Pro Texana

Below is a newsletter that I’m sending to Granite Shoals’ water customers to explain the need and proposal for a sewer system for the City of Granite Shoals.

The City of Granite Shoals (GS) proposes to construct a sanitary sewage collection system, wastewater treatment plant, and a disposal system (collectively, City Sewer Service) in three major phases.

The first phase will be funded by a combination of grants and low interest loans totaling about $17 million.  The first phase will serve about 500 houses and commercial areas along RM 1431.  If the permitting and construction process goes as planned, Phase 1 will start providing service in 2014.  Two planned future phases will complete service to the entire city.

Extension of a sanitary sewer system will benefit the city’s environment, public health, and economic development, and will provide long term benefits to our citizens.

Why does GS need City Sewer Service?  Why now, and not later?

GS was developed in 1962 by those who sold lots cheaply and quickly, and the developers decided to skip construction of a sewer system.  Instead, thousands of septic tanks have been installed.  The City’s engineers believe that GS is the largest non-Colonia city in Texas without sewer service.  The lack of City Sewer Service has resulted in water quality degradation, a practically non-existent retail service industry, and placed most of the city’s tax burden on waterfront residents.

The provision of City Sewer Service will have the following positive effects for Granite Shoals:

• Improved Environmental & Health Benefits

Proper wastewater treatment and disposal is as important for protecting community health as drinking water treatment, garbage collection, and immunization programs.  Untreated or improperly treated wastewater can spread disease and contaminate drinking water sources, including Lake LBJ and our groundwater.

The EPA has found that 30 percent of septic systems are not properly operating, and many more in GS are over 30 years old, and are more likely to malfunction.  Even in a perfect environment, improperly operating septic systems are a danger to water quality.  However, in GS this effect is significantly increased by our local geology.

As you likely know, our geology is sieve-like granite gravel on top of solid granite bedrock, with a shallow aquifer underlying some of the deeper granite gravel areas.  The average depth to the bedrock is 8 feet.  The septic fields frequently drain onto the granite, and the effluent naturally drains to the lowest point, which is Lake LBJ.

Not only is the water quality impacted by potential bacteria and virus contamination, but septic systems do not treat to reduce nutrients such as nitrogen and phosphorus.  Increased nutrients cause algae blooms, which can be dangerous to fish due to oxygen demands, and they also create a strong, objectionable smell and taste of water.  We have seen steadily increasing algae blooms in Lake LBJ over the past decades.  Increased nitrates are a human health concern.

Some city residents are on water wells, which are often located precariously near septic systems.  Significant public health issues arise when untreated sewage reaches water used by or consumed by humans.  City Sewer Service will collect the wastewater and centrally treat it to a high standard, and will result in improved and safer water quality in Lake LBJ, its tributaries, and groundwater in the city.

• An Increased Sales & Property Tax Base Will More Equally Distribute Tax Burdens

GS collects about $65,000 per year in sales tax revenues, compared to $7 million for Marble Falls.  The reason for GS’ slow commercial activity is the cost of building a septic system for a commercial business.  City Sewer Service will bring new commerce to GS, providing more convenience for citizens who will no longer need to travel to Marble Falls or Kingsland to shop or for medical and food needs.  The service will also increase sales tax revenues to decease the city’s reliance upon property taxes.  The new Andy Roddick Foundation Tennis Center will bring a demand for new hotel units.  The new commerce will also increase the city’s property tax base, especially in the commercially zoned areas.  The increased commerce will also allow non-residents to contribute to city revenues.

• Lower Construction Costs

A residential septic system can cost $10,000-15,000 or more, and aerobic systems can cost much more.  Costs for commercial operations are far higher.  Septic systems also require maintenance themselves, including adding agents to encourage bacterial action and periodic pumping.  Most septic systems have a 20-year useful life, and should be pumped every two years.  A monthly amortization over a septic system’s useful life is at least $50 a month, including maintenance.  Also, most new home construction projects now require two lots, so that the septic system can be placed on a separate lot.  Lower construction costs will encourage more homebuilding and commercial activity into the city, generating additional sales and property tax revenues, and spreading out the tax burden to more individuals.

• A Better Image for GS and New Economic Development

Cities without sewer systems typically encourage and exhibit sub-standard development.  Providing City Sewer Service will send a message to builders, families looking for a place to live, and commercial interests that GS is a viable and   sustainable community.  Today, that message is missing. Economic development experts agree that quality infrastructure is a key element for attracting development.  “There can be no economic development without community development,” states Megan Henderson, an official at the Heart of Texas Council of Governments.

I have had several commercial developers of projects ranging from assisted living facilities, commercial development and housing tell me that they are interested in doing projects in GS, but only after City Sewer Service is online.  The school district has adequate land at Highland Lakes Elementary School for a middle school, but will not build one until a sewer system is in place.  This supports the statement from Baylor University economics professor Tom Kelly, who says that “investors look to see if you have viable public services.”

• Control Over Sewer Services

If GS does not provide City Sewer Service, developers may build their own system, and GS will lose control of providing wastewater services.  Revenues that could be used to benefit of city residents will be siphoned off to non-city uses.  For example, Aqua Texas, a subsidiary of a large international company, owns the small plant that serves Beaver Island and Web Isle and charges its customers over $100 per month for sewer services, though the true cost to service these customers is undoubtedly far lower (compare this with the city’s proposed $35 a month rate).  The profits go overseas.  Cities do not make “profits” but instead utilize revenues from such systems to serve their own population.

Also, third parties, such as the EPA or LCRA may someday seek to protect the water quality of Lake LBJ by forcing GS to provide sewer services under terms that will most definitely not be as favorable as they are with this planned project.  As discussed earlier, excessive nutrients are a risk to human health and the environment.  The EPA’s latest focus on water quality is on nutrients, whether they are in ground water or surface water.  See “Nutrients in the Nation’s Streams and Groundwater 2000-2006.” US EPA (2010).  Septic tanks are one of the key sources of nutrients that reach ground and surface water, and increased regulatory attention to septic tanks in the near future is very probable.

• The City Has Negotiated Significant Benefits for the WWTP that Will Not Be Available if GS Puts Off the City Sewer Service

The City negotiated with area ranch owners, who desire to build or sell a major development project, to donate 15 acres to the City on which to construct its treatment plant, and 25 acres on which to irrigate with the effluent.   Further, the City has also negotiated with those owners the right to utilize a proposed golf course irrigation land for the sewer effluent, which will give the City enormous growth potential for decades to come.  If the City does not commence the process to provide City Sewer Service at this time, the landowners can cancel the gift, and the city will lose those benefits.

Assuming current land values at a conservative $12,500 an acre, that’s a donation of about $500,000 for the land that the city stands to lose if this project is delayed.  The city would also lose untold thousands more in lost easement rights, plus hundreds of thousands more if the city does not have the ability to irrigate the proposed golf course.

• Very low interest rate funding is available to the City at this time.

The low-interest loan for this project will be guaranteed by the State of Texas.  The certainty of availability of these funds from the State at historically low levels is something that cannot be insured in the future should the project be postponed.  The interest rate that the State will charge the City is roughly 3.3 percent.  Delaying the project will likely cost GS residents in added interest costs.

What will the system cost the city and homeowners, and how will it affect my tax bill?

The city will pay for the system with long term bonds, which will primarily be repaid by City Sewer System revenues, backed by property taxes.   The city will not seek special assessments or similar payments from homeowners.

Phase 1 will be funded with 3.3 percent low interest loans guaranteed by the Texas Water Development Board.  The first issue will be about $2.75 million in January, 2011, with a second issue of $12 million in August, 2011.  The first phase will also utilize a grant of about $250,000, with a final loan of about $2.1 million to pay for household hook ups and untapped stub extensions into and towards Phases 2 and 3, for a total of about $16.85 million. The bonds will range up to 30 years in their payback to allow future generations, who will also benefit from this project, to help pay for it.

Prior discussions by the city had said that the city was hopeful that no real increase in property taxes would be necessary for the new debt.  The city planned to ease into the payments by slowly reducing transfers to city operations from the city’s water fund over the next four years, and also use growth to pay for the new debt payments.  The city will continue with those plans, but a new change just required by the U.S. EPA will require the city to draw down the entirety of the debt within a year, rather than over several years as previously would have been allowed.  This change will require a small tax increase starting two years from now for which we had not previously planned.

The city plans no tax increase until 2012, at which time a modest increase of about 3.8 cents per $100 may be required to fund the first phase.  This increase is based upon very conservative growth assumptions.  The city is hopeful, but cannot guarantee, that the bulk, if not all, of future phases and expansions can be paid for with out further increasing taxes by utilizing growth in tax and sewer revenues that the project will bring to the city, as well as developers’ payment of impact fees.

The great news for our seasoned citizens, is that if you are 65 or more in age by 2012, you will not see any tax increase on your homestead for the sewer system.  The law freezes your homestead property taxes when you reach 65.

Finally, our engineers have estimated that the monthly operating charges for the system will be $35 a month, payable only after you connect to the system.  The city will be funding the average cost of hooking your home into the system, so most homeowners will pay nothing to tie into the system. Some residences may require minor contributions to pay for unusual electrical or plumbing modifications.

What about grants & why does the city propose to issue bonds that will take 30 years to pay?

The city has looked long and far for grants.  Major grant funding for GS is not available.  Some small grants are available to GS to install collection lines and hook-ups for underprivileged areas of the City.  Only a small portion of the first phase will be eligible for grants, but the City will remain vigilant in searching for all grant opportunities in the future.  The underprivileged area is located near the new proposed plant, which makes providing Phase 1 service to that area more financially prudent.

Why can’t the City cover the entire city in one project rather than phasing-in the system?

Providing sewer services to an already built-out community of the size of GS is already a monumental task.  The cost of sewering the entire city at once would be cost prohibitive, and would require increasing property taxes by significant amounts.  The cost of building out the entire system is estimated to be about $40 million, and to fund that debt, the city would have to increase its property tax rate to a level higher than that charged by MFISD, which charges $1.29 per $100 of valuation (GS’ current tax rate is $0.448).  GS proposes to build the system in phases to minimize the initial costs of the system, while allowing growth to help pay for later phases as sewer and tax revenues increase with new activity in the City brought about by the new system.

Note that for Phase 1 and Phase 2, that the pipes the city installs will be phased as if the system were fully constructed.  While this may result in some initial over-sizing, it will prevent the city from having to come back and put in additional or larger lines at a far greater cost.  The plant will be modular, allowing the city to easily increase capacity as growth requires.

Which areas will be served by the first phase?

The City’s early planning proposal for Phase 1 includes all of the property in the city limits along RM 1431, with the intended effect of bringing in more retail and service facilities for the city, increasing property tax assessments on 1431, and increasing the sales tax to more equally distribute the tax burden across the city.  Phase 1 is also planned to include some areas in the Churchill, Kingswood, Elm Creek, Prairie Creek areas (where grant funding is possible), and to waterfront areas along E. Briar and E. Castle Shoals, and Clear Cove.  In all, about 500 homes will be served in Phase 1.  A newly announced proposal will provide some untapped lines to extend into Phase 2 and toward Phase 3 to make serving those later extensions more likely and feasible.  Once the untapped lines are installed, people may tap into these lines at their own expense, or they can wait until the future phases when the city will pay for those connections.

When can we expect future phases to be built?

The City proposes to build the entire system in three phases.  As property values and sales taxes increase, and expand the City’s capacity to incur additional long term debt, the City will continue adding new service areas.  The City’s expectation is that Phase 2, which will cover most of the remainder of the City east of Phillips Ranch Road, will commence in late 2014, and Phase 3, will commence by 2018, and will cover the remaining portions of the city south of RM 1431, primarily West of Phillips Ranch Road, but also east of Elm Creek.  Private developers can pay to add areas in the city to the existing system, which would make building those phases faster.

How can the city guarantee that future phases will be built?

By law, the current city council cannot bind future city councils to start future projects.  However, as explained earlier, building the entire system in one project would not only be cost prohibitive, it would also be financially irresponsible because doing so takes away the city’s ability to use growth to help pay for future phases while keeping the financial commitment by property owners to a minimum.  One certain way to ensure that future phases not be built is for the city to not build Phase 1.  Without the first phase, there will be no growth and no new revenues to help build the next phases.  Because City Sewer Service is essential to the city’s viability, citizens who are not being served in the first phase will no doubt keep the pressure on future city councils to ensure that the system is completed.

By the way, as to phasing, the plan is open so that new development projects – which will pay for the cost to tie into the system – can come online if the economics make sense to developers, even if they are not located in the first phase.  This, along with sending a message that the city is serious about future phases, is why we are proposing to extend some untapped lines outside of Phase 1 into Phase 2 and close to Phase III.  The city council will also pass a resolution, concurrent with the bond authorization, which sets forth the city’s intended phasing and timeline set forth above.