Stiffed by TIF

City schools are being asked to give back tax dollars to developers

If there is a more cash-strapped, struggling political entity than the city of St. Louis, it must be the city's school district. So it's a dreary scene that has developed as City Hall asks the public schools to give back sales-tax money they received as part of the "deseg" sales tax passed by voters in 1999.

The school district is saying no, that it's entitled to all revenue from the citywide six-tenths-cents sales tax. Comptroller Darlene Green's office, however, is standing by its legal opinion that half of the deseg sales-tax revenue the school district received from projects funded by tax-increment financing must be given back to help pay off the cost of the development.

The city and the district are negotiating, but it looks as if the tax dispute will end up before a judge, which is just wonderful: A sales tax designed to help finance the city's barely provisionally accredited schools is being fought over, and the only people who will turn a profit are the lawyers. This is just one more reason TIFs suck.

Of course, all this could be avoided if TIF-funded developers would provide a commitment that any money returned to them from the six-tenths-cent sales tax would be automatically kicked back to the school district. To do that, developers would have to prove themselves civic-minded entrepreneurs and not self-serving schmucks. Place your bets.

The contested amount may appear small, but as the nine city TIFs -- including the convention-center hotel and Cupples Station -- start generating more cash, the tax money in question is sure to increase. Ken Brostron, attorney for the school district, tries to downplay the conflict but admits that the stakes will get higher as the number of TIFs increases.

"It will escalate as more come online. The issue gets larger," says Brostron. "It's tens of thousands of dollars now, but the concern is that as developments continue to come online and these continue to grow, they could become a major, major issue for us."

Regrettably, the statutory remedy is in Jefferson City. Green says she has the support of Gov. Bob Holden and Mayor Francis Slay to amend the TIF law next session to exempt the deseg sales tax from being folded back into TIF projects. But as backers of the transportation bill can tell you, Holden's support and 5 bucks might buy you a 12-pack of Stag, if it's on sale. No matter how worthy the cause -- and let's face it, some peckerheads don't care much about the city's kids -- passing any type of TIF reform isn't easy [Wilson, "Base Motives" RFT,May 16]. And despite all that happy talk by Slay on education, what the hell can he do?

Green is trying to accentuate the positive, stressing that all the political forces have aligned to fix this glitch, but even as she spins that take, things sound dire. "You could be approaching hundreds of thousands or millions of dollars," says Green of the money the city schools could eventually lose. "That's why I want to move quickly so the law can be changed."

Calling it a "huge error" that the deseg sales tax wasn't exempted in TIF legislation, Green says it's clear that "the spirit of the deseg tax is meant for the whole entire tax to go to the schools." The confusion may stem from legislators' thinking that local property taxes are the only way schools are funded. Outside the city's peculiar predicament, local sales taxes don't go to public schools.

The deseg sales tax passed with a 63 percent majority in February 1999 as part of the settlement of the 27-year-long school-desegregation lawsuit. The tax was expected to raise about $20 million, which would trigger a two-for-one match by the state to help make up for the loss of $70 million in direct aid the state had been giving as part of court-ordered desegregation. The tax is reportedly producing a little more than expected, but because city schools would be about $10 million in the hole if the tax had met projections, any decrease in revenue is bad news.

The city's position that half the deseg sales tax is owed to the TIF project is based on the language of the state TIF statute. The school district claims the purpose of the deseg sales tax was clear and that the revenue is therefore excluded from TIF laws.

"If the district sues us, then it would go to a judge, and the judge would have to decide," says Green. "I've spoken to [Superintendent] Cleveland Hammonds. He understands the situation; he's fully supportive of my efforts to bring it to light." But that doesn't mean the district won't sue to keep the money. Brostron knows this.

"If we can't work it out, we'll have to have someone adjudicate which legal position is right. It has ramifications," he says. Those ramifications extend beyond the dollars collected, because less money collected locally translates into fewer dollars from the state in the wickedly complex foundation formula. "The way the deseg case was structured in the settlement, we take the sales-tax dollar amount and convert it to a property-tax number; then we plug that into the state foundation formula. So it affects how much state money we get as well. It's not only the money from the sales-tax revenue, it's the multiplier in our foundation-formula calculation."

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