Monday, August 7, 2017

Amended Bond Lawsuit Demands Repeal of City’s Latest Tax

“Bait and Switch” Deprived Ashevillians of Due Process, Complaint Says

By Roger McCredie
Managing Editor

The parties to a suit that seeks to vacate the results of last November’s $74 million bond referendum have now expanded their complaint to include the tax that was approved in June to cover the interest on them.

The addition to the complaint says taxpayers are being forced to pay debt service on bonds that haven’t even been issued.

And the city has responded by saying it can do pretty much what it wants to do with the proceeds from the new tax – after saying repeatedly that the tax would be used solely to pay interest on the bond package.

Buncombe County Superior Court Judge Marvin Pope on August 1 advanced the plaintiffs’ cause by ruling that the anti-tax amendment could be added to their complaint. Now the plaintiffs, retired attorney Sidney Bach and former Asheville vice mayor Chris Peterson, are challenging not only the validity of the bond question itself – which they say was worded misleadingly on the November 2016 ballots – but also the legality of enacting an immediately effective tax on the very bonds that can’t be issued until the suit is resolved.

The new property tax was passed by city council on June 13, the same day it passed the 2017-18 city budget. It amounts to 3.5 cents per $100 of assessed city property value. It will appear on the new Buncombe County tax notices that are scheduled to be mailed about August 10. Payment is due by September 1, although taxpayers have until January 5, 2018, before payments are considered late enough to be assessed penalties and interest.

“It’s an illegal tax, improperly levied,” Bach says, noting that the city has stated it does not even plan to start issuing the bonds for at least two years, probably to allow time for the litigation. Taking taxpayers’ money to service a city debt that may occur at an unspecified future time, the lawsuit says, violates due process of law.

“The Big Bait-and-Switch”

That, Bach says, is bad enough, but now the city is saying that (1) it never said the new tax would be used specifically to service the bond debt; and (2) the tax proceeds are going into the city’s general fund, where they could be used “for many different purposes.”

“That’s not just illegal, it’s outrageous,” Bach told Asheville Unreported. “It’s the big bait-and-switch.”

Three separate bonds make up the package okayed by Asheville voters last fall: a $32 million bond earmarked for road and infrastructure improvements and additions, one for $25 million aimed at affordable housing, and one for $17 million to finance parks and recreation projects.

The $74 million total was the largest bond amount ever set out for Asheville voters’ approval. The idea to issue the bonds emerged from city council’s January 2016 annual retreat; it was instantly turned into a bandwagon cause that was supported by an intense advertising and public relations campaign. The bond question passed with about 70% voter approval.

A Jaundiced Eye

Despite the ballyhoo, though, the idea of the city’s taking on that much debt was viewed askance by a substantial and vocal minority. Some invoked the lessons of history, recalling the city’s financial collapse during the Great Depression. Others were put off by discrepancies between the city’s presentation of how the bonds would affect taxpayers and calculations that showed the city would end up with the largest per capita debt of any city its size in North Carolina. Still others simply speculated that the city had something up its sleeve for which it desperately needed ready money – say, for instance, the increasingly expensive RADTIP project. Peterson was ejected from the May 2016 budget hearing when he called the bonds “a Ponzi scheme,” and Bach said the bond proceeds would create “a gigantic slush fund.”

Both plaintiffs now say the city’s subsequent actions prove their point.

Mr. Jackson’s Affidavit

On July 28, the Friday before the plaintiffs’ amendment hearing on Monday, City Manager Gary Jackson filed an affidavit setting forth the city’s position: that the budget ordinance as adopted on June 13 trumps anything previously said or written about how the new tax moneys can be spent, and “does not state that any amount is for GO bond debt service or any other bond related matter.

“The $0.035 that Plaintiffs reference … is allocated instead to the General Fund’s Capital Reserve Fund, which can be used for many different purposes …” the statement continues.
The affidavit directly contradicts the staff report that was sent to city council along with the final budget draft on June 13. That report, submitted by city Chief Financial Officer Barbara Whitehorn via Jackson, says:
“The 2017-18 Proposed Budget includes a property tax rate of $0.4339 … 0.035 (3.5-cents) is dedicated to debt for the 2016 GO Bond program.” (Emphasis added.)
And a budget overview that was also transmitted along with the budget draft sets out a line item that reads, “G.O. Bond 2016 Debt Service: 03.50 cents.”

But Jackson’s affidavit brushes aside those discrepancies in a tone that approaches defiance.
 “While my Memorandum and Budget Message documents have no legally binding force and could never override the Budget Ordinance, I have nonetheless amended these documents and any other relevant City communications, to make clear the plans for expenditures of these additional taxes during 2017-18,” it states.
According to letter dated May 17th from Mr. Jackson to Mr. Bach, he states exactly the opposite:
"The City's debt service fund will include the revenue stream expected from the effectuation of the GO bonds approved in last year's election."

The Devil’s in the Details … or Maybe in the Minutes

During the hearing City Attorney Robin Currin also invoked the budget ordinance saying its language ultimately governs the use of the tax money. Echoing Jackson, she said that although “the intention” is to use the funds for debt service, the budget ordinance contains no language promising such.

But Bach says that’s a specious argument. “Budget ordinances by nature don’t go into that kind of detail,” he told AU. “What counts, ultimately, is the minutes – the record of what was actually discussed, which was used to draft the ordinance.

“There is no question that the 3.5-cent additional tax imposed was to be dedicated to servicing the debt on the bonds. To say otherwise is an outright misrepresentation of fact.

“The word ‘dedicated’ is used here in a very strict legal sense,” Bach said. “It means exactly what it says. And it is used over and over in the documents that preceded that budget vote: the tax is to be dedicated to paying the interest on the bonds.

“This kind of ‘transparency’ city hall prides itself on is a joke,” Bach said, “and this bait-and-switch routine is a hoax.”

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