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March 5, 1996

Three Years & Counting

by Edmund Tsang

In March, 1993, the business manager for the Mobile County Public School System, Charles F. Ratcliffe, announced to a surprised school board that only two out of seventeen companies that had promised to make payments to the school system in the form of sum-in-lieu of school property tax had actually done so. He also identified five other companies that had made sum-in-lieu payments in 1991 to 1992, not to the school system but to the Mobile County Commission, which deposited the money in the county's General Fund. One school board member, upon hearing that so few of the promised payments had arrived at the school treasury, exclaimed: "This makes the front page."

Three years later, the fund-starved school system has received seven sum-in- lieu payments totaling $163,398.48 in the 1994-95 fiscal year, and three payments so far in 1995-96 totaling $530,797.38 -- see table on page 5. The school system received four sum-in-lieu payments by November, 1993; and seven payments by August, 1994.

Despite public pronouncements over the last three years by those in a position to help Mobile's public schools collect sum-in-lieu, there are at least 14 businesses that have yet to make a single payment which they have promised.

Prior to January, 1993, businesses financed by industrial development bonds were exempted from paying property taxes to the state, county, city and the public school system. But beginning in 1990, industrial development boards (IDBs) in Mobile County began formally requiring businesses financed by their bonds to pay a "sum-in-lieu" of property tax to the school system. The Alabama Legislature passed a law in 1992 that removed school tax from the exemptions that IDBs can grant to attract businesses to locate in Alabama or to expand existing facilities in the state; city, county, and state property taxes are still exempted. According to a 1993 report of the Alabama Department of Revenue, Mobile County led the state in properties financed by IDB bonds (about $1.5 billion) and in revenue lost through tax exemptions ($13.7 million annually for the length of the bonds, of which $3.75 million annually would have gone to the school system if properties were taxed).

Three Years And Counting

J. Bruce Jones, president of the City of Mobile IDB, said in a telephone interview last week that collecting the promised sum-in-lieu payments is "on my agenda." Jones, who was elected to that post in November 1994, told The Harbinger in an interview in February, 1995 that "One of my objectives is to complete that project of tracking down any funds that have not been paid, find out where they are, and set up with the tax collector, the school board, and whomever needs to be a means for doing that." When asked at the beginning of a new school year in August, 1995 what he had done since February, he replied, "I don't have an answer right now. Probably something has transpired, but I am not sure what it was. I'll make it my business to find out." He also promised a reporter from The Harbinger that he would have an answer in about two weeks.

Jones said last week that he has "nothing to report." Collecting these sum- in-lieu payments "prove to be an arduous task," Jones said. "It took a few years for this matter to get to where we are today, so it might require a few more years to achieve success." Jones added that he and Mack Binion, legal counsel of the City of Mobile IDB, have met twice recently to follow up on leads.

When asked whether he feels he is at the end of the road in collecting sum- in-lieu of property tax, and might as well give up and move on, Jones said: "We might have come to that for some cases. But we still feel we can get through to a few cases."

Jones's predecessor as president of the City of Mobile IDB from 1992 to 1994, Walter L. Hovell, told The Harbinger in an interview in March, 1993, that "about a year ago the IDB appointed a committee to check into this, and what has been done is that the attorney went back and made a list of all the industries that have signed agreements since 1989." Hovell said the reason for the missing payment is a "breakdown between the agreement and the delivery of the checks to the school system." Hovell added, "We are dealing with the corporate leaders of this community, and it's not in my mind that these people would make a commitment that they did not intend to follow through with."

At the City of Mobile IDB directors meeting in August, 1993, Hovell, in response to a question raised by a board director, said he was in the process of "tying up the loose end" and added that a report was expected in "30 to 45 days," and that industries would send payments directly to the school system. In March, 1994, Hovell said through his secretary that he was "still working on completing the report. It is in the best interest not to discuss it until the report is completed."

The City of Mobile IDB had made public statements concerning collecting these sum-in-lieu payments as far back as November, 1991, even though the record of collecting is dismal. According to minutes of the November 1, 1991 meeting, "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 County 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, and up to the present, of the City of Mobile IDB do not show that Board Counsel Mack Binion made a report to the board.

What You See & What They Get

Of the four payments received by the school system in 1995-96 until the present, only one, G&B Hillcrest Venture [World OMNI], has been making regular payments since Charles Ratcliffe, the school system's business manager, first informed the school board members about sum-in-lieu in March, 1993. Eighty-seven percent of the amount received so far this school year ($465,397.00 out of $530,797) came from the liquidation of IDB bonds by Kimberly Clark Corporation, which bought out Scott Paper Company in 1995. The total amount of sum-in-lieu of property tax paid by Scott Paper/Kimberly Clark to the school system was $532,610 over three years ($2,545 in 1993, $64,668 in 1994), which is slightly less than the amount stated in the minutes of the December 19, 1991 meeting of the IDB: "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." This amount of payment that Scott promised to make ($600,000), is about one-tenth of the amount listed in the minutes of the previous IDB meeting seven days earlier on December 12, 1991: "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."

Scott Paper Company was not the only company that was successful in negotiating down the sum-in-lieu payments to the school system; Courtauld Fibers was successful in getting almost fifty percent of its school tax exempted during negotiations with the Mobile County IDB. According to a filing by Courtauld to the Alabama Security Exchange in November, 1990, "In the issue, the Lessee is committed to paying, in lieu of any ad valoreum or lease hold tax, a portion of the ad valorem tax which would otherwise be due is an amount equal to 0.00825 (8.25 mills)...during the first 20 years and 0.0165 (16.5 mills)...during the next 10 years." The school property tax in Mobile County is 16.5 mills per $1,000.

He Tried.

When former school superintendent Dr. Doug Magann told The Harbinger in June, 1992 that businesses financed by IDB bonds had failed to live up to their promises of making sum-in-lieu payments, only two companies had made such payments, totaling $3,400 to the school system. Charles Ratcliffe, the school system's business manager at the time, tried various tactics to secure the deliquent payments, and five additional companies made payments to the school system as a result of Ratcliffe's effort.

Ratcliffe even tried to secure "endorsement" from Mobile's IDBs for the school system to directly bill the companies that had promised to make sum-in- lieu payments. In June, 1994, Ratcliffe and Robert Campbell, attorney for the school system, sent letters requesting such an endorsement, and in September, 1994, they met with City of Mobile IDB legal counsel Mack Binion to discuss obtaining this endorsement. The matter was still pending when Ratcliffe retired in August, 1995.

In early October, 1995, Charles Wilcox, the Mobile County school system's business manager, confirmed for The Harbinger that the school system does not have the endorsement of local IDB officials to directly bill companies that have promised to pay school taxes. School board attorney Campbell told The Harbinger at the time that based on his analysis of the IDB contracts containing language referring to sum-in-lieu-of-property-tax payments, the Mobile public school system, because it is a "third-party beneficiary," has no legal standing to enforce the promised payments.

Unlike regular business contracts in which the amounts, dates, and methods of payments are spelled out, these IDB contracts make only vague references to sum- in-lieu payment by stating that the company "agreed to make a service payment equal to the local school ad valorem taxes." In 1994 The Harbinger made a search of court records on IDB contracts and found language alluding to payments in lieu of property tax was found in the City of Mobile IDB contracts going back to at least 1981. It is unclear, however, if any of these payments had actually been made. "Some of the difficulties in collecting the payments I don't understand," Ratcliffe said in a telephone interview last week. "The school system may have to resort to the court system to collect."

Current President of the Mobile County School Board John H. Holland told his fellow school commissioners in a January, 1995 meeting: "I can assure you that we are going to continue working on this issue [missing sum-in-lieu of school property tax payments] until it gets resolved." Holland told The Harbinger in January, 1995 that "I'm not going to forget [the missing payments]." He also mentioned in the interview with The Harbinger that Walter L. Hovell had told him that once he retired from the office of president of Mobile Gas Service Corporation, he would have more time to look into the issue. Several attempts to reach Holland for an update were unsuccessful by press time.

-- March 5, 1996

Sum-in-Lieu Payments Received by Mobile County Public School System

Jan. 4, 95 Atlantic Marine, Inc.$55,778.02
Jan. 4, 95G&B Hillcrest Venture$12,500.00
Jan. 20, 95 Scott Paper Company$64,668.00
Aug. 15, 95Housing Authority$735.74
Aug. 15, 95Housing Authority$19,840.14
Sept. 8, 95Air Products & Chemicals$7,000
Sept. 29, 95Mobile Housing Board$2,876.78
Oct. 13, 95The City of Mobile-Alabama$101.71
Dec. 19, 95Atlanta Marine, Inc.$52,798.67
Jan. 2, 96G&B Hillcrest Venture$12,500.00
Jan. 4, 96Kimberly Clark Corporation$465,397.00

Source: From the Mobile County Public School System

-- March 5, 1996

The Harbinger is a biweekly newspaper published through the effort of The Harbinger, which consists of area faculty, staff and students, and members of the Mobile community. The Harbinger is a non-profit education foundation. The views expressed here are the responsibility of The Harbinger. Contributions to The Harbinger are tax exempt to the full extent of the law and create no liability for the contributor.