Citation4 P.3d 677,2000 OK 23
Decision Date04 April 2000
Docket Number No. 93, No. 084, No. 085.
PartiesOKLAHOMA 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 System of Oklahoma County; City-County Health Department of Oklahoma County, Defendants, Board of Commissioners of Oklahoma County, Appellant.
CourtSupreme Court of Oklahoma

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 District No. 89.


¶ 1 The dispositive issue presented by the consolidated cases is whether the tax increment financing1 plan adopted under the Local Development Act [Act], 62 O.S. Supp.1992 § 850, et seq., and the Okla. Const. art. 10, § 6C2 creates a prohibited debt within the meaning of the Okla. Const. art. 10, § 26.3 We hold that it does. Our holding is consistent with Muskogee Urban Renewal Auth. v. Excise Bd. of Muskogee County, 1995 OK 67, ¶ 24, 899 P.2d 624 providing that although facially constitutional, the tax increment financing plan at issue—under which the city undertook the promise to pay through an independent contract—was subject to voter approval under art. 10, § 26. It also conforms with the analysis of long-term debt financing for constitutional purposes undertaken in Matter of Oklahoma Capitol Improvement Auth., 1998 OK 25, ¶¶ 35-40, 958 P.2d 759.

¶ 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.


¶ 3 In an attempt to utilize tax increment financing, the City of Oklahoma City passed Ordinance No. 19,875 (ordinance) on January 5, 1993, approving the Oklahoma Health Center Economic Development Project Plan (project plan). The ordinance establishes Increment District Number One (increment district) to aid in the development of a biomedical and technological research and development park. Section 9 of the ordinance provides:

"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."

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],4 to carry out certain provisions of the project plan under development agreements with the Urban Renewal Authority. Additionally, the ordinance established an ad valorem tax apportionment fund declaring its contents to be funds of the Medical Authority. The ordinance authorized the Medical Authority to administer the tax apportionment fund, to issue tax apportionment bonds or notes, and to incur project costs under development agreements with the Urban Renewal Authority.

¶ 5 Pursuant to the ordinance and 62 O.S. Supp.1997 § 862(A),5 a base assessed value was established by determining the aggregate value of all the taxable property located within the boundaries of the increment district as of January 1, 1992. According to the project plan, any increments over the base assessed value are escrowed by appellant, Oklahoma County Treasurer Forrest "Butch" Freeman [Treasurer], and deposited in an apportionment fund for a period of twenty-five years or until the project costs are paid, whichever occurs first. The Treasurer established a separate, segregated fund into which ad valorem tax revenue from the increment district has been deposited. As of September 8, 1997, the apportionment fund contained $131,018.06.

¶ 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 action6 was filed on September 10, 1997.7 After consideration of the Urban Renewal Authority's motion for summary judgment and corresponding cross-motions, the trial judge found that: 1) the financing scheme served the public purpose requirements of the Okla. Const. art. 10, § 14; 2) no violation of the debt limitations contained in art. 10, § 26 existed; 3) the Act did not require written or formal consent from the School District or the Commissioners before formation of the tax increment district; and 4) creation of a tax increment district did not result in a surrender of the taxing power under art. 10, § 5. We retained the cause on June 30, 1999. The court ordered briefing cycle was completed on November 22, 1999. Finding that notice had not been given to the Attorney General pursuant to 12 O.S.1991 § 1653,8 the Court issued an order on January 31, 2000, granting the Attorney General an opportunity to file a brief in the cause. The Attorney General responded on February 8, 2000, indicating that he was a disinterested party and would not be filing a brief in the cause.


¶ 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 legislation9 — the Local Development Act [Act], 62 O.S. Supp.1992 § 850, et seq. The Act provides for tax increment financing — a mechanism whereby increments from certain local taxes or fees are dedicated to finance project costs of approved project plans.10

¶ 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 project11 and that, absent the project, property values would not rise.12 The financing plan is intended to create economically productive property where none presently exists by providing inducements for private commercial development.13 It allows the capture of local taxes14 generated by a new development instead of allocating the tax increments to the taxing entities.15

¶ 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.16 The amount of ad valorem taxes in excess of the base assessed value is the "increment"17 paid into an apportionment fund established for the payment of the project costs — including the retirement of principal, interest or premiums due in connection with bonds, loans, notes, or other indebtedness incurred to finance projects costs.18

¶ 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.19 In addition, if the collections exceed project costs and other obligations, the excess is paid into the funds of the respective taxing entities.20 Under the Act, although a general vote of the public is not required to establish a tax increment district, the Act does provide that the powers of initiative and referendum...

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