Leader Blues

Monday, April 09, 2007

EDITORIALS>>Rethinking TIF laws

If we can depend upon the Arkansas Supreme Court to interpret the Constitution rigorously as it has so consistently in recent years, the threat to the public schools from development interests will soon end. TIFs — tax-increment-financing districts — will be fundamentally unworkable.

The court took up the first lawsuit arising from the TIF laws Thursday and attorneys for TIF proponents made their best case that property taxes voted for the schools can be spent instead to spur commercial development.

It seemed weak to us and we think we detected skepticism by the justices, too. We know that it is dangerous to guess an appellate court’s final judgment based on the judges’ demeanor in oral arguments.

Fayetteville proposes to use school taxes — specifically the increase in taxes from the growth in real estate values — to retire bonds that will redevelop the old Mountain Inn property in downtown Fayetteville.

Other TIF projects are springing up in prosperous cities all over Arkansas, including two in North Little Rock: a giant shopping center in Dark Hollow and a residential development in the lower Baring Cross neighborhood.

If all are successful they will be a huge drain on school budgets for years to come. Every school in Arkansas will be affected by every single TIF redevelopment project in Arkansas whether it is in that school’s town or not.

Permit a little background on this hopelessly complicated issue. Arkansas voters in 2000 ratified Amendment 78 to the Constitution after a low-key campaign in which the measure was sold as a way to allow cities and counties for the first time to undertake short-term debt (up to five years) to buy heavy equipment and the like.

Indeed, the amendment did do that, but its major purpose was to allow cities and counties to help pay for commercial redevelopment through something called tax-increment financing, or TIF.

The idea has been around in a few other states for years as a way to restore badly blighted areas. (In fact, areas using TIF do not have to be blighted. You can use them to spruce up the country club.)

Instead of levying a tax to pay for the improvements, the city or county would create a special district, issue bonds and pledge to retire them by skimming off the annual increase in net real estate taxes collected thereafter in the district.
It would mean that the annual revenue from school, city, county and special taxes levied in the district would be frozen for those local governments until the bonds were retired in 20 to 30 years.

But here’s the complication: Amendment 74, adopted in 1994, designates 25 mills of school taxes in every Arkansas school district as state taxes.

The receipts are remitted to the state government and then redistributed among all the schools in Arkansas by a formula that is supposed to help even the score between rich and poor schools.

The effect of a TIF district then will be to take a little money from every school district in Arkansas rather than from only the local school district where the TIF project will be.

So a commercial development in Jonesboro that uses tax-increment financing takes a little money away from, say, the desperately poor Marvell School District, which could use a little commercial development of its own. And from the Pulaski County Special School District.

Since the 25 mills are now a state tax and not a local property tax, Amendment 78 and its TIFs cannot apply to that levy, at least in our layman’s opinion.

If a TIF district cannot use revenue increases from the 25 mills it has precious little remaining, perhaps 10 to 15 mills. That is not enough to retire much debt.

So Fayetteville’s attorney argued that Amendment 78 altered Amendment 74 and should be interpreted to apply to the 25-mill school base and not just the remainder.

But nowhere in Amendment 78 does it say that it amends Amendment 74; it does identify other parts of the Constitution that it changes.

“You are at the realm now of repeal by implication, are you not?” asked Justice Robert L. Brown. The lawyer responded yes but that this was the standard way that laws were interpreted.

The Supreme Court has ruled otherwise in the past. When you make a sweeping change in constitutional law like Amendment 78 does it ought to be specific about how it changes it and exactly which parts of the Constitution are going to be changed.
Voters in 2000 could not possibly have known that they were authorizing a wholesale transfer of school monies that they had voted to commercial interests.

As Rudy Moore Jr., the attorney for Fayetteville public schools, observed, the justices have another incentive to interpret the Constitution strictly.

It has insisted since the fall of 2002 that the legislature and the governor abide by the Constitution’s mandate to provide a good and equal education to all children.

The 2007 legislature, just adjourned, labored mightily to finally fulfill that mandate.

Rubber-stamping the TIF diversion of school revenues would obstruct the very goal that the justices have so courageously asserted for so long and for which they have endured so much criticism.