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City considers new funding sources for light rail transit investment

Wednesday, January 15, 2020 by Ryan Thornton

On Tuesday, in the fifth of seven planned joint work sessions, City Council and the Capital Metropolitan Transportation Authority discussed the need for innovative funding sources to operate and maintain a regional transit system that may involve the city’s first light rail lines.

In evolving discussions over the past year, the city and the transit agency have come to the understanding that Project Connect needs to be a bigger investment than initially anticipated. At this point, the system would likely feature two high-capacity light rail lines that may be elevated in some areas and even run through a tunnel in the lower downtown core.

“We’re talking not just about a major investment, we’re talking about rail in a tunnel; that’s a subway,” said Council Member Jimmy Flannigan, noting his excitement that the city is ready for a fundamental change in its attitude toward public transit and the benefits of rail.

As was noted many times Tuesday, the cheaper solutions like surface-running bus rapid transit would likely be running at full capacity as soon as 2040, giving them a functioning life span of only about 14 years. The shift away from bus rapid transit toward light rail, however, entails a significant increase in both up-front and operating costs.

While the local portion of the capital costs for the portion of the system within the city right of way could be as high as $6.4 billion, Capital Metro’s Chief Financial Officer Reinet Marneweck said the major funding question will be how to fund operations and maintenance year after year.

Marneweck explained that the agency is in a “very strong financial position,” meaning it has its own funds it will be able to contribute, making it more likely to receive a roughly 40 percent funding match from the Federal Transit Administration. Ongoing costs like fleet replacement, on the other hand, will require new dedicated revenue sources.

“We’re not coming … just to say we can’t do anything on our own and we need someone else to do everything,” said Capital Metro CEO Randy Clarke. “But clearly Cap Metro doesn’t have enough resources to do a large vision and try to move the (Austin Strategic Mobility Plan) needle and the climate action plan needle that all agree on, without a really good partner.”

The agency is proposing to enter into a formal partnership with the city to manage Project Connect through a local government corporation comprising representation from the city and the transit agency. Greg Canally, the city’s deputy chief financial officer, said the partnership would make joint governance more efficient while providing financial transparency and creating new opportunities to fund system operations and maintenance.

Canally said accountability will be an important issue for such a corporation and will require audits and the creation of an oversight entity to ensure proper use of funds. The city is considering two primary funding options, both requiring voter approval: transportation-focused general obligation bonds and a property tax rate election to provide dedicated transit funding.

Unlike a tax rate election, a public bond would expire once the funds are used. A tax rate increase, on the other hand, would dedicate a funding source in perpetuity, making it an ideal solution for yearly operations and maintenance costs.

According to Mayor Steve Adler’s understanding of the state’s recent tax cap bill setting the rollback rate at a maximum of 3.5 percent, it was set up with the intention to allow local governments to hold tax rate elections to fund specific projects like this.

Adler said the city already uses dedicated property taxes to fund the Dell Medical School, but Council Member Alison Alter noted that the annual burden of $35 million per year is substantially less than the costs being floated for Project Connect.

Canally was unable to give an estimate of the potential tax burden, but said the city is beginning a series of meetings today to get a better understanding of the taxpayer burden, whether it be through a bond or a tax rate election. Similarly, Clarke said a third-party agency will be visiting the agency next week to verify the project scope and estimated costs. He also noted that the $6.4 billion local funding scenario is an intentionally high estimate that will likely come out to a lower figure.

The agency is also considering funding from things like parking revenue from park-and-rides, a vehicle emissions tax, additional fare revenues through higher fares or increased ridership, and dedicated revenue from sales tax. It is also looking for ways to partner with entities such as counties, the Texas Department of Transportation, the Central Texas Regional Mobility Authority or the Capital Area Metropolitan Planning Organization.

Canally said tax increment financing districts could also be used in the future to leverage investments in “placemaking,” although they may not be an appropriate tool to fund the project itself.

Looking ahead, the agency plans to develop a sequencing timeline for program construction, develop a federally compliant revenue and cost mode, and establish the roles and responsibilities of the agency, the city and a potential governing partnership.

At the beginning of the Project Connect process, Adler said, he thought he would be supporting bus rapid transit today simply based on estimated costs and buildout time. Now, due to the reality of capacity and his visits to other cities, he has been convinced of the need to “do it right first.”

The next joint work session of the agency and City Council will be held March 9.

Images courtesy of and Ryan Thornton.

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