Lawsuit against Austin's Project Connect tax rate dismissed; appeal 'very likely'

AUSTIN (KXAN) — A Travis County judge dismissed a lawsuit last week that challenged the validity of property tax rate allocations to Austin's Project Connect mass transit program, according to documents obtained by KXAN.

A group of plaintiffs filed the suit in late August against Austin City Council, alleging the approved property tax rate for fiscal year 2025 violated Texas Tax Code. As part of their claims, the plaintiffs argued the 2020 property tax rate increase for Project Connect is no longer viable, given to changes made to the light rail system's scope and claims the tax rate isn't "being used as promise," per the original suit.

The lawsuit also alleged that $456 million in taxpayer dollars “have been stockpiled, unused” for the past four years.

“Plainly, the taxpayers of Austin are getting nothing, absolutely nothing, this year from this ‘annual appropriation’ of the Project Connect tax,” the lawsuit read.

Austin City Council submitted a motion to dismiss request for the suit. On Dec. 17, the court considered that submittal, and ruled on Dec. 20 in favor of the city of Austin.

That dismissal order is detailed below. KXAN also reached out to the city of Austin for comment regarding the dismissal; we will update this story once we've received a response.

In a Dec. 28 statement, Bill Aleshire — co-counsel for the plaintiffs alongside Rick Fine — said the two are "very likely to appeal" Shepperd's decision.

With this lawsuit, we tried to prove the current law protects taxpayers from a bait-and-switch scheme where the City of Austin tricked its voters into approving the biggest property tax increase in its history for a 'citywide' light rail plan connecting to the airport, but then keeps the full tax increase while shrinking the rail plan in half, to just a central city plan that doesn’t connect to the airport. By losing this case, so far, the court is saying that the law doesn’t provide that taxpayer protection. That court decision will entice the Legislature to fix this once and for all.

Bill Aleshire in Dec. 28 statement regarding dismissal of Project Connect tax rate lawsuit

Legal challenges to Project Connect

This lawsuit wasn't the only legal challenge the Project Connect mass transit program has faced.

In May 2023, Texas Attorney General Ken Paxton issued an opinion that questioned the legality of the debt and funding structure behind Project Connect as well as the creation of the Austin Transit Partnership to create and deliver the program. That opinion offered a non-binding interpretation, which city officials and Austin Transit Partnership leaders have rebuked.

A group of plaintiffs represented by Aleshire and Fine filed a suit in November 2023 related to the revised light rail plan adopted by Project Connect's leadership in June 2023.

The Austin Transit Partnership then filed a bond validation lawsuit in February 2024. The bond validation petition filed by ATP aimed to “expedite a determination from an impartial court to affirm ATP’s bond program,” per a February statement from the local government corporation.

On June 17, a trial was set to consider both ATP's bond validation lawsuit and the November 2023 suit filed against the light rail plan's adopted scope. That trial quickly halted, following an interlocutory appeal from Paxton's office to delay its proceedings.

The 15th Court of Appeals later dismissed Paxton's appeal in early October, citing "lack of jurisdiction." His office then filed in late October a motion requesting a rehearing of his appeal.

Aleshire and Fine confirmed Paxton filed an appeal with the Texas Supreme Court on Dec. 20, following the 15th Court of Appeals' decision to dismiss his June interlocutory appeal.

"Once again, I think the Texas Legislature will be interested in stopping Project Connect from becoming a model for bypassing bond elections (where the tax expires automatically when the bonds are paid off) and, instead, mis-using tax-rate increases to the General Fund that put a tax in place in perpetuity regardless of what changes the City makes to what voters approved in exchange for the tax increase," Aleshire added in an email.