The Arkansas Supreme Court today upheld a lower court ruling that said the city of Fayetteville could not take part of a Fayetteville School District property tax increase for high school construction and use it in an existing tax increment finance district.
There's a lot of history here. The Supreme Court had protected the 25-mill base school millage from use by tax increment finance districts. The TIF districts were a legislative scheme to capture school millage for improvement projects. In Fayetteville, a downtown development district was created in hopes of diverting millage on property in the district to a parking deck and other projects. But when the court took the Fayetteville base millage off the table for improvement district use, it pretty well killed the effectiveness of TIF districts statewide. Few school district have a signfiicant amount of "free" millage — not committed to bond issues — that the improvement districts could capture.
But when Fayetteville voters approved 2.75 new mills in 2010, the city argued that a portion of the new millage, because it was passed after the earlier court ruling, was excluded from millage held off limits as pledged to bonds. The city also argued that the ballot didn't explicitly pledge the new millage to bonds. The court rejected the arguments. It said surplus revenue produced by new bond mills could be used for other school purposes and did not have to be directed to the existing TIF district.