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Council endorses Lone Star Rail but hangs on to the money

Friday, December 13, 2013 by Jimmy Maas

Lone Star Rail will move forward with the backing of the Austin City Council, though not with any of the city’s money just yet.


In a 6-1 vote, the City Council authorized the city’s participation in the Lone Star Rail District. But it set its funding for the project temporarily at zero. The plan is to revisit Lone Star’s funding in the spring, when a more comprehensive financial picture is available. That picture would include all elements of Project Connect, the area’s master transportation plan.


The authorization was apparently critical to the project, even with no money approved. Lone Star Rail hopes to one day connect from Georgetown to San Antonio.


Lone Star Director Joseph Black, Mayor Pro Tem Sheryl Cole and Council Member Bill Spelman explained why Austin had to be the first domino to fall.


“Lone Star isn’t just going to the City of Austin, but also Travis County, also to San Marcos, to Hays County, to cities and counties up and down the line that they’re talking about building out,” said Spelman. “And they’re asking all of them the same thing. It isn’t critical to Lone Star that we set the amount of money, because they don’t need the cash right now. They do want some positive movement that will help get some positive movement from the other cities and counties.”


“We’re in this unusual position where we need to at least get agreements in place,” explained Black. “In order to go to the bond markets, in order to go to the capital funders, in order to go to the private sector, frankly, we need to have those agreements in place as soon as possible.


“This is definitely one step in making it (the railroad) more real,” said Black. “Council Member Spellman is absolutely correct. Many of the cities in the corridor are looking to Austin to take action.”


“There are several other communities that are watching Austin at this time,” said Cole, “Our actions today will have an impact on their actions.”


Lone Star Rail is set to have seven stops in Austin along the existing Union Pacific freight track. They are Slaughter Lane, Downtown, 35th Street, Anderson Lane, Braker Lane, Parmer Lane and McNeil Junction. There is a potential additional stop near Oltorf.


Despite no dollar commitment from the City and all of the Council on record as being in favor of Lone Star Rail and Project Connect, there was some resistance to the authorization. Council Member Laura Morrison voted against it. (This sentence has been corrected to reflect that Council Member Kathie Tovo voted in favor of the motion.)


City management sent out a memo asking the Council to not approve it until the broader transportation financial plan was available.


“Our only concern is the timing,” said Assistant City Manager Robert Goode.


“Our preference is to bring the Council a full (financing) package and we did have another resolution asking us to do that, as well,” said Elaine Hart, CFO for the City of Austin.


The concern was that Council’s hand would be forced to pledge a percentage of the Lone Star Rail funding that Austin would finance before they were able to tally its potential obligation for Project Connect.


The estimate for all of Project Connect is slated to be ready for April 30, 2014, as directed by the Council. After which, the city would make its commitment.


After discussion, Council Member Chris Riley was on board.


“There is no downside to moving forward today, understanding that we are leaving open the question of what we will do in the future to raise that number from zero,” said Riley.


One sticking point for Morrison was future tax implications. She pointed out the value requested to fund Lone Star Rail in one of its early estimates is greater than the projected value of the land within the Transportation Infrastructure Zone, or TIZ, even after rail is up and running.


“In the end, it would affect the amount of taxes, the tax rate we have to charge,” said Morrison. “I’m not saying that’s something we need to not do, at all. I guess the point being is that’s one of the reasons we would want to thoroughly vet it with the public and have that broader discussion.”


Assessing the value of the area Lone Star Rail serves is a key component to its funding.


Because we’re kind of an unusual entity, we’re a government agency, but we don’t have any taxing authority, so we don’t have a natural revenue stream,” said Black, “What the legislature gave is the value catch tool.”


Black also explained rail doesn’t increase land value on its own, but it creates opportunity.


“As the project gets more real, that’s when developers start to take an interest in looking in things that can happen there,” said Black.


“We know from our studies in Austin and Travis County,” he said, “From the studies we’ve done with Capital Market research, that 36 percent of value around stations would be attributable to transit oriented development.”


Aware of risks, the City made sure safeguards were in place with the authorization. Funds from the TIZ stay with Austin until Lone Star Rail meets stipulations.


Lone Star must obtain an agreement with Union Pacific by January 2016. It must have capital funding secured for construction. The project also needs a financial plan and commitment from other financial entities.

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