Here's what's at stake in Project Connect trial beginning Monday

AUSTIN (KXAN) — A trial centered around the validity of the funding structure behind Austin's Project Connect mass transit system is set to begin Monday.

The consolidated case will take up two key issues: a bond validation petition filed in February by the Austin Transit Partnership (ATP) — the local government corporation created and tasked with development Project Connect, including its light rail system — to validate the light rail's funding structure, as well as a lawsuit filed against Austin City Council and Austin Transit Partnership in November related to changes in the light rail plan.

The bench trial, overseen by Judge Eric Shepperd, is set to begin at 9 a.m. Monday. That marks a delayed start for the trial, which had originally been slated to begin May 28.

Here's the backstory on both respective components of the trial.

Bond validation petition

A driving component of Monday's trial is verifying or denouncing the validity of Project Connect's funding structure. In November 2020, City of Austin voters approved increasing the city's property tax rate, with a dedicated 8.75-cent revenue stream to fund the Project Connect mass transit system. ATP officials have cited Senate Bill 2 — passed by the Texas Legislature and adopted into law in 2019 — as justification of the funding mechanism.

Among a host of property tax rate changes adopted through this law, it stipulated that municipalities increasing the tax rate by more than 3.5% must have voter approval before any property tax rate increases take effect.

ATP argues that the City of Austin has the right to pay that Project Connect tax revenue "pursuant to an interlocal agreement" between the two entities, and that ATP has the authority to use those revenue payments as repayment for its bonds and any other obligations incurred through the process of developing the light rail system.

The bond validation petition filed by ATP aims to "expedite a determination from an impartial court to affirm ATP's bond program," per a February statement from the local government corporation.

However, the validity of that funding mechanism has been challenged, most notably by Texas Attorney General Ken Paxton. He issued an opinion in May 2023 where he argued Texas' tax code "does not authorize a municipality to 'earmark' use of a voter-approved increase in its maintenance and operation property tax revenue for debt service."

In a pre-trial brief from Paxton filed earlier this month and shared with KXAN, Paxton referred to the 2020 proposition's ballot language as "necessarily defective and misleading," arguing the City of Austin used a tax ratification election "outside the purposes for which it was designed."

Had the City merely submitted to voters a tax bond proposition for the proposed capital project and the voters approved it, there would be clear statutory authorization to issue ad valorem tax bonds up to the maximum principal amount authorized, assuming all other state law requirements had been met. But the City did not want to limit itself to a maximum amount of bonds. Rather, the City sought to earmark a percentage of its maintenance tax rate collections to be handed over indefinitely to a local government corporation under a funding agreement to pay the local government corporation’s bonds. That agreement was void ab initio upon its execution because it created an unconstitutional debt.

Pre-trial Brief of Attorney General

If Shepperd sides with ATP on this issue, it would essentially force the AG Office's hand to approve the program's bond issuance. However, if Shepperd's verdict rules against ATP's bond validation petition, the Texas AG would have jurisdiction to decide whether ATP could issue bonds.

Background on the lawsuit against Project Connect

Bill Aleshire is serving as the lead attorney and representing the plaintiffs in the November lawsuit filed against Austin City Council and ATP. Included in the suit against Project Connect leadership are Austin restaurant Dirty Martin's, former Texas Democratic State Sen. Gonzalo Barrientos, former Austin City Council Member Ora Houston, Travis County Commissioner Margaret Gomez and PODER's director Susana Almanza.

The basis of the lawsuit centers around revisions made to Project Connect's light rail plan, adopted by Austin City Council, ATP and CapMetro in June 2023. That revised plan broke up light rail implementation work into stages, with a nearly 10-mile route running from 38th Street to Oltorf Street and then to Yellow Jacket Lane adopted as phase one.

ATP officials have said this would be only the first phase of a series of planned mass transit enhancements and light rail development as part of the Project Connect program. But lawsuit plaintiffs have said that the City of Austin and ATP are "collecting and spending tax dollars approved by voters in 2020 for a dramatically different Project Connect."

“The city and ATP are collecting and spending tax dollars approved by voters in 2020 for a dramatically different Project Connect than was recently approved by the City,” Aleshire said in a November release. “The law does not allow property tax revenue approved by voters for one project to then be used for an inferior replacement project. Nor can Austin just ignore statutory and constitutional restrictions on use of property taxes.”

ATP officials declined to comment on the lawsuit at the time, citing "pending litigation" and the corporation's continued focus "to advance the project."

Possible trial delays could come Monday

In an email Aleshire shared with KXAN, he said his legal counsel will show up Monday but added the AG's Office is likely to file an immediate appeal if Shepperd allows the trial to begin as expected Monday morning. Aleshire's email added the trial "will stop until the Texas Supreme Court decides whether ATP has standing to file this kind of lawsuit."

If the trial does precede as scheduled, it will likely wrap this week, with a verdict expected to come at some point in the following weeks.