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September 5, 2000

Sum-In-Lieu Update:

School and Industrial Development Board Officials Are Talking Again About Collecting Promised Monies

by Edmund Tsang

Documents recently obtained by The Harbinger show that one company previously identified as delinquent on school tax under the terms of the bonds underwritten by the City of Mobile Industrial Development Board (IDB), had made the "sum-in-lieu" payments, but not all to the public schools. Of the sixteen payments made, only two went to the school system; five payments went to the City of Mobile IDB, and nine payments went to the county.

[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, as a way to entice businesses to locate to or expand operations in Alabama. But between1989 and the date when Alabama's Tax Reform Act of 1992 became effective, which ended the power of IDBs to grant school-tax exemption, IDBs in Mobile began requiring businesses financed by their bonds to make "sum-in-lieu" payments. However, unlike common, standard contracts, no mention was made in these IDB contracts of when or how to make the payments. Some IDB contracts written prior to 1989 (one contract as far back as 1981) also made reference to a "service" payment in lieu of property tax, but these contracts also did not spell out the method or the amount of payments. Through information provided by school officials, research at the probate court and IDB minutes, The Harbinger has previously identified nine companies that have not so far made a single payment of sum-in-lieu to the school system. The Harbinger has been providing periodic updates on the sum-in-lieu issue since summer 1992, when Dr. Doug Magann, then school superintendent, told a Harbinger reporter that few companies had made the payments. At the time, the Mobile public school system was facing a financial crisis threatening bankruptcy, and Superintendent Magann was searching for possible revenue sources to fund the schools. 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 exempted property taxes were collected.]

Meanwhile, the Mobile IDBs and the school system are once again trying to resolve the issue of delinquent sums-in-lieu, though the last few trials have resulted in no additional payments to the school system. During one try by the school system to collect the delinquent sum-in-lieu payments, Charles Ratcliffe, then the business manager for the school system, asked for "endorsement" from the City of Mobile IDB so the school system could collect the payments directly. The request for endorsement was denied.

John Holland, a school board member, told The Harbinger in January 1997, when he was first elected and became the president of the school board, that "I will not forget the [sum-in-lieu] issue." When contacted last week for an update on collecting the sum-in-lieu payments, Mr. Holland told The Harbinger to contact Charles Wilcox, the current business manager for the Mobile school system, because "Wilcox has the current status." When asked for his own impression of the current status of the missing payments, Holland said the payments are "current, up-to-date."

Wilcox told The Harbinger in a telephone interview on August 29 that he has spoken "a few weeks back" with Jim Apple of the economic development division of the Mobile Area Chamber of Commerce and the designated "spokesperson on the issue." Wilcox said in a meeting last May among school officials and lawyers for the two Mobile IDBs -- the City of Mobile IDB and the Mobile County IDB - that the IDBs agreed to pay for an audit that "will provide all the information" about the delinquent sum-in-lieu payments. Wilcox added that Apple told him a few weeks ago that the audit is not completed and that he is "anxiously waiting" for the results.

Holland's challenger in the June primary for the school board, Connie Hudson, told The Harbinger in a telephone interview last August that elected school officials could be more assertive in pursuing the sum-in-lieu payments, because it represents a source of income for the fund-strapped public schools. Hudson, a founding co-chair of Citizens for Better Schools (CBS), an advocacy group for Mobile's students, told The Harbinger that she launched research into the delinquent sum-in-lieu payments as part of her campaign to identify local funding sources for the schools. Hudson and CBS were vocal supporters of the last voter referendum to raise funds for public education in Mobile through an increase in property tax, which was defeated by a large margin.

"The first person I called was Maury Friedlander of the Mobile County IDB," Hudson said. "He told me that in the contracts issued by the county board, the sum-in-lieu of property tax payments were to be made to the Mobile County and not to the public schools.

"Next, I called Mack Binion, the legal counsel of the City of Mobile IDB," Hudson said. "Mr. Binion told me that he is 'in the dark' regarding the sum-in-lieu situation. When I asked him for a list of companies that had not made the payments, he said he 'couldn't do it' because he doesn't have the information.'" Hudson added that Binion told her a meeting has been planned to "'get this all straightened out.'"

[According to the minutes of the November 1991 meeting of the City of Mobile IDB, Binion was tasked to prepare a report on sum-in-lieu: "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."]

Hudson told The Harbinger Mr. Apple of the Chamber of Commerce then called her and told her that he was aware she had contacted the IDBs. Hudson said Apple told her that an auditor has been hired to "resolve the situation," but could not give her a specific timeline about the audit. Hudson also said Apple told her to contact him for any further inquiries about the sum-in-lieu.

Hudson lost the primary election to Holland. "I did intend to get a resolution in 'sum-in-lieu' because it is a source of income for the schools if I was elected a school commissioner," Hudson added.

In May, 2000, Mr. Apple told The Harbinger in a telephone interview that an outside auditor, Jo Chateau, "had been retained" to determine which companies, if any, need to make sum-in-lieu payments, and "had looked at some records already." Apple said he is unable to give a timeline on when the audit would be completed.

While the directors of the City of Mobile IDB all serve as volunteers, the legal counsel, Mack Binion, is paid a "fee associated with the activities of the board on a project by project basis."

Ms. Chateau told The Harbinger in June that the audit will be conducted following the guidelines of the American Institute of Certified Public Accountants. When asked for the kinds of documents she would examine in the audit, Chateau referred the inquiry to Mr. Apple of the Chamber of Commerce. Chateau suggested a conference call with herself and Apple to learn the details of the audit.

Several efforts to reach Mr. Apple during the summer to arrange a conference call with Ms. Chateau were unsuccessful. Last week, a person who answered the phone at the economic development section of the Mobile Area Chamber of Commerce said Mr. Apple would be out of the office until next week.


In March, 1993, Charles Ratcliff told a stunned school board that only three out of seventeen companies that had promised to make "sum-in-lieu" of property tax payments to the schools had in fact done so Then school commissioner "Sugar" Warren exclaimed: "This makes the front page!" Ratcliff also identified Tonsmeire Construction Corp as a company where "payments which we feel are due the School System but with some question due to contract wording." The lease agreement between the City of Mobile IDB and Tonsmeire Construction Corporation, dated April 1981, stated that "the Company will pay to the hereinafter identified taxing authorities installment of Tax Equivalent Rent in such amounts and at such times as shall be equivalent to the ad valorem taxes which would be levied by all taxing authorities...if it were privately-owned business property fully subject to ad valorem taxation."

"Skipper" Tonsmeire told The Harbinger in a telephone interview in August that Tonsmeire Construction Corp should no longer be listed as being delinquent on "sum-in-lieu" payments because it had made a total of sixteen such payments between 1981 and 1995. In an agreement signed by J. Bruce Jones, then City of Mobile IDB president, and Mr. Tonsmeire, and based on information provided by Tonsmeire Construction, it was agreed by both parties that Tax Equivalent Rent of $6,976 per year was paid to Mobile County from 1981 to 1986 and 1989 to 1991 fiscal years, and that $6,750 was paid to the Mobile County School Board in 1992 and to the City of Mobile IDB in 1994. And since neither the IDB nor Tonsmeire Construction could determine if Tax Equivalent Rent was paid for 1987, 1988, and 1993, Tonsmeire Construction would pay "to the Board the sum of $20,925 as payment for Tax Equivalent Rent for said years....In addition, and as provided in the Lease Agreement, the Company [Tonsmeire Construction] has herewith paid to the Board the sum of $2,121.21, representing the pro rata portion of Tax Equivalent Rent for the fiscal tax year 1995." As proof that he had indeed made sum-in-lieu payments to the school system, Mr. Tonsmeire showed The Harbinger a copy of a check of $6,750.00 made to the Mobile County School Board on April 22, 1992.

According to someone with knowledge about the transaction between the City of Mobile IDB and the companies it financed through bonds, the IDB board does not have sufficient income to hire a staff to check or verify if sum-in-lieu payments had been made. As a result, the contracts were "loosely written from an enforcement standpoint." "The best way would be to put these properties on the tax rolls, and let the Tax Assessor appraise the property and determine the total ad valorem taxes due and give a credit to the lessees for the non-school portion of these taxes," this individual said.


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