Can Fayetteville consolidate its old firefighter pension fund into the state LOPFI retirement system without committing an illegal exaction?

Plain-English summary

State Representative Charlie Collins asked whether it would be an illegal exaction or an unconstitutional lending of city credit if the City of Fayetteville consolidated its former private firefighter pension fund with the state's Arkansas Local Police and Fire Retirement System (LOPFI). The question came up because the Fayetteville city attorney had reportedly suggested the consolidation might trigger Ark. Const. art. 16, § 1, which prohibits a city from lending its credit.

Attorney General Leslie Rutledge concluded the proposed consolidation would not be an unconstitutional lending of credit and therefore would not be an illegal exaction on that basis. Article 16, Section 1 bars a city from assuming or guaranteeing another entity's obligation. The city attorney's concern was based on the premise that the existing pension obligation belonged to the pension fund's board of trustees rather than to the city. The AG rejected that premise: the constitutional framework and statutory scheme made clear that the obligation to retired firefighters is ultimately the city's obligation, with the pension board acting as administrator. Consolidation might change the nature or extent of the city's liabilities, but it would not be a lending of credit because no third-party obligation was being absorbed.

Currency note

This opinion was issued in 2016. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here.

How the AG reached "no lending of credit"

The constitutional rule. Ark. Const. art. 16, § 1 says "[no] ... city ... shall ever lend its credit for any purpose whatever ...." The Arkansas Supreme Court has read the provision to bar a city from assuming or guaranteeing a third party's obligation (Barnhart v. City of Fayetteville; Hays v. McDaniel).

The city attorney's premise. The concern was based on Ark. Code Ann. § 24-11-801, which makes the pension fund's board of trustees the administrator of the local firefighter pension. If the obligation to retirees belonged to the board rather than the city, then transferring the obligation to LOPFI under the city's name could look like a guaranty of someone else's debt.

Why the AG rejected the premise. The AG looked at the broader statutory and constitutional scheme:

• Ark. Const. amend. 31 expressly authorizes cities to levy a tax to create a fund to pay pensions to firefighters and police officers.
• Ark. Code Ann. § 24-11-801 places city officials and employees on the pension board.
• Ark. Code Ann. § 24-11-802(d)(1) requires the board to report to city officials.
• Ark. Code Ann. § 24-11-805(a)(1) holds the fund in the city treasurer's hands under his oath and bond, absent other permitted arrangements.
• Ark. Code Ann. § 24-11-815 directs appeals from board decisions to "the circuit court of the county in which the town or city liable for the claim may be located" (emphasis the AG's).

Taken together, the statutes implied the obligation to retired firefighters was the city's, not the pension board's. The board administered the fund, but ultimate responsibility ran to the city. That conclusion eliminated the constitutional concern: consolidation with LOPFI involved transferring a city obligation, not assuming someone else's.

Caveat. The AG was careful to say the consolidation might change the nature or extent of the city's liabilities. Ark. Code Ann. § 24-10-302(d) authorizes a city, by agreement with LOPFI, to provide LOPFI coverage of employees previously covered by a comparable municipal plan. The agreement between Fayetteville and LOPFI would determine the specific contours of the city's post-consolidation obligations. The AG could not predict what that agreement would say.

The "illegal exaction" thread

The Arkansas Constitution's illegal-exaction provision (Ark. Const. art. 16, § 13) lets a citizen sue "to protect the inhabitants ... against the enforcement of any illegal exactions whatever." As Carnegie Pub. Library of Eureka Springs v. Carroll Cnty. explains, illegal-exaction claims come in two flavors: "public funds" cases (challenging misapplied tax dollars) and "illegal-tax" cases (challenging the tax itself).

But Article 16, § 13 is a remedy provision, not a free-standing prohibition. It applies only when public funds have been or are about to be raised or applied in violation of some other legal rule (Chapman v. Bevilacqua). Since the AG concluded the consolidation did not violate Article 16, § 1, there was no underlying illegality for Article 16, § 13 to enforce.

Common questions

Can Fayetteville actually move its firefighters into LOPFI? The AG said yes from a constitutional standpoint, but the practical answer depends on the agreement between Fayetteville and LOPFI under Ark. Code Ann. § 24-10-302(d). The AG did not opine on the terms of any specific consolidation agreement.

What happens to retired firefighters' benefits if there is a consolidation? The opinion did not address the impact on individual retiree benefits. Ark. Code Ann. § 24-11-807(b) provides that if a local fund is insufficient to make full payments to all eligible retirees, the fund is prorated among them. How LOPFI integration would change retiree benefits would have to be negotiated as part of the consolidation agreement.

Does this opinion apply to other cities considering LOPFI consolidation? The opinion's analysis is grounded in the constitutional and statutory provisions that govern all Arkansas municipal firefighter pension funds, so the reasoning would apply to other Arkansas cities facing the same question. But each city's specific local-fund history and proposed LOPFI agreement would have to be evaluated separately.

Source

• Landing page: https://arkansasag.gov/divisions/opinions-foia/attorney-general-opinions-search/

Subject

Would it be an illegal exaction and potentially unconstitutional for the city to consolidate the former private pension fund of the Fayetteville Fire Fighters with the LOPFI retirement plan and, by so

Source

• Landing page: https://arkansasag.gov/divisions/opinions-foia/attorney-general-opinions-search/

Official summary

Would it be an illegal exaction and potentially unconstitutional for the city to consolidate the former private pension fund of the Fayetteville Fire Fighters with the LOPFI retirement plan and, by so doing, obligate Fayetteville voters to the debt going forward? RESPONSE: In my opinion, the proposed consolidation with LOPFI would not involve an unconstitutional lending of credit or illegal exaction on that basis, because the existing obligation is ultimately an obligation of the city. The constitutional provision prohibits a political subdivision's assumption or guaranty of another entity's obligation.

Original opinion text

Opinion No. 2015-127
January 27, 2016
STATE OF ARKANSAS
ATTORNEY GENERAL
LESLIE RUTLEDGE
The Honorable Charlie Collins
State Representative
3225 East Piper Glen
Fayetteville, AR 72703-4394
Dear Representative Collins:
This is in response to your request for an opinion on the following question: Would it be an illegal exaction and potentially unconstitutional for the city to consolidate the former private pension fund of the Fayetteville Fire Fighters with the [Arkansas Local Police and Fire Retirement System (LOPFI)] retirement plan, and by doing so, obligate Fayetteville voters to the debt going forward? RESPONSE In my opinion, the proposed consolidation with LOPFI would not involve an unconstitutional lending of credit or illegal exaction on that basis. DISCUSSION Your request does not specify any constitutional prov1s10n under which the proposed consolidation might be deemed invalid. I am informed, however, that the Fayetteville city attorney has advised that the consolidation may involve the lending of the city's credit, which is constitutionally prohibited.1 While few reported cases have interpreted this constitutional prov1s10n, it essentially amounts to a prohibition on a city's assumption or guaranty of a third party's obligation.2 · 1 "[No] ... city ... shall ever lend its credit for any purpose whatever .... " Ark. Const. art. 16, § 1. 2 See, e.g., Barnhart v. City of Fayetteville, 321 Ark. 197, 206, 900 S.W.2d 539 (1995) ("Fayetteville's agreement to unconditionally guarantee the obligations of [the city of] West Fork and Washington County" was a lending of Fayetteville's credit); Hays v. McDaniel, Treasurer, 130 Ark. 52, 55-56, 196 S.W. 934 323 CENTER STREET, SUITE 200 · LITTLE ROCK, ARKANSAS 72201 TELEPHONE (501) 682-2007 · FAX (501) 682-8084 ARKANSASAG.GOV The Honorable Charlie Collins State Representative Opinion No. 2015-127 Page 2 The city attorney's position that the consolidation may contravene this provision is premised on the proposition that any existing liability or obligation with respect to the pension fund is that of the pension fund's board of trustees,3 and not of the city itself. If one accepts the proposition, it follows that the proposed consolidation may involve the city's assumption or guaranty of an obligation currently the responsibility of some other entity (i.e., the pension fund's board of trustees), which may amount to an unconstitutional lending of credit. I cannot, however, accept the proposition that the existing obligation to retired firefighters is not the city's. The constitution permits "cities [to] levy a tax ... from which there shall be created a Fund to pay Retirement Salaries and pensions to policemen and firemen .... "4 While the fund thus created is administered and disbursed by a board of trustees rather than by city officials as such, 5 city officials and employees serve on the board, 6 which is required to report certain matters to city officials, 7 and, absent other permitted arrangements, the fund is held by the city's treasurer, who is liable therefore under his oath and bond as city treasurer.8 A person aggrieved by a board's decision may appeal to the "circuit court of the county in which the town or city liable for the claim may be located."9 The foregoing provisions all suggest that, while the board is responsible for administering the fund, the obligation to retired firemen is ultimately the city's, not merely the board's. The fund arises principally from a city tax, and nothing in the law provides or even strongly implies that ownership of the fund, and ultimate responsibility for the liabilities to retirees that arise in connection with the fund, ( 1917) (constitutional provision prohibits assumption of "any obligation for any purpose other than its own use" and "denies to [the governmental entities to which it applies] the right to permit another agency to use its credit .... "). 3 See generally Ark. Code Ann.§ 24-11-801(Rep!.2014). 4 Ark. Const. amend. 31 (emphasis added). 5 See Ark. Code Ann. § 24-11-801 (b ). 6 See Ark. Code Ann.§ 24-l l-80l(a)(l), (2), (3). 7 See Ark. Code Ann.§ 21-l l-802(d)(l) (Repl. 2014). 8 See Ark. Code Ann.§ 24-l l-805(a)(l) (Repl. 2014). 9 Ark. Code Ann.§ 24-11-815 (Repl. 2014) (emphasis added). The Honorable Charlie Collins State Representative Opinion No. 2015-127 Page 3 are vested solely in the board. 10 In my view, it follows that there. can be no unconstitutional lending of credit in connection with the proposed consolidation, because it will not involve the city's assumption or guaranty of another party's obligation. This is not to say that the proposed consolidation will not change the nature or extent of the city's liabilities to retirees. It may have that effect.11 But the proposed consolidation will not, in my opinion, constitute a lending of credit for purposes of the constitutional prohibition. 12 Attorney General 10 With respect to the extent of a local fund's liabilities to retirees, the law provides that, "[s]hould the fund
... be insufficient to make full payment ... to all persons entitled thereto, then the fund shall be prorated among [them] .... " Ark. Code Ann.§ 24-l l-807(b) (Repl. 2014). 11 The law provides that a city may, by agreement with LOPFI, provide for LOPFI coverage of employees theretofore covered by a municipal plan similar in purpose to LOPFI. Ark. Code Ann. § 24-10-302(d) (Repl. 2014). I expect the proposed consolidation would proceed under this authorization. I cannot predict what the agreement between the city and LOPFI might provide with respect to the city's obligations following the consolidation. 12 Your request also asks whether the proposed consolidation might involve an illegal exaction. The constitution provides that a citizen may bring suit "to protect the inhabitants [of a county, city, or town] against the enforcement of any illegal exactions whatever." Ark. Const. art. 16, § 13. An illegal exaction is defined as any exaction that either is not authorized by law or is contrary to law .... Two types of illegal-exaction cases can arise under article 16, section 13: "public funds" cases, where the plaintiff contends that public funds generated from tax dollars are being misapplied or illegally spent, and "illegal-tax" cases, where the plaintiff asserts that the tax itself is illegal. Carnegie Pub. Library of Eureka Springs v. Carroll Cnty., 2012 Ark. 128, *4, 2012 WL 1036847. As suggested by the quoted language, this constitutional provision does not, in and of itself, prohibit any particular application or payment of public funds or any particular type of tax. Rather, it provides a remedy when public funds have been, or are threatened to be, raised or applied in violation of some other legal standard. See, e.g., Chapman v. Bevilacqua, 344 Ark. 262, 42 S.W.2d 378 (2001) (expenditures were consistent with article 12, section 5; "[t]herefore there is no illegal exaction under Art. 16, § 13"); and Op. Att'y Gen. 2005-205 ("[i]f certain political subdivisions are ... making . . . contributions [to private, nonprofit corporations], I believe they are doing so in derogation of Ark. Const. art. 12, § 5 and the contributions might be challenged as illegal exactions" and "any payments [made in] violat[ion of a specified] statute [would] invite an illegal-exaction challenge"). It is my view, therefore, that article 16, section 13 will be implicated, and may provide a remedy, only if the proposed consolidation involves raising or spending public funds in ways that violate article 16, section I, or some other legal standard apart from article 16, section 13.