Noteware: Rain tax expenditures: We got soaked

Image Credit: Roger Price/Flickr (CC BY-NC-SA 2.0)

In my last column , I described how City leaders misled citizens and taxpayers about the costs of the rain tax, earning a stern rebuke from a unanimous Texas Supreme Court. Unfortunately, City leaders have been similarly dishonest when it comes to the spending side of the Rebuild/Renew Houston program. If the City’s ballot language obscured or obfuscated the fees and collections of the revenues for the program (input), the City’s administration incorrectly directed the way the money would be spent (output).  The ballot language specified that the fund “shall be used exclusively on a pay-as-you-go basis for capital costs of drainage and streets” with “no more than 25%…to be used for maintenance and operations.”  Thus, voters clearly thought they were voting for new physical improvements; this part was not confusing.

Nevertheless, almost immediately, a portion of the Public Works Department’s payroll was transferred to the Rebuild Houston program, which when combined with other expenditures, resulted in only approximately 55% of the revenues being spent on actual physical projects.  So, instead of new improvements, we paid for overhead to support existing operations and maintenance on existing streets.   It would have been illegal for the City to transfer revenues from the new Rain Tax into the General Fund, but by transferring expenses from the General Fund to Rebuild Houston, the City achieved the same financial result.  Is that legal?  I am not an attorney, but I do understand subtraction and conclude that much less than the 75% stipulated by the Charter Amendment was spent on actual capital projects.

Which brings me to the next point.  What is an appropriate drainage improvement?  Is a bike lane?  Is a walkway through the Heights?   The answer is that because of the City’s intentionally opaque accounting, we do not know.  The City transfers the “Dedicated Drainage Street Renewal Fund” (DDSRF) money into the Capital Improvements Projects (CIP) fund, where it is co-mingled with other funds, including general fund monies, and then spent on various projects.  This further obfuscates the uses of the Rain Tax revenue and confuses any attempt at understanding.  Furthermore, another source of revenue into the DDSRF is METRO’s General Mobility Program (GMP), through which METRO makes 25% of the available sales tax revenue for “Eligible Transportation Projects” within the METRO service area.  Hike and Bike Trails are approved categories for the GMP.

This is, of course, intense and complex gobbledy-gook Enron-style accounting, created to allow the City to spend Rain Tax dollars any way it wishes, regardless of the language of the Charter Amendment.  My conclusion is that City leaders are taking the GMP dollars and moving them into the DDSRF so they can say that “dollars coming out of DDSRF include GMP, and Hike and Bike spending is OK out of GMP, so no harm done.”  Here is the double trouble with this arrangement: with this co-mingling, no one can tell what is going on; but we do know that Rain Tax dollars are also in that fund, and Hike and Bike trails are not a drainage improvement contemplated by the voters for the Charter Amendment.

So, the bottom line is that voters were misled on the revenue side – the subject of the court’s ruling (and my last column) – and voters were also misled on the expenditure side.  We simply did not receive anywhere near the drainage improvements we voted for and have been compelled to fund.   Meanwhile, the City’s own numbers in its financial statements and budgets show fewer drainage improvements with each passing year – yes, you read that correctly. I am not making any of this up; it’s buried in City documents if one knows where to look.

The real story here is not the dollars in or the dollars out, or even the effectiveness of the drainage expenditures.  It is the successive obfuscation by the City of its use of YOUR money.

Apparently your vote didn’t count: the City is all wet, but we, the voters, got soaked.

A version of this article was submitted to the Houston Business Journal in July 2015.

Jim Noteware
About Jim Noteware 18 Articles
Jim Noteware is a Houston-based real estate developer, focusing on suburban master-planned and urban infill communities. He also specializes in the turnaround of distressed properties, portfolios and organizations. He has served two big-city mayors, in Houston and Washington, D.C., working to improve the performance of large troubled public agencies.