During the 88th legislative session, Senator Paul Bettencourt (SD-7) authored a bill which sought to address the City of Austin’s novel financing mechanism for its $7 billion light rail project. While the House version of the bill (HB3899) was on the floor of the Senate, Bettencourt added an amendment that would explicitly prohibit a municipality from issuing debt backed by maintenance & operations property tax revenue. The amended bill passed the Texas Senate 27-3.
The amendment was a response to Attorney General Opinion KP-0444, requested by Bettencourt, which concluded that existing state law “does not allow a municipality to ‘earmark’ use of a voter-approved increase in its maintenance and operation property tax revenue for debt service.”
Senator Bettencourt reiterated his position this week, telling the Lone Star Standard, “as Attorney General Paxton correctly concluded in his opinion, KP-0444, the tax code does not authorize a municipality to earmark use of a voter-approved increase in its maintenance and operations property tax revenue for debt service.”
The City of Austin believes Bettencourt and the Attorney General’s Office have it wrong. They believe that because they are transferring all the revenue to Austin Transit Partnership (ATP), a local government corporation, the funds are no longer subject to the same rules. The City and ATP have decided to move forward with a bond validation lawsuit to approve long-term bonds up to $5 billion for the rail project.
A bond validation lawsuit is a way for a municipality to expedite approval of long-term bonds without having to get approval from the Office of the Attorney General’s Public Finance Division, which is the norm for municipal bond approvals in Texas.
Bettencourt told us, “it is highly unlikely the Office of the Attorney General would go against their own opinion and approve bonds for the City of Austin and ATP who are seeking to get the court’s approval for a financing scheme which the Legislature did not intend to allow and for which the State’s attorney and bond counsel have concluded is likely unconstitutional.”
The City of Austin claims that voters “overwhelmingly” approved the tax increase and granted the authority to issue long-term debt backed by those revenues and that they are not violating state law. Additionally, in a recent City Council resolution, the City of Austin is also considering the same financing mechanism to go before voters in November 2024 as a means of funding substantial efforts to combat climate change.
The claims by both sides will be adjudicated and ruled on by a judge in the bond validation lawsuit, which the Attorney General’s Office is a necessary party to the lawsuit.
