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March 27, 2001

Will the School System Ever Find Out How Much Sum-In-Lieu-Of-Property-Tax Payments It Is Owed?

by Edmund Tsang

The issue of sum-in-lieu of school property tax, which were promised by industries financed by bonds issued by Industrial Development Board (IDBs) in the 1980s and early 1990s, remains unresolved eight years after it was first brought to the attention of the Mobile School Board. In March 1993 when the school system was facing a financial crisis, then business manager for the Mobile County Public School System, Charles Ratcliff, said fourteen out of seventeen promised payments never made it to the school system. Even now, as Mobile's public schools face another financial crunch, it is no closer to resolving the issue or to finding out the exact amount owed to the fund-strapped public schools.

According to a member of the staff of the school system's finance office, School Superintendent Dr. Harold Dodge sent a letter on February 23 to Jim Apple of the Mobile Area Chamber of Commerce inquiring about the result of an audit launched last summer to resolve the sum-in-lieu issue and in which the school system provided documents last November. This staff member told The Harbinger in a telephone interview on March 21 that the school system planned to send another letter later that day. For the current school year from October 2000, to the present, a total of $621,477.58 in sum-in-lieu-of-tax payments were received by the school system from seven companies.

Jim Apple, who has been designated as the official spokesperson on the sum-in-lieu issue by Mobile's two IDBs, told The Harbinger in a telephone interview on March 21 that the audit is almost complete. "We are waiting for replies from some of the companies to find out if they have made payments," Apple said, adding that the audit may be complete in a few more weeks. In May 2000, Mr. Apple told The Harbinger that an outside auditor, Jo Chateau, "had been retained" to determine which companies, if any, need to make sum-in-lieu payments. In June 2000, Ms. Chateau told The Harbinger that she was about to begin the audit and had read some of the materials already.

[Prior to January 1993, industries financed by bonds issued by IDBs were exempt from all property taxes, including school property tax, over the period of the bonds. But between 1989 and the date when Alabama's Tax Reform Act of 1992 became effective, which ended IDBs power to grant school tax-exemption, IDBs in Mobile began requiring businesses financed by their bonds to make "sum-in-lieu" payments. Research conducted by school system's Ratcliff and by Harbinger staff discovered IDB contracts with "sum-in-lieu-of-property-tax" language as far back as 1981. However, unlike common, standard contracts, no mention was made in these IDB contracts as to when and where to make the sum-in-lieu payments. Also, different language was used to refer to such payments, including "municipal service fees," "tax equivalent rent," and "payment in lieu of tax."

[According to the 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, which would have represented a potential revenue of $4.7 million per year to the schools and another $7.7 million to the city and county, if the exempted property taxes were collected.]

Former School Superintendent Dr. Doug Magann tried to examine the sum-in-lieu issue in Fall 1991, when Mobile's public school system was facing a financial crisis. He sent school employees to the Mobile County Courthouse to locate and examine the IDB contracts. Magann told The Harbinger that he was disturbed by the "loose language" in the IDB contracts. He also said it was difficult to get a true accounting of the amount owed to the school system because the records were "scattered" and difficult to locate. Magann told The Harbinger in January 1993 that he was told to stop his pursuit, lest it jeopardize a loan extension intended to prevent the school system from declaring bankruptcy. Magann was terminated in 1992 by the school board in a controversial vote along racial lines, in which the two minority board members charged that the white majority board members met without them to plan Magann's ouster.

Two IDB cases proved Dr. Magann's assertion to be prophetic. The first case is Gulf Lumber. According to Loretta Byrd of Gulf Lumber, the company received IDB financing in 1985. Search of probate court records by school system employees, which was shared with the Harbinger, as well as independent search by Harbinger staff, did not find the 1985 contract with Gulf Lumber. The minutes of a November 26, 1990 meeting of the City of Mobile IDB directors, however, indicated a $2 million bond issue for Gulf Lumber to improve their existing mill, and stated that "The company will make a service payment equal to local school tax portion." Ms. Byrd told The Harbinger in Fall 2000 that Gulf Lumber did not pursue the bond issue mentioned in the November 1990 minutes.

The other case involved Tonsmeire Construction Corporation, which was identified in 1993 by school system's Charles Ratcliff to possibly owe payments to the school system "but with some question due to contract wording." According to a 1995 agreement between the City of Mobile IDB and Tonsmeire Construction Corporation, both parties agreed that $6,976 per year of Tax Equivalent Rent was remitted to the Mobile County General Fund from 1981 to 1986 and from 1989 to 1991. The agreement also indicated that $6,750 was paid to the Mobile County Public School System in 1992 and a total of $29,750 was paid to the City of Mobile IDB.


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