Bill Supports Enhanced Exposure

Supporters of enhanced public disclosure for improvement districts couldn’t get their bill out of the Arkansas House of Representatives in 2009.

Their second attempt likely will receive more favorable treatment this session, given the publicity of the growing Kevin Lewis bond scandal and the downfall of First Southern Bank of Batesville.

The Little Rock lawyer and real estate developer is linked with a string of allegedly bogus special improvement district bonds sold to First Southern and, apparently, Centennial Bank of Conway and used as collateral for loans from other lenders.

An accompanying list of lawsuits against Lewis and his business entities continues to grow. The investigation into his financial affairs is said to extend to legitimate special improvement districts associated with the 42-year-old businessman.

The state’s 75 counties are home to hundreds of special improvement districts, formed by property owners to issue millions of dollars in bonds to fund drainage, levee, sewer, water, road, fire protection and other improvement projects.

The Lewis fraud probe underscores the possibility of fiscal abuse, an ever-present specter overshadowing the quasi-public improvement districts. Though the bond funding is public, the financial administration of the districts can be more shadowy.

“That scares me because there’s a whole lot of money out there,” said Chris Villines, executive director of the Association of Arkansas Counties. “It’s obvious the problem is out there. We’ve been pushing to get this fixed.

“Most [special improvement districts] are doing a terrific job of managing money.

“We have a few improvement districts out there in the state that aren’t above-board with everything. We had problems getting information from them.”

Last year, the proposed Improvement District Transparency Act was championed through the Senate by Shane Broadway, D-Bryant. However, the bill was voted down narrowly in committee without reaching consideration by the full House despite the best efforts of Barbara Nix, D-Benton, and others.

 

More Backers on Board

Villines has enlisted the aid of more backers for this year’s effort and is turning to other sponsors with Broadway and Nix out of office.

“Not only do we have the support of the Arkansas Collectors Association, but we also have the support of the Arkansas Municipal League on this,” Villines said.

Carrying the legislative torch in the house this time will be Rep. Jane English, R-North Little Rock. The draft bill is undergoing a final cleanup before submission.

“It has not been prefiled,” English said. “In the next week or so, we ought to have all that cleared up.”

Her interest in the bill goes beyond her constituents. English is a property owner in the Runyan Acres sewer improvement district in north Pulaski County.

Nearly two years ago, she was frustrated in her attempt to get access to basic information from the district commission.

“We were met with ‘Why do you want to look at this?'” English said. “That’s just not right. That sends up a red flag right away.

“People are beginning to realize that using a public funding mechanism doesn’t subject the improvement district to full public scrutiny and accountability.

“I don’t understand why people don’t want to be transparent. If you don’t have anything to hide, why do you care?”

She said some opponents had complained that reporting requirements in the proposed legislation would be too costly for the districts.

“We’re not looking for a 90-page report,” she said. “We’re looking for one page or a two-page report on what’s going on, where the money is going and what is the condition of the system.

“In some cases, it’s very difficult to get information. It’s important we have more transparency. There are property owners who aren’t sure if the bonds are paid off and don’t know what’s happening with their money.

“Their annual payment might change, but there is no explanation on why and what is it for.”

 

Annual Report Proposed

The draft bill requires the filing of an annual report with the county clerk by March 1 of each year and for it to be available for inspection by landowners in the district.

The bill also outlines items to be included in the report, such as expected payout of bond indebtedness, a list of ongoing contracts and obligations of the district, the reason for debts, names and contact information of all district commissioners and date, time and location for any scheduled meeting of the district.

County officials sometimes are caught in the middle of the fray between the improvement district commission and property owners. Villines, Saline County Collector for 11 years, experienced property owner angst firsthand.

“You can’t imagine the number of people who showed up in the Saline County Collector’s Office angry about special improvement fees,” he said. “The free flow of information helps eliminate some of the problems.”

Improvement districts are created through county ordinance, and annual property owner assessments often are collected through county offices. However, county officials don’t oversee the administration of the improvement districts.

Ultimate control of the funds is in the hands of the improvement district commission. It’s not uncommon that the commission is controlled by a developer and his representatives, creating a governance situation without checks or balances.

“They are ripe for abuse,” Villines said. “We have seen instances where the commission is no more than the developer, the developer’s wife and the secretary.”

 

Oversight Lacking

Improvement districts are a huge topic of discussion among county officials across the state, according to Faulkner County Judge Preston Scroggin.

“These improvement districts are a real kind of gaseous, nebulous thing,” he said. “They aren’t subject to normal regulatory oversight.”

Alan King, who works with scores of special improvement districts in the state, believes the proposed legislation is a good thing.

“I’m supportive,” said King, president and owner of Improvement District Inc. of Little Rock. “A little transparency will be a good thing.”

King, a 20-year veteran in banking, said he was stunned to learn of the number of lenders who did business with Lewis but didn’t verify that special improvements district bond certificates were genuine.

“It sounds like the banks went off reputation instead of doing their due diligence,” he said.

Many property owners helping pay off improvement district bonds simply want more information that’s readily available on the financial affairs of their district.

Supporters of the legislation liken the reasonableness of that request to an investor wanting a report on their investment.