A court ruling made Friday that limits the amount of money Fayetteville can raise to help build a new downtown luxury hotel was expected by the city and will now be appealed to the state Supreme Court.
City Attorney Kit Williams will seek to overturn Washington County Circuit Judge Kim Smith’s ruling exempting the use of 25 mills originally thought available for financing projects intended to remove blight.
Smith determined that County Assessor Lee Ann Kizzar was correct in her interpretation of the state law, which allows for the creation of Tax Increment Financing, or TIF, districts.
Fayetteville established its TIF district to facilitate the replacement of the Mountain Inn by repaying $3.7 million in bonds issued to purchase and demolish the Mountain Inn and several surrounding properties to make way for the construction of the $30 million Renaissance Tower project.
A TIF district generates money for projects by capturing property tax in a redevelopment area and spending it on a project, rather than distributing it to the entity for which it was levied. As the value of property within a district rises above the baseline set when the district is created, the incremental growth is applied to the project bonds.
Williams filed suit to clarify which property taxes should be captured to protect the city and school district from illegal exaction suits and to fulfill the requirements of the bond issue.
The ruling will not affect Fayetteville’s TIF because the city had already assumed the 25 mills would be exempt.
It does, however, prove the City Council made the right choice in scaling back its original project plan, which included an extensive second phase, Williams said.
Williams said it is likely attorneys representing the library and police and fire pension boards will also want to appeal the decision, because they do not believe the millage levied for their clients should be captured by the TIF.
Smith’s decision will mean the Fayetteville School District will make money off the TIF because it will be entitled to more property tax than it currently receives, unless it is later overturned.
The city’s original plan was based primarily on the city being able to capture the revenue generated by the 25 mills, which is dedicated to the operation and maintenance of public schools. Although the General Assembly amended the TIF statute last year in an attempt to allow the use of the 25 mills, Smith based his decision on the version of the law in place when Fayetteville passed its TIF.
The amended law also exempted library and pension board property tax, which make up half of the 3.16 mills currently dedicated to the repayment of Fayetteville’s bonds.
Because Smith based his decision on state statute and the earlier version of the TIF law, the ruling will not offer direction for other communities considering such financing, Williams said, which could result illegal exaction suits being filed against other communities throughout the state.
If the Supreme Court decides to address the constitutionality of capturing the 25 mills, that decision would provide guidance for all communities considering TIFs, Williams said.
Williams said his initial research indicates that the matter can be appealed directly to the Arkansas Supreme Court, a process he is ready to begin. Once the appeal process begins, it could take about eight months to get to the point where the Supreme Court would be ready to consider the case, he said.
Another question yet to be resolved is whether increases in applicable property tax should be applied to the bonds, Williams said. While it seems increases such as the city’s 1.3 mills of general tax should be applied to the bonds, he said, the courts have not ruled on that aspect of the law.
Williams said he would like the Supreme Court to include that in its eventual decision but is not sure if they will consider it a matter that is part of the suit.
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