After the Holy Trinity, the most deeply held belief of the average Arkansas legislature is the holiness of job creation.
If tax giveaways in the name of job creation really worked, Arkansas would make Silicon Valley look like a rusting Hoboken refinery.
But the legislators never learn. That’s why the House Revenue and Taxation Committee majority was happy Tuesday to approve “clean-up” legislation on Tax Increment Finance. It’s a “win-win” deal, an East Arkansas legislator solemnly intoned. That’s faith at work, not facts.
The TIF business diverts property tax increases resulting from new construction in designated areas to aid private development. Bond lawyers tucked the little-noticed provision in a local government finance amendment passed in 2000. If mentioned at all, the TIF clause was said to be a way to help blighted areas.
Nobody much wants to invest in blighted areas. But developers would love taxpayers’ subsidies to build a shopping center in Jonesboro, a golf course community near Fayetteville, fancy office buildings in Rogers and a sporting goods store in North Little Rock. The bond deals won’t work without school taxes, the biggest revenue producer. But there’s a problem. The law seems to define the first 25 mills of local school property tax, mandated by the state, as a state tax and thus only for schools. Rep. Dustin McDaniel’s law would allow that millage to be used by developers, too.
McDaniel promises wondrous new sales taxes and jobs at the mall TIF will help build. Here’s where the Brantley Underwear Rule comes into play. The population of Arkansas buys a finite amount of underwear. Build a new underwear store in Jonesboro and it doesn’t increase underwear sales, it merely moves sales from one underwear store to another. (By the way: This gimmick to help a Jonesboro retail mall is a historic departure. Until now, the legislature has generally prohibited corporate welfare for retailers and office developments, save headquarters operations, because they so rarely amount to true new development.)
Nate Coulter, lawyer for a sporting goods retailer that opposes this legislation, had a simple suggestion. If TIFs really do produce new money, why not write the law to make up the lost property tax with sales and income tax proceeds. He got no takers.
House Speaker Bill Stovall was able to muster the votes to win endorsement of a competing bill limiting TIFs strictly to blighted areas. Its approval will force continued negotiations with sponsors of the wholesale TIF giveaway. Predictions are that both bills will pass the House. A compromise, if one is possible, could emerge in the Senate.
The school lobby objected to the giveaway bill, but only timidly. Why? Local schools are held harmless by the state school formula, which guarantees equal per-student spending. If a rich city like Rogers or Jonesboro turns local tax money over to a developer, the state will make it up. That means that poor people in Eudora subsidize the likes of John Tyson, J.B. Hunt and Bruce Burrow.
Lawsuits are sure to come. Stovall, for example, wisely invoked the Lake View decision, in which the Supreme Court looked kindly on the legislature’s uniform 25-mill tax on all school property. There are equal protection arguments if some districts are released from this requirement but not others. And there’s an even more elementary question: Is it constitutional to devote money voted for schools to a shopping center?