Tax Increment Financing Thumped By AG's Opinion
Officials Look For Other Ways To Accomplish Plan
Last updated Tuesday, January 11, 2005 10:17 PM CST in News
By Doug Thompson and Sarah Terry
The Morning News
FAYETTEVILLE -- The Fayetteville City Council will likely have to find another way to fund the redevelopment of the Mountain Inn.
Attorney General Mike Beebe opined Tuesday that tax increment financing districts cannot use any part of the state-mandated 25-mill minimum for school maintenance and operations, including any growth in tax revenue.
The opinion strips the proposed TIF districts in Arkansas cities of most of their tax base.
TIFs were designed to freeze property tax payments to schools, cities, counties and community colleges. The property taxes within the district would continue to grow because of rising property values and new construction, but the increased money from the growth would go to the TIF district. TIF money would finance bond issues for roads, sewers and other infrastructure improvements.
Sen. Jim Argue, D-Little Rock, asked for the attorney general's opinion. He said he was concerned about losing revenue for schools at a time when the state was struggling to improve schools under a state Supreme Court mandate.
The more money TIFs take out of local property taxes, the more money the state would have to put in to meet the court's mandates.
Argue filed his request for an opinion after Rogers and Fayetteville formed TIF districts.
Fayetteville formed a TIF district downtown to demolish the abandoned Mountain Inn and pay for a series of street improvements.
"For the sake of the Mountain Inn project, I am disappointed," Sen. Sue Madison, D-Fayetteville, said of the attorney general's opinion. "It was a chance to get rid of that blighted eyesore." She said she doubted a TIF without the growth from the 25 mills would be worth pursuing.
But Fayetteville city attorney Kit Williams said there may be other funding options.
The TIF was projected to generate $3.5 million for the Mountain Inn redevelopment.
The city of Fayetteville and Washington County could use their 7.2 mills of property tax, even though the loss of 25 mills from the project means the bond issue would take longer to pay off.
The Fayetteville council could vote to put up $3.5 million of its reserve funding as collateral when the bonds are issued to tear down the dilapidated hotel.
"I think the project is not dead, however, the City Council has to be willing to step forward and commit as security about $3.5 million, including some of its interest, to pay the bonds until a much smaller increment could handle the debt service, which could be a number of years," Williams said.
"The City Council will be faced with a decision if they want to make that commitment. If we use everything but the school millage, it would be extremely tight."
Williams said the state law regarding TIFs won't be finalized until it is challenged in court.
"We really need to have to get this law to the Supreme Court, so everyone knows what it means," he said. "We need this addressed by the Supreme Court. Once the Supreme Court gives this decision, then it's final."
The Legislature could rewrite the law in the legislative session, the opinion said. Getting lawmakers to do that and to allow taking growth money from the 25 mills is unlikely, said Sen. Dave Bisbee, R-Rogers, Senate chairman of the Joint Budget Committee and senior member of the Northwest Arkansas delegation.
"Politically, we can't get it done," Bisbee said of getting the growth money from the 25 mills. Rogers, for example, could continue with a TIF district that would only draw growth money from the county, city and NorthWest Arkansas Community College property taxes, but that would be a lot less money and be much more of a burden for those local entities, Bisbee said.
The Fayetteville council was considering a second TIF downtown and a third district along Interstate 540. Mayor Dan Coody said Tuesday those have been put on hold.
"We are cautious," Coody said. "We are going to suspend any advancements until we know what the Legislature is going to do. The limitation of the future mills available don't lend much viability to a project. It's important for us to move forward with the Mountain Inn project. We might not use the original TIF model."
The council will have a special meeting Jan. 25 to discuss amendments -- and possible new funding options -- to the Mountain Inn TIF, which has already been approved.
Coody said he hopes the Legislature will consider ways to make TIFs a reality in Fayetteville.
"We knew there was a likelihood this might happen," he said. "I think it's important for Arkansas to have development tools like tax increment financing districts. Arkansas needs every tool it can get."
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