Court validation sought for Austin light-rail bonds

Austin, Texas, officials are heading to court to seek validation for a controversial issuance of bonds to help fund a multi-billion-dollar light-rail project.

The Austin City Council on Thursday authorized the move, as well as amendments to an agreement with the Austin Transit Partnership (ATP), a corporation created by the city and its Capital Metro Transportation Authority to spearhead Project Connect’s development and financing.

On Friday, ATP’s board approved the amendments, along with an initial issuance of up to $150 million of bonds with a maximum maturity of 40 years to reimburse itself for project costs. A pool of 10 underwriting firms for that and future bond sales was also approved. 

The bonds would be paid off with a portion of the city’s operation and maintenance property taxes that Austin voters approved in November 2020 for what was then a $7.1 billion light-rail system. In June, the city council okayed an implementation plan for a 9.8-mile rail line expected to cost $4.5 billion to $4.8 billion.

In his Feb. 9 update, Austin Mayor Kirk Watson said the project relies on debt issuance and federal funding and that the Texas Attorney General’s office, which criticized the debt issuance plan last year, can block a bond sale. 

“Because of this power and because of the need for governmental entities to issue debt in an expeditious manner, Texas law allows for what’s known as a ‘bond validation’ action to let the city or other entity file in court to get an expedited review of the proposed bond issuance,” Watson wrote.

A Texas Attorney General opinion in May said state 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 also questioned Austin’s ability to transfer property tax revenue to ATP on an ongoing basis.

Bond financing for Project Connect is already being targeted in a lawsuit filed in Travis County District Court in November by taxpayers with a claim that echoed the attorney general’s opinion. The plaintiffs also contend the project presented to voters in 2020 was “drastically different” than the light-rail system currently being pursued.

Bill Aleshire, attorney for the taxpayer plaintiffs, said he expects the lawsuit will be consolidated into the bond validation action, adding he welcomes the move because it will lead to a speedier decision on the debt.

“If they get shut down in court and told ‘no you can’t issue those bonds,’ I think that would be actually a wonderful thing even for those who support light-rail here in Austin because their only alternative is to do exactly what we told them to do … and that would be to turn back around and go to the voters with a phased plan,” he said.

Legislation to restrict this first-of-its-kind funding model in Texas stalled in the legislature last year. House Bill 3899 would have required voter approval of bonds issued by local government-created corporations, like ATP, that are allowed to tap property tax revenue for specified projects.