YOUNGSTOWN City, school board begin discussions to settle suit over CCA abatement
After four years of legal wrangling, a settlement of the CCA tax lawsuit may be in sight.
By ROGER G. SMITH
and RON COLE
VINDICATOR STAFF WRITERS
YOUNGSTOWN -- A long and ugly period in relations between city hall and the board of education could soon reach an end.
Four years ago, the school board sued the city and Corrections Corporation of America over tax breaks the city granted the private prison company.
There's been much bickering since, with charges and countercharges flaring back and forth in the four-block area that separates city hall and the school board's central offices.
The complex suit and clash of personalities have driven a wedge between the entities.
But now, the school district's $182.5 million school construction project has become intertwined with the lawsuit, and the two sides are talking about a settlement.
"The city and the school board are starting to realize they have more common interests and want to resolve issues," said Martin Hughes, a Columbus lawyer retained by the school board to battle the city and CCA.
Lawyers from both sides have talked several times the past couple of weeks. City officials hope the suit can be settled within the next couple of months.
A trial date set for today in Mahoning County Common Pleas Court has been pushed back to Oct. 28 as settlement talks continue.
From the mayor's perspective, the big loser in the school board's lawsuit is the taxpayer.
"The taxpayers are suing themselves," Mayor George McKelvey said. "The only loser would be those taxpayers. That alone should be the prime motivating force to settle."
From the board of education's point of view, the tax breaks were a city hall money-grab at the expense of schoolchildren.
"It was a sweetheart deal that leaves the city rolling in money -- our money," said Carolyn Funk, school district treasurer.
The dispute dates to 1994, when a new state law required that cities get the approval of school boards before handing out tax breaks of more than 75 percent.
But the city wanted to continue giving out 100 percent tax incentives to attract new businesses to town.
So, in 1995, the city and school board signed a "cooperation agreement" allowing the city to grant full tax abatements from 1995 through 1997 for property with an assessed value not to exceed $40 million.
In turn, the city would provide $750,000 to demolish vacant school buildings.
A year later, the city and CCA agreed to a 10-year tax break package as an incentive for CCA to build a private prison in Youngstown.
The city offered CCA something called a "tax increment financing" deal, or TIF. The city says the TIF called for two things:
* CCA would pay only 25 percent of its property taxes in the first five years, with the bulk going to the city schools.
* In the second five years, CCA would continue paying 25 percent of its school tax bill but also would pay a lump sum equal to the remaining 75 percent of the taxes directly to the city alone. The school district would get none of that money.
Such deals help cities recover costs from investing in roads, water and sewer pipes and real estate for business development, said Jeffrey L. Chagnot, city development director.
Without the tax package, the school board would get about $1.1 million a year in taxes from CCA. With the package, the district would see about $300,000 a year.
City officials approved the tax agreement in 1996, and CCA opened the prison in 1997.
Not approved by state
The Ohio Tax Commission, however, has never approved the deal, so CCA has paid its full $1.37 million tax bill since it opened. Those payments have continued, despite the prison's being emptied of prisoners almost two years ago.
Nevertheless, the school board cried foul.
"If this isn't a case of the city trying to put the skewer up the you-know-what, I don't know what is," Funk said.
The school board sued in September 1998, claiming three major violations:
* The school system was not properly notified.
Board attorney Hughes said the city sent a letter to the schools announcing a tax abatement, but the notice did not include details required by state law, including the amount.
The city says it issued the proper notifications.
* The tax break agreement was retroactive. Hughes said state law requires that tax abatements can be used only to create or retain jobs. The CCA prison already was under construction when the city approved the tax break package, he said.
"If the building is already there and the jobs are already there, it's not valid to use an abatement that way," Hughes said.
* The votes of then-councilman Charles Ellis on the CCA tax deals were an unlawful interest in a public contract, the lawsuit claims. The 2nd Ward councilman later got a job at the private prison.
"He voted to approve the abatement for the sole permissible purpose of creating jobs and then took one of those jobs," Hughes said.
The city argues there is no proven conflict of interest or wrongdoing.
Cap at issue
Additionally, the school district said the CCA deal breached the $40 million cap in the cooperation agreement. The city denies the cap applies to this deal.
The school board also maintains the city has failed to make good on the $750,000 in demolitions promised in the cooperation agreement.
The city, however, just recently started to make good on that promise, awarding a nearly $350,000 contract last month to demolish the abandoned Washington school on the city's West Side.
The potential liability on both sides remains enormous.
If the city loses, CCA wants the city to pay anything the company may owe to the school district.
The city could have to pay roughly $3 million that the school board is seeking in damages and an additional $5 million or more in property taxes already paid that CCA might get back.
"That would bankrupt the city of Youngstown," McKelvey said.
The school district's potential liability also is huge, Hughes said.
If the school district loses the dispute, CCA has asked that the school district refund 75 percent of the taxes it has paid over the past four years, Hughes said. That would amount to about $4 million.
The potential losses have pushed both sides to discuss a settlement.
A prime factor was the school board's approaching city council about waiving building permit and tap-in fees on the school district's $182.5 million school construction project. School officials want the city to waive $800,000 in fees.
Since then, council members have declined to grant any waivers. They want the lawsuit to be settled first.
"That's kind of nervy to me," said Councilman Rufus Hudson, D-2nd, of the school board's fee waiver requests. "Drop the lawsuit."
Funk said it would be much easier if the two sides were at peace.
"Nobody here wants this," she said. "Everybody here wants to settle this so everybody can walk away from this happy, but we're not going to give up the ship."