Texas AG Paxton asks judge to reject Austin's plans to finance Project Connect improvements

A Travis County judge on Monday set a trial date to hear arguments in a pending bond validation lawsuit centered on the proposed financing plan for Project Connect, setting a stage on which the future of the city of Austin’s $7.1 billion public transportation investment could be at stake.

A bond validation lawsuit seeks to confirm the validity of municipal bonds issued by a government entity. The trial will be the culmination of a lawsuit that attorneys representing the Austin Transit Partnership, the city's light-rail planning agency, filed in February.

The trial is set for May 28 through 30, according to a memo sent to Austin Transit Partnership board members Monday.

In a 11-page petition filed Friday afternoon, Texas Attorney General Ken Paxton weighed in on the pending lawsuit, claiming neither the city nor Austin Transit Partnership can issue bonds to build the planned improvements, including the centerpiece light-rail system. The Republican attorney general asked the judge to dismiss the city's request to affirm the bonds.

Voters approved Project Connect in 2020 by a more than 15 percentage-point margin, raising the ad valorem property tax rate by 8.75 cents — an increase to the city's property tax rate by more than 20%. The new tax would go toward transforming the city's transit map with a new light-rail system, high-frequency bus routes and other improvements.

The investment's most costly element is the light-rail system. A finance plan published last summer estimated the initial system would cost between $4.5 billion and $5.1 billion. Current plans rely on the new property tax and at least a 50% match in grant funding from the Federal Transit Administration.

The light-rail plans have undergone a number of changes since 2020. Last summer, the Austin City Council and transit officials approved a downsized version of the initial buildout: a 9.8-mile line stretching north, south and east of downtown Austin but stopping short of Austin-Bergstrom International Airport and Crestview Station, where it could intersect with Capital Metro's commuter rail line between Leander and downtown Austin.

In the memo to board members Monday, Casey Burack, an Austin Transit Partnership executive over business and legal affairs, said the light-rail planning agency was "confident in our position" and characterized the attorney general's motion as an "attempt to deprive" the agency and the city of due process.

The city disagrees with the attorney general's assertions and was "certain the court will allow the City and ATP time to file responses," said Shelley Parks, a city spokesperson, in a statement.

Supporters of Project Connect say the legal challenges by critics are attempts to subvert the will of voters and undo efforts to expand public transportation. Opponents say the financing model is faulty and the current light-rail plan no longer reflects what voters were shown prior to casting a ballot in November 2020.

The bond validation lawsuit was consolidated with one filed by critics of Project Connect last fall. In a statement Friday, attorney Bill Aleshire, a former Travis County judge and tax assessor/collector who is representing the plaintiffs, marked the attorney general's filing as "the beginning of the end of the biggest con job ever perpetrated on the taxpayers of Austin."

"If Austin 'leaders' want mass transit in Austin, they should immediately stop Project Connect, cancel the illegal tax increase, and go back to the voters with an affordable plan, with an honest price tag, and see if voters will authorize bonds, i.e., the legal way taxpayer debt is incurred," Aleshire said in the statement.

Among the plaintiffs represented by Aleshire is Dirty Martin's Place, a longtime burger restaurant near the University of Texas campus. More than two years ago, light-rail planners informed the owner that the property might need to be seized because the new light-rail line would run through it, according to records obtained by the American- Statesman.

However, last month, the Austin Transit Partnership announced it no longer intended to seize some private property along Guadalupe Street between 27th and 29th streets for the proposed line, including the property where Dirty Martin's Place sits. Despite this change, the owner, Mark Nemir, said he planned to continue pursuing the lawsuit.

Project Connect has faced scrutiny from state officials before. Last summer, state lawmakers took aim at the city's finance model with proposed legislation, but those bills died during the session. Speaking to the Statesman last fall, state Rep. Ellen Troxclair, R-Lakeway, said the city's finance model is illegal and vowed to propose similar legislation next session.

A Paxton-issued legal opinion at the time, which informed some of the proposed legislation, said the city made “mistakes” and “misstatements to the voters.” Parts of the attorney general's Friday filing echo its previous opinion.

Bonds are a key part of Project Connect’s current financing plan. In seeking the matching federal grant funds, the Austin Transit Partnership concluded a series of required open house events last month as part of a federal environmental review for the 9.8-mile system. Construction of the line could stretch into the 2030s.