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As Jonesboro mall prepares to open, TIF's future murky.

THE $100 MILLION MALL AT TURTLE Creek in Jonesboro, which will open March 29, is being hailed as a tax increment financing success story.

Elsewhere, the future of TIF districts is murky.

Rogers Mayor Steve Womack said his city's approximately $30 million infrastructure project is on hold.

"We haven't scrapped the idea," Womack said. "[But] we haven't gone any further with our program."

Womack said the city wanted to improve the Pleasant Grove Road overpass and other road projects by creating a TIF district. Tax increment financing allows the increased property taxes due on improved real estate to be diverted to pay for infrastructure in the designated district, making development in the districts less costly to developers.

Some city leaders thought a Feb. 24 ruling from Washington County Circuit Court would give guidance on the controversial question of whether the 25 mills levied for school funding could be diverted to pay for infrastructure in the TIF district. Instead, the judge ruled that 25 mills required by the state constitution for couldn't be diverted because the legislation to allow the 25 mills did not pass until the 2005 legislative session, which was after the TIF district had already been created.

"That was the only thing I was looking at," said Washington County Circuit Court Judge Kim Smith. "I think they would have liked an advisory opinion as to the '05 and '06 years."

The city of Fayetteville, which filed the lawsuit to get some clarity on TIF spending, said it will appeal Smith's ruling to the Arkansas Supreme Court.

But until a Supreme Court decision is handed down, several TIF projects are on hold.

Robert Herzfeld, the Saline County prosecuting attorney who is running for attorney general, said there are still a lot of questions not answered about TIF districts.

"I think TIF legislation almost undoubtedly will be before the Legislature next session," he said. "The legislation now is so unclear--and perhaps deliberately unclear--that it's basically a minefield for anybody trying to navigate through it."

Don Zimmerman, the president of the Arkansas Municipal League, said the state will probably see more TIF projects, but they might not be as widespread as once anticipated.

"I do think there'll be some areas that will see that's a good tool to have for economic development," Zimmerman said.

Bob Wright, vice president of Crews & Associates of Little Rock, which handles TIF bond financing, said TIF projects can still move forward as long as the TIF projects use mills left after a city hands over the 25 mills for schools to the state. The school millage is invariably the majority of the property tax.

"A lot of people are probably going to wait and see until it gets to the Supreme Court, which we're hoping will be in the fall," Wright said.

Other groups still hope there will be even more legislation to clear the air on TIFs.

"The real crux of it is they can pass these TIFs (at the local level) but what they are doing is spending statewide money," Herzfeld said. "That 25 mills goes into the pot and the state redistributes it."

He said there is no reason for any city not to approve a TIF--community is not losing anything since the state has to spend $5,400 on each student regardless of what the city kicks in.

"That's the real bait-and-switch," Herzfeld said. "The TIF stuff is incredibly complicated. And I think it's deliberately complicated so they can confuse people and get away with these shenanigans."

State Sen. Jim Argue, D-Little Rock, said he agrees there needs to be more litigation to clear up the questions about TIF.

Under the current TIF law, local and county governments use TIFs as a way to entice developers to build projects by offering to freeze property taxes at the rate before development began, even though redevelopment increases the taxable valuation of the land. The extra tax money then is used for the debt service on bonds used to pay for the infrastructure improvements in the TIF districts.

The problem is the state's school funding formula. The state receives the first 25 mills in each school district and returns that money to the district with other state money to equal a statewide per-student formula of $5,400. A mill is one-tenth of one percent of assessed property value.

"When the mileage is above the 25 mills required by the constitution, I would agree that it's completely a local decision," Argue said. "And I have no opposition to funding TIFs with those mills. But when it involves the 25 mills, the state ends up making up the difference and never approves the project."

Argue said he opposed the 2005 legislation that allowed the 25 mills that had been set aside for schools to be used for TIF projects.

"Why would any city board reject a project when the state's paying for it?" Argue said. "It's a mess."

Jonesboro TIF

Bruce Burrow is already touting his soon-to-open mall in Jonesboro as a success story for tax increment financing.

"It's a win-win for everybody," said Burrow, a principal of MBC Holdings Inc. of Jonesboro, which developed the Mall at Turtle Creek along with David Hocker & Associates Inc. "I'll debate anybody over that."

When the 760,000-SF Mall at Turtle Creek opens late this month, it will feature more than 50 stores.

Burrow said the mall would have been built at the site without the help of TIF financing, but it would have been a much smaller mall.

Most of the $9 million that came from the TIF funding was used to deepen Turtle Creek and create a collection pond covering several acres. It also raised the site's elevation to move it out of a flood zone.

As a result of the work, more than 500 properties were moved out of the flood zone, and now those property owners won't have to buy flood insurance.

John C. Street, a Jonesboro alderman who voted for the Turtle Creek TIF, said the city of Jonesboro never would have invested $8 million to correct the flood problem at the site.

"It's been a cow pasture since I was a kid, and that's why nobody would loan money to build anything in a floodway and flood zone," he said.

Burrow said the project will give the state of Arkansas $8 million in sales taxes that before went to Memphis and the state of Tennessee.

He said the TIF bonds should be paid off in about 12 years instead of the allowable 25-year term.

Jonesboro School District levies 30 mills in property tax, and 5 mills have already been earmarked for the school district's debt service.

Burrow said the developers bought the TIF bonds themselves because it's still unclear from the courts if the mall could divert the 25 mills for the financing.

"Somebody is going to have to make a decision under the 2005 amendment to the legislation," Burrow said. "We think they can be."

The Jonesboro TIF hasn't been challenged in court.

The Mall at Turtle Creek does not, however; represent all new commerce for Jonesboro. Several stores have left or will leave the city's older mall, Indian Mall, to move into the new mall.

Warmack & Co. LLC of Texarkana, the owner of Indian Mall, didn't return a call for comment.

Street said it was expected that businesses would leave Indian Mall.

"The mall here needed to be remodeled and updated for quite some time," Street said. "I really wondered myself what will happen to the old Indian Mall once everybody does make the shift, because that thing will probably be like a ghost town."

But he said the criticism over the TIF didn't have anything to do with the fate of Indian Mall.

"Nobody's crying any tears about Indian Mall. I think everybody is glad to see a new mall," Street said.

He said the buzz of activity around the mall has caused property in the neighborhood to increase in value.

"The school is going to benefit because the land in the area is going to increase, so it's going to turn out good for the school," Street said. "It's going to net the city over $1 million a year in sales taxes. It's not been a bad deal."

Steve Singleton, superintendent of Jonesboro's public schools, also was happy with the TIF for the mall.

"As far as the school district, we don't feel it's affecting us directly because the 25 mills that the state receives are the only ones that are being affected," he said.

Singleton said the mall is projecting $225 million in annual sales, which would mean the state would receive $13.5 million from the mall's sales tax.

"So the state is losing on the 25 mills ... but they are gaining a whole lot more than that on sales tax revenue," Singleton said. "And all that is assuming that this development would not have taken place."

MBC Holdings didn't receive the bonds until about two months ago, which ended up helping out the Jonesboro public library system.

"The change in the legislation in the 2005 secession that exempted public library millage rates meant that we were no longer included," said Phyllis Burkett, the director of the Craighead County Jonesboro Public Library.

Had MBC Holdings gotten the bonds before the 2005 legislative session, the library system would have lost $40,000 a year under the TIF for about 10 years, she said.

"When you're as heavily dependent on property taxes as public libraries are for their operations, then diverting any kind of increase for any length of time" is a hardship, Burkett said.
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Title Annotation:Commercial Real Estate
Author:Friedman, Mark
Publication:Arkansas Business
Geographic Code:1U7AR
Date:Mar 13, 2006
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