A lawsuit filed this morning in state district court seeks a permanent injunction to prevent the City of Austin from diverting an estimated $354 million in future property taxes from being spent for any purpose by the South-Central Waterfront Tax Increment Reinvestment Zone No. 19 (SCWF-TIRZ). (Cause numbers are not immediately assigned when cases are e-filed. Our link will be updated as soon as the file-stamped copy is made available.)
The City Council December 1, 2022, finalized the boundaries of the SCWF-TIRZ and authorized 46 percent of the city property taxes paid by property owners within it to be redirected for private development that’s estimated to be worth $8 billion. The TIRZ is comprised of 54 properties totaling 118 acres located immediately south of Lady Bird Lake and east of South First Street.
The 24-page petition states that because all other property in the city would have 100 percent of its value taxed to meet the ordinary needs of the city and the TIRZ would have only a part of its value taxed for that purpose, it would cause an “unequal distribution of the ad valorem tax burden.” A 1981 Attorney General’s Opinion No. MW-337 found that to be unconstitutional.
Lawyer-lobbyist Richard Suttle of Austin law firm Armbrust & Brown, who represented developer Endeavor Real Estate Group in gaining City Council approval of the SCWF-TIRZ, did not return a telephone call this morning for comment on this story.
The petition also claims that the use of property taxes for the benefit of the SCWF-TIRZ property owners is an “illegal gift of public funds” prohibited by Article III Section 52 of the Texas Constitution.
The lawsuit states, the “Council’s action was illegal because Texas Tax Code Chapter 311 restricts creation of such a zone to areas that are “unproductive, underdeveloped, or blighted” and, most importantly, to areas that would not otherwise develop on their own ‘but for’ the redirected taxpayer support.
“By ignoring the Tax Code restrictions, the Council members exceeded their authority to create such a tax zone. As a result, the redirected tax funds will be illegally spent on the SCWF-TIRZ property, while the rest of Austin property taxpayers, including Plaintiffs, have to pay an unequal and (not) uniform share of taxes for the City’s operation.”
“The issue isn’t whether the SCWF TRIZ development might be a nice addition to the City, but whether the City has complied with the state law’s restrictions, satisfied the mandatory findings of facts, and applied the correct legal standards for spending public funds for private development.
“The Defendants’ ultra vires decision to spend City property taxes on the SCWF TIRZ should be declared illegal and enjoined by the Court,” the petition states. (Ultra vires is a Latin phrase that translates to “beyond the powers,” in this case acting beyond authority granted by law.)
Brief council debate
The time stamps on the published transcript of the December 1, 2022, council meeting indicates the council discussion before the combined vote on the two ordinances involved (20221201-010 and 202212101-054) lasted from 8:00 until 8:22pm.
Before the vote, then-Mayor Steve Adler said, “No one is saying that this area wouldn’t develop if we didn’t do this. It’s just not going to develop the way that we would want it to develop.” The lawsuit contends this is an admission that the SCWF TIRZ does not meet the statutory requirements for its establishment and is being used inappropriately as a tool for urban planning.
In light of this litigation, it is somewhat ironic that Mayor Adler praised the city’s legal staff in the discussion leading up to the vote that’s now being challenged. He said, “I appreciate staff’s work on this over the last year and in refining it…making sure that we’re doing something here that is kind of cutting edge and new in this kind of application….”
Voting in favor of the motion to approve the SCWF-TIRZ boundaries and divert 46 percent of future property taxes from that area were Mayor Adler and Council Members Paige Ellis, Vanessa Fuentes, Natasha Harper-Madison, Leslie Pool, Sabino “Pio” Renteria, and Jose “Chito” Vela.
Voting no on the motion were Mayor Pro Tem Alison Alter and Council Members Mackenzie Kelly and Kathie Tovo. It is significant that Tovo, in whose district the SCWF-TIRZ is located, had been an early supporter.
Council Member Ann Kitchen, whose term, like the terms of Adler, Renteria and Tovo, would be ending that month, abstained from voting.
“I’m uncomfortable voting on something where I do not have the final plan,” she said. “Since I won’t be here next year when you guys take up the final plan, I felt it best to just abstain, because I don’t have surety on what I’m voting on and how those funds will be spent.”
During citizen communication in the morning portion of that council meeting, attorney Fred Lewis warned the council that legal action might result from their approval of the SCWF-TIRZ. He said, “You did not have in your preliminary plan the factual basis to support the conclusion that but for the subsidy, development wouldn’t occur. Therefore, it is flawed. You will be sued and you will lose.”
The litigation has now been filed. It will be up to a court to decide who will lose.
The plaintiffs and defendants
Plaintiffs, as property taxpayers, seek a permanent injunction because once the illegal expenditures are made, they will lack standing to recover the spent funds.
In a statement issued by the plaintiffs’ lead attorney, Bill Bunch, he said, “A TIRZ is a form of a ‘tax kickback scheme,’ which is legal when used in a truly blighted area that won’t develop without dedicating some tax support back into the designated zone. But when used in an area like Austin’s highly desirable waterfront property, it’s an illegal tax kickback scheme prohibited by the Tax Code and the Texas Constitution.”
The plaintiffs are Taxpayers Against Giveaways, Save Our Springs Alliance, former State Senator Gonzalo Barrientos, former Austin City Council Member Ora Houston, and Faye Holland.
The three individual plaintiffs are all city homeowners and property taxpayers. Barrientos has owned his South Austin home since 1976. The Travis Central Appraisal District assigned that property a 2023 market value of $1,089,022. Houston has owned her East Austin home since 1982. It has a 2023 market value of $794,587. Holland has owned her west Austin home since 2014 and TCAD gave it a 2023 market value of $894,998. With exemptions, these three individuals paid a combined total of $24,600 in 2022 property taxes, according to the Bulldog’s analysis of online records maintained by the Travis County Tax Office.
Taxpayers Against Giveaways is a Texas nonprofit corporation formed in February 2022 by Bill Bunch. The organization’s other directors are Holly Reed, NAACP Austin President Nelson Linder, attorney Fred Lewis, Laura Templeton, and attorney Roger Borgelt.
Bunch is executive director of the Save Our Springs Alliance and the lead attorney in this litigation. Fred Lewis and attorney Bill Aleshire are co-counsel for plaintiffs.
The lawsuit defendants are Mayor Kirk Watson, each Austin City Council member, and interim City Manager Jesus Garza, all sued in their official capacity.
Aleshire, who represents the Bulldog in public information requests, said in a telephone interview, “They want to transform the TIRZ scheme to be used to enhance or make different the development that would occur anyway.” Aleshire, who served as Travis County Tax Assessor-Collector 1980-1985 before being elected Travis County judge, added, “They can’t do that.”
Trust indicators: Ken Martin has been doing investigative reporting in the three-county Austin metro area since 1981. Email [email protected].
City of Austin Ordinance No. 20221201-010, December 1, 2022 (3 pages)
City of Austin Ordinance No.20221201-054, December 1, 2022 (3 pages)
Map illustrating the boundaries of the South-Central Waterfront Tax Increment Reinvestment Zone No. 19, December 1, 2022 (1 page)
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)
Taxpayers Against Giveaways certificate of formation, February 3, 2022 (4 pages)
Texas Attorney General Opinion No. MW-337 regarding the Tax Increment Financing Act, May 15, 1981 (12 pages)
Related Bulldog coverage:
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, 2021
Congratulations to the entire team of folks involved in challenging this taxpayer giveaway. Thanks Bulldoggy for following this!