Class action lawsuit targets Austin taxes over Project Connect

A new class-action lawsuit is seeking to block the city from collecting any property taxes, potentially starving Austin’s municipal government of almost all revenue, until it kills a tax approved by voters in 2020 to fund the largest public transit expansion in Central Texas history.

The lawsuit is being brought by some of the same taxpayers who filed an earlier challenge to the transit plan known as Project Connect. The previous suit – targeting the funding mechanism for borrowing billions to build a light-rail starter system – is now frozen while the state’s 3rd Court of Appeals considers arguments.

The new suit was filed late Monday in the 126th Travis County District Court. It claims the city’s property tax rate was miscalculated because it includes the Project Connect tax, which is generating revenue for transit projects including a light-rail plan whose initial scope reduced from 20.2 miles to 9.8 miles.

“The City violated 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 filing.

The Austin Transit Partnership (ATP) – a local government corporation responsible for financing and building light-rail – dialed back the first phase of the rail plan last year, eliminating plans for a downtown subway and moving the rail to street level instead.

ATP blamed post-pandemic inflation while acknowledging the biggest cost increases were early design ambitions that pushed too far beyond the initial estimate of $5.8 billion. No funding has been identified for light rail beyond phase one, except for money to design the next part of the network.

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

Senate Bill 2 entitled any taxpayer to stop any taxing unit – like a city, county or school district – from collecting taxes if the taxing unit violates new rules requiring voter approval of bigger tax increases. SB 2 was the same legislation that allowed Austin to seek voter approval for the Project Connect tax hike.

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

The lawsuit contends these funds are “simply being stockpiled” with hundreds of millions of dollars in unspent taxpayer money already accumulated.

More than $450 million of Project Connect tax revenue has not yet been spent as ATP waits for the federal government to grant environmental clearance for the light-rail project. The light-rail financial plan depends on the Federal Transit Administration covering up to half the construction costs, estimated at more than $7 billion after inflation.

ATP is accumulating funds in preparation for the large upfront costs of building a light-rail system. The agency’s proposed budget for this fiscal year predicts spending will ramp up sharply in 2026 to more than $500 million. In 2027 – the year light-rail construction is slated to start – ATP expects to spend close to $1.2 billion, much of that coming from borrowed money.

“Just like buying a home – it’s always better to have a bigger down payment,” ATP Executive Director Greg Canally said in a statement. “Another baseless lawsuit is not going to stop ATP from advancing 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, which is typical of the city immediately after it’s been sued.

“We will respond to the lawsuit through the appropriate court channels,” a statement from the city’s communications office read.

Transit Forward, a nonprofit organization whose backers include the Austin Chamber of Commerce, the Real Estate Council of Austin and engineering firms who’ve won ATP contracts, blasted the lawsuit as frivolous.

“Unfortunately, the same few, anti-transit minority who frivolously filed a lawsuit last Fall are at it again,” Transit Forward Director Bill McCamley said in an email sent to media outlets. “This continues to waste Austinites’ hard earned taxpayer money through unnecessary legal fees and possibly forcing further delays which will cost us – the voters – more.”

Plaintiffs in the class action suit insist they’re not anti-transit but believe more high-frequency bus service would be more cost-effective than light rail.

“All great cities have a frequent, reliable bus service with short wait times and routes that connect to provide service where riders need to go without having a transfer that is not an all-day ordeal,” plaintiff Cathy Cocco said in a statement. “We can implement a flexible and cost-effective plan without displacing any of the existing residents or businesses.”

The other plaintiffs in the class action suit are the almost-century-old hamburger joint Dirty Martin’s Place, Democratic Travis County Commissioner Margaret Gómez, former Austin City Council Member Ora Houston, former Democratic state Sen. Gonzalo Barrientos and Barbara Epstein, a visually impaired senior citizen who relies heavily on public transit but is unsatisfied with Capital Metro’s bus service.

This story was produced as part of the Austin Monitor’s reporting partnership with KUT.

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