In a lawsuit filed last April plaintiffs sought a permanent injunction to prevent the City of Austin from diverting $354 million in future property taxes from being spent to subsidize a luxury development project. (Taxpayers Against Giveaways v. City of Austin, Cause No. D-1-GN-23-002238.) The Bulldog published an extensive report on that litigation the same day.
Under ordinances approved in December 2022, that $354 million would be allocated to Tax Increment Reinvestment Zone No. 19 (SCWF-TIRZ). The SCWF-TIRZ encompasses 118 acres of land located on the South Central Waterfront of Lady Bird Lake. It includes the former location of the Austin American-Statesman, for which a Planned Unit Development has been approved.
On December 22, 2023, both plaintiffs and the City of Austin filed motions for summary judgment in the case. Each side has asked the court to decide in its favor, as a matter of law, and without needing a trial.
Plaintiffs’ 48-page motion asks the court to grant a summary judgment to invalidate the creation of the SCWF-TIRZ and to enjoin the City from taking any action to expend public funds for it.
Defendant City of Austin’s 29-page motion for summary judgment states “None of the Plaintiffs’ claims has any merit.”
“The City Council made all findings required by the Texas Tax Code, and the findings were supported by the information before Council when it acted,” the motion states.
State law requires evidence for TIRZ
The “but for” test set forth in Tax Code Section 311.003(a) requires the City Council to determine “that development or redevelopment would not occur solely through private investment in the reasonably foreseeable future.”
The City Council, in passing the TIRZ Ordinances, based its approval on two documents:
(1) The South Central Waterfront Vision Framework Plan. The Plan approved in June 2016 states in the first sentence of its Executive Summary, “The South Central Waterfront is bound for change. In fact, change is rapidly underway.” (Emphasis added.)
(2) The analysis performed by Capitol Market Research, which is included in the Preliminary Project and Financing Plan amended by the City Council December 1, 2022.
The analysis presents an “absorption forecast” for three major property types: office, multifamily, and residential condominiums. The analysis predicts how much commercial real estate would be sold or leased over two decades.
That’s a feasibility study. It does not address whether public investments are necessary for development.
The Capitol Market Research analysis also includes Projected Taxable Values from 2021 to 2040 for properties within the 118-acre TIRZ. It showed that in January 2021 the City of Austin’s taxable property value was $824.9 million. In January 2022 the City’s taxable value exceeded $1 billion.
That’s an increase in taxable value of more than $188 million (nearly 19 percent) achieved in a single year without a TIRZ.
Rather than making a case for property taxes being essential for development to occur within the TIRZ, these two documents instead appear to undercut the City’s justification.
Mayor may have weakened TIRZ justification
On December 1, 2022, when the City Council was discussing the proposed amendment to the TIRZ Ordinances, then Mayor Steve Adler said, “There’s been a question about whether or not you can do a TIRZ in an area that would otherwise develop on its own. And our legal staff has told us, yes.
“No one is saying that this area wouldn’t develop if we didn’t do this… And legal says that we’re allowed to use the TIRZ if the development that we want to have happen isn’t going to happen on its own. This is urban planning.”
Later in that meeting, Council Member Alison Alter said, “I’ve had questions about whether we have—in the actual backup of what we’re passing—if we have the financial analysis to establish the ‘but for.’ ”
She asked for an explanation of where the City had documented having met that requirement.
Ed Van Eenoo, the City’s chief financial officer, replied: “The market analysis that we had done is the basis for the ‘but for’ analysis…the CMR (Capitol Market Research) analysis is that ‘but for’… the public investment we are projecting more than $3 billion of private investment occurring would not happen. But for the public investment that would not occur.”
Despite possibly overstepping its legal authority, the City Council amended the SCWF-TIRZ Ordinances and obligated 46 percent of the property taxes attributable to increased growth of the tax base within the TIRZ boundaries.
The vote to approve was 7-3-1. Council Members Alison Alter, Kathie Tovo, and Mackenzie Kelly were opposed. Council Member Ann Kitchen abstained.
Lobbyist said no TIRZ, no project
Lawyer-lobbyist Richard Suttle of Austin law firm Armbrust & Brown represented developer Endeavor Real Estate Group in gaining City Council approval of the SCWF-TIRZ.
When at one point it looked like the Council might not approve the TIRZ, Suttle issued an ultimatum: “All the work that we’ve done so far is out the window. Because we’ve said over and over we have to have a viable project. Our understanding was the TIRZ was going to be approved and the funding was going to be appropriated to the things the TIRZ said they were going to do. That’s the only way our project works.”
“I’ll tell you what: we won’t build the plan if there’s no TIRZ. It just doesn’t work,” Suttle said on another occasion.
Other developers criticize TIRZ
Two veteran Austin real estate developers told the Bulldog that devoting public funds to the TIRZ is unnecessary.
Brian Rodgers, a longtime civic activist in addition to being a real estate investor, is blunt: “The idea that if the City doesn’t subsidize development, they won’t build it, is bullshit.”
Ed Wendler Jr. said, “The State law says a city can’t create a TIRZ unless the area is blighted or that without the TIRZ development is unlikely. But I don’t think there’s an Austin resident, judge, Martian, or proverbial blind man that believes the corner of South Congress Avenue and Riverside Drive won’t develop.
“That’s the center of the TIRZ. It’s located in one of the hottest real estate markets in the nation and in one of the hottest areas of that market.
“In this case there is no doubt that residents gave up tax revenue they would certainly get without a TIRZ.”
Wendler added, “The huge increase in value shown in the (Capitol Market Research) report is due to the massive increase in zoning that the City is granting. It is a very, very generous gift of tens of millions of dollars.
“That increase in value has nothing to do with the TIRZ. The creation of the TIRZ is a gift on top of that gift. The increase in tax revenue is attributable to the increase in zoning: bigger buildings, more taxable value, more tax dollars.”
Rodgers agreed, saying, “Increased zoning entitlements provide the real value. That can change at any Thursday’s council meeting. Every additional story of building height they give developers is handing them money.”
What the TIRZ costs taxpayers
The Capitol Market Research analysis states the 118-acre TIRZ had a 2021 taxable value of $824.9 million. The analysis projects the taxable value would grow to $8 billion by 2040.
Those values are based on the assumption that the South Central Waterfront Vision Framework Plan “is implemented and the City of Austin contributes funds for infrastructure that will support higher density development.”
That infrastructure is estimated to cost $354 million over 20 years, per Exhibit D of the Preliminary Project and Financing Plan. Under the TIRZ Ordinances, the cost of public improvements will be paid for by taking 46 percent of the increase in tax revenue derived from the development.
That $354 million—instead of going into the City’s general fund to help pay for police, fire, EMS, libraries, and parks, for example—would be used to pay for infrastructure to enhance the luxury development of 118 acres on the south shore of Lady Bird Lake. It would pay for roads and drainage, affordable housing, streetscapes, parks, trails, plazas, and utilities. These are costs that downtown developers, for example, would themselves be expected to pay.
The TIRZ Ordinances affect only the collection and use of city property taxes. The TIRZ will not reduce the ability of other taxing jurisdictions to collect their usual taxes.
No money has been spent
The Preliminary Project and Financing Plan, amended December 1, 2022, states that the SCWF-TIRZ will continue to exist until all debt issued by the City has been fully satisfied or December 31, 2041, unless otherwise terminated.
The Plan recommends achieving the improvements in tiers tied to property tax projections. Only Tier One projects will be eligible for funding upon creation of the Zone. Implementation of Tiers Two and Three projects are contingent upon performance of the Zone.
Tier One roadway and drainage projects would cost an estimated $83.4 million, according to the plan. Affordable housing projects are also included in Tier One, estimated to cost $69.5 million.
Kimberly Moore, a senior public information specialist with the City’s Financial Services Department, said in an email that $742,077 in city taxes are expected to be collected on the TIRZ properties in 2023.
Those funds are to be placed in the South Central Waterfront Tax Increment Financing Fund and used for various capital projects. Although these improvements will benefit development of the TIRZ properties, those improvements will be owned and managed by the City of Austin.
The City’s Financial Services Department will lead and partner with other affected departments to develop the Final Project Plan, Moore said.
No funds can be disbursed for use until a final Project and Financing Plan is developed and approved, Moore said. But that plan can’t be finalized until a “regulating plan” is completed.
Erica Leak, development planning officer in the City’s Planning Department, said the regulating plan, sometimes called an overlay or a density bonus plan, will establish development standards for the area within the TIRZ.
The regulating plan will be based on the 2016 Vision Framework Plan and designed to achieve its implementation, she said. That would include a required street network and associated streetscapes. A density bonus might permit additional square footage or building height proportional to the community benefits provided by developers. Examples of community benefits are open space or affordable housing.
Leak said the hope is that the council would adopt the regulating plan no later than this May.
Trust indicators: Ken Martin has been doing investigative reporting in the three-county Austin metro area since 1981. Email [email protected].
Related documents:
City of Austin Ordinance No. 20221201-010, amending the ordinance that established the Tax Increment Reinvestment Zone No. 19, December 1, 2022 (3 pages)
City of Austin Ordinance 202215201-054, amending the ordinance that established the Tax Increment Reinvestment Zone No. 19, December 1, 2022 (3 pages)
Defendants City of Austin motion for traditional and no-evidence summary judgment, December 22, 2022 (29 pages)
Plaintiff’s original petition for injunctive relief, Taxpayers Against Giveaways, et al, v City of Austin Mayor Kirk Watson et al, (Cause No. D-1-GN-23-002238) April 24, 2023 (24 pages)
Plaintiffs’ Motion for final summary judgment, December 22, 2022 (48 pages)
Preliminary Project and Financing Plan for South-Central Waterfront Tax Increment Reinvestment Zone No. 19, amended December 1, 2022 (219 pages, which includes the Capitol Market Research TIRZ Analysis on pages 131-219)
South Central Waterfront Vision Framework Plan, June 16, 2016 (114 pages)
Related Bulldog coverage:
Lawsuit seeks to halt tax dollars for luxury development, April 24, 2023
Lame duck council set to vote on 20-year sweetheart tax deal for developer, November 28, 2022
Environmentalists assail plan for lakeside high rises, October 4, 2022
Council revives plan to use ‘blight’ law to subsidize luxury high rises, July 28, 2022
Luxury subsidy deal stalls at council, February 3, 2022
Luxury real estate to get special tax status under ‘blight’ statute, December 21, 2024
Well done. I sat on the Waterfront Planning Advisory Board when this plan cane into being. (2012). I sat on the South Central Waterfront Advisory Board, specifically created to oversee this plan. It has evolved radically, (from 80 ft. max building height to 400 ft. point towers) as the largest of the plan area’s 31 individual property owners simply cherry-picked aspects of the plan that benefitted them, while city council and staff sat on their asses, delaying for years to commit to a governing or oversight or financing plan for community infrastructure or on-site affordable housing (Envisioned at 20%). The result is the rogue plan this property owner and its lobbyists are now pushing.
The plan and plan area have become an unmanageable mess and I see little or none of the public benefits it originally envisioned.
Thanks again, Ken.
Cory Walton
Thank you for sharing your research. Hopefully the judge will make the common sense decision and side with the community instead of the greedy developers.
Ask how much public space there is. Developers say open space on plans but it’s private. Trail will have to be built over the water. & the bats! Construction will drive them away. Austinites pay them to take away established privileges that should be grandfathered.
Even some of the “streets” are private & taxes pay for infrastructure. Ugh.