A new class-action lawsuit seeks to prevent the city from collecting any property taxes at all, potentially depriving Austin City Council of nearly all revenue, until a tax that voters approved in 2020 to fund the largest public transit expansion in Central Texas history is struck down.
The lawsuit is being filed by some of the same taxpayers who previously objected to the transportation plan known as Project Connect. The previous lawsuit – which challenged the financing mechanism for taking out billions in loans to build a light rail startup system – is now on hold while the state’s Third Circuit Court of Appeals considers the arguments.
The new lawsuit, filed late Monday in Travis County’s 126th District Court, alleges that the city’s property tax rate was miscalculated because it includes the Project Connect tax, which generates revenue for transportation projects, including a light rail plan whose original scope was reduced from 20.2 miles to 9.8 miles.
“The city has broken its promises to taxpayers. The city has drastically reduced the Project Connect plan but continues to collect the full amount of the Project Connect tax,” attorneys Bill Aleshire and Rick Fine wrote in their complaint.
The Austin Transit Partnership (ATP) – a local government entity responsible for financing and building the light rail – scaled back the first phase of the rail plan last year, scrapping plans for a downtown subway and instead moving the rail to street level.
Austin Transit Partnership
ATP blamed post-pandemic inflation and acknowledged that the biggest cost increases were due to early planning ambitions that far exceeded the original $5.8 billion estimate. No additional funding was allocated for light rail after phase one, except money for planning the next part of the network.
The new class action lawsuit was filed based on a provision of the Texas tax code enacted in 2019 by a state legislature concerned about rising property taxes. The plaintiffs acknowledge in their complaint that the “suit is being filed based on a relatively new and untested provision” of the law.
Senate Bill 2 authorized any taxpayer to exclude any taxing entity – such as a city, county or school district – from collecting taxes if the taxing entity violates new rules requiring voter approval of major tax increases. SB 2 was the same law that allowed Austin to seek voter approval for the Project Connect tax increase.
Project Connect’s tax rate will generate $172 million this year, ATP expects. For the owner of a $500,000 home, that amounts to $395 on their annual tax bill. The median taxable value of a home in Travis County is about $402,000.
The lawsuit alleges that these funds are “simply hoarded” and that hundreds of millions of dollars in unspent taxpayer money have already been accumulated.
More than $450 million of Project Connect’s tax revenue remains unspent as ATP awaits the federal government’s environmental assessment of the light rail project. The light rail’s financing plan depends on the Federal Transit Administration covering up to half of the construction costs, estimated at more than $7 billion when adjusted for inflation.
Austin Transit Partnership
ATP is raising funds to prepare for the high upfront costs of building a light rail system. The agency’s proposed budget for this fiscal year calls for a sharp increase in spending in 2026, to more than $500 million. In 2027 – the year light rail construction is scheduled to begin – ATP expects to spend nearly $1.2 billion, much of which will come from borrowed money.
“Just like buying a home, it’s always better to make a larger down payment,” ATP CEO Greg Canally said in a statement. “Another baseless lawsuit will not stop ATP from moving forward with 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 almost no information about it, which is typical for the city in the immediate aftermath of a lawsuit.
“We will respond to the lawsuit through the appropriate legal channels,” the city’s communications office said in a statement.
Nathan Bernier
/
KUT News
Transit Forward, a nonprofit whose supporters include the Austin Chamber of Commerce, the Austin Real Estate Council and engineering firms that have won ATP contracts, sharply dismissed the lawsuit as frivolous.
“Unfortunately, the same few, anti-transit minorities who frivolously filed suit last fall are at it again,” said Bill McCamley, director of Transit Forward, in an email to the media. “This will continue to waste Austinites’ hard-earned tax money on unnecessary legal fees and potentially force further delays that will cost us – the voters – even more.”
The plaintiffs in the class action lawsuit emphasize that they are not against public transit, but that they believe more frequent bus service is more cost-effective than a light rail system.
“All major cities have regular, reliable bus service with short wait times and routes that are connected in a way that allows riders to get where they need to go without having to transfer, which is not 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 hamburger joint Dirty Martin’s Place, Democratic Travis County Commissioner Margaret Gomez, former Austin City Council member Ora Houston, former Democratic Senator Gonzalo Barrientos and Barbara Epstein, a visually impaired senior citizen who relies heavily on public transportation but is unhappy with CapMetro’s bus service.
