The City of Amarillo has filed a notice of appeal in the recent judgment against the city regarding its ordinance to issue tax notes for the Amarillo Civic Center project.
Judge William Sowder issued his final judgment in this case on October, 25, 2022.
Amarillo Mayor Ginger Nelson says this filing is less about the Civic Center improvement project and more about clarifying conflicts that the ruling has with current state law.
“I think we all recognize that, with rising construction costs and the significant interest rate increases since May, the window to complete the Civic Center project as currently proposed has closed,” said Nelson. “The lawsuit was successful for the opposing party in that it created a delay to the point where the project isn’t feasible for the amount of money we authorized.
“While we can’t proceed with the project at this time, this ruling creates confusion around several standard operating procedures and will interfere with the city’s ability to operate in the normal course of business. We are seeking clarification on existing state law. We have a responsibility to clarify how debt can be issued going forward because, like every city in Texas, the city council will have to continue to issue debt to operate the city. As for the Civic Center problem, it isn’t going away.”
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.
“As to looking forward, we don’t have clarification on how we should post a notice, how we should draft the agenda item for a debt issuance. We followed the same process and pattern that we had used in the past, that the Attorney General had approved in the past, that state law laid out the process for. We followed that process. Now, we have indication that that process might not have been what we should have followed.
“So, it conflicts with state law and that’s why we feel like we have a responsibility to follow the appeals process to get more clarification on how would a city issue debt. How would a city draft an agenda item on a debt issuance? How would they put an ordinance out that’s being negotiated right up until the minute of the council meeting? How would you define public use? All of these things are questions that cities going forward have to know and understand in order to continue operating because issuing debt is just a part of operating a city,” Nelson said.
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,” Fairly said after Sowder's ruling.
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.
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