Taxpayers sue City Council over funding plan for Statesman site

Taxpayers Against Giveaways, the Save Our Springs Alliance and three taxpayers – former state Sen. Gonzalo Barrientos, former City Council Member Ora Houston and Allandale neighborhood homeowner Faye Holland – have filed a lawsuit suit against City Council to stop it from putting tax money into a fund for development of the former Austin American-Statesman site on Lady Bird Lake.

Attorneys for the plaintiffs are Bill Bunch, Bill Aleshire and Fred Lewis.

The suit, filed Monday in Travis County District Court, alleges that actions by City Council to create the South Central Waterfront Tax Increment Reinvestment Zone, or TIRZ, were illegal. The area covers 118 acres along the south shore of Lady Bird Lake. According to the suit, the plan “will divert $354 million in property taxes over 19 years from the general revenue to pay for the private infrastructure of a projected $8 billion in luxury development on premier land within the designated zone.”

The plaintiffs argue that “the Council’s action was illegal because Texas Tax Code Chapter 311 restricts creation of such a zone to areas that are ‘unproductive, underdeveloped, or blighted’ and, most importantly, to areas that would not otherwise develop on their own ‘but for’ the redirected taxpayer support. By ignoring the tax code restrictions the Council members exceeded their authority to create such a tax zone. As a result, the redirected tax funds will be illegally spent on the (TIRZ property), while the rest of Austin’s property taxpayers, including plaintiffs, have to pay an equal and uniform share of taxes for the city’s operation.”

Bunch, who is also executive director of the SOS Alliance, said in a news release, “The city is legally required to show that the land is blighted and will not develop without public subsidies. There’s no evidence for that. If there’s any land in the State of Texas that is not blighted and doesn’t need taxpayer handouts, it’s the south shore of Lady Bird Lake.”

Council first approved the money that would go to the TIRZ during its last meeting of 2021 and again in late 2022. At the time of the 2022 vote, Council members Alison Alter, Mackenzie Kelly and Kathie Tovo voted no.

The city itself is not a defendant in the lawsuit, although all Council members and interim City Manager Jesús Garza are named as defendants in their official capacities.

Aleshire said the city isn’t being sued because it was Council that took illegal actions, not the city. Garza is named to prevent Council from ordering him to divert or spend property tax money away from the city’s General Fund, he said. (Mayor Kirk Watson and Council members José Velásquez and Zo Qadri were not on Council when the votes were taken to create the TIRZ. Council Member Chito Vela, who was elected in January 2022, participated in the second vote but not the first one.)

As Aleshire explained, the 2021 designation meant that “2022 became the base year” for measuring how much the property’s value had grown. A TIRZ is based on the difference between a property’s initial value and its value after being designated as a reinvestment zone. Plaintiffs described the money in the TIRZ fund a “kickback fund.”

“The city used the wrong legal standard for the TIRZ,” Aleshire said. “The standard is whether the land would redevelop on its own, not whether it would redevelop in some way different than the city wants. If that was the legal standard, then a TIRZ could be used in every development, to the detriment of the rest of the taxpayers who must pay more taxes to support the general operation of the city.”

Aleshire said that Adler’s statements “clearly show that the city was misapplying the law” when he said, “no one is saying that this area wouldn’t develop if we didn’t do this. It’s just not going to develop the way that we would want it to develop.”

Adler talked to the Austin Monitor in late 2022 about his hopes for the property, noting that the 2012 plan for the area would have made it more suburban than downtown. He described arguments about the future of the site as “one of the culture wars we’ve been engaged in over the last eight years.”

According to the lawsuit, some portion of the $354 million in city funding will be spent on affordable housing, private concessions and “infrastructure facilities that would harm lakeshore wildlife habitats, destroy trees, pollute Lady Bird Lake, and threaten Austin’s one-of-a-kind urban bat colony.” Other public funds would be spent extending Barton Springs Road and rearranging other streets on the site.

If the plaintiffs were to win the lawsuit and the TIRZ was eliminated, it would likely cause major changes in how the property was developed. Richard Suttle, attorney for the owners of the property, told the Austin Monitor in 2022 that the developers knew there was a gap in funding for the site, which would be covered by the TIRZ. “They underestimated the deficit and we are willing to absorb some of that underestimation, but someone asked me, what if there’s no TIF or TIRZ … I responded this project doesn’t work,” Suttle said at the time.

Suttle could not be reached for comment on Monday.

Aleshire said the case is “important not just for Austin. This is one of the few things in Texas law has really reserved for really blighted areas and (Council) have stripped those restrictions … if they can get it here … (they) can get it anywhere in State of Texas.”

A city of Austin spokesperson said via email, “The City believes that Council’s December 2022 action regarding the South-Central Waterfront TIRZ complies with state law requirements. As with many policy decisions, there was ample discussion and community feedback on this topic.”

Photo by Michael Barera, CC BY-SA 4.0, via Wikimedia Commons.

The Austin Monitor’s work is made possible by donations from the community. Though our reporting covers donors from time to time, we are careful to keep business and editorial efforts separate while maintaining transparency. A complete list of donors is available here, and our code of ethics is explained here.

Posted In: Courts, District 9