Lawsuit aims to cut off property tax funding for Austin light-rail project

A class-action lawsuit filed Monday by Austin, Texas, property taxpayers against the city seeks the elimination of $187 million in property tax revenue allocated in the 2024 tax year for a light-rail project.

The litigation is the latest salvo in a legal battle over the ability of the Austin Transit Partnership, a nonprofit corporation created by the city and the regional Capital Metro Transportation Authority, to use an increase in operation and maintenance property taxes voters approved in November 2020 to back bonds for Project Connect. 

The lawsuit filed in Travis County District Court cites “a relatively new and untested provision” in Texas law allowing taxpayers to sue to enjoin tax collections in cases where the tax rate is miscalculated. It contends the tax revenue will not be used this year for the light-rail plan presented to voters in 2020 and that $456 million in tax revenue collected over the last four years has been stockpiled, not spent.  

“Plainly speaking, the taxpayers of Austin are getting nothing, absolutely nothing, … this year from this ‘annual appropriation’ of the Project Connect tax,” Bill Aleshire, the plaintiffs’ attorney, said in a statement. 

Project Connect has been downsized from 2020’s 27-mile, 31-station plan to a 9.8-mile, 15-station project estimated to cost as much as $4.8 billion in 2022 dollars. 

The plaintiffs, some of whom filed a challenge to the bond financing last year, are specifically asking the court to require the Austin City Council to lower its 2024 tax rate by 7.93 cents per $100 of assessed valuation, to reduce the tax levy by $187 million. The action was triggered by the city council’s adoption on Aug. 14 of a $1.1 billion 2024 total property tax levy, according to the lawsuit.

“The city council imposed the tax for 2024 instead of voluntarily stopping the tax, rethinking Project Connect, and developing a feasible mass transit system for Austin with an honest price tag and going back to voters with a lawful bond proposition,” the lawsuit said.

An Austin spokesperson said the city is aware of the lawsuit and will respond to it “through the appropriate court channels.” There was no immediate comment from ATP.

Meanwhile, court validation sought by the city and ATP for an initial $150 million of revenue bonds the corporation would issue remains up in the air.

An ultimate win in court for Austin and ATP would allow the bonds to bypass approval of the debt from Texas Attorney General Ken Paxton’s office, which issued a May 2023 opinion that state law does not authorize a municipality to “earmark” a voter-approved increase in maintenance and operations property taxes for debt service, which is paid with interest and sinking fund property taxes. The attorney general is also arguing before a state appellate court that ATP is not eligible under state law to seek court validation for bonds.