A Travis County District judge has ordered the City of Austin to scrap a plan to divert a portion of property taxes from general city services and use it to fund infrastructure projects — such as roads, sidewalks and affordable housing — along the south shores of Lady Bird Lake.
On Friday, Judge Jessica Mangrum sided with lawyers, suing on behalf of homeowners who argued council members violated Texas law when they established a tax increment refinancing zone (TIRZ) across several Austin neighborhoods.
"We are disappointed in today’s ruling but very much appreciate the court’s careful consideration of this complex issue," Meghan Riley, a division chief with Austin's Law Department, said.
A TIRZ is a way for cities to spend property taxes on specific parts of town. Typically, the property taxes cities collect go into a communal jar called a "general fund." The money is used to finance a variety of services, such as police and fire. But Texas law lets municipalities redirect a portion of property taxes from a neighborhood, as long as that money is spent on projects that benefit people living there, such as parks and sidewalks.
Money from TIRZs have been used to fund the redevelopment of several neighborhoods in Austin, including most notably the city's Seaholm District. Home to the former city-owned power plant, this section of downtown is now full of high-rise apartments, shops and restaurants.
In late 2022, council members created the South Central Waterfront TIRZ, making it possible for the city to siphon off a portion of taxes from property owners in neighborhoods including parts of Travis Heights, Bouldin Creek and East Riverside. The city estimated it would collect roughly $354 million over two decades.
But lawyers for the plaintiffs, including former state Sen. Gonzalo Barrientos and former Austin City Council Member Ora Houston, argued this tax plan was a misuse of state law. A TIRZ is intended to incentivize development in an area where it otherwise wouldn’t happen. Attorneys argued developers building in areas just south of Lady Bird Lake, where homes sell for over $1 million, need very little encouragement to build.
"[A TIRZ] was a tool developed to assist, with tax dollars, redevelopment in economically distressed or blighted areas," said Bill Bunch, executive director of the Save Our Springs Alliance and the lead lawyer on the case. "The south shore of Lady Bird Lake in this day and age of Austin as a boomtown is simply not that location."
In their lawsuit, Bunch and fellow attorneys quoted former Austin Mayor Steve Adler during a hearing on the TIRZ in 2022.
“No one is saying that this area wouldn't develop if we didn't do this,” Adler said at the time. “It's just not going to develop the way that we would want it to develop.”
The city’s tax policy in South Austin became more controversial in light of a plan to redevelop the former site of the Austin American-Statesman offices. The developer, Endeavor Real Estate Group, intends to build thousands of condominiums and apartments on the site, a small portion of which could be set aside for people earning low incomes. (The developer agreed to pay the city $23 million as a fee for not committing to build affordable housing on the site.) In public meetings, representatives for Endeavor told council members they needed the TIRZ in place to help fund portions of the development.
“Everybody else in Austin was having to pay for the cost of the general operation of the city government but these folks were getting a kickback … to be used for their own benefit,” said Bill Aleshire, a former Travis County Judge and one of the attorneys on the case.
It's not yet clear if Endeavor will move ahead with construction on the former Statesman property without the TIRZ. A lawyer for the developer did not respond to a request for comment.
