Finance District Placed Before Supreme Court
Last updated Thursday, April 5, 2007 6:59 PM CDT in News
By Doug Thompson
The Morning News
LITTLE ROCK -- Whether Fayetteville's tax increment financing district collections will stay the same or increase between 140 percent and nine-fold is now in the hands of the state Supreme Court.
Attorneys for the city, the Fayetteville School District, the Fayetteville Public Library and other interested parties argued before the high court Thursday. The city brought the lawsuit to clarify state law on which taxes are subject to tax requirements, appealing an earlier Washington County Circuit Court ruling.
The high court did not rule Thursday.
As property is developed, the value of the property and the tax assessments upon it grows. Tax increment financing districts seek to encourage development of new areas or redevelopment of blighted areas by issuing bonds to improve sewers and other utilities in the area to be developed. Those bonds are backed by the growth in the value of the land as development projects spring up.
For example, if a particular piece of property within a tax increment financing district is taxed at $1,000 a year for schools and improvements to the area increase its tax value to $1,500 a year, the school continues to receive $1,000 a year. The increase of $500 is used to pay back the bonds. After the bonds are paid off, the district gets all $1,500.
The issue argued before the court Thursday was: How much of a school district's millage is subject to tax rules? The law regarding taxes does not allow touching growth for tax mills involving the school's debt service.
That leaves maintenance and operation mills -- which are mostly covered by the 25-mill minimum set by the state, which Fayetteville district lawyer Rudy Moore and state Department of Finance and Administration attorney Will Keadle argued should be exempt from taxes because those taxes are a state requirement.
Amendment 74 to the state constitution sets the 25-mill requirement and says the mills cannot be used for other purposes.
Fayetteville city attorney Kit Williams argued voters approved Amendment 78, which allows tax districts, after Amendment 74. Therefore, Amendment 78 supersedes Amendment 74, he argued.
In addition, some of the school taxes collected for debt service are used for maintenance and operation. Growth in the district has meant the millage originally approved by voters for debt service now brings in more money than is needed to cover the payments on those debts.
Williams argued the growth on the excess should be available to the tax. Moore argued otherwise, saying the law states all taxes approved by the voters for debt service are exempt.
The Fayetteville City Council approved a tax increment financing district downtown to redevelop the area, including demolition of the vacant Mountain Inn. Even at the lowest collection level possible under the lawsuit, the city will be able to pay off the bonds for the work done so far, Williams said.
In all, the Fayetteville tax district collected $182,736 in 2006, county records show. The total was on the growth in value on 3.16 taxable mills. If the court allows the excess debt millage to go to the tax district, the district will collect growth on 7.66 taxable mills, Williams said.
Growth on another 25 mills will come in if the court decides that the constitutional amendment requiring the 25 mills for maintenance and operation was superseded by Amendment 78.
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