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March 8, 1994

Might as Well Kiss the Money Goodbye

by Edmund Tsang

The Mobile County Public School System most likely will never receive the money promised it by industries financed by bonds issued by the City of Mobile and Mobile County Industrial Development Boards (IDB). In March, 1993, the missing sum-in-lieu-of-property-tax payments were discussed in a school board meeting for the first time when Charles Ratcliffe, associate superintendent for business and finance, placed the issue as an action item on the meeting's agenda. All properties financed with money from industrial revenue bonds before January, 1993 are exempt under Alabama law from ad valorem tax until the bonds are retired. But three years ago the City of Mobile and Mobile County IDBs announced that they would begin requiring companies financed by them to pay "sum-in-lieu" of school taxes.

In an interview last week, Ratcliffe said Atlantic Marine and Georgia Crown Distributor have continued to send payments, but only two -- G&B Hillcrest Venture (World Omni) and Clay Hyder Trucking Lines -- of 21 companies he identified in March, 1993 to the school commissioners have sent in sum-in-lieu payments. [See Table on page 4]

Additionally, Scott Paper Company, which was not on the list he presented to school board members in 1993, has sent "a small payment of $2,545," Ratcliffe said. He also added that he has received no reply from local IDB officials to his letters of inquiry. "I have not yet received a definitive identification of County IDB properties," said Ratcliffe. As for the City of Mobile IDB, Ratcliffe said he has not yet received a reply from its president to his August, 1993 letter. He understands that the school board has no legal authority to enforce payments from industries, "it's up to the IDBs," Ratcliffe said.

On March 1, 1994, Walter Hovell, president of the City of Mobile IDB, said, through his secretary, that he is "still working on completing the report. It is in the best interest not to discuss it until the report is completed." When asked if she knew when Hovell will complete the report, his secretary said, "he doesn't know when it will be completed." In March, 1993 Hovell told The Harbinger in an interview that "About a year ago the IDB appointed a committee to check into this [sum-in-lieu-of tax payment]."

At the August 12, 1993 meeting of the City of Mobile IDB, Hovell said, in response to a question raised by a board director, that he was in the process of "tying up the loose end" concerning sum-in-lieu payments and expects to make a report "in 30 to 45 days." He also added that industries with sum-in-lieu language in their contracts will send payments to the school system directly.

Language In The Contracts

The Harbinger was unsuccessful in locating a copy of the Scott Paper Company contract from the Mobile County Probate Court. While Ratcliff said the Mobile school system has received $2,545 from Scott Paper, the amount owed could have been ten times larger. According to the minutes of the December 19, 1991 meeting of the City of Mobile IDB, "Scott [Paper Company] will make payments in lieu of taxes with the first payment of $25,000 to be made in 1993, the second payment of $50,000 in 1994 and continue each year until the total of $600,000 is reached...passed unanimously...provided that the payment in lieu of taxes to be paid directly to the Mobile County School Board be included in the inducement resolution and Scott's letter of intent."

The amount of the sum-in-lieu payment that Scott Paper will make in 1993 as listed in the minutes of the December 19, 1991 meeting is actually only one- twentieth of the amount listed in the minutes of the December 12, 1991 City of Mobile IDB meeting: "Scott would like to give $500,000 directly to the Mobile County Public School System and to provide their paper needs for the next ten years. It was agreed that representatives of the Mobile County School Board and Scott Paper Company should get together to arrange the details of this contribution." N.Q. Adams, school commissioner and chairman of the finance committee of the school board, was present at both of these meetings. Adams was a member of the City of Mobile IDB until his term ended in November, 1992.

Dr. Joseph Mitchell was elected to the Mobile County Board of School Commissioners in November, 1990. He said last week that "N.Q. never brought it to our attention," when asked if he knew anything about the get-together with Scott Paper that was mentioned in the minutes of City of Mobile IDB. "Nor was there any mention of it [the get-together] in the minutes of the school board meetings that were brought to my attention." Mitchell did remember that former school superintendent Dr. Doug Magann has brought the missing sum-in-lieu issue to the attention of school commissioners. He added that he learned about the missing sum-in-lieu "from reading The Harbinger." Dr. Magann told The Harbinger that less than one-half percent of the money due the school system had arrived at the school treasury ["The Check's In The Mail," The Harbinger, Vol. X, No. 18, 1992].

"Sugar" Warren, School Commissioner who exclaimed "This makes the front page" when Ratcliffe presented the school board last March with the list of companies with sum-in-lieu language in their contracts, said she also does not remember Adams bringing the matter of the get-together with Scott Paper to the school board. Warren said Ratcliffe "has done all he can do" by writing to Hovell, who in turn said he will write to Mack Binion, legal counsel for the City of Mobile IDB. "This thing goes around in a circle," she said.

"The law says IDB should enforce the payments, but I guess it depends on what is written in the contracts," Warren said. "If I write a letter to the company and ask, "Where's the money, honey?" they will laugh at my face. We don't have the power. I think it has to revert back to the legislators to correct it. "

Hazel Fournier, president of the school board, told The Harbinger last week that she is "asking about it [missing sum-in-lieu] myself, as recently as last Thursday. I understand that someone is working on it."

Fournier, who was elected to the Board of School Commissioners in November, 1990, said she did not remember if N.Q. Adams had brought the issue of sum-in- lieu payments to the board's attention, and suggested that The Harbinger asks Adams directly.

Reached last Thursday, Adams told a reporter of The Harbinger that he refused to answer his questions on sums-in-lieu, because the reporter has asked the Alabama Ethics Commission to examine possible conflict of interest violations by Adams. Adams was a member of the City of Mobile IDB and was present at meetings where it approved 11 contracts with sum-in-lieu language that have not sent payments to the school system. According to a receptionist at AmSouth, Adams is a trustee of the Bank where he retired recently as President of Southern Region. He has been chairman of the finance committee of the school board since 1989.

Historical Perspective

Jerry Pogue, who petitioned Judge Eugene Reese to accept him as an intervenor in the state's school equity lawsuit, has asked the court to name the Mobile city and county IDBs as defendants. Pogue petitioned the court "to enforce and make sure all moneys legally owed to the fund-strapped public school system are collected." Judge Reese ruled last October that the current system to fund public education in Alabama is unconstitutional. Pogue said from a historical perspective, "the party that passed the legislation created IDBs not to pay tax," and sums-in-lieu is "designed in a subtle way to continue to avoid taxes."

In his motion to the Circuit Court in Montgomery, Pogue said he liked to "draw the Court's attention to the highly peculiar fact that the Mobile IDBs (and perhaps others elsewhere) seem incapable of drafting contracts that plainly establish a payment and accounting structure for sums-in-lieu. Yet these same IDBs have proven themselves consistently capable of producing the detailed and complicated documents and accounting procedures necessary to market bond issues totaling well over a billion dollars, to distribute the proceeds to the appropriate parties, to collect lease payments, to pay interest due to bond holders, to pay attorneys' brokers' and other fees in timely and correct amounts, etc. We are unaware of any complaints about the IDB's ability to handle such matters properly. But these skills disappear when the IDBs need to provide for the relatively simple collection and transmission of sums-in-lieu to the schools."

Pogue said he is not surprised to learn that School Commissioner N.Q. Adams voted to approve the IDB contracts with sums-in-lieu language but failed to secure a mechanism to collect the payments. "The boards that are set up to float bonds, their members have historical knowledge of the area. It's a device deliberately designed to avoid paying taxes. Everyone in the circle knows what's going on."

Pogue added that Judge Reese has not yet ruled on any of the intervenors' motions, but he did learn that two of the intervenor groups have appealed directly to the State Supreme Court.

-- March 8, 1994


Missing Sums-in-Lieu*

City of Mobile IDB
Initial payments due after 3/1/93:
C.T. Realty Terminals$12,250
Donghae Pulp of Alabama$17,500
Great Southern Wood Preserving$8,400
Dees Paper Company$4,137
Total$42,287
Payments which we feel are due the School System but with some question due to contract working (all with initial payments due prior to 3/1/93):
Institutional Distributors Realty[1]$10,500
Colonial Baking$2,625
The Belcher Company of Alabama$28,560
Air Products and Chemicals$3,500
Robert Meador Warehousing & Distr.$3,500
Merchants Transfer Co.$5,250
J. Williams Blevins $2,100
O'Neal Steel$7,000
Tonsmeire Construction Corp.$5,250
Total68,285
Payment requirements in question:
Pfizer Specialty Minerals$29,750
Grand Total - City IDB$100,572
County of Mobile - IDB
Mobile County has received some payment-in-lieu from all firms which I have identified as having IDB agreements with the County IDB These firms and the amounts of payment in 1991 FY are:
Degussa Corp.$33,000
Atochem North America-M&T Chemical$13,000
Hosea O. Weaver & Sons, Inc.$4,950
Clay Hyder Trucking Lines$1,650

Note that Bayou La Batre, Citronelle and Prichard have separate IDB agencies with some contracts outstanding, although not at a total dollar value nearly as great as the City of Mobile or the County. Medical Clinic Boards, Historical Preservation Society and Downtown Redevelopment Authority all generate tax exemptions comparable to the Industrial Development Boards.

* Excerpts from documents presented to the School Board on March 15, 1993 by Charles Ratcliffe, associate superintendent for business and finance.

[1] Mobile County has received payments from this firm ($12,841.81 in 1991, for example), which have been deposited in the County general fund.

-- March 8, 1994


Additional Missing Sums-in-Lieu from the City of Mobile IDB *

CompanyValue of BondDate ISum-in-lieu Language
Scott Paper Co.$250 million12/19/91"Scott will make payments in lieu of taxes with the first payment of $25,000 to be made in 1993, the second payment of $50,000 in 1994 and continue each year until the total of $600,000 is reached"
Huls America$55 million12/12/91"A payment equal to the school tax portion will be made"
Cove Shipping$3.5 million12/12/91"Payment of school taxes was agreed upon in the original inducement resolution"
Gulf Lumber$2 million11/26/90"Company will make a service payment equal to the local school tax portion"
Big Bee Chemical$30 million3/16/90"make a gift in lieu of taxes to the Mobile County School Board of 20% for the first year, increasing 20% each year thereafter. Once the 100% level is attained, Bigbee will maintain same"

* From the minutes of the City of Mobile IDB

-- March 8, 1994


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