Charge: Houston drainage fee collected illegally; $840M owed back to taxpayers

Home affected by Hurricane Harvey
Members of Texas Task Force 1, the state's primary search and rescue team, coordinate the evacuation of residents in areas devastated by flooding from Harvey in Sugar Land, Texas, Aug. 30, 2017. (Air National Guard photo by Senior Master Sgt. Robert Shelley)

In Hurricane Harvey’s wake, Houston residents get a monthly reminder that flood control is just a few dollars away.

Elizabeth Perez has paid roughly $800 per year since 2011 for the city’s monthly drainage fee, a levy of 0.032 cents per square foot of a homeowner’s property.

Now she wants her money back. In a lawsuit winding its way through the courts, Perez is seeking a return of the fee, alleging the city has collected it illegally. If she wins, the city would be on the hook for close to $840 million in repayments to Perez and other taxpayers.

In 2010, the city pitched Proposition 1, which asked voters if they supported the improvement of the city’s streets and drainage system through a dedicated fund. The proposition was approved with just 51 percent of voters in favor.

Perez is one of three plaintiffs who successfully sued the city in 2011, claiming that the measure had misleading language on the ballot.

In 2015, the state Supreme Court found that the city failed to mention that the fund would be paid through a fee attached to property owners’ water bill and directed the city to hold a new election with clear ballot language.

“You can’t fight city hall when they lie to you, ordinarily,” said Joe Slovacek, one of the attorneys representing Perez’ case. “But the courts really stepped up and made things fair.”

But before the Supreme Court issued its ruling, the city council passed an ordinance formally implementing the fee, a routine legal process to enact the assessment.

The city contends that the Supreme Court ruling applies only to the popular vote, not the ordinance. As a result, the fee continues in effect.

At work in the current legal stalemate is a fine but significant point of law. In the high Court’s final ruling, the Proposition 1 election is void “as if the election has not been held,” which implies that the subsequent enabling ordinance is also invalid.

“The city ignored the court’s ruling and just kept on putting this fee on everyone’s water bill,” Slovacek said. “The money they have collected will be ordered to be refunded. They are relying on that ordinance, which does not stand.”

But the city is betting that its ordinance will stand up to the legal challenge. So far, a state district court has ruled in favor of the city — the same level of court that previously ruled in favor of the city in the election case before being overturned by the Supreme Court.

The city claims that Perez lacks the standing to assert damages and that they have immunity from such claims.

In an email, former Houston City Attorney David Feldman said the drainage fee is permitted by the ordinance, not the charter amendment.

“The [Supreme Court’s] decision had no effect on the ordinance itself,” said Feldman, who was no longer the city’s attorney when the court ruling came down.

Mayor Sylvester Turner’s office, which inherited both of Perez’ cases, did not respond to a call seeking comment. Senior city attorney Pat Casey did not return a phone call or email.

“When the court came back with that ruling, the city flat out ignored that edict,” said former city councilman C.O. “Brad” Bradford, one of three members of the council that did not vote for the ordinance in 2011.

Bradford and the other ‘no’ votes were concerned about the implementation and accountability of the Renew Houston program.

The drainage fee is part of the Rebuild Houston fund, which is composed of portions of the city property tax, a developer impact fee, and grants.

“[Then Houston Mayor] Annise Parker refused to lay that out before we voted on the ordinance,” Bradford said. “I asked for a draft, I told her, ‘we don’t even know what this will look like.’ But I never got anything before we voted.”

Parker could not be reached for comment.

Pointing to the potential for economic development, proponents of Rebuild Houston said the city’s infrastructure was in need of repair and the current tax structure was insufficient to cover the costs.

Stephen Costello, a former city councilman and the city’s so-called “flood czar,” said the fee has been a huge help, providing the city with $120 million a year to address drainage issues.

Costello loaned $80,000 of his own money to the Renew Houston effort, and his engineering firm, Costello Inc., donated another $10,000, according to election records.

He insists that the fee has helped mitigate flooding.

“Of course,” Costello said. “And if you take this away, we will go back to where we were in 2010.”

Advertisements from backers of the fee leading up to the election in 2010 promised it would alleviate the city’s storied history of flooding.

This is the flood of ’83 and here’s the flood of ’01. Water got so high, police and fire couldn’t get through,” says an actor in one of the video broadcast spots. “Here’s where I’m voting for Prop 1 — a pay as you go plan to finally rebuild our streets, fix these drainage problems, and create jobs.”

Opponents of the plan feared the money would go to other projects.

Soon after the fee’s implementation, $857,000 was stuck into the city’s Renew Houston fund for new hike and bike trails.

The city claimed that the money from the fee was not part of the recreational trail money. But the fee funds were commingled in the Renew Houston fund, creating confusion over what Parker promised was a lockbox on the proceeds.

In July, the city told bond investors that in the Supreme Court case, “the [fee] remains in effect pending a final resolution of this litigation.”

Steve Miller can be reached at [email protected].