The overview
Project Connect is being developed under city voters' approval of Proposition A in fall 2020. That measure passed with 58% support and allowed Austin to increase its tax rate indefinitely to fund the transit initiative.
Austin's property tax consists of two parts: maintenance and operations for annual expenses, and debt service to pay off longer-term expenses, such as bonds. Local officials opted against building Project Connect through a bond package and instead placed a continuous maintenance tax item on the ballot.
The city tax increase doesn't directly fund construction of the new rail line and bus routes. Instead, a separate local government corporation called the Austin Transit Partnership was created to oversee Project Connect. The ATP is now managing the multi-billion dollar project with oversight from Austin and the Capital Metro transit agency, and will issue its own bonds to cover larger project costs. That debt will be backed by the city tax revenue.
That funding plan has drawn criticism at the local and state levels over the past few years, leading to several lawsuits and opposition from Attorney General Ken Paxton. Legislation that could have derailed Project Connect was filed and advanced in 2023 but did not pass. However, bills currently under review at the Capitol could still impact the financing structure.
The details
House Bill 3879, from Rep. Ellen Troxclair, R-Lakeway, would ban the maintenance and operations tax transfer process currently used by Austin and block local government corporations, such as the ATP, from using city tax revenue to repay bonds.
Troxclair said her bill isn't centered on transit issues but is meant to reinforce Texas tax principles and aid taxpayers. Austin's system now allows for ongoing collections with no limit and doesn't have safeguards that come with bond elections, she said.
“This is a common-sense bill that reinforces our most basic taxpayer protections and is absolutely necessary that we do not delay its passage," she said during House committee review April 21. "If we allow a taxing entity to go outside the bounds of state law without consequence or without pushback, you will see this financing mechanism pop up all over Texas and completely undo all of the work that we are going to do this session to reduce property taxes.”
ATP Chief Financial Officer Bryan Rivera testified that the tax rate transfer process is allowed under updated tax law state leaders approved in 2019. He also noted the plan was clearly laid out in Austin's Proposition A, with indefinite tax collections intended to both build out and maintain Project Connect long-term.
“One of the things that you see in public transportation in entities across the nation is the state of good repair and making sure that the system stays in good operational state. And again, the leadership at the time were planning for that," he testified. "That’s why a typical general obligation bond wouldn’t work in this instance because, again, we need a mechanism that could fund the capital cost and also sustain the system for the citizens of Austin.”
Zooming in
HB 3879 would also allow property owners to sue to halt any increases approved through a tax rate election if a city "materially deviates" from intentions originally stated on the ballot. As a hypothetical example, Troxclair said cities shouldn't be able to use funds from a $100 million library bond for a $200 million city hall project without first returning to the voters.
Project Connect opponents have pointed to the significant changes made to the Austin transit plan since the 2020 election—the removal of miles of rail line, as well as features like downtown subways and an airport connection—as reasons to roll back the program. Austin's "contract with the voters" for Proposition A specified that any project design changes must be approved by City Council and CapMetro's board, which took place in 2023 after designs were scaled back.
Alongside Troxclair's HB 3879, House lawmakers in April considered another piece of wider-reaching tax legislation that could also impact Project Connect.
House Bill 19 from Rep. Morgan Meyer, R-University Park, would alter several aspects of Texas's taxation and bond election processes, including a limitation on the transfer of maintenance and operations tax revenue to cover debt.
“As the legislature continues to dedicate billions in state funds to lower property owners’ tax burden, this growth of debt has contributed to our constituents’ property tax bills continuing to rise," Meyer said. "HB 19 enhances fiscal responsibility, increases transparency and provides voters with more control over local government borrowing and tax rate increases.”
Travis Krogman, the Austin Chamber's vice president for state and federal government relations, testified against both bills due to the potential impacts on economic development in and around Austin. He said the ATP was created to deliver the "highly complex" Project Connect with greater transparency, and that local businesses and residents would be negatively affected if the program falls through.
"More than 2,300 Texas businesses could provide the materials and services needed to design and build Austin light rail, a project that will result in billions of dollars in statewide economic impact and support hundreds of thousands of jobs," Krogman said.
Lawmakers on the House Committee on Ways & Means were generally skeptical of arguments in favor of the ATP financing structure, with Rep. Cody Vasut, R-Angleton, stating that the current plan runs afoul of state statute.
“As a foundational rule of law, you cannot use [maintenance and operations] tax revenue to pay [interest and sinking, or debt service]. They’re two separate taxes," he said. "Basically, it seems like what you’re raising a concern with is wanting to do something that’s highly illegal. Like straight up, this is totally illegal.”
After lawmaker review April 21, both HB 19 and HB 3879 were left pending in the House committee. A Senate companion to HB 3879 has yet to be heard by a committee in that chamber.
