.)