In a win for Houston property taxpayers, the Houston [14th] Court of Appeals has ruled that the Houston City Council underfunded the city’s Drainage Fund in its 2020 budget in violation of the city charter.
James Robert Jones and Allen Watson v. John Whitmire, in his Official Capacity as Mayor of the City of Houston, et al.(No. 14-23-00550-CV; April 23, 2024) arose from a suit filed by two taxpayers against the city complaining that the 2020 city budget underfunded the drainage fund by $50 million. The taxpayers alleged that the methodology the city used to calculate the allocation pursuant to the Dedicated Drainage and Street Renewal Fund (ReBuild Houston) as established by a 2018 amendment to the city charter resulted in the shortfall and that the city council acted ultra vires by adopting a budget using that calculation. They sought a declaration that the city’s allocation methodology violated the charter, as well as injunctive and mandamus relief. The city responded with a plea to the jurisdiction and challenged the taxpayers’ alternative methodology. The trial court denied the plea. The city filed an interlocutory appeal, in which it for the first time argued that the taxpayers lacked standing. The court of appeals agreed and granted the plea. The taxpayers took the case to SCOTX, which reversed the 14th Court’s standing ruling. SCOTX ruled further that the city had failed to establish its entitlement to governmental immunity and remanded the case to the trial court for consideration of the competing methodologies. The trial court agreed with the city’s approach and granted summary judgment for the city. The taxpayers appealed.
In an opinion by Chief Justice Christopher, the court of appeals reversed and rendered a declaratory judgment in favor of the taxpayers. The basic question was whether the city complied with the charter requirement that it dedicate 11.8 cents per $100 in property value to the drainage fund. However, when the city calculated the dedicated amount, it applied the revenue cap on total ad valorem taxes to reduce the nominal 11.8 cents to a significantly lower amount (the city called this an 11.8 cent equivalent amount). The city argued further than it had the discretion to take the revenue cap into consideration when making the calculation. The court disagreed, holding that nothing in the language of the charter provision allowed the city to apply the cap to effect a less than 11.8 cent dedication, and that the city council acted ultra vires when it approved a budget that did so. It thus ordered the city to dedicate the full 11.8 cents without reduction.
If you would like to see the details of the difference between the taxpayers’ and city’s methods of calculating the dedicated amount, they are laid out in full in Chief Justice Christopher’s opinion. More generally, this decision in this case applies SCOTX’s decision in Jones v. Turner, 646 S.W.3d 319 (Tex. 2022), which held that “when the law requires that a certain amount of money be directed to a specific service, and the plaintiff alleges that it is being directed and spent elsewhere, the taxpayer has alleged an illegal expenditure sufficient to confer taxpayer standing.”
