AMARILLO, Texas (KAMR/KCIT) — During Wednesday morning’s portion of the ongoing Civic Center funding-related litigation in Potter County District Court, testimonies continued with a pair of expert witnesses and a pair of Amarillo City Council members, providing more insight into the decision in front of retired Judge William Sowder on whether or not the city of Amarillo legally issued more than $260 million in tax notes in May for the Amarillo Civic Center Complex project.
This comes after officials heard opening arguments, along with eight testimonies from city of Amarillo staff members and the other three members of the Amarillo City Council, during Tuesday’s proceedings.
Because of a conflict, Fairly’s legal team began the day by calling John Diamond to the stand. According to previous reports, Diamond is the Edward A. and Hermena Hancock Kelly Fellow in Public Finance and the director of the Center of Public Finance at Rice University.
Through their line of questioning, Fairly’s legal team initially called on Diamond to discuss the potential tax implications of Ordinance 7985 on Amarillo citizens over the seven-year redemption schedule lined out in the ordinance. If implemented, Diamond, like other officials, stressed that it would result in a “massive tax increase,” with Diamond saying it could approximately double the city’s property tax rate in two to three years.
Diamond also questioned Tuesday’s testimony from Jerry Danforth, the director of facilities and capital improvement for the city of Amarillo, and his claims of price increases and increased construction costs impacting the overall cost of the complex as construction is delayed throughout the litigation.
Diamond said that increases in costs have “subsided,” speaking on the recent trends of inflation, interest rates and the potential impact on the overall economy moving forward. While those things continue to be a factor, he said price growth overall is slowing.
While Diamond expects the median interest rate to increase slightly in 2023, he said the median starts to fall out beginning in 2024, expecting the rates to decrease slightly in both 2025 and 2026. Diamond projects that the interest rate will start to decrease in the middle, to the end of next year.
Because of these projects, Diamond challenged Danforth’s testimony which reported that Danforth expects the city to see an increase of 6% in construction costs over the next four months. However, the city of Amarillo’s legal team challenged Diamond, asking if he had any experience in construction, which Diamond said he did not. Diamond also said that he does not believe he knows more about construction costs than Danforth.
Next, the city of Amarillo’s legal team called Steven Adams, the city’s financial advisor for debt issuance from Specialized Public Finance, to the stand. At the start of his testimony, Adams laid out the projects the city has used anticipation notes for in recent years, including the City Hall renovation project, infrastructure for the city’s fuel fleet along with software infrastructure, none of which had legal challenges.
Regarding Ordinance 7985, Adams said he worked with the city, along with the bond council, to discuss legal options for issuing debt on the project. Adams also calculated the potential impact of the project on tax rates and the implications potential revenues would bring in.
Under various assumptions, depending on whether or not the city would win the case or there would be an appeal, along with if the original proposal from Frost Bank would still remain, Adams said an increase of more than $3 million in interest could be added to the overall project because of the delay. However, Adams was challenged on the bank’s involvement with the plan by Fairly’s legal team, since there have been no reported conversations among the parties on how to proceed.
City Council testimony
After the expert testimony, Amarillo Councilwoman Freda Powell was called to testify regarding her involvement in the May 24 vote over the Civic Center funding-related ordinance. Like other members of the council, Powell verified that she received the agenda the Friday before the meeting. But as Mayor Pro-Tem, Powell said she received a draft of the agenda the Thursday before the meeting, choosing not to make any changes or edits.
Powell said a draft of Ordinance 7985 was on her table during the May 24 meeting, an ordinance which she voted in favor of. Powell said prior to voting, she had a discussion with city staff, including Amarillo City Manager Jared Miller and Amarillo Chief Financial Officer Laura Storrs, about the different options for funding the project, including the notes, a seven-year redemption schedule of the notes and the potential to refinance the notes for 30 years.
Fairly’s legal team challenged Powell, stating that in her deposition, she initially said she did not meet with staff. Powell said she misspoke during the deposition, something which she told the city’s legal team prior to the trial.
Lastly, the city of Amarillo’s legal team called Mayor Ginger Nelson to the stand, the final city council member to testify during the bench trial. Like Powell, Nelson said she received a draft of the agenda for the May 24 meeting the Thursday before and did not remember making changes. Nelson testified she received an official copy the Friday before.
Because she was on the Civic Center subcommittee along with Amarillo Councilman Howard Smith, Nelson testified that she did receive a draft of Ordinance 7985 prior to the May 24 meeting. When asked why a draft was not included before, and why a particular amount of the notes was not included in the ordinance, Nelson responded by saying that it gave the city flexibility in its discussion during the meeting to discuss the correct debt tool to use in this case, the prioritization of parts of the actual project and the size, scope and cost of said parts.
Nelson said the $260 million figure came out of the discussions and the final report from Garfield Public/Private LLC. She testified that the original figure for the new project was estimated at $275 million, but Danforth was able to “value budget” the project to an estimated $260 million.
Ultimately, Nelson said the recommendation from the citizens’ committee surrounding the Civic Center, hosted in conjunction with Garfield, was to move forward as quickly as possible on the project, not having to go in front of the voters. Nelson also stressed that all the incumbents who ran for City Council in 2021, individuals who ran on improving the complex, were reelected, with the council ultimately serving as a “representative republic,” making the best business decision for the city.
During her testimony, Nelson cited the urgency to start the project as soon as possible due to increased interest rates. When asked by Fairly’s legal team why the city did not have a new vote on the project, Nelson said it was because of the potential of higher interest rates, giving the city the ability to save millions of dollars if they started sooner rather than later.
In its line of questioning, Fairly’s legal team highlighted that at the time the anticipation notes were approved, the city already had around $222 million of outstanding debt, with the Civic Center tax notes adding $260 million to that debt. Nelson continued to cite the “reliable information” the city had that because of increased interest rates, it was important to do the project sooner rather than later.
When asked about the process laid out in the testimony of Andrew Freeman, assistant city manager for the city of Amarillo, on Tuesday regarding adding the project to the Tax Increment Reinvestment Zone No. One to move the cost of the project to the interest and sinking portion of the city of Amarillo’s tax rate, Nelson said she does not believe the debt incurred had anything to do with the TIRZ meeting and related ordinance to amend its project plan.
Fairly’s legal team also asked Nelson about the wording of “combination tax and revenue notes” on the agenda of the May 24 City Council Meeting. Nelson said the agenda item was broader than what was passed. However, she said potential revenue streams, including increased sales tax revenue, increased hotel occupancy tax revenue and potential naming rights, were discussed during the meeting. Nelson said she did not know until this lawsuit that the “combination tax and revenue notes” portion of the agenda was a typo, an item that was supposed to only be related to tax notes.
Lastly, Fairly’s team grilled Nelson regarding the public’s notice of the tax increase, asking her if the public had any notice of the amount of the property tax increase or any knowledge of the seven-year redemption schedule for the notes. However, in response to this Iine of questioning, Nelson said because it was a debt issuance, the city did not have any final figures to give until they voted on the measure, reiterating the ordinance was broad for a reason, being shaped through the discussion.
Prior to the morning break, officials from Fairly’s legal team said they plan on calling one more witness, who they did not identify prior to the break. According to previous reports, the only person on Fairly’s legal team’s witness list who has not been yet called as a fact witness is Don Tipps, an insurance agent in Amarillo.
After Fairly’s team’s final testimony, officials from all the parties said they were ready for closing arguments. According to previous reports, there is no indication whether there will be a ruling after closing arguments or if Sowder will make his ruling via documents filed in Potter County District Court later this week or next.