EDITORIALS>>Supreme Court rejects TIFs
The justices, all seven of them, reaffirmed our faith again when they prohibited prosperous local governments from robbing public schools and libraries to help commercial developers.
Thursday, the Supreme Court tossed a 14-inch Stilson wrench into the developers’ machinery by declaring much of the school and library taxes off limits.
The court said 25 mills of operating taxes for the schools and the one-mill library tax were protected by the state Constitution and could not be drained away for development purposes. Thus do generations of Arkansas children have still another reason beyond the Lake View orders to rise up and call the justices blessed.
Amendment 78 to the Arkansas Constitution, which flew under the radar of voters in 2000, legalized a procedure called tax-increment financing, TIF for short.
Local governments could siphon off the real estate taxes from economic growth and use them to pay for improvements to benefit commercial developments like shopping centers.
The idea of TIFs was that tax growth from development, although originally intended for schools, libraries and city and county governments, would pay off the debt that made the growth possible.
It was supposed to help severely blighted neighborhoods. But it has been the most prosperous rather than depressed or blighted communities that have leaped at the TIF opportunity.
Booming Fayetteville brought the case that produced Thursday’s unanimous decision. It wanted to divert school and library taxes to redevelop a downtown section along old U.S. Highway 71.
Truthfully, the Supreme Court had no choice, although two sessions of the Arkansas legislature tried to amend the Constitution by legislative fiat to accommodate the developers. The court noted that only the people, not legislators, can alter the Constitution and that the lawmakers cannot pass a law saying what the Constitution really means.
Amendment 74 to the Constitution, ratified by the voters only four years before Amendment 78, declared 25 mills of real estate taxes throughout the state a statewide tax for education. The millage is collected locally and sent to Little Rock, where it is redistributed across the state based on the needs of the local schools.
Those taxes could never be used for any purpose except the schools. The city of Fayetteville and the developers, along with the legislature, said Amendment 78 repealed it by “implication” since 78 was adopted later and could be said to conflict with the earlier amendment.
If the authors of Amendment 78 intended to repeal Amendment 74 and dip into those school revenues, they should have clearly said so in the amendment, the court said. Arkansas voters were “never put on notice” that the wordy amendment on the ballot would take away some of the future school millage, the court said.
It recalled that in 2000 Arkansas was struggling to meet a constitutional mandate to fund the schools to provide a suitable and equal education.
“In that climate,” wrote Justice Robert L. Brown, “it is unreasonable to conclude that the voters intended to divert money exclusively dedicated for school purposes under Amendment 74 to fund redevelopment projects under Amendment 78.”
Indeed, it was unreasonable. And the court supplied the same reasoning in declaring the one-mill library millage off limits because the constitutional provision authorizing the library tax also said that it could never be used for another purpose, and Amendment 78 did not specifically repeal it.
The ruling jeopardizes a number of developing TIF projects in the booming northwest quadrant, Jonesboro and North Little Rock, among other cities.
It puts in peril the big Bass Pro Shop mall at North Hills and a mixed-use development near the Arkansas River, both authorized by the North Little Rock City Council in December. They will have to downsize or string out the debt using the small amount of school, county and municipal millage that can be applied as a result of the decision.
The decision will be welcomed by Arkansas’ schools, every one of which would have been hurt by every single TIF project because of the labyrinthine way it would have worked if the 25 mills could be used. More than that, the decision sent a message to legislators and those who draft these constitutional amendments that they should achieve their purposes straightforwardly and not by craftiness.
Tell the voters what you are up to. Don’t depend upon lawmaking legerdemain and winking courts to get it done.