When voters show up at the polls to cast their ballots to renew or vote for parish-wide property taxes, they are greeted with a long description that details where every cent of that money is going.
Or so they think. What they—and some of the organizations asking for the money—don’t know is that almost 3 cents of every dedicated tax dollar collected instead goes into the coffers of seven state retirement funds.
Some East Baton Rouge Parish organizations supported by dedicated property taxes believe this diversion of funds is illegal. And if they are right, it could mean the city-parish will have to pay more than $3 million from its general fund—a fund that could be facing a deficit this year because of decreasing sales tax revenue.
A section of the state Constitution clearly forbids dedicated taxes to be used for anything other than their mandated purpose. For some organizations, that means a suit to reallocate the money is worth legal examination at the least. More than $3.6 million was sent to the retirement funds from the East Baton Rouge Parish School System’s millage take last year, and school board president Jerry Arbour is reviewing the issue with the organization’s outside legal counsel.
If a call to action exists that “would free up some of our dedicated funds,” Arbour would present the situation to the full school board, which would have to sign off on any legal action, in the next couple of months.
“From a layperson’s viewpoint, it looks incorrect to take dedicated tax dollars and send it to a retirement fund that has nothing to do with education,” he says. “On its face, from that perspective, it looks pretty clear.”
At issue is a state statute that sets up the funding mechanism for the seven retirement funds. That formula mandates the sheriff’s department, which collects all property taxes in the city-parish, take that 2.5% “off the top” of the funds collected and send it to the retirement systems. That percentage translates into approximately $8.7 million in 2009. The remaining taxes are then distributed to the organizations that are entitled to them.
Every organization that collects any property tax in East Baton Rouge Parish—sheriff’s office, fire districts, Emergency Medical Services, four school boards, BREC, library board and Downtown Development District among them—is impacted. The financial range of the contributions is anywhere from a couple thousand dollars to millions, depending upon the size of the organization.
“We are authorized by the legislative auditor, who sends us documents letting us know how much we are supposed to withhold,” says Octave Anthaume, tax director for the East Baton Rouge Sheriff’s Office. “Until someone tells us we’re not supposed to do that, that’s what we’re going to do.”
So do regular taxpayers have grounds to sue that they were not informed part of their property tax payments would go to state retirement funds instead of to the purposes intended? The answer depends on which attorney you speak to.
One component of the debate is a 2007 Louisiana Supreme Court ruling of an Orleans Parish case. The court decided the statute, which sets up the retirement funds and the payment structure, is constitutional, reversing a decision made by 19th District Judge Tim Kelley. The court upheld the current method of calculating tax contributions to the retirement funds on the basis that the statute “does not identify the source of the monies to be remitted from the fund; it specifies only the method of identifying and calculating the amount due.” The court ruling means the sheriff’s department is justified in its collection method, says Mary G. Edington, a partner at Crawford Lewis, which represents the sheriff’s department.
“No case has held that statute unconstitutional,” she says. “The sheriff is doing what he’s told by the legislative auditor. To do anything else would violate the law.”
The legislative auditor is responsible for calculating the percentages that should be taken out of each property tax collection for contribution to the retirement systems, and for certifying them as the statute requires. The office is not responsible for interpreting the law and must have direction from the attorney general or the courts in order to change the procedure, says Jenifer Schaye, general counsel for the legislative auditor.
An opinion from the attorney general’s office has not been sought because no lawsuit has been filed to challenge the procedure. The office could request an opinion, however, if the issue continues to be raised.
“We have looked at it. It isn’t an issue we’re ignoring,” Schaye says. “But we have an obligation to follow the statute. No one—not the attorney general and not the courts—has told us not to.”
But the state Supreme Court decision goes on to say that the statute omits the funding source for the retirement systems because “the use of dedicated or special taxes for any purpose other than that for which they are designated is specifically prohibited by the constitution.” It’s this provision that seems to present a conflict in the existing law—one that some organizations know nothing or very little about.
BREC Superintendent Bill Palmer says he is aware of the assessments but has never questioned their legality. About 75% of the parks commission’s budget is funded by property taxes, and the total amount garnered from BREC property millage rates for the retirement systems was more than $1.3 million in 2009.
“As far as I know, all of the fees that have been collected at the present time have been collected legally within the laws of the state and ordinances of the parish,” he says. “If somebody tells me different—the attorney general or our counsel—I’ll look into it further, but at the present time, it’s my understanding all of those issues are legal.”
What does the issue mean for the city-parish? Not a lot, says chief administrative officer Mike Futrell, because the retirement funds are already taken out of the property taxes that go into the general fund and are distributed to organizations such as the library board and the DDD, which fall under the city-parish umbrella. Futrell says the parish attorney’s office looked at the situation, and its conclusion was that the state Supreme Court ruling was specifically for Orleans Parish and does not impact East Baton Rouge Parish tax collections.
“When you hire a lawyer, you listen to your lawyer,” Futrell says. “It does not apply to us. That situation was unique to Orleans Parish.”
But while the city-parish would not be liable should a resident decide to sue over the distribution of property tax collections, a memo from special assistant parish attorney Nikki Essix-Manuel to Futrell in July last year about a library board inquiry states an adverse decision—declaring dedicated funds off-limits—could “result in a reduction of the general fund revenues up to $800,000.” That amount is the library board contribution to the retirement funds for 2008, which increased to over $1 million for 2009.
If a decision declaring dedicated taxes to be unusable for payment into the retirement funds, the only place the city-parish legally could come up with the money would be through the general fund.
“You could hypothetically string out facts, but that’s not journalism. I’m not going to speculate,” Futrell says. “We looked at the case, we do not believe it applies to our system, and we move on.”
The issue came to light at a library board meeting last month when members expressed some concern about the contributions the organization was making to the retirement funds with property tax monies. That debate ended when board President Dan Reed told members that the parish attorney’s office had decided not to pursue further action. Since the library board is an entity run by the city-parish, Reed says, no lawsuit can be filed in its name without the cooperation of the parish attorney’s office and authorization by the Metro Council.
“As far as the library board is concerned, the parish attorney chose not to pursue it,” he says. “That’s where we are.”
Reed says the city-parish could sue but that there is no will on their part to do so because a decision not in their favor could really damage the general fund. In these economic times, it’s better not to rock the boat because the city-parish would not benefit from a lawsuit even if they won.
“If the city were to sue, they’d have to know what they want to ask the courts for,” he says. “That stops them stone cold because the city doesn’t get another nickel.”
Even if the sheriff’s office does not take the 2.5% from the property taxes collected, the retirement funds have authorization by that same statute to receive funding from the state treasurer’s office from monies designated for revenue sharing to the city-parish. Plainly stated, the retirement funds are subsidized either way—another wrinkle to a potential lawsuit.
One of Arbour’s concerns is that any judgment rendered by the court for the school board would forbid the sheriff to use the dedicated property tax funds to pay the retirement fund assessment, but require instead the use of a constitutional millage rate designated for general education. That potential ruling would amount to “reshuffling the budget,” a scenario that would make it more difficult to justify legal action.
“To me, it’s a lot clearer if you had a tax recipient body like BREC, where the only tax money they get is from dedicated taxes,” he says. “They [the court] wouldn’t have the ability to take that money out of another pot. The only pot they have is dedicated taxes.”
Reed, an attorney, says the East Baton Rouge Parish School Board and BREC potentially have grounds to sue, although neither suit would be a good scenario for the city-parish. And the political ramifications could be more than any organization unconnected to the city-parish would be willing to handle on top of what could be a fierce but drawn-out legal battle.
“It’s unfortunate that there’s not anyone willing to pick up that flag and run with it,” Reed says. “But the people refusing to pick it up aren’t stupid. There are lots of good reasons [not to]. And even if some were to pick it up, some people wouldn’t forget.”
