Arkansas economic developers are pushing for legislation to allow state incentives for commercial projects, including tax breaks they say are needed to even the field in competing with neighboring states.
“That is something that we’re working on with the Downtown [Little Rock] Partnership right now, is trying to enhance the incentive programs for not only downtown properties, but to recruit developers in general,” said Hank Kelley, CEO of Kelley Commercial Partners of Little Rock and a member of the executive committee of the Downtown Little Rock Partnership.
“We’re at a real disadvantage … comparing what incentives are available through tax increment financing in Arkansas versus the surrounding states.”
TIF is a tax incentive device that allows property owners to offset the cost of development by using the money that they would otherwise pay in increased property taxes after creating a real estate development.
Arkansas Sen. Jonathan Dismang, R-Searcy, told Arkansas Business last week that officials are studying incentive packages in other states in preparation for January’s legislative session, but he said it’s premature to discuss what specific legislation might look like.
“At this point right now,” he said, “we’re … seeing how that could apply to us here in Arkansas.”
City officials and developers would welcome any changes to offer financial incentives.
Randy Zook, president and CEO of the Arkansas State Chamber of Commerce and the Associated Industries of Arkansas, said that, “without a doubt, we’re behind the curve against Texas and Tennessee in this whole arena. There is nothing concrete yet, but there definitely will be some proposals to address that.”
Zook said that “a lot of communities are just kind of really drying up without some kind of help to be able to track the investment that they want and need.”
Attorney Cliff McKinney at Quattlebaum Grooms & Tull of Little Rock said that at the “very bare minimum, we need to bring TIF back to Arkansas.”
Arkansas is one of a handful of states that essentially do not offer TIF financing for redevelopment projects. “And actually, for most states, TIF is kind of where you begin with incentives,” McKinney said.
He said that Arkansas doesn’t have the constitutional authority to offer the types of incentives that are offered in “literally every surrounding state. … So I think anything we do is going to have to require amending our constitution to give us the same opportunities that they have in Texas and other states.”
As a result, many developers commonly bypass Arkansas to locate a project in another state that offers TIF incentives, he said.
It’s “well known in the real estate industry that we don’t offer incentives for retail,” McKinney said.
Mark Hayes, executive director of the Arkansas Municipal League, said that there are provisions in the state constitution that prevent cities from using public money for retail projects. “Retail is a great way to boost economic activity in cities and towns. However, with the definition not including those projects, they essentially die on the vine,” he said via email.
Rockwater TIF Success
Lisa Ferrell said that using TIF financing helped with the development of her Rockwater Village, a mixed-use development on the North Little Rock riverfront, which opened in 2014.
In 2007, the Rockwater area generated $58,900 in annual property tax, but now it generates nearly $1 million in annual property tax revenue, said Ferrell, who, along with her husband, Jim Jackson, began assembling land for Rockwater Village in 2004.
The project was aided in part by the Lower Baring Cross Tax Increment Finance District, which encompasses Rockwater Village. TIF districts use property tax growth within their borders to pay for such work.
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Cyclists travel around North Little Rock’s Rockwater Village neighborhood. In the last decade, the TIF district has seen $300 million in private investment. (Steve Lewis) -
Cyclists travel around North Little Rock’s Rockwater Village neighborhood. In the last decade, the TIF district has seen $300 million in private investment. (Steve Lewis) -
Cyclists travel around North Little Rock’s Rockwater Village neighborhood. In the last decade, the TIF district has seen $300 million in private investment. (Steve Lewis)
“That initial investment went to build a critical road and helped with some critical sewage infrastructure,” she said. “And once that was in place, then it was able to move forward, and then there’s just been continual investment.”
In the last decade, the district has seen $300 million in private investment and about 800 residences have come to the TIF district. “So having a TIF district in North Little Rock really made the difference,” Ferrell said. “Without the TIF district, which assisted in paying for some of the basic infrastructure, there would not have been this investment, particularly in the initial stages.”
TIF Goes to Court
Arkansas voters approved an amendment to the Arkansas Constitution in 2000 that allowed municipalities to create redevelopment districts and issue bonds for the projects.
It didn’t take long for challenges to the amendment. In 2007, the Arkansas Supreme Court ruled that as a result of an earlier constitutional amendment, “the first 25 mills that a city has, has to go to schools [and] can’t go to any other purpose,” McKinney said.
Even though the 2000 constitutional amendment contained a clause that said it overrode previous constitutional amendments, “the Supreme Court felt like the voters didn’t understand that, and therefore they said that it did not override the old amendment,” he said.
That decision destroyed TIF in Arkansas, he said. “It made it where we technically have TIF on the books, but it’s useless,” he said.
Ferrell said that TIF districts work in Arkansas only if there are enough meaningful millage dollars left over after those mills that are earmarked for exemptions are removed.
“So that works in North Little Rock, it works in Little Rock, and it probably works in a few other cities,” she said. “We get asked all the time to assist small rural cities, and they simply do not have a high enough millage to make TIF work.”
Traditionally, school districts have opposed TIFs, but McKinney said that’s “an unfortunate misunderstanding from the schools about how it really works.”
He said it doesn’t matter if school districts like TIFs; the surrounding states are offering them. As a result, school districts have missed out on tax revenue from developments that opted for other states, he said.
The Arkansas School Boards Association told Arkansas Business last week that it would have to wait and see what the actual language in a proposed TIF bill would be before it would have an opinion on it.
But if a TIF district improves an undeveloped area, “that raises property taxes across the whole community; that raises income across the whole community,” McKinney said. “And so the schools do ultimately benefit.”
He also said that TIF projects don’t take money that’s currently going to the schools.
Still, the impact from the Supreme Court ruling was immediate.
McKinney said that he was working on a large multi-tenant development project in Arkansas for a client who had land under contract when the ruling came down. The developer stopped the project in Arkansas and moved it to Tulsa as a result of the ruling.
McKinney said that occasionally he’ll drive past the piece of land that was reserved for the retail project. “It’s still sitting vacant all these years later,” he said.
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