Title: Oklahoma City Urban Renewal Authority v. Medical Technology & Research Authority of Oklahoma
Citation: 2000 OK 23, 4 P.3d 677, 71OBJ929
Docket Number: 
State: Oklahoma
Issuer: Oklahoma Supreme Court
Date: April 4, 2000

Oklahoma City Urban Renewal Authority v. Medical Technology & Research Authority of Oklahoma Annotate this Case Oklahoma City Urban Renewal Authority v. Medical Technology & Research Authority of Oklahoma 2000 OK 23 4 P.3d 677 71 OBJ 929 Case Number: 93084, 93085 Decided: 04/04/2000 Mandate Issued: 07/21/2000 Supreme Court of Oklahoma OKLAHOMA CITY URBAN RENEWAL AUTHORITY, a public body corporate, Appellee v. MEDICAL TECHNOLOGY AND RESEARCH AUTHORITY OF OKLAHOMA, a statutory agency of the State of Oklahoma, Defendant, FORREST "BUTCH" FREEMAN, OKLAHOMA COUNTY TREASURER, Appellant, THE CITY OF OKLAHOMA CITY, a political subdivision of the State of Oklahoma; INDEPENDENT SCHOOL DISTRICT No. 89; VO-TECH SCHOOL DISTRICT NO. 22; METROPOLITAN LIBRARY SYSTE bn M OF OKLAHOMA COUNTY; CITY-COUNTY HEALTH DEPARTMENT OF OKLAHOMA COUNTY, Defendants, BOARD OF COMMISSIONERS OF OKLAHOMA COUNTY, Appellant APPEAL FROM THE DISTRICT COURT OF OKLAHOMA COUNTY; Honorable Karl Gray, District Judge. ¶0 In two causes consolidated on appeal, the appellee, Oklahoma City Urban Renewal Authority [Urban Renewal Authority], sought a declaratory judgment and an injunction directing the appellant, Oklahoma County Treasurer Forrest "Butch" Freeman [Treasurer], to release apportioned ad valorem taxes to the defendant, Medical Technology and Research Authority of Oklahoma [Medical Authority]. The taxes were collected pursuant to a plan adopted under the Local Development Act [Act], REVERSED; CASE REMANDED WITH INSTRUCTIONS. Dan Batchelor, Janis S. Powers, Oklahoma City, for Appellee, Oklahoma City, Oklahoma Urban Renewal Authority. Richard D. Forshee, John Michael Williams For Defendant, Medical Technology and Research Authority of Oklahoma. Robert M. Macy, District Attorney, Gretchen Crawford, Assistant District Attorney, Oklahoma City, Oklahoma, for Appellants, Forrest "Butch" Freeman, Oklahoma County Treasurer and Board of County Commissioners of Oklahoma County. Daniel T. Brummitt, Assistant Municipal Counselor for Defendant, City of Oklahoma City. William P. Bleakley, Laura L. Holmes, Oklahoma City, Oklahoma, for Defendant, Independent School Laura L. Holmes School District No. 89. KAUGER, J.: [4 P.3d 679] ¶1 The dispositive issue presented by the consolidated cases is whether the tax increment financing ¶2 Because the tax increment plan, as adopted, does not survive the initial constitutional barrier, we need not address the assertions of the Commissioners and the School District that creation of the tax increment district required permission of all taxing entities. Additionally, although the trial court addressed the public purpose requirements of the Okla. Const. art. 10, §14 and the surrender of taxing powers under art. 10, §5, the parties have not asserted either of these constitutional provisions as challenges to the constitutionality of the Act on appeal. We limit our holding to the issues addressed herein. The particular set of facts of future litigation, or questions premised upon other constitutional provisions or issues of statutory construction may demonstrate problems not addressed here. UNDISPUTED FACTS ¶3 "The increment of ad valorem taxes, as defined by the Local Development Act, Title 62 Oklahoma Statutes Supplement 1992, Section 851, et seq., from the Increment District Number One, City of Oklahoma City, in excess of ad valorem taxes generated by the base assessed value of the increment district, as most recently determined by the County Assessor prior to the adoption date of this ordinance, shall be apportioned and used to pay project costs authorized pursuant to Section VIII of the Project Plan for a period not to exceed 25 years from the effective date of the approval of the Project Plan, or the period required for the payment of the project costs authorized pursuant to Section VIII of the Project Plan, whichever is less." [4 P.3d 681] One objective of the increment district is to finance parking facilities for the Oklahoma Health Center. It is also intended to stimulate $200 million in new investment and 2,000 new jobs through the expansion of the Oklahoma Health Center. ¶4 The ordinance designates the appellee, Oklahoma City Urban Renewal Authority [Urban Renewal Authority], to administer the project plan, and it authorizes the defendant, Medical Technology and Research Authority [Medical Authority], ¶5 Pursuant to the ordinance and ¶6 On December 12, 1996, the Urban Renewal Authority made demand on the Treasurer to release the apportioned ad valorem tax revenues to the Medical Authority. On advice of the District Attorney of Oklahoma County, the Treasurer refused to release the tax increment until the validity of the Act and the Okla. Const. art. 10, §6C could be litigated. The declaratory judgment action ¶7 THE NATURE OF TAX INCREMENT FINANCING UTILIZING AD VALOREM TAX REVENUES ¶8 On November 6, 1990, Oklahoma voters adopted art. 10, §6C of the Oklahoma Constitution giving the Legislature the authority to grant cities, towns or counties the ability to provide incentives, exemptions or other tax relief for historic preservation, reinvestment or enterprise areas exhibiting economic stagnation or decline. Two years later, the Legislature adopted implementing legislation ¶9 The cause involves the Act's treatment of ad valorem taxes in a tax increment financing plan. The objective is to use increased ad valorem tax revenue generated by the development project to pay the principal and interest on tax increment bonds issued by the Medical Authority. Tax increment financing utilizing ad valorem taxes assumes that the assessed property value of the area will increase because of the development project ¶10 For the purposes of allocation of ad valorem taxes, the Act requires that a base assessed value be established on all taxable real property within the boundaries of an increment district. ¶11 Under a tax increment financing plan, taxing entities are guaranteed as much tax revenue from the area as they receive in the base year. Base values are adjusted if there is a general reassessment of the area. ¶12 Simply, the tax increment equals the amount of ad valorem taxes collected as a result of the increase in the real property values within the project area. Tax increment financing places the cost of urban renewal on the property benefitting from the expenditure of the funds collected. I. ¶13 BECAUSE THE TAX INCREMENT FINANCING PLAN OBLIGATES CITY GOVERNMENT TO ALLOCATE AD VALOREM TAXES COLLECTED IN THE FUTURE TO RETIRE A LONG-TERM DEBT, IT IS SUBJECT TO VOTER APPROVAL UNDER THE OKLA. CONST. ART. 10, §26. ¶14 The Treasurer and the School District do not attack the constitutionality of tax increment financing per se.24 [4 P.3d 684] Nevertheless, the Treasurer asserts that because the ordinance25 and §86126 of the Act allow for the apportionment of ad valorem taxes for a period of twenty-five years that a debt is created requiring voter approval under the Okla. Const. art. 10, §26. The Urban Renewal Authority and the Medical Authority argue that tax increment financing does not create a debt and that the constitutional provision is inapplicable. We disagree. ¶15 Although we have not addressed the constitutionality of tax increment financing as it relates to the Local Development Act, the Court considered the concept's validity in Muskogee Urban Renewal Auth. v. Excise Bd. of Muskogee County, 1995 OK 67, ¶24, 899 P.2d 624 .27 In Muskogee, the Court held that there was nothing unconstitutional in allowing municipalities to utilize tax increment apportionments to retire long-term debts. Nevertheless, we held that apportionments from ad valorem levies associated with the financing scheme remained subject to voter approval under art. 10, §26. The Muskogee Court stated: "In art. 10, §26, the people reserve to themselves the right to approve any and all debts that will be paid with taxes levied and collected in subsequent fiscal years, which includes the right to approve the tax to be levied in subsequent years. Unless a debt is incurred within the confines of art. 10, §26, ad valorem tax millage cannot be levied and apportioned for payment of the debt. That is, the specific debt limitations of art. 10, §26 not only prohibit the creation of long-term indebtedness without assent of the voters, but also proscribe the raising and spending of ad valorem tax revenues for the payment of debts other than those incurred in compliance with its provisions. A long-term debt of an urban renewal authority that has not been presented to and approved by the voters as prescribed by art. 10, §26 cannot be the lawful object of a legislative apportionment of ad valorem tax revenues." [Footnotes omitted.] ¶16 The Urban Renewal Authority seeks to distinguish Muskogee factually and on the grounds that it involved a different statutory scheme. Muskogee addressed tax increment financing of urban renewal costs under 11 O.S. Supp. 1983 §38-115 and §38-120, et. seq. Despite allegations that the Act here and the legislative scheme considered in Muskogee differ, the manner in which tax increment financing is accomplished under both statutes is substantially similar. Under both legislative acts, urban renewal authorities are authorized to issue bonds which are not considered a debt of the [4 P.3d 685] municipality;28 the payment of the principal and interest on tax increment bonds are from apportionment funds containing ad valorem taxes;29 a municipality may designate a tax increment district after notice and a hearing and a determination that the district achieves the objectives of the subject legislation;30 there must be a determination of a base assessed value to be used as the starting point for the increment financing plan;31 and apportionment may run for multiple years - under 68 O.S. Supp. 1983 §38-123 allocations may extend for a maximum of thirty years while under 62 O.S. Supp. 1997 §186(A) apportionment may not exceed twenty-five years. ¶17 Factually, the Urban Renewal Authority asserts that, unlike the legislation considered in Muskogee, the Act here is anchored in a constitutional provision and that no agreement independent of the Act obligates municipal government to continue allocations to the tax increment fund. We agree that the Act implements art. 10, §6C of the Okla. Const. and that §6C anticipates the use of local taxes, incentives or exemptions to foster the kind of development sought to be accomplished under the tax increment plan. We also recognize that §6C provides that the Legislature may set time periods for the exemptions. However, nothing in the language of art. 10, §6C indicates that it is intended to affect any other constitutional provision. It contains no language impacting or altering the debt limitations of art. 10, §26. The language of §6C allows the Legislature to define the outer limit of time for which apportionment is allowed, it does not authorize the creation of long-term debts.32 We held tax increment financing constitutional in Muskogee and we find it so here. Nevertheless, a finding that tax increment financing is constitutionally grounded does not prohibit construing the provisions consistent [4 P.3d 686] with the debt limitations of art. 10, §26. In Muskogee, we acknowledged that the "characterization" of a debt did not alter its nature and: If a municipality becomes indebted pursuant to the tax increment financing legislation, such indebtedness must not violate the strictures of art. 10, §26. To hold differently would require us to strike debt limitation provisions from the Oklahoma Constitution, and to ignore the rule that constitutional provisions are construed to harmonize with each other with a view to giving effect to each and every provision.33 ¶18 Finally, the Urban Renewal Authority asserts that it is clear under the statutory language that the tax increment bonds issued by the Medical Authority are not the debts of the taxing entities. Although 62 O.S. Supp. 1996 §863(G) specifically provides that tax apportionment bonds or notes issued pursuant to the Act are not debts of the city, town or county creating or approving the plan,34 statutory declarations alone will not alter the nature of indebtedness when circumstances make it clear that an obligation has been incurred.35 Ordinance No. 19,875 provides that tax increments "shall be apportioned and used to pay project costs . . . of the Project Plan for a period not to exceed 25 years from the effective date of the approval of the Project Plan." Generally, duly enacted municipal ordinances have the same force and effect as statutes.36 Absent a repeal of the ordinance [which is not anticipated by the Act until all project costs have been satisfied or twenty-five years have passed],37 the municipality is obligated to apportion taxes to retire tax increment bonds perhaps for as long as twenty five years. Despite the language of §863(G) providing that the bonds are not debts of the municipality, the ordinance clearly obligates payments until the bonds are retired or until twenty five years have passed - the clear language of the ordinance creates a debt. ¶19 Recently, in Matter of the Application of Capitol Improvement Auth., 1998 OK 25, ¶1, 958 P.2d 759 , cert. denied, 119 S. Ct. 174, 142 L. Ed. 2d 142 (1998), we undertook an exhaustive review of the issue of debt financing within the meaning of the Oklahoma Constitution. In doing so, we considered art. 10, §25,38 requiring that before the state may enter into certain "debts,", a vote of the public is required. The constitutional provision at issue here - art. 10, §26 - is the counterpart of §25 applying to political subdivisions.39 The purpose of art. 10, [4 P.3d 687] §26 is to force cities and other political subdivisions to operate on a cash basis and to prevent indebtedness extending beyond one year without a vote of the public.40 ¶20 In Capitol Improvement, we held that highway improvement bonds were not "debts" within the meaning of art. 10, §25 because future legislatures were not bound to appropriate funds for their retirement. The full faith and credit of the state was not pledged because there was the prospect, but not the promise, of future appropriations. The legislation at issue in Capitol Improvement provides that "it is the intent of the Oklahoma Legislature" to appropriate sufficient monies to retire the debt created. ¶21 In Muskogee, the city undertook the promise to pay through an independent contract with the lender responsible for the urban renewal project. Here, the municipality has obligated itself to apportion taxes for a period in excess of one year. Under the rationale of Capitol Improvement, the tax increment bonds are debts within the constitutional sense - they attempt to bind future legislative bodies - the governing bodies of the municipality, the county and the school district - to make apportionments through a clear promise that the payments will continue for a period up to twenty five years. ¶22 The majority of courts considering tax increment financing have found the legislation constitutional against a variety of attacks. ¶23 The Michigan Supreme Court in Request for Advisory Opinion, 430 Mich 93, 422 N.W.2d 186, 198 (1988) analyzed a local development act substantially similar to the one at issue here. ¶24 In finding that its state's tax increment financing statutes in City of Hartford v. Kirley, 172 Wis.2d 191, 493 N.W.2d 45, 51 created a debt within the meaning of its constitution, the Wisconsin court started with the same premise we expressed in Capitol Improvement Auth. - that constitutional debt restrictions do not prohibit creative financing. ¶25 In finding that there was a "constitutional debt" in Kirley, the Wisconsin court addressed an argument made here by the Urban Renewal Authority - that the bonds are essentially self-liquidating because, absent the project, there would be no ad valorem taxes collected above the base assessed value. The Kirley court dismissed the argument on the ground that it does not take into account that an increase in assessment may occur without the development project arising from inflation or improvements unrelated to the project. Recognizing that if the bonds were payable directly from the city's general property tax revenues, they would clearly constitute a debt within constitutional principles, the Wisconsin court found that the tax increment financing plan merely allowed the municipality to carve out a portion of general revenue for debt service of tax increment bonds. Other courts have agreed finding that when the general revenues of a municipality are applied to the retirement of tax increment bonds, the power to levy taxes has been implicated and the political subdivision [4 P.3d 690] has pledged its "credit" in the constitutional sense. ¶26 Debt limitations under art. 10, §26 and under the Wisconsin Constitution ¶27 In Capitol Improvement, we held that the Legislature's statement that it "intended" to appropriate monies for the retirement of bonds did not pledge the credit of the state or create a debt within the constitutional sense. Here, however, the ordinance provides that monies "shall be apportioned" for a period not to exceed twenty five years. Unlike the situation in Capitol Improvement, an unconditional pledge of the funds is made rather than a mere expression of the "intent" to continue payments. Under the facts of this case, the unlimited promise to allocate ad valorem taxes collected in the future to retire a long-term debt, creates a debt requiring voter approval under the Okla. Const. art. 10, §26. ¶28 We note that when the ordinance was adopted in January of 1993, the City did not have the direction or teaching of either Muskogee or Capitol Improvement as guides. The original opinion in Muskogee was adopted on June 15, 1993, and the final opinion on rehearing was not promulgated until June 27, 1995 - almost two years later. Capitol Improvement has only been a part of this state's jurisprudence since mandate issued on June 30, 1998. CONCLUSION ¶29 We do not doubt the salutory purposes of the Local Development Act [Act], ¶30 Tax increment financing under the Local Development Act [Act], ¶31 Because the tax increment plan, as adopted, does not survive the initial constitutional barrier, we need not address the assertions of the Commissioners and the School District that creation of the tax increment district required permission of all taxing entities. Additionally, although the trial court addressed the public purpose requirements of the Okla. Const. art. 10, §14 and the surrender of taxing powers under art. 10, §5, the parties have not asserted either of these constitutional provisions as challenges to the constitutionality of the Act on appeal. We limit our holding to the issues addressed herein. The particular set of facts of future litigation, or questions premised upon other constitutional provisions or issues of statutory construction may demonstrate problems not addressed here. REVERSED; CASE REMANDED WITH INSTRUCTIONS. HARGRAVE, V.C.J., LAVENDER, KAUGER, JJ. concur. HODGES, OPALA, JJ. concur in deference to stare decisis. WATT, J. concurring in result. SUMMERS, C.J., BOUDREAU, WINCHESTER, JJ. dissent. FOOT