Battle over Austin light-rail bonds moves to appeals court

Bonds

The start of a trial to determine whether bonds could be issued to finance a multi-billion-dollar light-rail project in Austin was halted Monday after Texas Attorney General Ken Paxton’s office filed an emergency motion with a state appeals court.

A Travis County District Court judge planned to commence the trial before ruling on the attorney general’s claim that Austin Transit Partnership (ATP) — a corporation created by the city and the regional Capital Metro Transportation Authority to spearhead the so-called Project Connect’s development and financing — lacked standing to bring a petition for expedited declaratory relief in an action involving bonds.

A rendering shows a train in the planned light-rail system in Austin, Texas. The Texas attorney general’s office is challenging the Austin Transit Partnership’s legal authority to seek court validation for bonds that would be issued for the project.

Austin Transit Partnership

The city and ATP used the Texas Expedited Declaratory Judgments Act to file their Feb. 20 petition to validate ATP’s ability to issue debt, starting with $150 million of revenue bonds to reimburse itself for project costs. The debt would  be paid off with a portion of Austin’s operation and maintenance property taxes voters approved in November 2020.

In a notice of expedited interlocutory appeal to the Texas Third Court of Appeals, a move that immediately stopped proceedings in the trial court, Paxton’s office cited an “implicit denial” by the Travis County Court judge of its standing argument. 

ATP and the city countered with an emergency motion to dismiss the appeal. 

“We are confident that the Third Court of Appeals will act quickly to dismiss this baseless appeal, enabling the trial to begin soon,” ATP Executive Director Greg Canally said in a statement. “As we have been doing throughout this process, ATP will continue advancing Austin Light Rail, which was overwhelmingly approved by Austin voters at the ballot box.”

A win in trial court for Austin would allow the bonds to bypass approval of the debt from Paxton’s office, which issued a May 2023 opinion that Texas law does not authorize a municipality to “earmark” a voter-approved increase in maintenance and operations property taxes for debt service. 

The opinion also questioned whether a municipality could transfer proceeds from that tax hike in perpetuity. An agreement between the city and ATP was amended in February to subject the transfer of property tax revenue to annual appropriation by the Austin City Council.

Initial litigation, brought against the financing plan by taxpayers in November, was subsequently consolidated with the city’s February petition. The plaintiffs claimed money raised by the tax hike cannot be used for debt service and their lawsuit sought to block a light-rail project that was downsized from what voters were promised in 2020. 

Project Connect is now a 9.8-mile, 15-station project estimated to cost as much as $4.8 billion in 2022 dollars, downsized from a 27-mile, 31-station project presented to voters in 2020. 

“It is time for the leaders of the city of Austin, if any, to realize this plan for Project Connect is doomed, one way or another,” Bill Aleshire, an attorney for the taxpayers, said in a statement on Monday.  “It is time to rethink how to legally, logically, and honestly give voters a mass transit plan that works.”

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