Golden spike: Project Connect funding still not on track

It has been a year since the Austin Free Press first reported on challenges to the funding behind Austin’s Project Connect light-rail system. While the project has made progress, it now faces significant hurdles: the planned route has been cut from 20 miles to 10, and estimated costs have risen from $7.1 billion to $8.2 billion.

The Austin Transit Partnership (ATP), created by the City of Austin and CapMetro to oversee the project, is banking on a property tax increase that was approved by voters in 2020 for 26.5% of the funding. To access more of that tax money faster, ATP intends to issue bonds for 8.5% of the total, with it seeking the bulk of the funding – 65% – from federal grants and loans. 

Despite those plans, dark clouds still threaten the funding, and even rail enthusiasts are growing discouraged about the project leaving the station.

Taxes and bonds

As the Texas Supreme Court recently clarified, ATP’s interrelated funding strategies face ongoing headwinds. The first sign of legal trouble came in May 2023, when Republican Attorney General Ken Paxton issued a nonbinding advisory opinion challenging Project Connect’s financing. He argued that using property-tax revenue to repay the bonds violates the Texas Tax Code and that ATP lacked authority to issue bonds. He also said that the Texas Constitution requires Austin to appropriate property taxes for the rail project every year – not just once up-front, as ATP and the city intended.

That opinion cut to the bottom line, experts said. Last year Austin Free Press wrote about preliminary ATP bond ratings that it obtained under the Public information Act. University of Texas finance expert John Griffin said at the time that requiring annual city approvals of Project Connect appropriations would increase bond repayment risks, resulting in higher interest rates and a bigger price tag for Project Connect.

A group of local taxpayers then sued ATP in November 2023, alleging that the city engaged in a “bait and switch” by slashing the project’s scale while still collecting taxes for the original plan. The plaintiffs asked the court to block further Project Connect tax collections and to return unspent funds to taxpayers.

ATP countersued in February 2024, demanding that the courts recognize its bond-issuing authority. The lawsuits were consolidated, but Paxton intervened, alleging that ATP lacked jurisdiction to even file suit. An Austin state appeals court ruled for ATP that fall, followed by a Paxton appeal. On May 22, 2026, the Texas Supreme Court ruled that the trial court deliberately erred in advancing the case without addressing Paxton’s jurisdictional challenge and sent the case back to the lower court for a ruling on Paxton’s plea.

Attorney Bill Aleshire, who represents local taxpayers in their ATP lawsuit trumpeted the high court ruling.

“We’ve had a two-year delay getting back to trial,” Aleshire told Austin Free Press in a statement. “If the AG is right, then ATP cannot issue bonds unless the AG approves them, which is unlikely. My clients want to get our claims regarding the unlawful funding mechanism for Project Connect decided by the Supreme Court as soon as possible. But ATP wants to stall that as long as possible because they are proceeding with the project despite the train wreck that will occur if it turns out they cannot issue bonds and cannot get federal funding.”

ATP officials see the high court’s ruling differently: “Austin Transit Partnership and the City of Austin filed the bond validation lawsuit so that we could have an impartial judge confirm that our bond financing program complies with all state laws,” ATP said in a written statement to the Austin Free Press. “The procedural ruling means that the case can now move forward. We are confident in our case and look forward to our day in court.”

The Austin Free Press previously reported on the 2024 ratings from Moody’s Investors Service for any future Project Connect bonds issued by ATP. The company said those bonds likely would have low risks and low interest rates. However, that assessment was based on two assumptions that were at the time, inaccurate: That current lawsuits against ATP had been dismissed and that the Texas attorney general validated the group’s standing -to issue the debt.

Those conditions are no more true today than they were when Moody’s issued its 2024 opinion, and the future of ATP’s property tax revenue and bonds remains cloudy.

Federal funds

In November 2020, national voters narrowly selected Joe Biden as the next president. He nominated Pete Buttigieg as his Transportation secretary. Buttigieg had invited friend Steve Adler, then mayor of Austin, to his wedding two years earlier. After his confirmation, Buttigieg now would oversee the Federal Transit Administration that Austin was counting on to pay for most of its light rail. By late 2020, Austin’s rail future looked bright, politically speaking.

The initial cost estimate for the rail line was completed in January 2020 – mere months before the COVID shutdown that pushed labor, materials and real estate costs through the roof. A recent Texas Tribune Project Connect postmortem found that voters approved the rail plan before much of it had been designed. That set the stage for unforeseen problems and expenses, such as the need for a deeper train tunnel under Lady Bird Lake, which would double the cost of that alone to $4.1 billion.

ATP retrenched in 2023. The group slashed the rail line down to 10 miles, reducing stops from 26 to 15 and cutting daily ridership projections from 70,000 to 34,000 people. Then, Donald Trump returned to the White House in January 2025 and put mass-transit planners on notice. New Transportation Secretary Sean Duffy issued a memo explaining that his agency now would prioritize projects with benefits that “outweigh the cost.”

Duffy further explained that the agency no longer was interested in “the social cost of carbon.” It now favored projects with “strong co-funding requirements,” obviating the need for “future DOT support.” Furthermore, the agency would “give preference to communities with marriage and birth rates higher than the national average” and would mandate local “cooperation with federal immigration enforcement.” It was viewed by many as a major setback for Project Connect.

ATP has since secured approval for its Environmental Impact Statement, bringing it a step closer to potential federal funding. Earlier this year, ATP signed a design-build contract with the engineering firm AECOM and announced plans to break ground sometime next year.

“The pending litigation has not slowed our progress advancing Austin Light Rail, which has hit major milestones in the federal funding process, design, and pre-construction work this year,” Austin Transit Partnership said in a written statement to the Austin Free Press. “We will continue moving forward and remain on schedule to begin construction in 2027.”

“There’s nothing that we can do to guarantee that the federal government is going to invest in us,” Travis County Commissioner and ATP board member Jeff Travillion told the Austin Free Press. “But we want to make sure that we do everything in such a way that we’re worthy of investment.”

Despite these advances, Project Connect’s efforts to obtain essential federal funding still collide with an inconvenient truth. Well into Year 2 of Trump’s second term, the Texas Tribune reported, the administration has yet to fund a single new mass transit project.