HUTTO — The city will continue appealing a $17.4 million development lawsuit despite being rejected at the appellate-court level, Mayor Mike Snyder announced Sept. 5.
River Creek Development Corp. and the city sued Preston Hollow Capital and three other companies regarding financing for the Hutto Co-op District.
Addressing the issue at a City Council meeting, the mayor said the lawsuit was not about repayment, but about ensuring the validity of how bonds were issued.
The state’s 3rd Court of Appeals upheld a judgment against the city in August.
“While this answer (from the latest appeal judgment) could have allowed the city to close the concerns, the city’s attorneys have found a few asked but unanswered questions in the court’s opinion and we will subsequently ask the court to reconsider those unanswered questions to see if they will address them so the decision comprehensively answers all of the questions posed to the court so the city can rely on its opinion to apply to other River Creek (Development Corp.) and Cottonwood (Properties) bonds and loans,” Snyder said in a statement after city leaders came out of executive session.
The lawsuit stems from a 2018 issuance of public-improvement district bonds supporting The Hutto Co-op District. The bonds are paid off through assessments by taxpayers within Tax Increment Reinvestment Zone No. 1.
A TIRZ assesses tax payments from local properties, then allows those entities to plow them back into development or pay down debt.
According to Snyder, an independent audit in 2020 brought forward questions about the validity of the bond-issuance process, which was used in several different financial arrangements.
The city asked the state Attorney General’s Office to offer an opinion, but never received a definitive answer, officials said.
“This left the city with the only choice to turn to the courts to get an answer. Therefore, to ensure the city’s conduct was legal, the city filed a lawsuit in district court to answer the questions the Texas AG was unable to answer,” Snyder said.
The council voted to direct the city’s litigation council to continue to pursue the appeal to a final judgment, in hopes of getting a ruling that would apply universally to all the bonds or loans the city has made under the same circumstances.
City Attorney Dottie Palumbo clarified the $17.4 million was not money that would come from city coffers.
“This Court of Appeals decision does not mean that the city lost $17.4 million. The $17.4 million was issued in the bond and is paid back through assessments on the property owners in the co-op district,” she said. “Fifty percent of the tax increments in TIRZ No. 1 is used to buy down those assessments to pay back the bonds and the bond purchaser. So I just wanted to make that clear for the public, the city did not lose $17.4 million.”
