Update at 10:45 a.m. Monday: The Attorney General’s Office filed an interlocutory appeal moments after Travis County Judge Eric Shepperd began the trial at 10 a.m. The ATP plans to file motion to dismiss that request. The legal saga will now be taken up by the Third Court of Appeals and could eventually go to the Texas Supreme Court.
A hotly anticipated trial that could determine whether Austin can build a 10-mile light-rail system for $7 billion is likely to come to a screeching halt Monday just as it leaves the station. The central legal issue swirls around the unique funding mechanism devised to pay for the largest transit service expansion in Austin's history.
The Austin Transit Partnership (ATP) — a local government corporation created after voters approved a property tax increase to fund light-rail — is seeking the court's approval to take on debt without being stopped by the Texas Attorney General.
ATP plans to borrow up to $5 billion to cover the upfront costs of building a light-rail system. The money would be repaid with the voter-approved increase in property taxes, currently generating about $166 million annually. The City Council must vote each year to transfer the money to ATP.
The legal action by ATP is known as a bond validation lawsuit. Bonds are a type of debt where investors lend money to government agencies with a promise the cash will be paid back with interest.
Without the court's blessing, the Texas AG would decide whether ATP could issue bonds. If ATP wins the lawsuit, the AG wouldn't be able to deny the bond issuance.
But Monday's court action could stop before things get rolling.
The Attorney General's Office plans to file an immediate appeal if Travis County Judge Eric Shepperd allows the trial to begin at 10 a.m. The AG says allowing the hearing to proceed would implicitly deny the state's argument that ATP is not qualified to bring a bond validation lawsuit.
At a hearing in April, lawyers for ATP and the City of Austin asked the judge not to issue any ruling, but instead to take the question "under advisement."
"I've never in my career asked a judge to take a matter under advisement, but this is the case," said Paul Trahan, an attorney with Norton Rose Fulbright, who's representing the city. Trahan told the judge if he did rule on ATP's qualifications to file the suit, it would trigger a lengthy appeals process, delaying the case for months and leaving ATP unable to issue bonds in the meantime.
"Even if you rule in [ATP's] favor, this case will come to a screeching halt," Trahan said at the April hearing. "It will be years before the merits of the case are ever reached."
An appeal after the trial concludes would be fast-tracked, because the law that allows for the bond validation lawsuit requires a quick outcome. An appeal before the trial wouldn't get the same priority.
So ATP's lawyers have prepared an emergency motion in case the AG files an appeal on jurisdiction Monday. ATP hopes the Third Court of Appeals — an Austin-based court where all six judges are Democrats — will return the case to the trial court.
Bill Aleshire, an attorney representing a group of taxpayers suing to stop the expansion, expects a final decision on the AG's appeal to be made by the Texas Supreme Court, which is made up of nine Republican judges. Aleshire's case has been merged with the bond validation suit.
The trial would essentially be frozen until a decision is made on whether ATP has the right to bring a lawsuit.
The Attorney General argues the city couldn't use tax money to pay down bonds, so ATP shouldn't be able to use city tax funds to do the same. Texas cities must hold bond elections for a fixed dollar amount if they want to borrow large amounts of money and repay it with property tax revenue.
ATP and the City of Austin say they won a decisive election victory in 2020 under Senate Bill 2, which requires cities to get voter approval to raise property tax revenue by more than 3.5% in a single year. The city argues the property tax money earmarked for transit is being transferred to ATP as "contract revenue" and doesn't involve the city taking on any debt.
Lawyers for ATP have argued in court that opponents of light-rail are disgruntled citizens who refuse to accept the election results and are attempting to kill the project by bogging it down in lengthy court proceedings that prevent ATP from issuing bonds.
The Texas Attorney General and the taxpayers opposed to the project contend the city and ATP have created a financing mechanism that is invalid under state law.
Both sides are acutely aware of the political clock ticking loudly.
Republicans in the Texas Legislature, which reconvenes in January, will likely try again to pass a law that would end Austin's light-rail plan. A bill that would have stopped ATP from issuing bonds was killed in 2023 by a last-minute legislative maneuver by state Rep. John Bucy III, a Democrat who represents parts of Northwest Austin and Williamson County.
