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Voters Get Say On Tax-Based Borrowing: Court

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By CHRISTIAN M. WADE, The Tampa Tribune

Published: September 10, 2007

Updated: 09/09/2007 09:22 pm

NEW PORT RICHEY - When officials here needed money to build a new $14.1 million recreation and aquatics center, they turned to lenders for financial assistance.

They borrowed more than $9 million from Bank of America, pledging future property tax revenue collected from the city's designation as a community redevelopment district.

Two public hearings were held and the five-member city council approved the bond.

The question wasn't put to voters. But next time city officials do something like that, they'll have to hold a referendum.

That's according to a decision Thursday by the Florida Supreme Court, which ruled that if cities or counties want to use property tax proceeds to pay off bond debts incurred through redevelopment projects or taxing districts, voters must approve it first.

The ruling stemmed from a lawsuit against Escambia County, which had planned to borrow $135 million based on future property taxes for a road widening project.

Gregory Strand, a Pensacola veterinarian, challenged the bond sought by county commissioners. He opposed the move because the road project is in Perdido Key, one of the wealthiest areas of Escambia, one of the state's poorest counties.

The court's decision will complicate efforts by cities and counties to use tax increment financing to redevelop blighted neighborhoods and downtowns.

'I don't think it's going to affect anything that has been done in the past, but it will affect everyone in the state prospectively,' said New Port Richey City Attorney Tom Morrison.

The city, which declared itself blighted in 2001, has relied heavily on borrowing backed by tax revenue to maximize the use of its community redevelopment funds.

New Port Richey's designation as a special taxing district allows it to keep a large portion of the county and municipal property taxes collected from residents for the next 30 years. Those funds are earmarked for neighborhood and downtown redevelopment.

At present, the city has more than $18 million tied up in redevelopment bonds, most of it to foot the bill for the recreation center. The bonds will be repaid over the next 18 years.

Morrison said the city will need to tread carefully in the future.

'The next time we want to issue notes or bonds, pledging TIF funds, we're going to have to consult with our bond counsel to find out if we need to hold a referendum,' he said.

He said the ruling wouldn't affect the use of redevelopment funds already in the bank.

'I think we can still spend those funds without holding a referendum,' Morrison said.

Other cities across Pasco County likewise could be affected by the ruling.

If Port Richey, for example, wanted to borrow against future property tax revenue to fund its multimillion-dollar dredging project, city voters would have to approve the move.

Also, if officials in Zephyrhills wanted to borrow money backed by tax proceeds to buy the Wachovia building and convert it into a new city hall, they would need voter approval.

City Planner Todd Vande Berg said the ruling won't hinder downtown redevelopment in Zephyrhills.

'I think the money will still be spent in the downtown, but this will open to the door to more public participation by requiring voter approval for redevelopment,' he said.

It's not clear how the ruling would affect tax increment financing for community development districts - special taxing districts that dot the Pasco landscape.

Those districts borrow money that's backed by tax assessments levied on residents within district borders to pay for roads, and water and sewer lines.

Developers of the $30 million-plus Main Street Landing had proposed a special taxing district to help finance the retail and condominium project before it ground to a halt last year.

Under the deal, the developers would have forfeited $1.25 million the city promised in exchange for borrowing $4.3 million in tax-free municipal bonds. The city would have forgone $6.7 million in tax proceeds from the complex's tenants over the next 23 years.

The city council turned down the deal.

Main Street developer Ken McGurn doesn't think the ruling will affect his project if similar financing is proposed to restart Main Street Landing.

But he thinks redevelopment agencies across the state should be concerned about the court's decision.

'It's important for the revitalization of downtowns and blighted areas to have a dedicated source of tax revenues to make them financially feasible,' he said. 'Without assistance from tax increment funds, many downtown redevelopment projects will not occur.'

Last week's ruling is a rare reversal of the high court's own precedent on the issue.

Florida's constitution says voter approval is required for city and county governments to sell bonds payable from property taxes if the bonds mature in more than 12 months.

The state Supreme Court, though, had permitted tax increment financed bond issues without referendums for redeveloping a blighted Miami Beach neighborhood in 1980 and leasing Sarasota County school facilities in 1990.

In those cases, the justices - none still on the court - said a referendum is needed only if a local government uses its power to tax property to repay the bonds, not if it simply pledges tax revenue.

In last week's ruling, the justices pointed out that voters rejected two referendums, in 1976 and 1978, that would have allowed borrowing without voter approval.

'If the people had wanted to allow the pledging of tax increments without a referendum,' the court said, 'they had two opportunities to do so. Instead, Floridians rejected both proposals.'

Information from The Associated Press was used in this report. Reporter Christian M. Wade can be reached at (727) 815-1082 or cwade@tampatrib.com.

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