LITTLE ROCK — Two years ago, Bobby Roberts questioned whether to press forward with a 2007 property tax election for the Central Arkansas Library System after Little Rock failed to publish a public notice on time for a November vote.
After assurances from library, county and city attorneys that the tax could be collected in 2008 despite the timing snafu, Roberts decided on a December election date. It seemed simple enough - voters approved the tax increase in 2007, so the tax bills going out the following February and March should include the higher rate.
But now the library director is contemplating reduced library hours and salary cuts for senior staff members to help pay an estimated $1.5 million that the system owes Little Rock property ownersafter the Arkansas Supreme Court ruled this month that property owners shouldn’t have had to pay the higher tax rates until 2009.
It will take some time and more hearings in Pulaski County Circuit Court to determine exactly when and how much money Little Rock property owners should expect in refunds, as well as how best to givethe money back.
Also, Little Rock had set aside $3.18 million from a tax-backed library bond issue that could be part of the pool of money refunded.
Roberts said he doesn’t blame the various attorneys consulted for the resulting lawsuit. “It really was my decision to go forward with[the election],” he said.
“We assumed, wrongly as the court is now telling us, that there wouldn’t be any problem with this,” he said, recounting the various errors and decisions leading up to the Dec. 11, 2007, election and afterward.
The library didn’t hold off on spending the extra tax dollars, despite the lawsuit. Now Roberts has to find the refund money in the library’s budget. The $1.5 million is roughly 10 percent of the system’s $14.5 million 2010 budget.
Roberts plans to host a public meeting next month to tell Little Rock library patrons what they can expect because of the budget cuts. A date hasn’t been set yet, but Roberts expects it to take place before the Jan. 28 library trustee meeting.
“It will take us some time to accrue the money,” Roberts said.
Libraries outside Little Rock won’t be affected by any cuts, and taxes collected from 2009 forward aren’t part of the refund since the actual outcome of the election was never in question.
Four property owners sued the library system, Pulaski County and Little Rock officials in May 2008 after an Arkansas Democrat-Gazette investigative story raised the question about whether millage increases approved in December 2007 could legally be applied to tax bills for the 2007 tax year. Property-tax bills for each tax year are mailed in February and March of the following year and are due by Oct. 10.
Pulaski County collects property taxes for the library system, and Little Rock approved an ordinance calling for the library’s special election.
Article 16, Section 13 of the Arkansas Constitution says “any citizen of any county, city or town may institute suit, in behalf of himself and all others interested, to protect the inhabitants thereof against the enforcement of any illegal exactions whatever.”
The residents hired Eugene Sayre, an attorney specializing in illegal exaction cases, whom the newspaper quoted in the story.
Central Arkansas Library initially planned to hold an election Nov. 13, 2007, to ask Little Rock residents to approve a temporary 1-mill increase to back $32 million in bond issues for two new libraries and other projects.Voters also were asked to approve a permanent 0.5-mill increase for maintenance and operation expenses.
A mill is one-tenth of a cent, with each mill producing $1 of tax for each $1,000 of taxable property valuation. For the owner of a $150,000 Little Rock home, library property taxes would increase by $45 a year.
Little Rock city directors approved the Nov. 13 election date at a September meeting, but the city failed to publish the notice in time to meet a 60-day notice requirement for special elections.
That is when Roberts said he wondered whether it was too late for a 2007 election, but he didn’t want the voter petitions gathered for the special election to go to waste or lose the momentum he had with a large volunteer base geared up for the vote.
So city directors passed a second ordinance, approving an election for Dec. 11, the second Tuesday in December. State law requires special elections to be held on the second Tuesday of a month.
Although voters approved the tax increase by a 65 percent margin, the special election occurred two weeks after the Pulaski County Quorum Court set 2007 tax rates that were to be paid in 2008.
The Quorum Court didn’t pass another property-tax ordinance within 30 days of the certification of the vote, as state law allows after residents approve a new tax.
Instead, Pulaski County Judge Buddy Villines signed a county order on Jan. 14 amending the library’s tax rate, following the actions of Little Rock city directors who approved an ordinance on Jan. 8, 2008, with the new library millage rate.
The county and library system didn’t have any correspondence dating back to that time showing any concern over whether the tax could be legally collected in 2008, but Roberts said it was a move that attorneys assured him ahead of the election was legal.
Pulaski County’s attorney Karla Burnett said Wednesday that she had no hesitation in 2007 on whether Villines could sign the order to increase the 2007 taxes, resulting in higher bills payable in 2008.
“We have used that statue before to make corrections to the ordinance,” she said. “It appeared to me by the time the city certified the second millage rate, the first one was just no longer correct.”
Arkansas Code 14-14-904 authorizes the county judge to correct only “clerical errors, scrivener’s errors, or a failure of a taxing entity to report the correct millage rate to the quorum court.”
In court, Burnett made the argument that state law gave Villines the authority to amend tax errors without going to the Quorum Court. The old rate was in error, she claimed, since voters passed a tax increase. Pulaski County Circuit Judge Timothy Fox ruled in favor of the library and county.
But on appeal from property owners, Arkansas Supreme Court justices this month found no such errors in the library’s situation and reversed the Pulaski County Circuit Court judgment. Justices said Villines had no authority to retroactively apply the tax increase to 2007 bills.
Roberts said he finds it ironic that in the long run, property owners could end up paying more in taxes than what they are refunded because of attorney fees and the timing of when the bonds will be paid off.
The $32 million in bond debt will now be paid off a year later, in 2026, and at a greater inflation amount, Roberts surmised.
“That’s not a gain to anybody,” he said.
Sayre, however, sees the outcome differently.
“The amount of money that will be collected by [the library system] over the period will be exactly the same,” he said.
As for the budget cuts, Sayre said, library officials were on notice by mid-2008 that there was a possibility that the taxes they collected for 2007 were illegal.
Sayre said, “If they went ahead and budgeted normally without regard to that suit, then they were probably not carrying out their management responsibilities in a proper or conservative manner.”
Front Section, Pages 1 on 12/31/2009