By Bill Oakey

August 25, 2013

Austin is no longer a stepchild to Dallas or Houston.  And its closer neighbor, San Antonio, barely registers on the national radar scene compared to Austin.  The Capital City now boasts F1, the X Games, South By Southwest, and a booming economy that appears unstoppable.  But wait, can any City experience too much of a good thing?  Could Austin somehow become a victim of its own success?  Not only is such a scenario possible, but many observers find it to be frighteningly probable.  By reviewing numerous published articles, editorials and data, both local and national, one can find compelling evidence that Austin is becoming so unaffordable so rapidly that we may be headed for another boom and bust cycle.

While that may sound like a strong statement to make, consider this.  Austin has risen from the nation’s 17^th largest city in 2000, to 11^th this year, according to U.S. Census figures.  The explosive growth has brought crushing demands on infrastructure and public services, along with a seller’s market for housing.  Property taxes have risen 38% since 2003.  Rents have risen 49%.  The median sales price for a home has increased from $159,000 to $225,000 in the same period.  These figures do not take into account that many Central Austin neighborhoods have seen home prices well above $300,000 or higher since the late 90’s.  And yet, median income in Austin, adjusted for inflation, has stayed virtually flat since 2000.

Here’s the bottom line.  The Travis County Budget increased a whopping 81.1% in the 10 years from 2003 to 2013, going from $449.5 million to $814.2 million.  The Austin City Budget has skyrocketed 73.7% from 2004 to the proposed 2014 budget, going from $1.9 billion to $3.3 billion.  How many friends do you have whose paychecks have gone up by those percentages?

Both Forbes and Bloomberg have recently named Austin America’s current top boomtown.  But boom and bust cycles are all too familiar to anyone who lived in Austin during the 1980’s.  We remember the savings and loan collapse and subsequent real estate crash.  Residents who moved into suburban municipal utility districts, or MUD’s as they were called, found themselves in a financial quagmire.  In the heyday of speculative land-flipping, some lots were bought and sold more than once in the same day.  But once the market crashed, many homeowners owed more on their home loans than they could get from trying to sell.  So, quite a few simply went to the loan office, laid their keys on the table, and walked away.

Fast forward to the Great Recession of 2008.  Austin fared better than most of the rest of the country.  We went through a large number of foreclosures, but it was more of a stumble than a great fall.  The local economy held up fairly well.  This year, the economic recovery is well underway.  Home values are on the rise for the first time in several years.  No place on earth is riding the real estate boom faster than Austin, Texas.  Estimates of the number of new people moving here every single day vary.  But it ranges from 100 to 158 per day.

So, what’s not to like about being the fastest growing city in the USA?   Wouldn’t any city salivate at the chance to own that crown?   Well, yes, it is safe to say that business is booming in Austin.  Austin venture capital firms have spawned the growth of innovative startup companies in a broad range of fields.  If one phrase could be used to describe the new urbanites in Austin, it would be “young and hip.”  While not all of the young professionals work in the high tech industry, many are receiving other high paying jobs.

But for Austin and Travis County to be able to afford the expensive building and expansion plans already on the books, we would need to out-recruit every other city on the planet.  That’s because existing residents are rapidly being squeezed out of the city.  So, consider this question.  Even if Austin wanted to displace all of the older folks and low to moderate income residents, could they become the only city in world history to make that happen?  Austin is flying high now, but can it really defy gravity?  And what kind of place would it be with little demographic or economic diversity?

Generous tax incentives to Apple, Samsung, and even a high-end shopping complex, The Domain, have lured a steady stream of businesses to town.  The shopping center incentives drew loud protests and an unsuccessful ballot initiative to have them repealed.  The City then followed up with a hefty round of fee waivers for a downtown convention center hotel.  Again, the protestors clamored for an explanation as to why a hotel chain would need an incentive to build in the hottest city in the country.  At the same time, the Texas Legislature delivered severe cuts to local school districts, then added to the districts’ pain by awarding a basket of school tax exemptions to incoming businesses.  Some admire the incentives; others call them “corporate welfare.”

In the shadows of the newfound glitz and glamour that charms the downtown corridors of Austin are the remaining longtime residents.  Retired school teachers and state retirees have not received a cost of living pay increase since 2001.  Those people, along with tens of thousands of other low to moderate-income residents face skyrocketing property taxes, escalating tax assessments on their modest homes, and rapidly rising utility bills.  Of course, the story of local displacement in a growing, prosperous city is nothing new.  Gentrification has happened in San Francisco, Portland and lots of other places.

And yet there is something stunning about the rapid pace at which the Austin transition is occurring.  The Great Recession may have slowed things down temporarily, but now the boom is exploding.  The effort to pay for the growth pushed both City of Austin and Travis County property taxes up a full 25% between 2008 and 2012.  If that was the pace during the downturn, how much more will taxes accelerate during the recovery?  If the public’s ability to pay is not plugged into the budget planning process, how long can the status quo be sustained?

The voters of Austin, historically proud of their clean and attractive city’s stellar reputation, have willingly ponied up to support bond propositions for the schools, as well as bonds to pay for City and County capital projects.  But a couple of years ago, a new watchword found its way into the local political lexicon.  Affordability.  A person cannot attend a civic function or a political campaign forum without hearing “affordability” mentioned countless times.  The annual budget hearings for the City and County, which once drew large interest groups asking for more money for this or that pet project have dwindled.  The lineup of speakers these days delivers a new message in multiple-part harmony.  “Don’t raise our taxes any higher.  We just can’t afford it!”

What many predicted would happen sooner or later did happen in the spring of this year.  Two out of four bond propositions for the Austin Independent School District failed at the ballot box.  It was the first time that had happened since 1989.  Between now and the end of 2015, local voters will be asked to approve half a billion dollars for Austin Community College building expansion and renovation and $200 – $300 million for a downtown skyscraper to house Travis County’s civil and family courts.  In November 2014 bonds will be on the ballot totaling several hundred million for the first phase of the City of Austin’s proposed urban rail project.  The City Council is also considering adding about $200 million for roads, and combining that with the rail bonds into a single bond proposition.

The Austin City Council routinely sets their annual budget target using the maximum property tax increase allowed by law.  Then they publicize an additional “unmet needs” amount to the media.  This is labeled as a “budget shortfall.”  Everyone clamors for them to whittle down the shortfall.  But when they do, they have only reduced it back to where they started – at or near the highest property tax increase legally allowed.  Just close your eyes and try to imagine if our community could sustain another 10 years of budget increases of the same magnitude.  Could you sustain it with your paycheck?  Or would you just be looking at Austin in your rear view mirror?

Here is an outline of topics and relevant data from newspaper articles, radio and TV websites, and primary sources:

1. “Policy Group Finds Austin Most Expensive City in Texas.”  Austin Business Journal, July 10, 2013

2. “Austin Named Most Expensive City for Families.”  KVUE-TV News, July 1, 2013

3. “Through the Roof – Cost of Living in Austin Is ‘Out of Reach’ for Most Renters.”  Austin Chronicle, March 23, 2012.  This article includes an interesting discussion of the displacement of low-income families from a historically affordable neighborhood along East Riverside Drive.  A single City zoning change led to a snowball effect that changed the lives of a large number of residents.  A valuable segment of Austin’s dwindling supply of affordable housing was wiped out.  One can only hope that voters will approve a badly needed program for affordable housing in the fall.

4. “Where Have Austin’s Urban Children Gone?” Austin American-Statesman, April 24, 2011.  The “Big Picture” of Austin’s growth reveals a disturbing pattern of outward migration by families with children.  Many young families who transfer here to start a new job try to find a home in a Central City neighborhood.  But those who locate to a close-in neighborhood find that the convenience of avoiding a long commute comes with a hefty price tag.  So much so, that it doesn’t take long for them to join the rapidly increasing migration to the outer reaches of the City or County.  This phenomenon depresses the population of children in the inner city schools.  The next refrain in that particular song is announced school closings, followed by hollering neighborhood protests.

5. “Austin: Second Fasting Growing City for Suburban Poverty (In the Nation),” KUT News, May 20, 2013.  “Poverty Takes Root in Austin’s Suburbs,” Austin American-Statesman, May 19, 2013. “More Than One in Five Austinites Live in Poverty,” Austin American-Statesman, Sept. 22, 2011.  “Crime and Homeless Drop in Austin, but Poverty Is on the Rise,” Austin American-Statesman, May 23, 2013

6. “FY 2013-2014 City of Austin Community Needs Assessment,” A comprehensive demographic study of population trends including ethnic breakdowns, age breakdowns, unemployment data, income levels, etc.

7. “Pre-Seniors Are Booming and Austin Leads the Pack,” Austin Business Journal, July 31, 2013.  Discussion of a Brookings Institution Report that states Austin has the fastest growing percentage of people ages 55 to 64 in the United States, and the second fastest growing senior population.  “Growing Senior Population May Bring Problems to Austin Area,” Community Impact Newspaper, October 25, 2012. These reports led to Austin Mayor Lee Leffingwell’s Task Force on Aging.

8. “5 Must-Do’s As Age Wave Bears Down on USA.” USA Today & The National Council on Aging, August 2, 2013.

9. “Austin Housing Prices A Concern for Employers,” Austin American-Statesman, August 1, 2013.

10. “Austin Property Taxes Jump 38% Over Past Decade,” Editorial Board, Austin American-Statesman, June 23, 2012

11. “Central Texans Deserve Truth About Their Taxes,” Editorial Board, Austin American-Statesman, August 25, 2012

12. “Austin City Council’s Budget Does Not Address Affordability,” Editorial Board, Austin American-Statesman, September 15, 2012

13. “Pull Back Now on Rapid Tax Increases,” Editorial Board, Austin American-Statesman, July 7, 2012

14. “Texas Business Incentives Highest in Nation,” New York Times, December 2, 2012.  Discussion of tradeoffs between “business Incentives” vs. “corporate welfare.”

15. “Austin Could Seek $275 Million In Bonds for Initial Urban Rail Line,” Austin American-Statesman, May 22, 2012.

16. “Start Now to Make Austin Affordable Again,” Brigid Shea, Austin American-Statesman, October 24, 2012.

17. “Taxpayers May Be Asked to Share $250 Million Cost of Replacing Austin’s Public Hospital,” Austin American-Statesman, Jan. 27, 2012.

18. “Local Entities Join Forces to Sync Myriad Bond, Tax Proposals – Average Homeowner Would See $1,000 Increase In Taxes in Next 5 Years Under Some Scenarios,” Austin American-Statesman, July 11, 2012.

19. “Austin City Council Approves Brand New Vision for Downtown ($350 Million), Austin American-Statesman, Dec. 8, 2011.

20. “Travis County’s Downtown Plan Calls for More Than $1 Billion In Spending,” Austin American-Statesman, December 23, 2012.

21. “U.T. Gets New Medical School Thanks to Tax Increase,” Houston Chronicle, Nov. 7, 2012. “Central Health Defends Tax Hike of 5 Cents, Or 63%,” Austin American-Statesman, August 18, 2012

22. ”As Debt Rises, Travis County Considers New Downtown Office Building,” Austin American-Statesman, April 29, 2013.  The County’s non-voter-approved bond debt has tripled since 2005, from $68.8 million to $226 million.

23. “Will New Travis County Civil Courthouse Rise 66 Stories?” Austin American-Statesman, October 11, 2011. “Travis County Commissioners Approve Building Method for New Courthouse ($312 Million),” July 23, 2013

24. ”Austin Community College Weighs $499 Million Bond Proposition,” Community Impact Newspaper, July 25, 2013

25. ”Big Increase In Next Year’s Proposed (City) Budget,” MyFox Austin, August 1, 2013.  New taxes and fees totaling $14.39 per month for the average Austin family.  This does not include Travis County, Central Health, ACC, or the school district.

26. ”Austin To Tackle Affordability Question in Building Rules,” Austin American-Statesman, August 10, 2013.

27. ”How to Keep Up With 158 People Moving to Austin Per Day,” Realty Austin, May 17, 2013.

28. “Austin Ranked Best for Everything and Everyone,” Austin Business Journal, June 20, 2012

29. ”America’s Fastest Growing Cities,” (Austin is #1, for Third Year In a Row), Forbes Magazine, Jan. 23, 2013.

30. “How Austin Energy’s Rate Increase Will Affect You,“ Austin American-Statesman,” June 16, 2012.  “State Report: Austin Energy Rate Increase Too High,” Austin American-Statesman, February 14, 2013.  “Austin Energy Wins Round One,” Austin Chronicle, March 8, 2013.

31. “Critics Tie Proposed Plant to Rise In Austin Water Rates,” Austin American-Statesman, August 26, 2010.  Rates to rise 35% by 2015.  “Higher Water Fees Coming for Austin Customers,” Austin American-Statesman, July 15, 2012.  Water conservation leads to lower revenues, so rates must go up.

32. ”Cost of Infrastructure to Serve New Residential Development,” Fodor & Associates, Jan. 2011.  Austin only collects two of the four types of impact fees allowed under Texas law.  Their water and wastewater impact fees only recover 38% of the full cost.  The rest is paid by all City ratepayers.  Austin’s growth is not paying for itself.  http://www.fodorandassociates.com/Reports/Cost_of_Res_Infrastructure_in_Austin_Exec_Sum.pdf

33. “The Unfair Burden: How Austin Homeowners Subsidize Speculative Land Holdings and Commercial Property Owners,” By Brian Rodgers, July 1, 2009.  http://costofgrowth.com/property-taxes/the-unfair-burden/  “Systemic Undervaluations,” News stories and reports of undervaluations of commercial properties at the expense of residential taxpayers.  Compiled by Brian Rodgers.  http://costofgrowth.com/category/property-tax/systemic-undervaluations/