LITTLE ROCK — Score one for common sense.
The Arkansas Supreme Court said last week that taxes specifically approved by voters for Fayetteville schools cannot be diverted to a city project.
The arguments advanced by the city of Fayetteville, which appealed a local circuit court decision to the Supreme Court, are complicated.
The court’s response is not: Taxes voters approved for the schools should go to schools. Period.
The case involved the city’s infamous fi nancing district, or tax-increment financing, district, created way back in 2005 with the prospect of a new hotel on the site of the old Mountain Inn.
The city created the downtown district to fund demolition of the old hotel.
The district anticipated any increases in tax collections above what was being collected in 2005 within the district would go to retire district debt. The districtboundaries lie within the downtown Fayetteville area.
Renovation of Fayetteville High School came about later. A second phase of construction is planned.
The high school project happened because Fayetteville school patrons, who live inside and out of the fi nancing district, approved a 2.75-mill tax increase in 2010.
This recent lawsuit was about the city’s trying to get part of that school tax revenue (the part paid by property owners within the financing district) to pay city debt related to the old financing district project.
The city demolition of the inn was to make room for a high-rise hotel thatnever happened. The city sold $3.7 million in bonds for the project and $3.25 million of the debt remains. Slowed redevelopment has also slowed the payoff , now expected to be complete by 2029.
Ideally, a fi nancing district would pay for itself more quickly with heightened tax revenue from the targeted redevelopment. The basic idea is that, as property value increases, so will the tax revenue, which can then be directed to pay off bonds issued for redevelopment.
You can’t really blame the city of Fayetteville for trying to get a piece of the school district’s millage. But, from a taxpayer standpoint, it didn’t make sense.
School patrons approved the levy to build school facilities, not to pay the city’s bills.
You might remember the millage increase wasn’t an easy sell to school patrons anyway. A first try to pass a millage failed and this one might have, too.
Nowhere along the waydid anyone say to voters that some part of the revenue produced might go to the city instead of the schools. If that had happened, patrons might not have approved the millage hike.
The case started when Fayetteville School District sued county oft cials who had agreed to divert 1.45 mills of the school tax increase within the financing district to the city.
The city’s arguments in support of that decision, however, didn’t sway the Washington County Circuit Court or the Supreme Court.
The courts found plenty of reason to let the schools keep the additional tax dollars produced from the school levy but the key element was that voters approved specific use of the money.
The city will just have to look elsewhere for the money to pay off those old fi nancing district bonds.
BRENDA BLAGG IS A FREELANCE COLUMNIST AND LONGTIME JOURNALIST IN NORTHWEST ARKANSAS.
Opinion, Pages 10 on 02/24/2013