Fayetteville is on the verge of approving another tax increment finance district. It is the best of the TIF projects I’ve heard about and it’s still a loser for the state.
Fayetteville will likely put a one-mile strip of land from Maple Street across the UA campus to Highway 62 in a TIF district. It will be six to nine blocks wide.
The first goal is to float a $3.5 million bond issue so the city can buy and raze the derelict Mountain Inn and adjacent property for a new hotel and parking deck. The city would resell the land to private developers for $219,000. The deal is, in other words, a $3.3 million loser for the city from the get-go. But that’s not all.
It will take millions in interest to pay off a $3.5 million 25-year bond issue. Where would the money come from? It would come from the difference in the property tax on the property before the construction and after the construction of a new building. The city will capture the difference to pay off the bonds, instead of the Fayetteville School District, the normal recipient.
Why don’t the schools care? Kit Williams, Fayetteville city attorney, explains. “The schools say it’s great. Their bond millage is protected. The state treasury is going to make up the loss.” That is the awful truth about TIFs. Under the new school finance law, school districts are guaranteed certain levels of per pupil support. They can reduce their local tax effort by allowing city government to plunder their millage, approved by voters specifically for schools and only for schools, for other projects. They know the state will subsidize them. TIFs are possible only in the most prosperous areas, making the subsidy doubly cruel for the people in the Delta and elsewhere paying the cost of a better Fayetteville.
Williams says the Mountain Inn project comes closer than any he’s seen to meeting the TIF ideal of revitalizing blighted areas. He says he’s less certain about projects in the works to create such districts on I-540 in Fayetteville (to match a giant TIF corridor Rogers has created) and a couple of other TIFs under discussion near the university.
The theory is that TIF districts increase sales tax revenue and produce jobs, but it would take eons for local sales taxes to offset the millions necessary to subsidize the Mountain Inn alone. Little sales tax revenue reaches local schools.
If Williams were a lawyer in private practice, he said he’d be inclined to look at the legality of some of the TIFs being completed in a rush because of an expectation that the legislature might tighten up the law. Rogers, for example, might have a hard time proving that some parts of its TIF subsidy is creating jobs, as the statute requires. It plans to capture increased tax revenue on property where construction was underway before a TIF district was formed.
Williams wonder if any state legislator realized “how much money this was going to cost the state treasury.” In the beginning years, the amount will be relatively small. But as new projects come on line in the big TIF districts in booming Northwest Arkansas, the local property tax lost to the schools will increase dramatically, all to be made up by the state in future years. “It’s going to be phenomenal,” Williams said.