Bischoff discusses, clarifies lawsuit against HISID at town hall meeting

Tuesday, February 12, 2013
As with the HISID board's special meeting Jan. 28, more than 200 property owners and others attended the packed meeting at the Clubhouse Monday night to hear the Bischoff side of the story.

HOLIDAY ISLAND -- In another standing-room only meeting at the Clubhouse Monday night, Holiday Island property owners heard attorneys for David Bischoff explain why he is bringing an illegal exaction suit against the suburban improvement district.

Conducting the meeting were Tim Hutchinson and Larry McCredy of the Reece Moore Pendergraft law firm.

The goal was not to generate publicity, McCredy said, and they did not invite the press. At least two members of the press attended.

The meeting was, at times, vociferous when property owners questioned attorneys' explanation that Bischoff was representing them and that an illegal exaction suit was the only way to fix what is wrong with Holiday Island.

David and Kathy Bischoff were not present because of a trip that had been pre-planned, it was explained. Several property owners jeered when hearing this news.

Property owner Tony Germani started the meeting with a short presentation, giving his version of events leading up to Holiday Island's financial difficulties. He said that in 1995, Holiday Island's assessments were $300, and there were no amenity fees. In 1999, they began charging modest amenity fees, he said. But fees continued to rise, and just between 2011 and 2012, there was a 47 percent increase in assessments and fees.

He blamed the financial difficulties on four major factors: the loss of assessments from the bankruptcy of National Recreational Properties, Inc., the loss of time-share assessment income, property owners turning back their lots and the tanking economy.

"NRPI had the biggest impact," he said. "Starting in 2011, it was a loss of $250,000 each year."

The second largest impact was the $116,000 loss of assessments from Table Rock Landing Time-Shares Association, who in 2011 discontinued paying 10 times the assessment of an R-1 lot on each of its 28 units.

"More than a $350,000 decrease was seen by HISID from these two things," Germani said.

He then discussed the 2011 Assessment of Benefits, conducted by Reed & Associates, outlining what he and the Bischoffs contend are violations of state code in its method and public notification process.

He said that over a period of nine months, the Board of Commissioners had ignored numerous requests to address these violations or to give answers to several questions.

"All that was being asked was that the BOC conduct business according to the laws of Arkansas governing SIDs," Germani said. "It was never about shutting down HISID or firing anybody."

Hutchinson gave an overhead presentation that defined an illegal exaction suit and why Bischoff is representing all Holiday Island property owners as the class of taxpayers. Several protests of "no" and "not me" were heard in the audience at this.

Hutchinson's presentation reiterated the main points of a "settlement framework" letter he sent to HISID in January, outlining how there is no more AOB principal left because HISID has levied against it over a period of many years, leaving it a negative number. He said the settlement framework gives HISID the option to keep operating by plugging in an arbitrary dollar amount that will carry it for a few years until the community figures out a new way to pay for its operations and capital projects.

He gave property owners the "bad news" that they cannot opt out of an illegal exaction, do not have the right to sue HISID on their own behalf and will be bound by whatever the court decides. But they will have the right to object to any proposed settlement in a public hearing, and they can opt not to accept any benefit that might come to the class as a result of a settlement.

Several times Hutchinson reiterated the "good news" about an illegal exaction suit: it is the only way to prevent Holiday Island from becoming subject to more lawsuits on this subject in the future, he said. Once this is decided, it ends, and individuals cannot ever bring suits on this issue.

Using examples from his letter to Bishop, Hutchinson noted the SID form of government was not designed to operate long-term, although it may have the ability, if it can levy through any of four means: a levy against the remaining AOB, if it is large enough; operate by charging user fees; conduct a reassessment of benefits; or levy an amount not to exceed the annual interest rate.

"You could operate indefinitely because you would never eat into the annual AOB," Hutchinson said.

But that is not the case with Holiday Island, which now has a negative assessment balance, probably reached around 1993.

"You saw how the assessed benefit is shrinking each year," said McCredy. "Once you hit the zero point, there is no legal authority to levy."

"That's a big point of this lawsuit," Hutchinson said, "that the AOB is completely gone, and any levy is illegal."

He said if the suit is successful, the court could go in any of several directions: refund all the monies illegally levied; refund all monies illegally expended; make an injunction against any new assessments; and make an injunction against any other fees, such as the security and special sewer debt assessment.

The other piece of "good news" about the illegal exaction suit, Hutchinson said, is that property owners could agree to allow HISID to keep levying by illegal exaction in order to pay its expenses by arbitrarily naming an AOB figure. HISID can also agree contractually to keep paying for things, like security, marketing and the sewer debt -- for a time.

"It's not a long-term solution," he said.

McCredy pointed out several times that HISID disagrees with their analysis of the situation.

"We're not saying we're right," he said. "It hasn't been proven."

He said the suit is in discovery and what will have to be looked at is the AOBs since 1974.

"The number you don't have is what is the remaining AOB," Hutchinson said. "How much had they already levied? Tom Reed determined it was $13,000 (in the 2011 AOB). The only problem is over 38 years they assessed against more than that."

He said he had been talking to HISID and believes if the AOB was depleted sometime in the early 1990s, "How much have they collected since then?"

He said the wastewater treatment plant bonds could be called.

"The worst case is to liquidate assets to pay the bond," he said.

Hutchinson said user fees like water bills are not being challenged.

Although the suit does challenge amenity fees, he admitted that was probably one of its weakest points.

"The court may decided that's a user fee," he said.

At the core of the lawsuit is the question of what a SID can and cannot do under its statutory scope and authority. Hutchinson noted the settlement framework he is proposing only solves Holiday Island's problem temporarily, giving the community enough time to decide in which direction to proceed to raise more revenue.

Asked whether, in his opinion, the SID is a workable system to continue funding maintenance and improvements for the long term, Hutchinson said, "That question should have been asked in 1974. A SID can't just be a city; it just can't. It never could be. It never should have been tried to be a city.

"It can't even be a POA. A POA is a more effective tool of raising revenue even though you have to get approval from every landowner to increase the assessment. But at least there's no restriction on how much you can levy under a POA, going forward 200 years. With a SID, there's a cap. You can't levy above the AOB."

He said a SID was designed to create a subdivision, where property owners bought lots to pay back the cost of those improvements, and it was a good mechanism for funding them.

But in Holiday Island, the whole thing went badly awry.

"Back in 1974 maybe they just couldn't envision Holiday Island becoming what Holiday Island is," he said.

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  • No SID = No Assesment for anyone.

    However, city taxes and franchise fees on goods and services.

    Also, property owners association fees to cover amenities.

    All that equals higher costs, less services and more restrictions.

    Goodby self government, Hello big government.

    -- Posted by Golferbemyname on Wed, Feb 13, 2013, at 8:41 PM
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