LITTLE ROCK — The state Supreme Court heard oral arguments Thursday in a dispute between the city of Fayetteville and the Fayetteville School District over whether a portion of a property tax increase that voters approved in a school millage election can be used by the city for a redevelopment project.

The court did not immediately issue a ruling in the case, which revolves around a 2.75 property tax millage increase that voters approved in 2010 to fund the second phase of construction of a new high school.

The school district filed a lawsuit in November 2011 after the Washington County assessor certified that 1.45 mills of the tax should go to a city tax increment financing, or TIF, district to help pay the city’s debt for a redevelopment project. The school district prevailed in circuit court and the city appealed the case to the Supreme Court.

Arguing Thursday before the high court, Chris Lawson, attorney for the school district, said the Legislature established with Act 2231 of 2005 that the total ad valorem rate for a redevelopment district shall not include any increases in the total millage rate occurring after the date of the creation of the redevelopment district if the additional millage is pledged for repayment of a specific bond note or issue.

Kit Williams, attorney for the city, argued that the 2005 law is not applicable because an earlier lawsuit resulted in a judge’s order in 2007 defining the total ad valorem rate for the TIF district and did not take into account Act 2231, which became law shortly after the TIF district was created in 2005.

Williams said the school district now wants to change the judge’s ruling in the 2007 case to include language from Act 2231.

"That is not what the definition was that everybody agreed to," he said.

Lawson argued that the 2007 ruling addressed the county assessor’s 2005 certification only and did not create a definition of the total ad valorem rate that was supposed to stand unchanged for all time, regardless of any new taxes that might be approved or laws that might be passed.

"Our circuit courts don’t have jurisdiction over hypothetical issues," Lawson said.

Williams argued that the 2007 ruling was "a forward-looking decision."

"He used future tense: ‘Shall,’" Williams said.

The city still owes about $3.25 million from its $3.7 million bond issue, which funded demolition of downtown buildings to make room for a planned hotel. The hotel has not materialized and the property currently is being used as a parking lot.

The city’s debt is expected to be paid off in 2029. At stake in the case is about $25,000 in annual tax revenue, according to Lawson.

The court did not indicate when it would rule.