State Comptroller Sued over Formula One

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Bill Aleshire
Bill Aleshire

Taxpayers Sue to Stop State Comptroller From Paying Tax Funds to Formula One Promoters

Lawsuit Questions Whether Formula One Qualifies for Subsidies Under State Law

Three Austin taxpayers filed a lawsuit today to stop State Comptroller Susan Combs from paying state tax money to the promoters of Formula One racing in Austin.

The lawsuit filed in state district court may affect the Austin City Council’s action scheduled for tomorrow to enact ordinances that would otherwise enable the comptroller to make the payments.

Race promoters have publicly stated that the comptroller’s payment must be made in July for the race to take place.

Combs jumped on the opportunity for the race before consulting with the City of Austin or Travis County. In fact, Combs issued a letter to Formula One World Championships Limited on May 10, 2010, to certify that, “With the understanding that the first Formula 1 United States Grand Prix will be held in Texas in 2012, full funding of the entire sanction (fee) for 2012 will be paid to Formula One World Championship Limited (FOWC) no later than July 31, 2011. In subsequent years, two through 10, of the race promotion contract, i.e., 2013 through 2021, we will be sending $25 million to FOWC by the end of July 31 of each year preceding the actual race event.”

As a result of the comptroller’s early commitment, and the extreme lateness in approaching the City of Austin to sign on as the sponsoring municipality, the city is under the gun to approve contracts and is scheduled to consider doing so at tomorrow’s council meeting. The economic study that projects tax revenue to be derived from the race was not delivered until late Monday.

Lawsuit seeks to halt payments

Bill Aleshire
Bill Aleshire

The 13-page lawsuit filed by attorney Bill Aleshire of Riggs Aleshire and Ray PC seeks a declaratory judgment and injunctive relief.

Promoters of Formula One have issued press statements that June 17, 2012, will be the race date. Plaintiffs contend that the official authorized race date has not been approved by the FIA World Motor Sports Council. Senate Bill 1515, sponsored by State Senator Kirk Watson (D-Austin), does not permit the payments or other actions unless the official date of the F1 race is less than a year away.

Because the official race date is unknown, the lawsuit claims that the comptroller lacks authority to:

• estimate the incremental increases in state and local tax revenue directly attributable to the Formula One race,

• accept a request for determination of the incremental increase in state or local tax revenues directly attributable to the race,

• transfer the contingent appropriation of $25 million from the state’s general fund to the Major Events Trust Fund (METF), and

• make disbursements from the METF related to the Formula One race.

The lawsuit further notes that the selection of Austin as the site of the race must have been preceded by a “highly competitive selection process” but no local government participated in such a process. In fact, Council Member Randi Shade was quoted in a June 3, 2011, article as saying, “The City of Austin did nothing to recruit F1 to Austin. We did not take any action, as far as I know, to encourage, facilitate, or drive those people to choose Austin as their site.”

The lawsuit contends the comptroller does not have authority to give Formula One “tax incentives” without that competitive process.

“One anticipated effect of the lawsuit is to demonstrate what an open-ended, sky-is-the-limit 10-year deal this can be for Formula One if permitted to proceed,” Aleshire said in a statement. “For example, in subsequent years, the only limitation on the amount of tax dollars that Formula One can receive from state or local taxes is how much increased revenue the comptroller is willing to estimate results from having the F1 race here.”

The plaintiffs in the suit are Richard Viktorin, a certified public accountant who operates Audits in the Public Interest; Dr. Ewa Siwak, an AISD teacher whose three-year contract was cancelled as a result of public education budget cuts in Texas; and Richard Franklin III, a member of the Del Valle ISD school board, near where the F1 race track is to be located.

“This lawsuit is not against Formula One,” Viktorin said in a released statement. “It is a suit to make our public officials follow the rules and correctly calculate the tax and economic impacts if they are going to grant economic development incentives to private businesses.”

Siwak stated, “It is shocking to me that the state would consider subsidizing billionaires at a time when the state has shamefully forsaken its school children and the poor in need of Medicaid-funded health care. It is bad enough that our elected representatives would consider such a scheme, but to do so in disregard of the protections in the law to prevent abuse of such corporate giveaways is beyond shameful.”

Franklin stated, “My concern is for the many teachers and programs that school boards, mine included, have had to cut when the money they are giving away could be used to offset these shortfalls. I have heard nothing from Formula One that would indicate that they really would have a positive effect on our schools or our environment. We teach our students to obey the rules; well, so should our powerful officials and rich businesses.”

Aleshire’s statement said he contacted attorneys for Comptroller Combs and offered to meet today to discuss the lawsuit. Her attorneys indicated that such a meeting is not possible until Friday or Monday. Aleshire accepted the offer and is waiting for notice of the time and place to meet.

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