Homeowners sue city of Austin over development plans near Lady Bird Lake

A group of Austin property tax payers is suing city leaders over a plan that would divert an estimated $354 million of future tax revenue to pay for additional amenities in a development zone near downtown.

The lawsuit, filed April 24, alleges that the city illegally established a tax increment financing zone, violating state law, and aims to stop the city from "illegally spending" these diverted property taxes. The suit names Mayor Kirk Watson and all 10 council members in their official capacity, as well as interim City Manager Jesús Garza.

The plaintiffs include the nonprofit Save Our Springs Alliance, former state Sen. Gonzalo Barrientos and former Austin City Council Member Ora Houston.

In December, the City Council approved the establishment of the South-Central Waterfront Tax Increment Reinvestment Zone, encompassing 118 acres along the south shore of Lady Bird Lake, including the former Austin American-Statesman site.

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The move redirected a portion of property taxes — estimated to reach $354 million over 19 years — from the city’s general fund to a separate fund to solely support the private infrastructure, such as roads, sidewalks and parks, in the designated area.

Residents who sued claim the council's action was illegal because Texas Tax Code Chapter 311 says that the city can create such a zone if “development or redevelopment would not occur solely through private investment in the reasonably foreseeable future.”

Attorney Bill Aleshire, a former Travis County judge who represents the plaintiffs, said he and his clients interpret that to mean that this type of zone should be applied only to areas that are “unproductive, underdeveloped, or blighted” that would otherwise not be develop if not for taxpayer support.

“This (zone) includes some of the most prime pieces of real estate in the city, and maybe even the state,” Aleshire told the Statesman. “Under restrictions the city can only use this in an area that would not develop on its own, but we know that area is going to develop on its own.”

The suit claims that development in Central Austin is robust, and that almost none is supported by taxpayer subsidies.

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The city, however, stands by its decision.

“The city believes that council’s December 2022 action regarding the South-Central Waterfront TIRZ complies with state law requirements. As with many policy decisions, there was ample discussion and community feedback on this topic,” Yasmeen Hassan, a city spokesperson, said in a statement.

The suit quotes then-Mayor Steve Adler from a Dec. 1 public hearing at which he 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.”

Aleshire and his plaintiffs say that is not the law.

Aleshire told the Statesman that typically property taxes the city collects go into a general fund, which pays for a large range city services and needs.

"The City used the wrong legal standard for the TIRZ,” Aleshire said. “The standard is whether the land would redevelop on its own, not whether it would redevelop in some way different than the city wants. If that was the legal standard, then a TIRZ could be used in every development, to the detriment of the rest of the taxpayers who must pay more taxes to support the general operation of the city.

Aleshire and his clients argue that if the city wanted the additional amenities in this area, it could opt for a public improvement district, similar to the Downtown Austin Alliance Public Improvement District. All properties in the district pay that additional tax for the extra amenities, Aleshire said.

“Aside from this controversy is the question of where does it make sense to use (this type of zone) and where does it not make sense?” Aleshire said. “Because surely there are some blighted areas in East Austin that could benefit from this.”

This article originally appeared on Austin American-Statesman: Taxpayers sue Austin over development plans near Lady Bird Lake