Says the Austin City Council “may give $4 million a year to subsidize a race track.”

Kathie Tovo, facing Austin City Council Member Randi Shade in a June 18 runoff, says in a TV ad that debuted in April: “We’re in a budget crisis, but the council may give $4 million a year to subsidize a race track. That’s the wrong priority.”

City Hall coughing up for vroom-vroom?

First, let’s brake to define “subsidy.” Merriam-Webster’s Online Dictionary says it’s “a grant by a government to a private person or company to assist an enterprise deemed advantageous to the public.” Offered examples are expenditures for public transit or to farmers in case of crop failure.

To back her claim, Tovo’s campaign pointed us to an eight-page “fact sheet” on her website touching on money that could flow to support Formula One races to be held on a track being built east of Austin’s airport.

According to the sheet, state Comptroller Susan Combs has agreed to provide $25 million a year for 10 years from a state trust fund to cover an annual sanctioning fee that local F1 organizers must pay to the British-based international race organization.

The fund reimburses event organizers with some of the “extra” sales, hotel, alcohol and car rental tax revenue attributable to the event itself — i.e., money that the state theoretically would not have collected if the event had not been held. In the past it has been used to attract NFL Super Bowls and the Major League and NBA All-Star games.

Per a 2009 state law, though, the state’s $25 million a year can only be spent if a local city or county government puts up $1 for every $6.25 in state aid. The law specifies that in order to get the state aid, local organizers need a local city or county to agree to endorse the event.

So, $4 million a year is to be ginned up locally with the money would be dedicated to covering costs of staging the event — police overtime, say, or erecting traffic barriers — municipal expenses that might otherwise be charged to the promoter.

Subsidy case closed?

Not by the lights of Austin Mayor Lee Leffingwell. A June 8 Austin American-Statesman news article quotes Leffingwell saying during a June 7 City Council work session: “The city will never put any money” into the Formula One project.

During the session, Richard Suttle, the project’s Austin lawyer, said the first of the 10 payments will come from a local organizing committee, which in turn expects to get the money from the Formula One promoters. A city employee noted that the subsequent local contributions of $4 million will come from tax revenue the state expects to reap in connection with the races.

Next, we asked Tovo’s camp why the $4 million amounts to a subsidy if the first installment is to come from a non-governmental source and future payments are expected to reflect tax revenue that presumably would not exist without the races.

Jim Wick, Tovo’s deputy campaign manager, replied: “What you have happening right now is the mayor and some members of the council are trying to figure out how to structure this so that it doesn’t appear the city (is) giving the promoters of this event a subsidy. It looks like fuzzy accounting.”

Shade campaign spokeswoman Lynda Rife pointed out by email that the trust fund money can be spent on the races — not construction of the track itself. Also, each race “is expected to generate more than $4 million in new tax revenue that wouldn’t come to the city without the event taking place.”

Rife’s email continued: “If we don’t generate that $4 million in new tax revenue from the event, then the city doesn’t have to pay the whole $4 million. The city is not on the hook, if the event doesn’t meet the performance standard,” she said.

Notably, the city can use its contribution to the trust fund to pay race-related expenses. According to Rodney Gonzales, deputy director of the city’s Economic Growth and Development Services office, any amount not spent to cover hosting expenses would remain in the trust fund the next year and could not be spent for other municipal purposes.

Time to wave our checkered flag.

Maybe we missed a hairpin turn or two, but it’s clear the council is gearing up to vote on an agreement committing tax revenue to a trust fund devoted to supporting the F1 races.

Subsidy? Sure, though Tovo’s statement skirts the expectation that the area will draw tax benefits equal to or exceeding the local expenditures. We rate it Mostly True.