OPINION: The City's New Street Fee Will Head in One Direction: UP!

OPINION — On Tuesday, San Angelo City Council adopted a right-of-way infrastructure fee. It is a new charge that will show up on city utility bills. Residential customers will pay $8.75 a month. Commercial and industrial accounts will pay more. The ordinance takes effect October 1. The first bills go out January 1, 2027.

Let's walk through what council did, how other Texas cities have handled the same idea, and the legal and budget questions that come with it.

The item was the second reading of an ordinance creating a "Right-of-Way Infrastructure Fee." The vote was 4-3, the same split as the first reading on September 9. New ordinances generally require the city council to vote twice before the measure becomes law.

Here is how the council voted:

• Yes: Mayor Tom Thompson, Tommy Hiebert (District 1), Joe Self (District 2), Harry Thomas (District 3)
• No: Patrick Keely (District 4), Karen Hesse Smith (District 5), Mary Coffey (District 6)

Between the two readings, staff cut the residential rate from $15 to $8.75. They also added special categories for San Angelo Regional Airport, Goodfellow Air Force Base, and schools. Schools get a half-rate in the first year. The city says it will review the fee each budget cycle and can raise or lower it.

The money is supposed to go into a dedicated fund for streets, curbs, sidewalks, ADA ramps and crosswalks, signs, signals, striping, alleys, and street lighting.

Here is what you will pay:

• Residential: $8.75 per month per dwelling unit, on the city water/utility statement.
• Commercial and industrial: nine tiers (C1 through C9) based on Institute of Transportation Engineers trip-generation data. Higher-traffic sites pay more. Earlier staff materials put the lowest commercial tier around $25 a month and high-traffic sites in the hundreds.
• Schools: half rate in year one.

The original $15 residential proposal was projected to raise about $10.5 million a year. The $8.75 version raises less. The city has not published a new official revenue number since Tuesday's vote.

Operations Director Patrick Frerich told council the city is still behind on sealcoating even with a new fee: about 957,000 square yards heading into 2027 and 1.75 million heading into 2028. Leave the program alone, he said, and the backlog heads toward 10 million square yards by 2032.

The same meeting included second readings on the FY 2026-27 budget and the property-tax rate for FY 2027. The posted budget ordinance said the budget will raise more total property taxes than last year's by $962,035 (1.64%), with $773,890 of that from new property on the roll. The advertised tax rate is almost even with last year.

Legal pitfalls

Texas courts have not issued a statewide ruling that a city street fee on a water bill is legal. They have issued rulings that cut the other way when a "fee" starts acting like a tax.

El Paso. In June, the 8th Court of Appeals affirmed a Texas trial-court judgment that El Paso's "environmental franchise fee" on utility bills was an illegal tax. The city said the charge paid for wear and tear on rights-of-way from garbage trucks. The fee rose from $1.10 a month to $6 and was bringing in about $14 million a year. Courts found the revenue exceeded the claimed street-damage cost and that money went into the general fund, including police and fire equipment. El Paso has until October 3 to ask the Texas Supreme Court to take the case. Refund talk is in the tens of millions if the ruling stands. El Paso's council also dropped a proposed transportation user fee in 2025 after going into executive session on that lawsuit.

Austin. In March, the Texas Public Policy Foundation sued the City of Austin over its Transportation User Fee, which has been on utility bills since the 1990s. Households can pay more than $260 a year. The fee raised about $139 million in FY 2025 and is budgeted at about $157 million in FY 2026. The suit argues it is a tax, not a regulatory fee; that taxes require voter approval; and that the charge is not equal and uniform under the Texas Constitution. The "equal and uniform" provision has saved Texas landowners, primarily large commercial property owners in urban areas, billions yearly when argued in other property-tax disputes with appraisal districts across the state. That case is pending.

Arlington. In 2003, a resident challenged a street-maintenance fee as an unauthorized tax. The Fort Worth Court of Appeals dismissed the case for lack of standing. It never ruled on whether the fee itself was legal.

The test courts use is practical, not semantic. Is the charge tied to a specific cost? Does extra money leak into the general fund? Is it imposed on the general public rather than a regulated activity? Was there an election? San Angelo's ordinance puts money in a dedicated fund and uses trip-generation tiers. That is the city's defense. The attack, if one comes, will be that it is still a citywide charge on every water account, adopted to raise money outside the state's property-tax cap.

Councilmember Mary Coffey raised the Austin and El Paso cases during San Angelo's first reading. She did not mention Abilene, and that city has collected a similar fee for years without a lawsuit.

How San Angelo lines up with Abilene

San Angelo's $8.75 residential rate is not a local invention. It is Abilene's current single-family street-maintenance fee.

Abilene adopted a Street Maintenance Fee in 2018 and began billing in January 2019. It is collected on the municipal utility statement. Money goes to a dedicated Street Maintenance Fund. The city publishes project lists with maps and costs.

Abilene's current residential schedule:

• Single-family: $8.75 per month per non-irrigation meter
• Multifamily: $8.00 per dwelling unit
• Low/moderate-income (must apply): $1.75
• Commercial accounts are billed by trip generation. At launch the range was $25 to $75 a month. Later city-to-city comparisons put Abilene commercial rates around $45 to $95.

Since 2018, Abilene says the Street Maintenance Fund has taken in about $55.1 million from all sources, including about $40.0 million from the fee itself. The program was first described as a five-year effort. It did not sunset. Abilene's city council later raised the residential rate from $6.75 to $8.75 and kept collecting.

No lawsuit challenging Abilene's street fee as an illegal tax turned up in public records.

San Angelo copied Abilene's rate and the basic design: water bill, trip-based commercial tiers, dedicated street fund. It did not copy Abilene's published $1.75 low-income ROW rate. City staff here have talked about expanding utility assistance through Concho Valley Community Action Agency. That is a separate aid program, not a reduced ROW line on the fee schedule.

Referendum vs. council action

There is one structural difference that will keep coming up.

Abilene put the concept on the May 2018 ballot before council wrote the ordinance. San Angelo did not. Four San Angelo city council members including the mayor adopted the fee. Three members voted no. There was no citywide vote.

That matters because of how Texas now limits property taxes. For most cities, the voter-approval rate generally allows about a 3.5 percent increase in maintenance-and-operations revenue from existing property before an automatic November election is required. Cross that line, and the rate goes to the ballot. Local officials rarely want that fight. Utility-bill fees do not trip the same process, so voters get less of a say. That is why cities from Austin to Killeen to Abilene have used them. Texas Tax Code Chapter 327 already offers a voter-approved sales tax for street maintenance. Plaintiffs in the Austin case point to that statute and say: if you want street money, call an election.

Gov. Greg Abbott is campaigning this fall on requiring a two-thirds supermajority of voters before local governments can raise property-tax rates. If that idea becomes law, the incentive to use fees instead of tax rates will not get smaller.

Why the streets need money

San Angelo has spent years paying for street work with debt. A city-produced review of the last decade put the street-bond program at about $80 million planned and about $84 million actually invested, issued in cycles and repaid through the property-tax rate. Bond money builds and reconstructs. It does not, by itself, keep up with sealcoating and routine maintenance once inflation hits asphalt, labor, and equipment. That is the gap staff say the new fee is meant to fill: a pay-as-you-go stream that does not require another bond every other year.

Payroll is part of the same squeeze. City, county, and school employees typically receive raises even when household incomes in the city's private sector are flat. Public safety is the sharpest cost. Training and keeping police officers is expensive. Tuesday's agenda also included a new meet-and-confer agreement with the San Angelo Police Officers Coalition for the fiscal year that starts October 1. Those costs land in the general fund. The Texas Legislature's 3.5 percent tax guardrail limits how much of that fund can grow from the existing tax base. The ROW fee sits outside that guardrail.

Two objections to the ROW Fee

1. It sidesteps the Legislature's intent.

The 3.5 percent voter-approval rule was written to force a public vote when local government wants substantially more money from the same tax base. A monthly charge on every utility account raises new money without that vote. Supporters call it a user fee for streets. The other interpretation, and one I personally believe, is that it is another tax currently unregulated by Austin.

2. It functions as another tax, and it will not come off the bill.

Once a line item is on the utility statement, it does not disappear. Abilene's fee was sold as a five-year program. It is still there, and the residential rate is higher than when it started. San Angelo's ordinance already contemplates annual review and the option to raise the rate if the street fund falls short. Frerich's backlog numbers are the argument for starting the fee. They are also the argument for raising it later.

Call it a fee. In practice it is a mandatory charge on every residential water account, including renters, with commercial customers paying more by formula. Nonpayment follows the utility bill and disconnects your water.

Supporters of the new charge have one retort: The city is short about $10 million. Without the ROW fee, how will you fill that gap? Payroll is the largest target for cuts. Gutting this year's raises at the city generates less than $1.5 million. The rest would have to come from somewhere else, including public safety. Ladder 1, the largest firetruck in the fire department's inventory, was purchased in 2010 for less than $500,000. It is getting old, and a replacement costs more than double the 2010 price. That is an example of why shrinking the city budget is harder than it sounds, and why the ROW fee is likely here to stay.

The charge has no sunset. The dedicated fund is unlikely to catch the backlog for good. The rate will be reviewed in the next budget, and the next. Abilene went from $6.75 to $8.75. Austin's transportation user fee was raised again last year. El Paso's ROW-wear fee climbed from $1.10 to $6 before the courts stopped it.

San Angelo's $8.75 is the opening number. The pattern in other cities is that the line stays on the bill and moves in one direction: up.