The Emperor’s New Clothes: $1.5 million and still no stitch can be found

2016 will remain one of the most expensive years for Helotes to date. The Mayor, and the City Administrator set the City on a course of action that would leave the citizens staring and pondering how did the City spend $1.5 million and receive nothing but a busted reputation and ill feelings in its wake.

The purpose of this article is to finally answer the questions –Who decided the course of action? Who was responsible for committing the taxpayer’s dollars to a lost cause? How much was shared with Council? Where there lesson learned?

To compose this article the City of Helotes received numerous requests for public information, hours were spent reading the court documents. I attended and watched the Appellate process and I read the Supreme Court decision. The last action was something the Mayor of Helotes did not do till many days after the decision was rendered.

You may ask how did the City of Helotes lose $1.5 million this does not include the over $800,000 in collected fees that was spent. Council members nor the Mayor can identify where the $800,000 plus was spent. No it wasn’t a run-away Council but some could describe it as a misplaced ill thought out case of greed. The $1.5 million includes the amount paid in judgments to area builders and to the City Attorneys to defend the City in its quest for revenue.

On November 5, 1992 the then City Administration amended the City’s Code of Ordinance 18 to apply the inspection and building permit process to the extraterritorial jurisdiction (ETJ) of the City of Helotes. At this time, the ETJ extended about ½ mile from the city limit signs of Helotes.

Council based this action on Vernon’s Statue 212. However, when one reads Vernon’s’ Statute one would understand that this action should have never happened. The first part of the statute grants that “if after a public hearing on the matter, the governing body of a municipality may adopt rules governing plats and subdivisions of land within the municipality’s jurisdiction to promote the health, safety, morals, or general welfare of the municipality and the safe, orderly, and healthful development of the municipality.”

However the following subchapter of the legislation is most important. It establishes what the City MAY NOT regulate.

“The governing body of a municipality by ordinance may extend to the extraterritorial jurisdiction of the municipality the application of municipal ordinances adopted under Section 212.002 and other municipal ordinances relating to access to public roads or the pumping, extraction, and use of groundwater by persons other than retail public utilities, as defined by Section 13.002, Water Code, for the purpose of preventing the use or contact with groundwater that presents an actual or potential threat to human health. However, unless otherwise authorized by state law, in its extraterritorial jurisdiction a municipality shall not regulate:

(1) the use of any building or property for business, industrial, residential, or other purposes;

(2) the bulk, height, or number of buildings constructed on a particular tract of land;

(3) the size of a building that can be constructed on a particular tract of land, including without limitation any restriction on the ratio of building floor space to the land square footage;

(4) the number of residential units that can be built per acre of land; or

(5) the size, type, or method of construction of a water or wastewater facility that can be constructed to serve a developed tract of land if:

(A) the facility meets the minimum standards established for water or wastewater facilities by state and federal regulatory entities; and

(B) the developed tract of land is:

(i) located in a county with a population of 2.8 million or more; and

(ii) served by:

(a) on-site septic systems constructed before September 1, 2001, that fail to provide adequate services; or

(b) on-site water wells constructed before September 1, 2001, that fail to provide an adequate supply of safe drinking water.

(b) A fine or criminal penalty prescribed by the ordinance does not apply to a violation in the extraterritorial jurisdiction.

(c) The municipality is entitled to appropriate injunctive relief in district court to enjoin a violation of municipal ordinances or codes applicable in the extraterritorial jurisdiction.”

In addition if Council had accessed the Bexar County Fire Marshall’s page, they would have learned that the County could not require a building permit or inspection for a private residence.

The County has a frequently asked question that addresses this exact procedure.

I’m building a private residence, what permits are required?

The County may only conduct a plan review, issue a residential building permit, and issue a subsequent Certificate of Occupancy (Compliance) if the residential plans are submitted for permitting on a voluntary basis. 

There are two situations where the owner may voluntarily seek a residential building permit: (1) a homeowners association requires the building to be permitted through the Fire Marshal’s Office, or (2) a lending institution will required a Certificate of Occupancy (Compliance) from the Authority Having Jurisdiction in order to finalize the loan process.

 

Most of the items a city MAY NOT regulate would be included in the building codes and inspection. However, Council passing this in November of 1992 was not really an issue because the ordinance was sporadically enforced as best. As one person at City Hall described it, if a person knew the law was on the books, they would come in and apply for a permit. So yes, the law was enforced periodically, sporadically, from 1992 until 2013.

It is important to note that the current Mayor was a homebuilder before he became Mayor so he had working knowledge of the rules in a City’s ETJ and City limits. The current City Administrator worked for the City of Helotes with the Helotes Economic Development Corporation before becoming City Administrator in or around 2008.

The current Mayor and most of the City Council members would take office in 2008 when voters decided to remove the “green party” from City Hall. Alex Blue, Burt Buys, and Paul Friedrichs would join the Council by 2011.

In the early part of 2013 Helotes City Council would complete an ETJ swap with the City of San Antonio. With the signatures of both Mayors, Helotes became the proud owner of an additional 8 plus square miles. These 8 square miles had become a boom for homebuilding.

In June of 2013, after the documents were signed, the City Administrator notified residents and all builders in the newly required ETJ that if any residential buildings were being constructed they must apply for a building permit from the City of Helotes and the buildings would be subject to inspection. The Mayor and the City Administrator made this decision. Council was not consulted, nor was there an agenda item created to discuss or ask for advice from Council.

According to Mayor Schoolcraft, “We had the ordinance on the books and we decided to enforce our ordinance.”

The area builders began to protest to City Hall about the fees and the inspection process. Mayor Schoolcraft and Rick Schroeder, City Administrator, served as the City’s negotiators in these conferences. Negotiations and relationships between City of Helotes and the local builders became strained in October.

Finally, during the second meeting in October, the process and complaints were brought before City Council. The Council retired into executive session to discuss the applicability of extending the code in the ETJ.

At this meeting the members of Council had the opportunity to stop the madness and take control of the situation. They had the opportunity to turn to the Emperor and say, “but sir, you are naked.” However, Council refused to take action.

According to Council meeting minutes, Council reconvened in open session and Mayor Schoolcraft asked for a motion. No motion was submitted and the train left the proverbial station.

In November 2013 Continental Homes would be the first builder to file a lawsuit against the City of Helotes. The lawsuit asked for the return of all fees paid for permits and inspections and asked the Court to conclude the City did not have the right to enforce their ordinances.

The legal wrangling would continue for the next three years. In 2014 the second lawsuit was filed and in 2015 the final lawsuit would be filed in the saga.

2015 would also be the year that the City of Helotes would receive its first loss. The lower Court ruled in the Continental Homes case that City of Helotes did not have the authority to enforce their regulations and that all building permit fees and inspection fees were to be refunded to the builders. In addition the court awarded attorneys fees and attached pre judgment and post judgment interest to the decree.

The Court also placed the City of Helotes under an injunction preventing them from enforcing their building permits and inspections in the ETJ. An order the City would violate and were called before the court for contempt. The City of Helotes explained it as a misunderstanding. The City of Helotes was not cited in the case.

Although first lawsuit had been filed in 2013 and the City had received counsel from its Attorneys, City Administrator Rick Schroeder sent a letter to the Wildhorse Subdivision Tausch Farms on September 17, 2014 instructing them to comply with the ordinance and that builders must apply for a building permit and buildings would be subject to inspection.

In 2015 the lower Court would rule in the second case—the City exceeded its authority and would be responsible for legal fees and court costs in the amount of $181,208.66.   This court did not impose interest on the judgment.

In late 2015 the Court would rule in the final case Ashton et al that the city exceeded its authority and must return building permit fees and inspection fees. The court awarded attorneys fees and a total judgment of $625,000 plus. The judgment also imposed interest on the result.

To attempt to prove the City’s case and build a stronger position legally the City of Helotes annexed the roads within the ETJ. This action means that the actual roadway—ie Shaenfield Road is Helotes property. The City took this action so that all homes being built in the ETJ would be within the ½ mile marker of the City of Helotes.

The Fourth Court of Appeals took a very dim view of this action when they released their decision for the court.

Throughout 2014 through 2016 the Mayor would place the litigation on the Council’s agenda. All discussion of the issues was held in executive session and no information was provided to the public. According to one Council member he did not feel that the City was not providing Council with enough information and asked for there to be periodical updates about the case progress. Council members made it clear that during the three years of legal maneuvering and wrangling at no time did each Council member entertain an attempted settlement with the other parties.

In response to the Council members questions Rick Schroeder issued the following response to Council.

“We have received inquires from several Council members over the past few days regarding the status of the litigation, associated fees, et cetera. I understand James Lee with the Echo has contacted several of you and has spoken with Mayor Schoolcraft on the issue as well.   Many of Mr. Lee’s statements are inaccurate, unverifiable, or exaggerated and lead me to believe that he does not have a good grasp of this subject, so I have elected to send you an update on the status of litigation:

City Council went into Closed Session on all three suits (DR Horton/ TAB et. Al. / Ashton Woods et al.) on June 11, 2015. A motion for Summary Judgment had been awarded against the City to DR Horton at that time. This was not surprising, however, as Attorney Frank Garza originally told City Council early on that the City would likely not win at the District Court level. By general consensus, City Council agreed to 1) File motions for new trials on the case ruled against us (essentially a delay tactic) and 2) subsequently file appeals with the Fourth Court of Appeals after the motions for new trials died by operation of law (75 days after filing motion.)”

Schroeder went on to describe the judgments as listed in the Echo and only included the judgment amounts but did not attempt to calculate interest for the Council members. Its important to note that for court documents, DR Horton was listed as Continental Homes.

“I believe those housed being built in the ETJ should comply with building codes and should be safe—especially if we annex them in the future.” Alex Blue.

“We were challenged. We were sued. We had to defend ourselves.” Ed Villanueva

“Its easy to second guess the Mayor now. I won’t do that. We all supported the Mayor’s decision.” Cynthia Massey.

The Council and Mayor held out one last hope in the saga. A small town near Fort Worth attempted to do the same as Helotes. They charged a homeowner building permit fees and inspection fees for his home being built in the ETJ. The homeowner. Bizio, sued the town of Lakewood Village. The lower court upheld the town of Lakewood Village. The Fort Worth Court of Appeals overturned the lower court’s decision. An appeal was made to the Supreme Court of Texas.

All eyes turned to the Supreme Court of Texas in April as the arguments for the case began. The town of Lakewood Village claimed they had the power and authority to extend the ordinances. Bizio claimed the City exceeded its authority.

Meanwhile in San Antonio the Appellate Court received the City’s appeal of all three cases. When the City decided to appeal each case the City added to the total liability it could face if it lost.

In June 2016 the Supreme Court issued its ruling against the town of Lakewood Village. In a definitive decision on page 1, in the second paragraph the Supreme Court specifically said General Law municipalities do not have the authority to extend their ordinances to the ETJ.

In San Antonio, the City abated two of the appeals and waited for the Fourth Court of Appeals to rule in Continental Homes. The Court upheld the lower court ruling. During the two months following the Supreme Court decision, the Mayor tried to find ways to keep the City’s case alive before finally bowing to the legal ruling.

One council member was adamant that the issue and the cases had not been settled.

Finally, in late September Council approved a pay out settlement of two of the lawsuits. The Continental Homes, and Ashton suits have a payout negotiated that capped the total interest and reduced the interest charges to 3.5 percent instead of the five percent awarded by the Courts.

The Texas Homebuilders suit payout has not been negotiated.

According to the payout settlement the City of Helotes will pay $243,562.89 to the Plaintiffs in 2016 and for the next four years will pay $201,135.63.

The answer to the City’s question regarding authority to extend the building codes and permit process into the ETJ has been answered, definitely. Also answered now is the amount of debt the City will carry for the lawsuits for the next five years. This may impact future city budgets if City revenue falls below expectations. What is also clear is City revenue must increase by at least $200,000 to cover the judgments for the next four years to not impact current spending on programs or employees.

However there are still unanswered questions. For all of those who paid permit fees from 1992 until 2015 can they receive a reimbursement from the City? Will they file suit against the City? The most important question—where or what did the City spend the extra $800,000 collected in building and permit fees?
“I blame the City Attorney,” said Cynthia Massey. “If he had told us the County could not charge for building permits and inspection fees then we would have known we couldn’t do it.”

Another Council member remarked, “We are to blame in a way. We should have taken more control and we should have asked more questions.”

Sadly, one council member remarked, “If I had to do it over again, I would.”

Some might say the City attorneys sat at the loom and worked and stitched for three years at a cost of $250,000 to create a new wardrobe for the Emperor. Yet, after three years, the City still does not see one stitch.

Popes Cleaners (1)

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