Of Sewer Fees and Empty Spaces

City Council will consider a critical change to city code on May 12

There’s an item on the City Council agenda for May 12 that stopped me in my tracks: Item E.1, which proposes permanent changes to the Reno Municipal Code (RMC) regarding sewer connection fee credits. That’s right, sewer connection fee credits.

Stay with me here, because I promise it gets more interesting, and a lot more consequential than it may sound (Jacobs Entertainment is involved).

Proposed amendments to Reno Municipal Code (RMC) deserve our undivided attention because they permanently change city law, now and for the foreseeable future. So when one comes up, we always need to ask, “What would this change do? Why is it being proposed now? And what would its long-term repercussions be?”  So let’s start with the first question.

What would this change do?

As the Staff Report explains, the proposed ordinance would amend RMC Section 12.16.155: the city’s Sewer Connection Fee Credit Policy.

Here’s the deal: any new residential, commercial, or industrial construction project has to pay a sewer connection fee in order “to reserve sewer capacity for treatment and conveyance.” Those fees are calculated through a formula that I really don’t want to get into here, but feel free to read up on it if you’re interested. Suffice it to say, those fees add up, particularly in structures with a lot of fixtures that connect to the sewer (think sinks, showers, toilets, dishwashers, etc).

The proposed code changes involve sewer connection fee credits. If a building burns down or is intentionally demolished, the owner of that parcel gets sewer connection fee credits that can be applied toward the cost of the sewer connections for a new structure to be constructed on the same parcel or an immediately contiguous one. Currently those credits have to be “spent” within five years or they expire.

The proposed ordinance to be reviewed on May 12 would change that policy to enable that five-year expiration date to be extended if the City has entered into a Development Agreement with the property owner. And if so, then—according to this proposed amendment—not only could that time limit be extended through the length of the Development Agreement but additionally, that credit could be “cashed in” not only on the newly-vacant or a contiguous parcel, but anywhere that the Development Agreement governs.

Why is this change being proposed now?

The short answer is this: Jacobs Entertainment. The staff report openly admits that this proposed change is in direct response to one of the requests made by Jacobs as part of their proposed Development Agreement for the hypothetical Neon Line District (you can read my previous posts on that from April 13 and May 2).

In their April 14 staff report City staff created a table outlining all of Jacobs’ “asks” and offered brief commentary on each of them. One of those asks involved these credits, as seen here with the staff comment to the right.

So here we are, four weeks after Jacobs’ opening bid to City Council and we’re already seeing an item that would permanently change city code to accommodate one of their requests, even before Council has expressed any support for this provision or—at least publicly—for anything else in their proposed Development Agreement.

If that seems premature to you, you’re not alone.

The staff report states this proposed change is not solely in response to Jacobs, and that “other developers have requested extensions [to the connection credits] too” (which I don’t doubt) but in the short term, the only developer that would stand to benefit from a policy that applies exclusively to a Development Agreement “district” is Jacobs.

So why this particular change regarding sewer connection credits? And why now? Simple: the clock is ticking.

Jacobs has accumulated sewer connection fee credits from every structure they have demolished downtown since late 2017. According to my calculations, the demolition count is up to twelve motels, in addition to some other structures. The mid-century motels they have razed between West and Vine Streets alone include the Carriage Inn, Stardust Lodge, Star of Reno, Keno Motel #1, Keno Motel #2, El Ray Motel, Mardi Gras Motor Lodge, In-Town Motel, Lido Inn, Crest Inn, Donner Inn, and Town House Motor Lodge.

Jacobs Entertainment demolished the Carriage Inn at 690 West 4th Street back in 2017, as reported by This is Reno. No new permanent structures have been erected on the site. Bob Conrad/This is Reno

The main reasons posed for these demolitions were not just “blight cleanup” and occupant health, but the clear promise to redevelop those cleared spaces. Upon the demolition of the Stardust back in November of 2017, Jacobs Regional Vice President Jonathan Boulware told KOLO 8, “Being able to have a lot of property between Gold Dust West and the Sands Regency gives us a lot of opportunity for us to develop."

How many permanent structures has Jacobs started to build on the sites they’ve cleared so far? None. And under the existing five-year time limit, the sewer connection credits from their first demolitions would start to expire next year. Getting those expiration dates extended would mean that they wouldn’t need to build anything on those sites anytime soon—or at all—in order to use the sewer connection fee credits.

A slide from Jacobs’ presentation to City Council on April 14 listed flexibility in the use of sewer connection fee credits among the components of its proposed Development Agreement. Jacobs Entertainment

In fact, if their proposed Development Agreement goes through, Jacobs could leave the motel parcels empty indefinitely, directing those accumulated credits toward anything else they want to build in the expansive district they hope to establish. Could that be one or both of the residential structures they say they might start building by 2026 on the two City-owned parcels they want the City to sell them at a massive discount? Sure. Or they could be applied toward their planned expansion of the Sands.

Either way, it would be a great deal for Jacobs. But what about the City? And anyone else who might be interested in buying those parcels down the road? And the public?

How would this change benefit the City?

The Staff Report urges approval of the code change, writing that “Amending the ordinance is recommended for consistency in city code provisions.” That appears to mean that because Development Agreements can include special provisions like waived fees and extended deadlines, this change would simply indicate that sewer connection fee credits are among the items that the City can adjust, extend, or redirect as part of any future Development Agreements, should they choose to do so—just giving the City “another tool in the toolbox,” as they sometimes say.

That may be true, but this particular tool, as formulated in existing policy, has a very specific purpose that needs to be fully understood before being offered up as a bargaining chip. Perhaps the tool is already working just fine. There must be some reason that the policy was written this way in the first place, right? So what was it?

That’s the kind of question I’d look to staff to answer. In this case, the Staff Report tells us that the current sewer fee credit policy was established by Council in August of 2011, but it doesn’t say why. Fortunately, it’s easy to access the staff reports from past City Council meetings on the City website, which is exactly what I did.

And what I found in the staff report from August 24, 2011 (p. 557-558)  is that the five-year time limit to apply sewer connection fee credits from a demolished structure to new construction on the same site was imposed for one specific reason: to encourage the redevelopment of newly-vacant parcels.

There was no formal connection fee credit policy at all prior to 2011. So ten years ago, the City created one explicitly to “encourage redevelopment at sites where an existing building has been destroyed as a result of disaster or intentional demolishment.”

Limiting the credit to five years, it is explained, was specifically intended “to encourage redevelopment in that location.” And not only was limitation for credit set at five years, but that meant five years to get a building permit issued, not just to apply for one. In other words, you had to actually build something on that site—not just state an intent to build—within those five years or forfeit the credit.

That’s good policy. Why? Because leaving a parcel vacant isn’t good for the City. And demolition of any structure, unless it is literally an imminent hazard, should never be encouraged before a plan is well along to build something new in its place. I call that “premature demolition,” and it’s far too common in Reno as it is, since it eliminates any chance of reusing or relocating a structure, should circumstances, ownership, or plans suddenly change (as they so often do).

In fact, in the past decade since the adoption of this policy, premature demolition has been proliferating throughout Reno—most of all, at the hands of the very developer requesting this code change. Is that pattern really something the City wants to officially encourage?

What would be the long-term repercussions?

It’s critical with proposed amendments to the City’s Municipal Code to think beyond the specific project at hand to all possible repercussions of making the change, because I guarantee you that’s exactly what the lobbyists and real estate attorneys working for developers are doing (and that’s not a dig; it’s literally their job).

As with any text amendment, those who will benefit from the change will argue that it is not being made for their exclusive benefit, but for anyone else in the same position down the road, and moreover, that anything that will help streamline the process of building more housing of any kind anywhere is a good thing. (I wrote about this argument and the slippery definition of what constitutes “public benefit” in a piece for This is Reno last year.)

In this case, however, the existing policy already encourages new development, and it encourages development of a very precise and critical form: rebuilding on newly-cleared parcels.  It is in fact one of the only City policies in place that provides some financial incentive to do so.

And we should be incentivizing property owners to build on newly-vacant sites, especially those they have themselves made vacant. The City Council knew that back in 2011. And they knew that five years was plenty of time to construct something new. If you don’t rebuild within five years, you lose the credit, and you have to pay the usual sewer connection fees just like everybody else does.

In other words, you shouldn’t get rewarded for failure to rebuild on a site that you deliberately cleared without any plans to construct anything new there.

Looking east from Washington Street, the two city blocks from Washington to Ralston Streets remain vacant with no apparent plans for permanent structures.

Well, you might say, this code change will only apply to very special cases. If it’s only allowed under the terms of a Development Agreement, then clearly those credits would be applied toward new construction in an area the City has already deemed important for redevelopment, too, right? So it’s still good for the City? Not necessarily.

First of all, it depends what that new construction project would itself be replacing, and where it is. The bigger the physical area included in a Development Agreement, the more likely it is that new construction might be commenced in a location that’s not currently seen as problematic. What’s more, that promised future construction in the other location might never transpire.

And in the meantime, what of the space that you’ve scraped clean and hung out to dry? Take away the sewer connection credits attached to a parcel, and that parcel becomes even less attractive for redevelopment via resale, since you’ve just taken away one of the incentives that might make it appealing for someone else to buy and erect something fantastic there. Even if they wanted to build something within that five-year window, they’d have to pay full sewer connection fees, because the sewer credits once attached to the site would already have been “cashed in” somewhere else.

In their comments on Jacobs’ long list of “asks” from April 14, City staff recommended putting into place a “phasing plan” to guarantee that the promised redevelopment (on some other parcel) would actually occur, or risk losing those credits. That might help some feel justified in making this change, but it would still do nothing for the cleared demolition site.

And why should properties associated with Development Agreements be treated any differently than anywhere else, in this regard? After all, if one developer can apply sewer connection fee credits to another parcel they own somewhere else (in this case, elsewhere in the “district” Jacobs hopes to establish), why shouldn’t any developer be able to do the same with another parcel they own, even if that other parcel is way across town, so long as redevelopment would supposedly be welcome there, too?

This change would open the door to that line of argument, with the burden of distinction resting solely upon the as-yet-unproven claim that in projects covered by a Development Agreement, any concessions would be offset by a future “community benefit”---a benefit that in the case of Jacobs 1) hasn’t yet been defined; 2) may not actually be perceived as a benefit to everyone; and 3) may not transpire at all.

Who ultimately benefits?

Let’s take this a step further and consider who else might possibly benefit from such a policy in the future. Would this change appear to have widespread future application? How many Development Agreements do we foresee being enacted where sewer connection fee credits could be applied by the same property owner to a separate, non-contiguous parcel still governed by the agreement? How many Development Agreements do we think will actually create a “district”?

The other potential projects where City Council has bandied about the possibility of entering into Development Agreements involve one or two parcels and potential private use of an adjacent public right-of-way. It’s pretty hard to imagine many projects involving many more parcels than that, much less anything approaching the 72 parcels that Jacobs Entertainment says they either own or control.

The City should be very wary of carving out in city code special provisions that seem unduly limited in their application, as they may not in fact be viewed by the public as a benefit either in the short or the long term. And it’s particularly fraught when either openly or seemingly introduced to benefit a single entity in sudden need of an urgent policy change, as was charged regarding the amendment to the Shade Ordinance in 2019 and openly admitted with respect to the Skyways Ordinance in 2020 (where the sole beneficiary was UNR).

And if you have to justify a policy change like this by tying it to a series of conditions—i.e., it will apply only in the case of a Development Agreement, only if certain milestones are reached, only if the other structure starts construction within five years—you’ve probably already demonstrated that the change itself may not actually be a good idea. It’s very hard to “condition” out all the ways that a policy might potentially be exploited, as experience has shown us that some people will do whatever a policy legally enables them to do. Period.

It’s truly bewildering for this item to be appearing on a City Council agenda just weeks after having been publicly proposed by Jacobs for the very first time, in service of the company’s own private goals—goals that have not been embraced in any formal way by the City Council or the public—and may never be.

Premature demolition can, I understand, be tempting, as a way to clear the landscape of a building one considers problematic, whether that building is perceived as blighted, a threat to public health, unattractive, unusable, or just a thorn in the side of the property owner. Not all of those reasons should be supported, however, and we certainly don’t need to provide property owners with any additional incentives to raze structures that still might have enormous potential, just to harvest their sewer credits.

In some cases, of course, demolition truly may be the best course of action. But when it does occur, we need to encourage—not discourage—rebuilding at the cleared site, particularly in the middle of our downtown, where the persistence of so many vacant parcels isn’t good for Reno’s economy, its streetscape, its vitality, or its image.

What can you do about it?

This item has the potential to go completely under the radar, and it definitely should not. With City Council still meeting virtually (although I’ve heard that will soon change, thank goodness!), you can submit your public comments about it via voice mail, email, or through the City’s public comment form. If you oppose the proposed change, your comment would be in opposition to the agenda item.

Again, here’s the May 12 agenda, and the item is E.1. So far, they have been playing the recordings of voice mail comments live during meetings, which offers the best opportunity to literally be “heard.” Still, it’s stated that they might not play all the voice mails live, but simply transcribe and enter them into the record (and they seem to use auto-transcription, which can really distort what you’ve said).  

If you do want to record a voice mail, call 775-393-4499 but be sure to watch the time as you speak—you will be cut off at the three-minute mark, even if in mid-sentence. Just be short and to the point. You can also send an email to CityClerk@reno.gov or even email City Councilmembers individually, using the links here.

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As always, you can view my previous issues, with more context, analysis, and tips, on my Substack site, https://thebarberbrief.substack.com/. If you’re not yet one of my 800+ subscribers, click the button below to sign up for free. And have a great week!