A lawsuit seeking to prevent the City of Austin from honoring an agreement to cut taxes for the Domain retail development in North Austin was settled out of court Tuesday.

Austin real estate developer Brian Rodgers filed suit against the city and Endeavor Real Estate Group in November to block a tax deal passed by city council that could cost up to $25 million. Developers and city officials expect the project to boost the local economy, but Rodgers said the deal was unfair to local businesses and taxpayers.

The parties agreed to a settlement earlier this week that allows the city to back out of the deal without penalty, although the city is expected to stick with the agreement.

"The city has made it clear that they plan to honor their committment," said Kirk Rudy, a principal at Endeavor. "We think effectively the changes to the [agreement] will have no impact."

The city council passed the measure in May 2003, agreeing to give Endeavor tax rebates over 20 years to develop a former IBM plant into a mixed-use "urban village" with 600,000 square feet of retail space, office buildings and apartments. Daryl Slusher was the only council member to oppose the incentive.

Rudy said that if Endeavor and its partners live up their contractual obligations - including money to bring local businesses into the project - he fully expects the city to go through with the agreement. The project is expected to create thousands of jobs.

Rodgers' lawyers argued that the Domain agreement violated Chapter 380 of the Texas Local Government Code, which allows cities to make agreements with developers to ease taxes if certain criteria are met.

Endeavor did not return calls for comment before press time.

Rodgers said he opposed the subsidy because the Domain would take customers away from local businesses that pay all of their taxes. He said Endeavor should be able to find tenants to pay for the development, especially since Neiman-Marcus agreed in February to occupy a space at the Domain.

"It only takes common sense to know that you don't have to offer incentives for developers to go there," Rodgers said.

Rodgers said he does not expect the current council to reject the offer, but future councils could decide to redirect the Domain rebates to other areas of the city budget.

"The city was in a budget crisis and was looking for a solution in future retail taxes [from the Domain]," Rodgers said. "The city was in a weak condition and looking for answers."

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