Judge William Sowder ruled against the City of Amarillo in a lawsuit over a bond maneuver, voiding its approval of $260 million in non-voter-approved debt to finance a convention center expansion that voters rejected in 2020.
Sowder ruled that the city failed to provide sufficient public notice on a host of different components, including the ordinance ordering the issuance of $260 million in Tax Anticipation Notes (TAN).
He also found a lack of public notice for the addition of the civic center project to the Tax Increment Reinvestment Zone #1 plan, which allowed the city to shift the debt to the Interest & Sinking side of the tax rate equation. That incredibly convoluted distinction is important because had it been applied to the Maintenance & Operations side, it would have been subject to the state’s 3.5 percent tax increase limit without voter approval.
Sowder also ordered the city to pay $351,000 in attorney fees to plaintiff Alex Fairly, the Amarillo businessman who has dumped more than half a million dollars into fighting this debt issuance. The judge sided with Fairly on nearly every cause but has not issued an opinion explaining his reasoning on each item.
Last week, without getting into the merits of the case and claims against the city by Fairly, Sowder issued an order granting the city’s jurisdictional plea on certain contentions made by Fairly — specifically that the court had no jurisdiction to rule on the claim that the TANs were not properly classified as debt.
Regardless, unless Amarillo appeals further, the city is prohibited from following through on its debt issuance, leaving it back at square one for financing the project.
“I’m just so thankful for living in a country with this system,” Fairly said. “I made many attempts to talk with the mayor and her crowd on this but got nowhere and unfortunately this [lawsuit] was my only option left.”
“I’m glad it’s over, honestly. I’ve been in some fights before but this was exhausting.”
Two years ago, voters rejected a $275 million proposal from Amarillo for the project. Rather than wait the three-year moratorium on Certificates of Obligation (CO) after a ballot failure, this year, the council passed the issuance of $260 million in TAN.
TANs function like a bridge loan to compensate for a gap in revenues and are rarely if ever used to finance capital expenditures.
The city planned to issue the TANs and then refinance the debt with COs, another form of non-voter-approved debt, to pay off the sum over decades rather than a handful of years.
Going forward, the city may appeal or even try to issue the TANs again but fix the public notice violations that caused its downfall.
“We won because they did multiple things wrong and rushed the process, but the hole is there in statute for them to do this,” Fairly said. “What’s next is seeing if the legislature can block this opening. If we don’t get that, even with this win, then I wouldn’t feel like we’ve succeeded.”
Legislators have vowed to address this “most egregious abuse of Texas financing law” highlighted by Fairly’s suit, and the businessman said he has already been on the phone with multiple legislators about the victory and the prospect of following through during the 2023 session.
According to the final judgment issued by Sowder:
Item No. 5 on the agenda notice for the May 5 TIRZ No. 1 Board meeting did not provide the public with sufficient notice of the subject of the meeting;
The actions that were taken by the TIRZ No. 1 Board on May 5 regarding Item No. 5, including the recommendation for the amendment of the TIRZ No. 1 project plan, are void;
Non-consent item No. 3D, including consideration of including components of the Amarillo Civic Center Complex in the TIRZ No. 1 project plan, on the agenda notice for the May 10 regular City Council meeting did not provide the public with sufficient notice of the subject of the meeting;
The actions taken by Amarillo City Council on May 10 regarding Non-Consent Item No. 3D, including consideration of and voting upon the inclusion of components of the Civic Center Complex in the TIRZ No. 1 project plan, are void;
Consent item No. 2E, including consideration for including components of the Civic Center Complex into the TIRZ No. 1 project plan on the agenda notice for the May 24 regular City Council meeting, did not provide the public with sufficient notice of the subject of the meeting;
Non-consent item No. 3L, including the tax anticipation notes made the subject of this lawsuit, on the agenda notice for the May 24 regular City Council meeting did not provide the public with sufficient notice of the subject of the meeting;
The actions taken by the Amarillo City Council on May 24 related to Consent Item No. 2E, including the amendment of the TIRZ No. 1 project plan and Ordinance No. 7980, are void;
The actions taken by the Amarillo City Council on May 24 related to Non-Consent Item No. 3L, including the tax anticipation notes made the subject of this lawsuit, and Ordinance 7985, are void; all under 551.141 of the Texas Government Code;
City of Amarillo Ordinance 7980 is void under 551.141 of the Texas Government Code;
City of Amarillo Ordinance 7985 is void under 551.141 of the Texas Government Code;
Amarillo City Council violated Chapter 311 of the Texas Tax Code by failing to publish a notice in a newspaper regarding amending the TIRZ No. 1;
The City of Amarillo Ordinance 7985 is void under 1431.008 of the Texas Government Code;
The tax anticipation notes authorized under Ordinance 7985 were not intended for authorized use under 1431.004 of the Texas Government Code as the new construction of the Civic Center Complex is not a public work and therefore, Ordinance 7985 is void;
Article II of the Amarillo City Charter applies to ordinance 7985;
The City of Amarillo’s request for declarations as to the validity and legality of the public securities identified as City of Amarillo, Texas, Tax Notes, Taxable Series 2022A are hereby denied;
The City of Amarillo, Texas, Tax Notes, Taxable Series 2022A are invalid and void.
Sowder also ruled that the city must pay reasonable and necessary attorney fees and costs to Fairly for the litigation of $376,613.
"The city received the court's final judgment this afternoon. "We respectfully disagree with the judgment in this case, and we are reviewing the decision with our legal counsel to determine our next steps," the City of Amarillo said in a brief statement.
Fairly issued the following statement on Facebook:
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