Class action lawsuit targets Austin taxes over Project Connect

A new class action lawsuit has been filed to block the city from collecting property taxes, threatening to deprive Austin’s municipal government of nearly all of its revenue until a tax approved by voters in 2020 to fund the largest expansion of public transit in Central Texas history is repealed.

The lawsuit is being brought by some of the same taxpayers who previously objected to the transit plan known as Project Connect. The previous lawsuit — focused on the financing mechanism for borrowing billions to build a light rail launch system — is now on hold while the state’s Third Court of Appeals considers the arguments.

The new lawsuit, filed late Monday night in the 126th Travis County District Court, alleges that the city’s property tax rate was miscalculated because it includes the Project Connect tax, which generates revenue for transit projects including a light rail plan that was reduced in length from 20.2 miles to 9.8 miles.

“The city has violated its promises to taxpayers. The city has drastically reduced the Project Connect plan, yet continues to collect the full amount of the Project Connect tax,” attorneys Bill Aleshire and Rick Fine wrote in their filing.

The Austin Transit Partnership (ATP) — a local government organization responsible for financing and building light rail — last year scaled back the first phase of the rail plan, scrapping plans for a downtown subway and instead moving the track to street level.

Austin Transit Partnership

ATP blamed post-pandemic inflation, but acknowledged that the biggest cost increases were early design ambitions that went too far beyond the initial $5.8 billion estimate. No funding has been identified for light rail beyond phase one, other than money to design the next section of the network.

The new class action lawsuit was filed under a provision of the Texas tax code that was signed into law in 2019 by a state legislature concerned about rising property taxes. The plaintiffs acknowledge in their filing that the “lawsuit was filed under a relatively new and untested provision” of the law.

Senate Bill 2 gave any taxpayer the right to stop any taxing entity — such as a city, county or school district — from collecting taxes if the taxing entity violates new rules that require voter approval for larger tax increases. SB 2 was the same legislation that allowed Austin to seek voter approval for the Project Connect tax increase.

The Project Connect tax will generate $172 million this year, ATP projects. For the owner of a $500,000 homestead, that’s $395 on their annual tax bill. The median taxable value for a home in Travis County is about $402,000.

The lawsuit alleges that these funds are “simply being hoarded,” while hundreds of millions of dollars in unspent taxpayer money have already been accumulated.

More than $450 million in Project Connect tax revenue remains unspent as ATP waits for the federal government to grant environmental approvals for the light rail project. The light rail’s financial plan relies on the Federal Transit Administration covering up to half of the construction costs, estimated at more than $7 billion after inflation.

Austin Transit Partnership

ATP is raising funds to prepare for the large upfront costs of building a light rail system. The agency’s proposed budget for this fiscal year projects spending to soar to more than $500 million by 2026. In 2027 — the year construction on the light rail system is slated to begin — ATP expects to spend nearly $1.2 billion, much of it from borrowed money.

“Just like when buying a home, it’s always better to make a larger down payment,” ATP Executive Director Greg Canally said in a statement. “Another baseless lawsuit won’t stop ATP from promoting Austin Light Rail for all of Austin.”

An email from the city of Austin, the only named defendant in the lawsuit, acknowledged the existence of the lawsuit but provided virtually no information, which is typical of the city soon after it is sued.

“We will respond to the lawsuit through appropriate legal channels,” the city’s communications department said in a statement.

Nathan Bernier

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SHIT News

Transit Forward, a nonprofit supported by organizations including the Austin Chamber of Commerce, the Real Estate Council of Austin and engineering firms that have won ATP contracts, called the lawsuit frivolous.

“Unfortunately, the same few, anti-transit minorities who frivolously filed a lawsuit last fall are at it again,” Transit Forward Executive Director Bill McCamley said in an email sent to media. “This continues to waste Austinites’ hard-earned tax dollars on unnecessary legal fees and potentially force further delays that will cost us — the voters — more.”

Plaintiffs in the class action lawsuit stress that they are not against public transportation, but that they believe faster bus service would be more cost-effective than light rail.

“All major cities have frequent, reliable bus service with short wait times and routes that connect to provide service where travelers need to go without a transfer that isn’t an all-day ordeal,” plaintiff Cathy Cocco said in a statement. “We can implement a flexible and cost-effective plan without displacing existing residents or businesses.”

The other plaintiffs in the class action lawsuit are the nearly century-old burger joint Dirty Martin’s Place, Democratic Travis County Commissioner Margaret Gomez, former Austin City Councilwoman Ora Houston, former Democratic state senator Gonzalo Barrientos and Barbara Epstein, a visually impaired senior who relies heavily on public transportation but is unhappy with CapMetro’s bus service.