Judge Johnson on Tax Increment Financing
From Judgepedia
2006
- Justice Johnson concurred in the majority opinion, written by Justice Catherine D. Kimball, which, over the strong dissenting opinion of Justice Chet D. Traylor, held that a Tax Increment Financing (TIF) plan (1) did not constitute a gratuitous handout, loan, or donation of public funds to a private entity where it used public funds to construct a retail development and accompanying infrastructure for Cabela's Retail Center; (2) could be funded through the issuance of municipal bonds pursuant to Louisiana's TIF statute; and (3) did not violate the Equal Protection Clause of the Fourteenth Amendment to the United States Constitution where it handed out public funds to Cabela's, a private retailer, but not to already-existing, smaller local retailers.
ISSUES:
- The issues before the Court were: (1) whether the Cabela's project at issue was beyond the scope of the type of economic development projects authorized by Louisiana's TIF Act because it goes beyond "assisting" private business and instead results in a direct handout;
(2) whether the TIF Act itself and this particular arrangement with Cabela's were unconstitutional to the extent that they authorized government to loan, pledge, or donate pulbic funds for private uses such as the construction of a private retail outlet and accompanying infrastructure; and (3) whether, pursuant to the Equal Protection Clause there was a rational basis for funding the contruction of a Cabela's retail center when other existing retailers had already funded, developed, and equipped their retail stores on their own, and whether such a disparity in funding created an unfair advantage.
HOLDING:
- The Majority held that (1) the project did not constitute a prohibited loan, pledge or donation of public funds, since the city expected to receive something of value in exchange for the expenditure of public funds, namely, an increse in sales tax revenue; and (2) the dedication of public funds to Cabela's did not violate the Equal Protection Clause because this was an economic regulation to promote economic development, which although it serves a private business, also serves a public interest.
MAJORITY REASONING:
The court offered 10 basic reasons in support of its conclusion that this project did not constitute an impermissible uses of public funds. Included amongst these were findings that the city would derive a benefit, and a justification that required the court to overturn its prior precedent on the matter:
- (1) The TIF Act allows the public financing of any project in any industry that the local governmental subdivision has determined will create economic development."
- (2) Louisiana law, specifically La. R.S. 33:9038.4(M), provides that economic development projects included, amongst other things, "projects to assist commercial and retail industries."
- (3) "[I]n light of the broadly inclusive language utilized in the statute, we conclude that the legislature intended the TIF Act to be utilized for a project such as the one presented in this case."
- (4) The government's contribution is not a "donation" of public funds to a private entity because donations are gratuitous, and in this case, the city lacks "gratuitous intent," since it plans on deriving a benefit from the contribution of funds. "The underlying concept underlying the prohibition of the loan and donation of public funds is one of gratuitous intent."
- (5) The prior Louisiana Supreme Court precedent on the subject, which indicates that Section 14 of the Louisiana Constitution is violated "whenever the state or a political subdivision seeks to give up sometihng of value when it is under no legal obligation to do so," in the opinion of the majority "presents an unworkable and incorrect interpretation of [the Louisiana Constitution]. Consequently, we repudiate that interpretation of [the Louisiana Constitution]."
- (6) "Applying these principles to the facts of the instant case, we conclude the Project does not constitute a prohibited loan, pledge or donation of public funds. The project documents clearly state that the bonds are not secured by the full faith and credit of the state or of any political subdivision. The documents clearly reveal that both the State and the City have not entered into the obligations at issue gratuitously. Clearly, both parties expect to receive something of value in return for the performance of their obligations. As evidence of the non-gratuitous intent of the public parties, the Agreement contains a provision that states unequivocally:
"The City and State have determined that the Project serves a public purpose and that, based solely on financial projections and other information provided to it by the [District], the Annual Pledged Local Increment and the Annual Pledged State Increment pledged and dedicated hereby, collectively is less than the financial benefits to be received by each as a result of the Project."
"The State hereby acknowledges that there is a reasonable expectation that the Project will result in economic development within the State which will exceed the value of the obligations of the State contained herein thereby serving a public purpose."
- (7) "[T]he property comprising the District is not currently providing the State and the City with any sales tax revenues. If the Project is successful, significant sales tax revenues will be generated. Although the State and the City have each pledged 1.50% of their portion of the sales taxes collected within the District, the State sales tax rate is 4% and the City sales tax rate is 2%. Thus, from the beginning of the Project, it appears that 2.50% the sales taxes collected by the State and 0.50% of the sales taxes collected by the City are not pledged to finance the bonds."
- (8) "The non-gratuitous nature of the Project is also plainly demonstrated by the obligations imposed by the project documents upon Cabela's and Carlisle in exchange for the State's and City's participation in the Project. In exchange for the obligations undertaken by the public parties, Cabela's will acquire the 49.22 acres upon which its Retail Center will be built. It will then construct, furnish and equip the retail center. When the bonds are issued, Cabela's will transfer title of the property and facilities located on the property to the Board, which will then lease the property and facilities to Cabela's."
- (9) "The State's contribution of the Annual Pledged State Increment is contingent upon Cabela's employment of at least 300 full- and part-time workers at the prevailing wage rate and with the health insurance benefits typically provided to Cabela's employees."
- (10) The agreement provides that Cabela's will pay taxes on the building.
The court also offered reasons why offering the money to Cabela's, but not to already existing businesses did not violate the Equal Protection Clause:
- (1) "The [other] businesses have not attempted to avail themselves of the TIF act, and consequently have not been denied Tax Increment Financing."
- (2) A statutory classification which does not proceed along suspect or semi-suspect lines , nor infringe on fundamental rights, need only be rationally related to a legitimate government interest."
- (3) The TIF Act * * * was enacted to promote economic development, which serves private business as well as the public interest. As such, it is rationally related to legitimate government interest."
For a discussion of potential flaws in the court's reasoning, see this link to the discussion page, or click on the discussion tab at the top of this page.
- Justice Johnson concurred in the majority opinion, written by Justice Jeannette Theriot Knoll, which held that (1) the government did not violate the due process rights, under the Due Process Clause of the Fourteenth Amendment, of local citizens by notifying them of a $50 million Tax Increment Financing (TIF) plan for Bass Pro Shops only by mail, rather than by personal service, even though they were, as a group, easily identifiable; and (2)
ISSUES:
- The issue in this case was whether the district court erred in allowing the development district to use the notice by publication provisions of a statute to avoid actual service on known opposition, to avoid any attempt to provide actual notice to known, easily identifiable parties, and to prevent the public from having a fair opportunity to challenge a Bass Pro TIF project.
HOLDING:
- The Majority held that local citizens who had not recieved the notice of the Bass Pro TIF project through its publication in a local newspaper were not deprived of a constitutionally protected life, liberty, or property interest where their capacity to challenge the Bass Pro TIF project expired.
MAJORITY REASONING:
- (1) "[T]he appellate court found the record contained no evidence th the identity, addresses, or alleged interests of the individual defendants were known to the District."
- (2) "The individual defendants' right to challenge the provisions of the Bond Resolution made for the security and payment of the bonds does not bear the hallmarks of a constitutionally protected liberty or property interest."
For a discussion of potential flaws in the court's reasoning, see this link to the discussion page, or click on the discussion tab at the top of this page.
