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Legislature gets option of reviving TIF concept.

WHEN STATE SEN. TIM Wooldridge, D-Paragould, was working on the constitutional amendment allowing tax increment financing districts in Arkansas, he wasn't thinking about the potential cost to school districts around the state or the possibility that it could be used in the most economically vibrant areas of the state.

"I was thinking about the old coop that's under the overpass in Paragould. That's what I was thinking about," Wooldridge said last week.

On Tuesday, the day before the deadline, he introduced a resolution to amend Amendment 78, the TIF statute that was adopted by voters statewide in November 2000. As introduced, SJR4 is identical to the existing TIF amendment. Wooldridge said he simply wanted to get something introduced before the deadline that could be reworded with language straightening out problems with the TIF concept--"if we can come up with whatever that might be."

Amendment 78 allows cities and counties to designate TIF districts in which government proceeds from property taxes are frozen even after redevelopment increases the taxable valuation of the property. That foregone tax can then be used for the debt service on bonds used to make infrastructure improvements in the TIF district improvements that would otherwise come out of the pockets of the property owners and developers. TIF was sold to Arkansas voters as a way to redevelop blighted areas, just as Wooldridge said he envisioned.

The TIF concept dates back to the 1950s and has spread slowly to every state but Arizona, with the particulars "varying as widely as the tax structures of the individual states. In Arkansas it was slow to take off, even after the adoption of Amendment 78, mainly because of objections from school districts, which receive the lion's share of property taxes and therefore have the most to lose when those taxes are rerouted to other purposes. But subsequent legislation guaranteeing adequate school funding from the state helped alleviate those concerns and encouraged developers to ask for TIF financing, even in expanding areas such as the rapidly developing cities of northwest Arkansas.

The party came to a screeching halt in January, when Attorney General Mike Beebe issued an opinion that slashed the tax incentives available to TIF districts. Beebe opined that since the state Constitution requires all school districts to levy a minimum of 25 mills of property tax, that tax is in effect a state tax. And the TIF amendment only contemplates the rerouting of local property taxes, which never approach the level of the school taxes in Arkansas.

It was a welcome opinion for public school boosters and for Jim Argue, D-Little Rock, president pro tem of the state Senate who requested Beebe's opinion on the matter. But David Menz, a bond attorney with the Little Rock law firm of Williams & Anderson, said last week that he had a fundamental problem with Beebe's finding: Amendment 47 to the state Constitution.

It says, in its entirety:

"No ad valorem tax shall be levied upon property by the State."

An ad valorem tax is one levied based on the value of the property (rather than, for example, its size)--and that is exactly what the 25 mills of school tax is, Menz said.

Argue, while acknowledging that he is not a lawyer, said he felt Beebe's opinion was "on rock-solid legal grounds."

"I don't disagree with (the opinion) and I'm not surprised if some bond lawyers do," he said. "They want to sell some bonds."

The opinion's effect of putting the brakes on a dozen or so proposed TIF projects around the state will force cities and developers to look at old-fashioned options--like taxing themselves, he said.

"There appear to be communities that want to fund development projects with state money and without a local vote," Argue said. "They aren't satisfied with options like dedicated millage, improvement districts or impact fees--which would all require local taxpayers and developers to bear the cost. They prefer state money, of course."

Argue isn't at all sure he wants to support any legislative "resurrection" of the TIF scheme. But if that is the Legislature's will, he wants to see the use of tax increment financing limited to truly blighted areas, which he said could be neatly defined as areas where the property tax has been declining for five or 10 years.

"Then clearly we've defined an area that is producing less and less property tax revenue. And if it could be redeveloped, then it would be good for everyone. That's one feature I like," Argue said.

Or he might be persuaded by splitting the tax increment benefit between the developers and the local schools. But reports that some legislators are interested in imitating Kansas and Missouri by rerouting state sales taxes generated from a TIF district, rather than just increased local property taxes, leave Argue cold. That, he said, is still a scheme to make the entire state pay for local development.

Don Zimmerman, director of the Arkansas Municipal League, said he thought Beebe was being "blamed for more than he deserves" as far as hampering the advancement of TIF financing in the state.

"I feel like the bonds would not have gone forward, with or without his opinion, until the Supreme Court rules on this," Zimmerman said.

He said he thought the concept of TIF was well understood in 2000, when the issue whet to the voters of Arkansas and was approved. Cities, the constituents of the Municipal League, need all the economic development tools they can get, Zimmerman said.

"I think Arkansas is on the verge of economic development and we just need a push. We're just ideally located and we have four seasons but none of them are too severe. We don't have the problems like Florida is having with the hurricanes."

Still, he conceded, TIF may not be an ideal concept for Arkansas because property taxes are relatively low here and the largest portion goes to schools, making deferral of that money more politically sensitive.

"It may be that in other states the schools don't get such large portions of the property tax compared with local governments as they do here in Arkansas," Zimmerman said.

Menz, the bond attorney, said that was his concern about TIF in Arkansas all along.

"I've always thought, personally, that we're already such a low ad valorem tax state that you really have to run the value of the property up a lot for (TIF) to generate much money," he said.
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Title Annotation:Construction; tax increment financing
Comment:Legislature gets option of reviving TIF concept.(Construction)(tax increment financing)
Author:Moritz, Gwen
Publication:Arkansas Business
Geographic Code:1U7AR
Date:Feb 14, 2005
Previous Article:Turnarounds almost done, but not soon enough.
Next Article:Arkansas business list: largest subcontractors.

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