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What now on TIFs? 

As we went to press last week, Attorney General Mike Beebe dropped a bomb of an official opinion. He said that the 25-mill minimum school operating millage required by the Arkansas Constitution was, by statutory definition, a state tax. It cannot be used to capture money for a Tax Increment Finance (TIF) district. Since the school tax is the biggest single source of property tax and since most school districts don’t assess much more than the minimum operating millage, this ruling was bad news for developers and many city officials. Jonesboro, Rogers, Little Rock, North Little Rock, Fayetteville and Bentonville, to name a few, have been busily creating TIF districts. The cities and the developers hope to capture the growing property tax revenue in TIF districts for related infrastructure. The Beebe opinion puts on hold, maybe kills, most of those districts. TIF opponents should not rest. Developer Bruce Burrow of Jonesboro is but one politically connected player who is looking for ways around the Beebe opinion. (Burrow’s project, about $9 million in drainage work to help a new mall, is underway and he must pay for it if TIF financing falls through.) The Arkansas Municipal League – which snuck the TIF scheme through the legislature – is also scheming. This time, at least, the school lobby will be on guard. At a minimum, they won’t stand by while poor parts of the state give up state money to replace local school taxes taken for TIFs. This is a direct state subsidy of private development in the state’s richest cities and it’s wrong. TIFs have had mixed success nationwide. They produce more in states with very high property taxes (not Arkansas). They’ve worked best as a tool for helping blighted areas, not Arkansas’s reverse Robin Hood approach. They tend to work best on a project-specific basis, as opposed to encompassing vast acreage. If the legislature must act, it might consider preserving TIFs for places with declining property values. It might also consider pledging local sales taxes, rather than property taxes, to support redevelopment bonds. This could produce more money in some cases. It would also test the sincerity of cities that claim the net benefit of a TIF justifies the public investment, no matter who makes it, state or local government. There’s still chance of a legal test. Beebe’s opinion is only advisory. We’d guess TIF supporters are searching for a friendly venue. Meanwhile, TIFs have NOT been outlawed, just made less productive. In Little Rock, while 25 mills worth of tax would be off-limits, there’s still a total of 32 mills – 9 from the school district, the rest from the city, county, Children’s Hospital and police and fire pension funds — to apply to increased property values in a city TIF district. Build a $20 million shopping center and that, roughly would produce enough in new taxes from the 32 mills to support maybe $1.5 million worth of bonds for infrastructure improvements. Not a huge sum, but a meaningful subsidy. Remember, too, that cities can use property and sales taxes and improvement districts to raise money. These should be the first options, not stealing kids’ lunch money. If there truly is a need for redevelopment districts, too, the law should favor the needy, not the rich. Also, the districts should be financed by the people who stand to enjoy the most benefits, not faraway state taxpayers praying for a little trickle-down.
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