Court Rules Funding Plan For Bernard Project Invalid

Spokane city ordinances to redevelop a downtown area around Bernard Street are invalid because they unconstitutionally would divert property tax money from public schools, the state Supreme Court ruled Thursday.

City officials called the decision a blow to downtown improvement efforts with statewide ramifications.

“We’re disappointed. This was an opportunity for financing urban renewal and this avenue has been closed to us,” said City Attorney Jim Sloane.

The downtown district created by the Spokane ordinances included seven square blocks.

Plans called for construction of a promenade with walkways and landscaping along Bernard from the Spokane Convention Center to the renovated train-bus station.

The improvements, designed to stimulate private investment in shops and restaurants, would have cost $850,000.

The city wanted to sell bonds instead of assessing property owners inside the district for costs. Bonds then would have been repaid over 10 years with increases in property tax revenue. In theory, the increased revenue would be the result of new amenities and owners seeking to spruce up or relocate along the promenade.

The tax-increment financing was challenged by former City Councilwoman Margaret Leonard, a property owner in the district.

Attorney Steve Eugster, who argued Leonard’s case, called the project “an entitlement for the wealthy.”

In March 1994, a Spokane County judge ruled the plan was unconstitutional because it diverted money from public schools.

The Supreme Court agreed.

The city ordinances were adopted under the Community Redevelopment Financing Act approved by the state Legislature in 1982.

However, the voters that year and again in 1985 rejected proposed constitutional amendments that would have authorized the financing plan described in the act.

Without the amendments, the state constitution says all state property tax revenues collected for public schools must be used by the schools.

Under the act, cities were authorized to issue bonds to pay for public improvements within an apportionment district, and then repay the bonds with a share of the increased tax collections resulting from the higher assessed property values created by the improvements.

The city argued that without the Community Redevelopment Financing Act, the tax dollars allegedly diverted from schools in violation of the state constitution would not have been generated.

Justice Jim Dolliver scoffed at that argument.

“Would the city suggest that additional tax revenues generated by enhanced property values resulting from, for example, inflation, need not be used for the common schools? Surely not,” Dolliver wrote for the unanimous court.

“There is no plausible reason to distinguish between additional tax revenue generated by legislatively induced enhanced property values and additional tax revenue generated by non-legislatively induced enhanced property values,” Dolliver wrote.

The proposed Bernard Street project was a test case, designed to “get the legal issues before the Supreme Court,” said Spokane attorney Roy Koegen, who represented the city.

Neighboring states, including Idaho, are using tax-increment financing successfully to bankroll urban improvements, Koegen said.

“This puts us at a competitive disadvantage,” he said.

Eugster and Koegen agree on one thing: Washington cities will soon be lobbying the Legislature for a new tax-increment law.

“It’s probably already started,” Eugster said.

, DataTimes The following fields overflowed: BYLINE = William Miller Staff writer Associated Press contributed to this report.