Is Project Connect About to be Derailed?

The city of Austin’s controversial rail scheme (Project Connect) may soon be headed for disaster.

On Friday, the Texas Attorney General’s Office issued a series of devastating findings about the way in which the city has sought to finance its costly endeavor. According to the Lone Star Standard, the AG’s office took issue with the fact that:

“The City [of Austin] attempted to create a contract with the voters that Section 26.07 of the Tax Code did not authorize. Section 26.07 is a truth-in-taxation statute, authorizing a higher maintenance tax rate upon voter approval; it is not a vehicle through which the City can funnel for unlimited duration a portion of its maintenance tax for a billion-dollar capital improvement project to pay debt service.

“The ballot language for Proposition A was defective and misleading, in violation of the principles espoused by the Texas Supreme Court in Dacus v. Parker.”

“The Funding Agreement, comprising the primary source of security for the Initial Bonds and other obligations under the Financing Program, was void at the time of its original execution (the Initial Interlocal Agreement) as an unconstitutional debt under article XI, section 5.”

Backed by these findings, the initial complaint lodged against city officials and the Austin Transit Partnership (ATP) looks much stronger and more persuasive (not that it wasn’t already, as we discussed here last November). And that may eventually result in a court mandating: “a rollback of the almost 21 percent Austin property tax increase being used (for) Project Connect and a refund of hundreds of millions of those dollars that ATP has on hand, unspent.” If that funding source were to be eliminated, then the city’s dream of “bring[ing] 18^th-century technology back” might also come to an abrupt halt.

Of course, all of these matters must be weighed and decided in court before any actual policy consequences materialize. Even still, one thing is clear: municipal misbehavior in this field begs for a legislative remedy.

If this instance has proven anything, it’s that current law is not sufficient to dissuade cities from engineering clever workarounds to existing statute nor is it enough to prevent cities from abusing quasi-governmental entities, like local government corporations, to achieve their own ends. Hence, it’s incumbent upon the next Legislature to bring clarity and consequence to the law, perhaps beginning with the passage of a bill similar to the 88^th session’s HB 3899, which proposed to close: “a loophole in the state’s tax code to fund Project Connect, require[ing] the city to get voter approval before issuing debt for the transit proposal.”

New laws of this type are exactly what’s needed to move Texas governance in a better direction—and avoid the costly mess that’s currently unfolding in court now.