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File photo: New Orleans Mayor LaToya Cantrell

The city of New Orleans has unlawfully withheld more than $7.6 million in tax revenue from the Orleans Parish School Board, according to a lawsuit filed by the board that also says a fee City Hall charges other agencies for collecting their taxes is unconstitutional.

The suit, filed Wednesday in Orleans Parish Civil District Court, says that for at least five years, the city shortchanged the School Board on its dedicated taxes. It says the city kept some of the money and put it toward its underfunded pension obligations.

Moreover, the lawsuit says that the city's practice of charging agencies a 2 percent administrative fee for the taxes it collects on their behalf violates the state's constitution, even though it is permitted under a statute. The suit says the constitution demands that all money collected on the board's behalf be paid to the board.  

The School Board is asking a judge to force the city to hand over all the money it says the city has illegally pocketed, both the collection fee and the money withheld for pension payments.

"Voters dedicated this money to education, and we will advocate ... to ensure that these resources get where the voters intended them to go," OPSB Superintendent Henderson Lewis Jr. said in a statement. 

The lawsuit highlights the often complicated process of collecting and distributing taxes within the city. It also comes as Mayor LaToya Cantrell is supporting a bill in the Legislature that would double the fee the city can charge agencies for collecting taxes on their behalf.

Senate Bill 110 would raise the amount the city can withhold from agencies to 4 percent; it is now 2 percent. That would mean up to an estimated $9.6 million more a year for the city from all the affected agencies.

Lewis said the bill would mean less money for the city's public schools and their $440 million total operating budget. The School Board is funded through its own dedicated property and sales taxes and is not controlled by the mayor or the City Council.

"Senate Bill 110 allows these dollars to be diverted away from education, and we cannot allow that to happen," Lewis said.

The School Board is the second agency in a year to sue over the city's diversion of money supposedly granted by voters to other agencies. The state 4th Circuit Court of Appeal a week ago upheld a lower court's ruling that City Hall cannot divert money from the Downtown Development District to pay down city debts.

The city argued that "it must remit a portion of the aggregate ad valorem taxes collected to the retirement funds ... because the Louisiana Constitution and other binding statutory authority mandate such contributions."

But the DDD said that the tax collected on its behalf "is not subject to deduction because it is a 'dedicated tax' that must be used solely for the activities and functions of the district."

However, Civil District Court Judge Piper Griffin said the city can continue to take its 2 percent collection fee from the DDD for taking in taxes on its behalf and passing the money on.

Cantrell and City Attorney Sunni LeBeouf said the bill in the Legislature will help New Orleans get its "fair share" of taxes.

"We want everyone to be clear on exactly what this bill does and does not do," Cantrell said in a statement. "This bill is designed ... to make sure that the city of New Orleans is covered for the expenses we incur on behalf of other entities."

The statement did not provide any details on what costs the city incurs to collect property taxes on other agencies' behalf, or whether that amount has gone up over time. 

Cantrell has said her push to get the city a "fair share" of taxes involves "turning over every rock" for new money, such as the cash she recently wrung out of the state's tourism industry for city infrastructure.

LeBeouf said that Cantrell "has been, and remains, a supporter of the Orleans Parish School Board and the children of this city."

But the OPSB said the collection fee, although apparently made legal under a state law, is banned by the constitution. And it alleges that Cantrell's team is using the bill now in the Legislature as a way to divert money to pay down city pension obligations.

The city withheld at least $7.6 million from the OPSB from 2012 to 2017 to pay down obligations to state-administered pensions, such as the firefighters' and sheriffs' retirement systems, according to the lawsuit.

"Any delay in recouping taxes the city has improperly withheld will have an adverse impact on students in New Orleans," wrote Sharonda Williams, a former city attorney in Mitch Landrieu's administration who is now representing the School Board. "OPSB is entitled to immediate relief to ensure the best education for students."

The bill has passed the Senate and a House committee and awaits final House consideration.


Follow Jessica Williams on Twitter, @jwilliamsNOLA​.