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March 14, 2000

Once Again Financial Crunch for Mobile Public Schools;
Once Again Those Darn Missing Sum-In-Lieu Payments

by Edmund Tsang

In 1992-93, the Mobile County Public School System (MCPSS) was facing a financial crisis equal to the present one, in which the state's largest school system has to cut $7 million from this year's budget and to reserve another $8.5 million to account for next year's projected shortfall. Then-assistant superintendent for business Charles Ratcliff told the school board at a meeting in March 1993 that few industries had made good their promise to make payments of "sum-in-lieu" of school property tax as part of a tax-break package they received from local industrial development boards (IDBs). In 1992-93, the school system had to receive loan extensions from local banks to avoid bankruptcy. Seven years later, the fund-strapped MCPSS is no closer to collecting the payments. What has transpired to collect the promised payments in between these two financial crises for one of the poorest-funded school systems in the nation represents the worst of southern politics.

As of March 10, 2000, nine companies that have yet to make a single sum-in-lieu payment have been identified by the Harbinger research. In the 1999 calendar year, the school system received more than $400,000 in sum-in-lieu payments, with another $148,000 received in 2000 so far -- see Table.

Sum-in-Lieu

Prior to January 1993, industries financed by industrial development bonds were exempted from all property tax, including school property tax, over the period of the bonds as well as a one-time sales tax. Alabama's Tax Reform Act of 1992 ended IDBs' power to grant school-tax exemption to recruit new businesses or to assist in expansion of existing businesses. But between 1989 and the date when the legislative act became effective, local IDBs had begun requiring industries and businesses financed by their interest-free bonds to make "sum-in-lieu" of school property tax payments.

In addition to materials provided by Mr. Ratcliff, court-record research performed by The Harbinger when it first began reporting the missing "sum-in-lieu" money in 1992 showed that IDB contracts written as far back as the early 1980s contained references to such payments, though the actual wording on the contracts varied. As opposed to common, standard contracts, no mention was made in these IDB contracts regarding when and where to make the sum-in-lieu payments. In addition, The Harbinger was unable to find at least one contract with sum-in- lieu promises that was mentioned in the minutes of IDB meetings.

In March 1993, Mr. Ratcliff told the school board that only three out of seventeen companies had made good their promise to make sum-in-lieu payments. At the time, the school system was threatened by a financial crisis of a magnitude equal to the one in 2000. Then school superintendent Dr. Doug Magann told The Harbinger that he learned about the missing promised payments while he was looking for revenues to meet the financial crunch. Dr. Joseph Mitchell, then a school board member who is now a state legislator, told the Harbinger in an interview in 1993 that Magann saw "industry and land, but no money for the school," when he was looking at the tax base in Mobile County. Magann was soon "going to places where money was due," Mitchell said then. (Harbinger, Vol. XI, No. 7, 1/12-25, 1993)

According to a 1992 report of the State Department of Revenue, Mobile County led the state in IDB-financed projects, totaling $1.339 billion. Mobile also led the state in the value of property tax exemptions that would have represented a potential revenue of $4.7 million per year to the public schools and another $7.7 million to the city and county, if the taxes were collected.

A Lot of Talk But Little Action

The minutes of the City of Mobile IDB said it began looking into the sum-in-lieu topic in late 1991. According to the minutes of the March 25, 1992 meeting, the IDB directors appointed a committee consisting of Ken Lott, Clarence Ball, Frank Schmidt, and Walter Hovell as chairman of the committee, "to ascertain what provisions are contained under lease agreement regarding pay in lieu and if these payments are being made and to whom they are being made." Earlier in November, 1991, the IDB directors talked about finding out if companies had made the promised payments and determining the feasibility of companies making sum-in-lieu payments to the school system directly. Minutes of the November 1, 1991 meeting stated: "After a discussion on the collection and disbursement of service payments made in lieu of taxes, motion was made by Mr. [Frank] McRight, seconded by Mr. [Frank] Schmidt, that pending advice from the Mobile County Revenue Commissioner that Board Counsel [Mack Binion] look into where the service payments are going and the feasibility of future payments being made directly to the Mobile County School System. Motion passed unanimously."

In an interview in 1993, Mr. Hovell, the former CEO of Mobile Gas Service Corp. who was named Mobilian of the Year two weeks prior to the interview, told the Harbinger that a committee was looking at the sum-in-lieu matter and that he would have the answers soon. Throughout 1993 when the Harbinger repeatedly tried to determine the results of the finding, Mr. Hovell gave the same answer through his secretary. The last time the Harbinger contacted Hovell before he stepped down as president of City of Mobile IDB was in March, 1994. Through his secretary, Hovell said he was "still working on completing the report. It is in the best interest not to discuss it until the report is completed."

J. Bruce Jones, a former vice-president of Alabama Power Company, was the next president of the City of Mobile IDB. During his tenure, two companies made good their sum-in- lieu promises. But by the time he stepped down as its president, the City of Mobile IDB was no closer to producing the report on sum-in-lieu that was mentioned in the minutes of the November 1991 meeting. In March, 1996, Jones told The Harbinger that he still had "nothing to report." Collecting the sum-in-lieu payments "prove to be an arduous task," Jones said then. "It took a few years for this matter to get to where we are today, so it might require a few more years to achieve success." Jones added that he and IDB legal counsel, Mack Binion, had met to follow up on leads. In March, 1997, in response to a request for an interview regarding sum-in- lieu, Jones sent a letter to The Harbinger stating that the IDB "will continue to work toward resolution of additional outstanding issues and it is our hope that the remainder of such issues will be appropriately disposed of in the not too distant future."

In March of 1998 and 1999, the Harbinger made several attempts but failed to contact Clarence Ball, then president of the City of Mobile IDB, for updates on the sum-in-lieu report. Mack Binion, legal counsel to the City of Mobile IDB who was tasked by its directors in November 1991 to collect sum-in-lieu information, has to date not made any report during IDB public meetings.

Efforts to reach Thomas Hinds, president of Regions Bank and the current president of the City of Mobile IDB, was unsuccessful last week. According to a message on his voice mail, Mr. Hinds was out of Mobile between March 6 to 10 and would not return to Mobile until March 13.

Who Looks After the Interest of Students?

N.Q. Adams was a school board member and chair of the school system's finance committee between 1989 to 1993; until November, 1992, he was also a City of Mobile IDB director. He was identified by the minutes of the City of Mobile IDB as being present in meetings where a total of eleven contracts were approved with sum-in-lieu promises but that had not made any payment by March, 1993. Adams was also present at the November 1991 meeting in which the minutes stated that the IDB had appointed a committee to determine the status of the sum- in-lieu matter. When asked in 1993 about the findings of the committee regarding sum-in-lieu, Adams told a Harbinger reporter that he was still doing research on it. The sums-in-lieu topics "needs more work," he said. When asked again in March 1994, Adams told The Harbinger that he would not answer any more questions about sum-in-lieu because a reporter from The Harbinger had filed complaints of conflict of interest against him with the State Ethics Commission. Until his retirement in 1993, Adams was president for the southern region in a local bank. Adams did not seek re-election to the school board in 1994.

Barry Prine, an attorney with the office of Robert Campbell, which represents the school board, told The Harbinger last July that the school board has directed its attorney to make inquiries about sums-in-lieu as a result of reports in the Harbinger. Prine asked a reporter from the Harbinger for information about the stories published and was given the web address where such articles can be downloaded.

The Harbinger tried to contact Barry Prine for an update in March 2000. Frank Taylor, a colleague of Prine, returned the telephone call from the Harbinger, and he said he will be meeting on March 10 with the current assistant superintendent for business, Charles Wilcox, to discuss the sum-in-lieu matter. "If the school system has any legal authority, we could sue to get the money," Taylor said. "But the school system has no legal standing." Taylor also said his office has not yet contacted the IDB legal counsel, even though Prine was told in July 1999 that IDB minutes stated that its legal counsel was tasked to produce a report on the status of sum-in-lieu payments.

Who Rules Mobile?

Former MCPSS superintendent Dr. Doug Magann tried to collect the promised sum-in- lieu payments. In an interview with the Harbinger in January, 1993, Magann said he was told to stop his pursuit of sum-in-lieu lest he jeopardize a $15 million bank loan needed to rescue the school system then facing bankruptcy. There was nothing in writing, Magann said. "Words came from the banking syndicate, the mayor's office, the Chamber of Commerce."

Magann said he was sure the local banks would deny the loan extension needed by the school system to tide itself over the financial crisis. "Words came back through" that the loan was in jeopardy if he "turned over that rock [sums-in-lieu]." When Magann was asked for names of the people who contacted him, he replied, "some attorneys."

Mobile County Revenue Commissioner Freda Roberts told the Harbinger in January 13 that she assisted Magann when he sent school-system employees to the County Courthouse to search for IDB documents. Ms. Roberts told the Harbinger that Magann may have been told to back off his efforts to pursue the sum-in-lieu matters because a report about the payments due the school system that he promised her never came. Roberts also said she asked the County Commission for help on the sums-in-lieu matter but "the County Commission told me to do my job" and not try to find the payments. (Harbinger, Vol. XI, No. 7; 1/12-25, 1993)

Magann was suspended from his post in October 1992 by the school board in a controversial 3-1-1 vote. N.Q. Adams, Jeanne Andrews, and "Sugar" Warren voted for the suspension; Hazel Fournier voted no; and Dr. Joseph Mitchell abstained. Fournier and Mitchell, both black, charged the three white school board commissioners held a secret meeting to plot Magann's termination but excluded them from attending. The suspension hearing was terminated before it was completed, and Magann's contract with MCPSS was eventually settled through negotiation.

Dr. Joseph Mitchell told the Harbinger that he recalled Magann was looking at the tax base of Mobile County soon after he arrived in 1991. Mitchell said the first time he heard of sum-in-lieu was at a meeting at the Mobile County legislative delegation offices early in the 1991-92 school year. Mitchell also said N.Q. Adams never told him that he was a director of the City of Mobile IDB. At the time, IDBs and sum-in-lieu became a topic because Degussa, the chemical manufacturer located in south Mobile County, was granted a substantial school-tax exemption even though it was the IDB's policy to require sum-in-lieu for the school property tax. In the document presented to the school board in March 1993, Charles Ratcliffe listed Degussa making $33,000 sum-in-lieu payment to the County Commission but not to the school system.

Mitchell is still trying, from his current position as state legislator, to find out about the missing sum-in-lieu payments. In a telephone interview last week, Mitchell said he has sent a letter to the current school superintendent, Harold Dodge, asking for a status report on the sum- in-lieu payments. He even attended a City of Mobile IDB meeting in July 1999 to ask the Board about the missing payments. Mitchell asked to speak to the IDB directors after the agenda of the meeting had been completed. Mitchell said: "I want to inquire about the letter I sent you requesting information about the sums-in-lieu," referring to the letter he sent to Jim Apple, assistant secretary of the City of Mobile IDB and vice president for economic development at the Chamber of Commerce.

Mitchell said last week that he still has not received any information from the City of Mobile IDB about the missing sum-in-lieu payments. While some may criticize the school commissioners for not being "aggressive enough" in collecting these payments, Mitchell said the responsibility lies with the IDBs. "The most direct path" to an accounting of the missing sum-in- lieu payments "lies with the IDB itself," Mitchell said. Asked whether one should just give up on ever collecting the sums-in-lieu, Mitchell said, "I don't take that position."


WHO HASNíT PAID SUM-IN-LIEU

Greater Southern Wood Preserving
Belcher Company of Alabama
Robert Meadow Warehouse & Distributing
J. Williams Blevins
OíNeal Steel
Tonsmiere Construction
Pfizer Specialty Minerals
Gulf Lumber
Big Bee Chemical

Based on information provided by Charles Ratcliffe, former business manager of the Mobile County Public School system, and on research of court records and minutes of the City of Mobile Industrial Development Board meetings by the Harbinger.

SUMS-IN-LIEU RECEIVED BY THE SCHOOL SYSTEM

January 1-December 31, 1999

CompanyAmountDate Received
G&B Hillcrest$12,500.00January 5, 1999
Dees Paper$2,827.63January 5, 1999
Atlantic Marine$41,560.09January 7, 1999
CR&R* $6,306.64August 31, 1999
CR&R*$2,835.32August 31, 1999
Housing Authority$19,840.13September 13, 1999
Chickasaw Development$735.74September 13, 1999
Mobile Energy$311,441.00September 17, 1999
Mobile Housing$4,679.82November 10, 1999
Atlantic Marine$35,827.67December 28, 1999
Total:$439,554.09 

*CR&R = Correct Receivable & Revenue. The Harbinger was unable to obtain an explanation of CR&R by press time.

January 1-March 10, 2000

CompanyAmountDate Received
G&B Hillcrest$12,500.00January 4, 2000
Kimberly-Clark$132,641.00January 5, 2000
Dees Paper$2,827.63January 26, 2000
Total$147,968.63 

Source: Business Office, Mobile County Public School System


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