Ruling Gives Definite TIF Guidelines (Editorial)

Surely the recent state Supreme Court ruling on tax increment financing districts has some economic development folks wondering how they’ll now make it work.
The court made it very clear, in its ruling on a Fayetteville TIF case, that the 25-mill property tax that is constitutionally required for schools cannot be diverted for development districts.
And that clear ruling means there are now definite guidelines for TIFs, something that’s been in question since voters approved their creation back in 2000.
TIFs can be a good thing. New development raises the value of property, but instead of collecting higher taxes on the enhanced value, a city can encourage such development by pledging the “tax increment” to help pay for the project.
This scheme has been used thousands of times all across the nation. TIFs can and do work to attract development to locations that would languish otherwise, and local governments benefit indirectly if not directly. But Arkansas’ peculiar tax structure, depending so much more on sales taxes than property taxes for almost everything except schools, makes it a poor fit for the TIF model, which is why it was so slow to catch on here in the first place.
While Amendment 74 to the state Constitution set the 25-mill requirement for schools and says those mills cannot be used for other purposes, the city of Fayetteville argued that Amendment 78, which allowed for the creation of TIFs, replaced the 25-mill requirement. Not so, the court said.
“The critical stumbling block we see with the city’s interpretation of Amendment 78 is that the voters of this state were never put on notice that Amendment 78 would effectively undo Amendment 74 by funding redevelopment projects with a portion of the uniform rate of 25 mills that had previously been designated solely for the maintenance and operation of the public schools,” Justice Robert L. Brown wrote in the court opinion.
Any other ruling would have resulted in a drain of funds for public schools and could undo some of the court-ordered and Legislature-passed funding that has been poured into the state’s public schools to make them adequate and equitable.
Amendment 74, adopted in 1994, designates 25 mills of school taxes in every Arkansas school district as state taxes. That money goes to the state and is redistributed among the schools by a formula that is supposed to provide some equity between the richer and poorer schools. So, in effect, any TIF in the state that could tap into the 25-mill state tax would impact not only the local district, but all districts.
Commercial developer and TIF beneficiary Bruce Burrow says his Bass Pro Shops project in North Little Rock will go on despite the Supreme Court’s ruling, which has to make one wonder if that TIF was just unnecessary corporate welfare.
The court ruling does give cities a far clearer understanding of what a TIF can and cannot offer developers, and that should take the mystery out of TIFs while relieving most of the concerns of public school boosters.