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September, 1995?

Collecting Sums-in-Lieu Is Harder Than You Think

by Edmund Tsang

Charles Ratcliffe, former associate superintendent for business of the Mobile County Public School System (MCPSS), said there are "diverse" reasons why the school system has been unsuccessful so far in collecting the money promised it by industries financed by industrial development bonds. Ratcliffe, who first brought the issue of the overdue payments to the attention of school commissioners by placing it on the agenda of a school board meeting in March, 1993, said only nine companies out of 24 had sent payments by the time he retired from the school system in November, 1994. When The Harbinger first reported the missing payments in June, 1992, based on information provided by the former school superintendent, Dr. Doug Magann, only two compaies had sent in payments [see "The Check's In The Mail," The Harbinger, Vol. X, #18].

Prior to 1990, industries financed by industrial development bonds were exempt from paying property taxes to the state, county, city and the public school system. In 1990, local industrial development boards (IDBs) began formally requiring industries financed by their bonds to pay a "sum-in-lieu" of property tax to the school system; state, county and city property taxes are still exempt.


Ratcliffe told The Harbinger in a telephone interview last week that because the process "allows corporate attorneys to draft the contracts instead of IDB attorneys," the result is that "different languages" were used in different contracts. "There was not a requirement to be consistent," he added.

None of the contracts with sum-in-lieu payment examined by The Harbinger resembles standard business contracts in which the amounts of payments, payment dates, and payment methods are spelled out. Instead, the contracts stated that the company will "pay sums-in-lieu of property tax" to the school system, or that the company "agreed to make a service payment equal to the local school ad valorem taxes."

Another reason why a majority of sum-in-lieu payments have not arrived at the school treasury is because "there was no provision to follow-up, even though that was an original assumption of the IDB," Ratcliffe said. "The real issue is follow-up. But there is no provision in the bond to follow-up." Ratcliffe thinks "some beneficiaries of IDB bonds intend to make good their agreement to make sum-in-lieu payments if they were called to their attention. But some beneficiaries don't want to know the implications."

The Harbinger called some of the companies identified as owing payments in June, 1994. Of the seven companies contacted, four said they were unaware of the payment requirement but would gladly make the payments when presented with a tax letter or bill. One was non-committal; one said he is "not interested in talking to you"; and one said his company did not execute the bond transection even though bond application to the City of Mobile IDB was approved.


Ratcliffe said last week that one way to collect the overdue payments is for the school system to "gain legal standing," and he was working on that when he retired from the school system last November. "Beyond that, where there is a collection problem, IDB officials need to take a hard-nosed approach," Ratcliffe added.

In June, 1994 Ratcliffe told The Harbinger that he has sent letters to the city and county IDBs to obtain "endorsement" from them for the school system to bill the companies directly for these sum-in-lieu payments. However, he had not received a reply by the time of his retirement.

Numerous efforts to reach Charles Wilcox, assistant superintendent of business for MCPSS, to find out if the school system has since received such endorsement were unsuccessful by press time. His secretary said Wilcox was busy working on the budget for the new school year.

In September, 1994, Ratcliffe and Bob Campbell, attorney for the school board, met with City of Mobile IDB counsel Mack Binion. Campbell told The Harbinger then: "We will also get assignment from IDB to collect these payments, with the authority to directly file lawsuits against companies with IDB financing but have not paid up -- like a collection agency. With the assignment, I think they will make payments to the school system instead of facing a lawsuit." Efforts to reach Bob Campbell to determine if the school system has gained such legal authority was also unsuccessful by press time. His secretary said Campbell was unable to return repeated phone calls because he is busy preparing for a trial.

[Mack Binion was identified by the minutes of a November, 1991 meeting of the City of Mobile IDB as the individual who was responsible for finding out if the school system is receiving the sum-in-lieu payments. According to the minutes, "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 advise [sic] from the Mobile Revenue Commissioner that Board Counsel 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." Minutes of later meetings to the present do not show Binion making a report to the board.]


Ratcliffe told The Harbinger last week he has found out that one company, which previously made a sum-in-lieu payment to the school system, has liquidated the bonds. "That means the schools will have no chance to collect future sum-in- lieu," said Ratcliffe. "That's why it's so important to place all properties financed and built with IDB bonds on the tax roll."

"At one point there was discussion with the Revenue Commissioner," said Ratcliffe. "Coordination with the Revenue Commissioner is important, but her office is not authorized to do that [place IDB-financed projects on tax roll]."

Ratcliffe said his two-and-a-half years' effort in trying to collect the money owed to the school system left him, at first, "disappointed" with the city and county IDB officials because so little had been accomplished. It was only later that he learned they had made some movement in pursuing the matter though with little results. Still, Ratcliffe said he was "frustrated because I was not appraised of what they have done."

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