Paxton's latest challenge came as the Austin Transit Partnership, the entity tasked with building the Project Connect rail system, advances its petition seeking to validate its financing backed by a 2020 voter-approved tax increase. An initial hearing March 18 began that review in court.
In case you missed it
In November, the following five plaintiffs filed a lawsuit against ATP for pulling a “bait and switch” on voters after the organization significantly scaled back the light rail plan:
- Travis County Commissioner Margaret Gomez
- Dirty Martin’s owner Mark Nemir
- Former state Sen. Gonzalo Barrientos
- Former Austin City Council member Ora Houston
- East Austin activist Susana Almanza
The plaintiffs also outlined concerns with Project Connect’s funding structure in the lawsuit. The project is funded through an in-perpetuity tax rate hike approved by voters in 2020, which allows ATP to receive an ongoing stream of cash without annual oversight. Those property tax dollars are collected by the city and later redirected to ATP.
The lawsuit argues that the system—which requires Austin City Council to approve ATP’s cash transfer each year—could hinder its ability to repay debt.
The ATP filed a bond validation petition in late February, which allows for an expedited review of its bond funding process without direct approval from the attorney general. In Texas, all government bonds must typically pass attorney general review.
Dig deeper
ATP’s decision to seek bond validation in court comes after a May opinion from Paxton that found concerns with Project Connect’s funding structure.
Paxton outlined many of those same concerns again on March 15 in a court filing. Paxton stated that the contract proposed in Proposition A, the Project Connect ballot measure, was “invalid” under Texas Tax Code and that the 2020 ballot language was “defective and misleading.” His response also said ATP’s funding structure “raises serious lending of credit issues” under the state constitution.
The local plaintiffs also filed an amended petition in response to the ATP’s bond validation suit with more details on how they believe the entity misled voters.
“Now, most of Austin receives no rail service whatsoever but still must incur more than a 20% annual tax increase to pay for limited service elsewhere,” their petition said.
The plaintiffs asked the court to force Austin to stop collecting Project Connect taxes and use any unspent tax dollars as a credit to reduce the city's 2024 tax rate.
“The Office of the Attorney General of Texas filed [a] devastating rebuke to the validity of the Project Connect bonds and joined us in attacking the entire funding mechanism,” said Bill Aleshire, the lead attorney for the plaintiffs, in an email. “I expect the final court decision to result in a rollback of the almost 21% Austin property tax increase being used to Project Connect and a refund of hundreds of millions of those dollars that ATP has on hand, unspent.”
What they’re saying
“The claims by the [Office of the Attorney General] would essentially be an attempt to deprive ATP and the city of our due process. ATP is confident in our position, and we are looking forward to a judge hearing our arguments,” said Casey Burack, the ATP's executive vice president for business and legal affairs, in a March 18 memo to board members.
What else?
On March 14, the ATP filed a motion requesting confidentiality of the project’s cost estimates and real estate information during the trial process. The ATP argued making that information public could hinder ATP’s ability to negotiate property deals, as they will need to buy land for its maintenance facilities and train stations.
The court will hold a hearing April 10 to address the ATP’s confidentiality request.
What’s next
The bond validation trial will kick off May 28 and could last up to three days. The result will determine if the ATP’s funding process is legal and allow the entity to issue bonds. If the transit entity loses, Project Connect could go back to voters.
Ben Thompson contributed to this report.
