Travis County District Court Judge Jessica Mangrum has ruled that the city of Austin and the developers of the Statesman Planned Unit Development may not move forward with funding of the development on Lady Bird Lake with $354 million in property taxes. The Save Our Springs Alliance, former state Sen. Gonzalo Barrientos, former Council Member Ora Houston and homeowner Faye Holland sued City Council for designating the area as blighted in order to create a tax increment reinvestment zone, or TIRZ.

Under state law, in order to create a TIRZ, the city must show that an area is blighted and that the property would not be developed without the use of public money. Under former Mayor Steve Adler, Council did just that, in spite of the fact that several outside attorneys told them it would be illegal.

Those attorneys included Bill Bunch of the Save Our Springs Alliance, Bill Aleshire and Fred Lewis.

Lewis told the Austin Monitor on Monday that the judge ruled that “they created a TIRZ illegally because they did not have evidence to support the statutory grounds to create the TIRZ and use public money on a private development.” He added, “The city was willing to give away $354 million at a minimum without any showing that the developer and the development needed the money. … Hopefully the City Council will learn from this and stop spending the public money on corporate welfare boondoggles.”

Aleshire said the decision is “a huge victory for taxpayers.” He noted that the decision could have statewide implications even though the ruling by a Travis County district judge does not apply in other jurisdictions. He said the TIRZ is being used illegally in other parts of the state, adding, “it’s about time the restrictions in the tax code were enforced.”

He added the law includes a requirement that an area would not develop without the assistance of property tax money. That was not the case with the waterfront property, which would clearly develop either way. “This decision protects property taxpayers from having to make up for” money the developer is not willing to spend, Aleshire said. He also noted that with a TIRZ, the city could issue bonds, which the city would then have to pay for.

When asked for a comment on the ruling, Meghan Riley, the city’s division chief of litigation, said, “We are disappointed in today’s ruling but very much appreciate the court’s careful consideration of this complex issue. We will review the specific implications of the decision in the coming days. That said, we do not believe this decision impacts the city’s ability to move forward with proposed zoning changes for the South Central Waterfront area.”

Two years ago, the Austin Monitor asked attorney Richard Suttle, who represents the property owners, what would happen if the TIRZ were eliminated. He said the developers understood that there was what he called “a gap” in funding for the project, thus the need for the tax money. He said his clients had underestimated the deficit and even though they were willing to absorb some of that cost, they expected the gap to be covered by the TIRZ.

“They underestimated the deficit and we are willing to absorb some of that underestimation,” Suttle said, but he added that if there was no TIF or TIRZ, the project would not work.

Kathie Tovo, who is currently running for mayor and was a City Council member when the TIRZ was approved, said Monday that she “supported the creation but not the funding of the TIRZ.”

“Our Council was assured by legal staff that a TIRZ was allowable, but I believed it was premature to move forward without a regulating plan that would require property owners to provide public benefits,” she said. “As the City moves forward after this decision, it should be a priority that this area of Austin redevelops in a manner that creates welcoming public spaces and housing for Austinites of different economic backgrounds. This is an opportunity for the City to redirect general fund dollars toward critical city services, like parks and income-restricted housing. The South Shore will develop without public subsidy.”

Mayor Kirk Watson and Council Member Zo Qadri were not on Council when the TIRZ was approved. However, they were named in the lawsuit as members of Council. José Velásquez, Ryan Alter were elected after the initial vote to create the TIRZ.