On Monday, August 26th, attorneys representing seven Austin taxpayers filed a class action lawsuit against the Austin City Council.
The lawsuit seeks to stop the collection of property tax revenue for Austin’s $7.1 billion light-rail project, known as Project Connect.
The project has come under scrutiny since changes were made in June 2023. The Office of Attorney General joined the five Austin plaintiffs represented by Bill Aleshire and Rick Fine in challenging the funding mechanism as unconstitutional and a violation of Texas norms for municipal finance and borrowing money. That lawsuit is at the Texas Court of Appeals on jurisdictional questions.
Austin City Council and light rail advocates contend the project will help address climate change and provide ways for people to get out of cars. They also believe that the financing mechanism, in this case, is a model that can be replicated across Texas, and the country.
The issue centers on whether revenues from a voter-approved tax rate election can be used to finance debt and can be used for a different project than what voters approved. In 2020, voters approved a 21% property tax increase for Project Connect, which, at the time, included 28 miles of rail and associated stops, a 20-block downtown transit, and a connection to the airport.
Due to a drastic increase in project costs, 3 years after the election, the City Council approved a new plan, much smaller and excluding many of the elements of the plan voters approved.
While the Attorney General and state elected officials are focused on whether an increase in maintenance and operations tax can be used to underwrite the $5 billion in proposed debt, this new suit argues the City Council cannot even collect the tax at all.
“This is not what voters approved,” contends one Austin taxpayer who originally supported the tax increase but has since changed her mind due to all the changes and what she refers to as a “bait-and-switch.”
According to the suit, the plaintiffs seek “to enjoin the City from collecting property taxes for ‘Project Connect’ and [require] the Austin City Council to correct its 2024 Tax Rate by reducing the rate by 7.93 cents/$100 valuation, equivalent to a tax levy reduction of $187,398,046.”
If Austin is allowed to continue to collect the tax, it is estimated that they will have collected $818 million for the project by the end of the 2024 tax year with, according to the lawsuit, $456 million of previous collections unspent.
“The lawsuit is filed under a relatively new and untested provision in Tex. Tax Code S. 26.05(e) that allows any taxpayer to ask a Court to enjoin collection of the tax if the City’s tax rate is miscalculated in violation of Tex. Tax Code S 26.04,” says the lawsuit.
It continues, “because the ‘purpose’ of the 2020 Project Connect tax increase is no longer feasible, nor is the tax being used as promised, Plaintiffs seek to stop the collection of the City’s 2024 tax until the Council corrects its tax rate and cuts the Project Connect tax out.”
Brian Thornton, a lobbyist and former legislative staff to Senator Paul Bettencourt who wrote the taxpayer protection law in question said, “it will be interesting to see whether the taxpayer protections put into state law achieve their intended purpose, or if the legislature needs to tighten up the Tax Code to prevent these types of funding schemes that appear to have intentionally misled the taxpayers of Austin regarding the cost and scope of the project.”
