Mayor Mitch Landrieu's administration may have improperly diverted millions of dollars in property taxes meant for schools, flood protection, drainage, public safety and neighborhood improvements to several state retirement systems.
That’s according to a lawyer for the Downtown Development District and documents filed in its lawsuit seeking a refund of about $400,000.
According to state Supreme Court rulings and an Attorney General’s Office opinion, local governments are not allowed to use property taxes for expenses not approved by voters. However, from at least 2014 to 2016, the city used between $3.7 million and $4.2 million of those taxes to contribute to state pension funds.
In March, The Advocate reported that the Downtown Development District had demanded repayment of hundreds of thousands of dollars that it said the city had collected on its behalf but then diverted to the retirement funds.
The district sued the city in April. It argued that its tax, which is levied on properties in the Central Business District, can be used only to fund its own activities, such as sidewalk improvements, a new homeless shelter and enhanced security in the CBD.
However, the improper withholdings may go well beyond the money due to the DDD, said Bill Aaron, the agency's lawyer.
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City-prepared spreadsheets included in the DDD’s court filings show that the city took money from a number of special taxes — including those dedicated to the Orleans Levee District, the Orleans Parish School Board, the police and fire departments and Sewerage & Water Board drainage work — from at least 2014 to 2016.
Another document shows that the city withheld the funds from the DDD in 2013 as well.
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Under state law, the city is obligated to contribute to several state-administered pension funds, including those for employees of the local district attorney's and sheriff’s offices.
The city “passed on its obligations to other tax recipients,” Aaron said. That’s against the law, he said, because voters didn’t authorize those taxes to be used for those pensions. “If the tax is for a special purpose, it can only be used for that purpose.”
School district spokeswoman Dominique Ellis said the School Board "is aware of the circumstance, and it is currently under review.”
Richard Rainey, a spokesman for the Sewerage & Water Board, said that agency is looking into questions about the funds but needed more time to research the issue.
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According to an affidavit from Anthony Carter, finance director for the DDD, the city improperly withheld about $240,000 from the district’s property tax between 2013 and 2016. He based that figure on the city Finance Department’s own calculations.
The district has noted the discrepancy in its three most recent annual audits.
Carter, who declined to comment for this story, estimated that the city owes the district an additional $140,000 for 2017 and 2018.
A judge recently ordered the city to stop withholding money from the district’s property tax, except for a 2 percent collection fee, pending the outcome of the lawsuit.
The issue came to light as LaToya Cantrell prepared to succeed Landrieu as mayor May 7.
Among the taxes that Landrieu’s administration may have diverted are more than $1 million annually for schools and between $400,000 and $500,000 per year for drainage.
Aaron’s position is supported by a 2007 state Attorney General’s Office opinion, which said the city could not use DDD taxes to pay state retirement expenses.
It also appears to be supported by the Louisiana Supreme Court. In a 2007 opinion, justices noted that the court had “consistently interpreted the constitution to prohibit the use of dedicated and special taxes for purposes other than those for which they were levied.”
That ruling predated Landrieu’s administration, but according to Carter’s affidavit, the administration was well aware of it: In 2014, Norman Foster, Landrieu’s chief financial officer at the time, handed Carter a copy of the ruling.
The city is required to contribute to five state retirement systems, for the offices of the clerk of court, sheriff, registrar of voters, district attorney and assessor. Those contributions are set at a percentage of all the property taxes the city collects, including general taxes and taxes earmarked for specific purposes.
The city sends between $4 million and $5 million per year to the retirement funds, according to the spreadsheets. That’s about 1 percent of the $500 million or so it collects from all property taxes in a year.
Much of that $500 million is collected on behalf of outside agencies, like the School Board and the Sewerage & Water Board. Some other taxes are dedicated to specific city departments, like police and fire.
In fact, only one property tax millage isn’t dedicated to a specific purpose. That leaves just that one source of revenue to pay the pension funds, the city argued in the 2007 lawsuit. That tax generates about $50 million per year; the annual payments to the pension funds come to about 10 percent of that.
There is a wrinkle: Under a state law passed in 2012, the city may be able to divert some property taxes to the retirement funds, Aaron said. The law requires government agencies seeking new, increased or renewed property taxes to give notice that they may use a portion of the money for that purpose.
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Several property taxes have been approved or reauthorized by voters since 2014. That means the amount of money that may have been improperly diverted could be lower since 2015.
But Aaron said that doesn’t apply to the DDD tax or any other tax approved by voters before 2013, when the state law went into effect.
According to The Advocate, Landrieu’s administration told Cantrell’s transition team about the problem with the DDD money.
A recent court filing indicates that Cantrell’s administration may be discussing a settlement with the DDD. Given the change in administrations, “the city believes that the matter may be resolved by agreement,” an assistant city attorney wrote.
But it’s not clear what, if anything, the city will do about the taxes for other agencies.
“At this time, the matter is in litigation and the city is determining the most appropriate path forward,” Landrieu spokesman Craig Belden said in a statement to The Lens before Landrieu left office.
Beau Tidwell, Cantrell’s communications director, cited the lawsuit and declined to comment.