Bonds

Texas attorney general questions the legality of Austin light-rail funding

A financing plan for a multi-billion-dollar Austin light-rail project, already under attack in the Texas Legislature, now faces concerns about its legality raised by the state attorney general. 

The controversy involves the Austin Transit Partnership, a corporation created by the city and Capital Metro Transportation Authority, and its ability to help finance the Project Connect light-rail system with yet-to-be-issued bonds paid off with property taxes voters approved in November 2020.

In an opinion released Saturday, Attorney General Ken Paxton said Texas law “does not authorize a municipality to ‘earmark’ use of a voter-approved increase in its maintenance and operation property tax revenue for debt service.”

The opinion, which was requested by State Sen. Paul Bettencourt, also questioned Austin’s ability to transfer the tax revenue to the partnership on an ongoing basis. 

“A court would likely conclude that an agreement wherein a municipality binds itself to transfer in perpetuity an increase in its maintenance and operations property tax … not subject to an annual appropriation … is prohibited by article XI, section 5 as a pecuniary obligation imposed by contract with no right to terminate at the end of each budget period,” it said.

Casey Burack, Austin Transit Partnership’s executive vice president of business and legal affairs, said as a local government corporation, the partnership has the authority to issue bonds and notes and the city has the authority to transfer funds to it. 

“ATP has always recognized there are many steps ahead in our financing process, and we will follow state law and take this opinion into consideration as we advance our financing,” Burack said.

The first-of-its-kind funding model in Texas, along with escalating costs for the project caught the attention of state lawmakers, who advanced a bill to require voter approval of bonds issued by local government-created corporations, like Austin Transit Partnership, that are allowed to tap property tax revenue for specified projects.

House Bill 3899 passed both legislative chambers, but a Senate amendment incorporating the attorney general’s opinion will send the measure back to the House for concurrence.

“The bill with the Senate amendments effectively sticks a fork in a terribly devised financing scheme that never should have made it on a ballot,” Gerald Daugherty, a former Travis County commissioner and a member of a group supporting the so-called No Blank Checks bill, said in a statement. “It’s time the city of Austin and CapMetro go back to the drawing board and work on a transit plan that can be funded in a way that’s real, clear, legal and transparent.”

Austin Mayor Kirk Watson signaled last month that city voters will likely be asked in November to approve bonds for the project, which is also counting on federal funding.

As cost estimates rose to $10.3 billion last year from $7.1 billion in 2020, Austin Transit Partnership in March unveiled five lower-cost options for the light-rail system that carry a price tag of about $5 billion each and would take as much as 10 years to complete.

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