Committees fail to agree on Whisper Valley deal

A relatively small change in an agreement between the city and the developer of the Whisper Valley and Indian Hills Public Improvement Districts has failed to win approval from two committees charged with making such decisions and passing them on to the full City Council.

Representatives of the Austin Water utility as well as city of Austin Chief Financial Officer Elaine Hart and the developer, Taurus Investment Holdings, advocate accelerating the reimbursement payment to the PID bond trustee. When the trustee, which is a bank, has the money, it will be able to make payments to the bond holders, who provided the funds to build the water and wastewater lines.

Members of the Council Audit and Finance Committee could not reach an agreement on the issue last week. They were considering the matter because it had been referred to them by the Council Public Utilities Committee after that committee could not make a decision.

Council Members Pio Renteria and Leslie Pool voted in favor of amending the PID agreement, but Mayor Pro Tem Kathie Tovo and Council Member Ellen Troxclair abstained because they still had questions. The matter will now go back to the Council Public Utilities Committee before ending up on the full Council’s agenda on Sept 17.

Before abstaining, Troxclair expressed frustration that the committee had not come to a decision, saying perhaps they should have a special called meeting on the matter. But Tovo, who chairs the committee, said perhaps this would be a case that would have to be decided after the full Council has heard the details.

Whisper Valley is a 2,100-acre project near Braker Lane and SH 130. Developers plan to construct 2,800 single-family homes; 4,700 apartments, townhouses and condominiums; more than 2 million square feet of office and retail space; and a 600-acre public park. Indian Hills, at Decker Lake Road and SH 130, would have about 1,500 apartments, 1.6 million square feet of office space, and 60,000 square feet of retail as well as 473,000 square feet of research and development and 275,000 square feet of industrial space.

Steve Metcalfe, attorney for the developer, told the Austin Monitor, “We should have the first houses on the ground (during) the first quarter of next year.” He said the prices on the houses would range from approximately $150,000 to $250,000. He noted that the PID requires that 10 percent of the houses and 10 percent of the apartment units be reserved for those who qualify for affordable housing under federal guidelines.

Generally speaking, the developer of a large development that needs water and wastewater infrastructure will go to a bank to borrow money to build that infrastructure. Once the infrastructure is complete, the city will repay the developer at least part of the money for building those lines.

In this case, however, the developer and the city created the Public Utility District, and the city issued bonds to pay for the infrastructure. With the PID, the trustee for the bondholders pays for construction of the infrastructure. After the city inspects the infrastructure and issues its final acceptance, Austin Water forwards the cost reimbursement for the city’s portion of the infrastructure to the trustee. The developer repays the utility for its portion of the reimbursement by selling lots. Ultimately, the owners and managers of the property pay the bill for the infrastructure.

Construction delays on water and wastewater lines being built by contractors at the two developments have slowed down the city’s reimbursement for construction of those major pieces of infrastructure. The infrastructure includes a 24-inch and a 48-inch transmission main.

Hart explained that one change is really all about vegetation – or the lack thereof. The city cannot finally accept the infrastructure until there is grass or other vegetation growing on top of it. However, the city can issue a conditional acceptance without the vegetation, and that is what it proposes to do. The developer will purchase a vegetation bond to ensure that that part of the project is completed. Hart noted that the area’s drought has made it more difficult to complete the vegetation part of the project.

Hart and AW Director Greg Meszaros believe there is very low risk for the city in accelerating the payments and conditionally accepting the infrastructure, which is close to completion.

The developer had planned to use city reimbursements for its water and wastewater infrastructure to make its assessment payments to the city on July 1. However, because of delays in the construction, the city has reimbursed only $1.9 million, which the trustee for the bonds is holding. An additional $5.5 million is still due to the trustee in order to make principal and interest payments on the bonds on Dec. 1. Currently, the developer is in default and is being charged a penalty plus interest for failing to make the payment on time.

Hart said, “I have a fiduciary responsibility to the bondholders to try to remedy any default.” The city can accelerate the payment to the trustee, which is what AW and city financial officials are seeking. They note that the city can make those payments this year with no impact on ratepayers.

The Water and Wastewater Commission recommended approval of the changed agreement on a vote of 6-2, with one member of the commission recused.

Meszaros told the commission that Whisper Valley and Indian Hills are “probably the biggest total development we have ongoing. The 130 corridor is very important to the city of Austin.” He explained that over the last decade, the city has sought to shape the area’s development patterns, and the PID is a part of that.

Metcalfe said one of the waterlines is done and has passed inspection except for the vegetation. The second line is now going through the inspection process. He said he is hopeful that the inspection will be completed by Council’s Sept. 17 meeting. That is the day the matter is scheduled for Council consideration.

Map courtesy of the city of Austin.