What are the powers and limits of an Arkansas Suburban Improvement District: can property owners prepay their assessment, is the district subject to FOIA, can it waive assessments or rezone lots, and who collects delinquent payments?

Plain-English summary

Senator Hutchinson sent the AG a stack of questions about the Holiday Island Suburban Improvement District ("HISID"), the body that taxes and provides services for Holiday Island in Carroll County. The questions touched the recurring practical issues that come up in every Arkansas SID: can you prepay your Assessment of Benefits, is the district open under the FOIA, can it waive an assessment for one parcel, can it move lot lines or rezone, and who collects when you fall behind.

The AG started by declining to answer two of the questions (about utility rates and SID marketing spending) because they tied into a judicially approved settlement agreement between HISID and property owners, and AG opinions do not interpret settlement agreements. On the rest, the answers were:

1. Prepayment. Ark. Code Ann. § 14-92-230(b)(1)(A)(ii) expressly contemplates prepayment of SID assessments (and even caps the collector's commission on prepayments). But whether any particular owner has a right to pay off the entire remaining principal at any time, or whether the SID has to accept it, depends on the specific bond order or financing structure of that district. The AG could not answer the abstract version.
2. FOIA coverage. SIDs are "agents of the state" supported by statutorily authorized assessments. They are plainly subject to the FOIA. Whether the district's voter list was specifically subject to disclosure depended on whether it qualified as a "public record" under § 25-19-103(7)(a) and whether any exemption applied. The AG observed that voter lists generally do qualify, with the burden on the SID to prove an exemption.
3. Waiving an assessment. An SID cannot waive an assessment of benefits on individual parcels once the levy order has been entered. Section 14-92-228 makes the assessment a lien from the time it is levied until paid. The Supreme Court held in Lueken v. Burch that an improvement district has no authority to release its lien except upon full payment.
4. Lot lines and rezoning. SIDs do not actually zone or adjust lot lines, but they may consider lot size, location, and use classification when assessing or equalizing benefits under § 14-92-226(b). The Court of Appeals in Pate v. Piney Sewer Imp. Dist. No. 32 identified "value, area, location of the property, the improvements thereon, its relation to other properties, and every other element" as proper inputs.
5. Delinquent collection. Ordinarily the county tax collector handles SID assessments under § 14-92-230. Only "eligible districts" over 5,000 acres can elect to collect their own under § 14-92-601 to -602. For delinquencies, an SID may enforce collection through chancery proceedings under § 14-94-122, in which case the court applies a 25% penalty plus 6% interest plus costs against the delinquent land.

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.

Background and statutory framework

What a Suburban Improvement District is

An SID is a public corporation created under Title 14, Chapter 92 of the Arkansas Code to provide water, sewer, drainage, road, or fire-protection improvements in suburban areas. It levies a one-time Assessment of Benefits ("AOB") against every parcel in the district, then collects the AOB in annual installments (extended on the county tax books and collected by the county collector) until the levy is "exhausted." The Arkansas Supreme Court in Quapaw Central Business Improvement District v. Bond-Kinman, Inc. labeled improvement districts "agents of the state" for purposes that include the FOIA's reach.

Prepayment and the bond-order trap

Section 14-92-230(b)(1)(A)(ii) acknowledges prepayment by capping the collector's commission on prepayments at the lesser of 1.5% or $50. But that single line is the entire statutory treatment, and prepayment terms are most often controlled by the order that originally levied the tax. Bonds funded by the district's revenue stream often pledge a continuing stream of assessment receipts as security; allowing free prepayment can disrupt that stream. The AG flagged that interpreting any particular SID's bond order is outside the AG's scope; that work falls to the SID's bond counsel and, in disputed cases, the chancery court.

The lien that does not lift

Section 14-92-228 makes the AOB a lien on every parcel from the time of levy. The AG read that statute together with the materially identical municipal-improvement statute § 14-90-805, which the Supreme Court interpreted in Lueken v. Burch: "There is no authority, statutory or otherwise, for an improvement district to release its lien except upon full payment of all assessments levied against the property." Translation: the SID's board cannot do a favor for any single property owner by waiving the AOB. Every parcel in the district owes its share until paid.

FOIA: SID as state agent

The AG followed his office's long-standing position (Op. Att'y Gen. 2007-262 and earlier opinions) that SIDs are subject to the FOIA. Open meetings rules apply when the commissioners meet to award bids, hire personnel, or set policy. As for records, § 25-19-103(7)(a) defines "public records" broadly enough to reach SID records that reflect the performance of official functions. A voter list kept under § 14-92-204(b)(7) for SID elections is a candidate "public record." Under Orsini v. State and Gannett River States, the burden is on the custodian to prove an exemption, and a single citizen objection is not enough.

Lot lines and rezoning, in their proper lane

The AG emphasized that an SID is not a city. Memphis Trust Co. v. St. Francis Levee Dist. distinguished improvement districts (which have "limited and inferior powers") from cities and towns "with political and legislative powers for the local government and police regulation of the inhabitants thereof." So an SID cannot rezone lots or move lot lines as a regulatory act. But under §§ 14-92-226(b) and 14-92-227(c), the SID's board of commissioners sits as a board of equalization. It can and must consider every factor that bears on the benefit each parcel receives from district improvements. Pate v. Piney Sewer Imp. Dist. No. 32 lists those factors: value, area, location, improvements on the property, and "every other element which might go to make up the sum total of benefits." If a property owner buys an adjoining lot and physically combines them, or if the use classification of a parcel changes, the SID can reassess.

Delinquency: who collects, and the 25% penalty

The default is the county tax collector under § 14-92-230. An "eligible district" (over 5,000 acres) can elect to collect its own assessments under §§ 14-92-601 to -602. For delinquencies, the SID can certify them to the Commissioner of State Lands under § 14-92-232(b), or it can pursue chancery enforcement under § 14-92-232(c). When the SID goes the chancery route, § 14-94-122(b)(1) and (2) (incorporated by cross-reference for SIDs) sets the penalty structure: the court adds a 25% penalty and 6% interest "from the end of the sixty (60) days allowed for the collection thereof," plus all costs of the proceedings.

Common questions

Q: I live in a Suburban Improvement District. Can I just pay off my AOB and be done with it?
A: Maybe. Section 14-92-230(b)(1)(A)(ii) contemplates prepayment, but whether your particular SID has to accept a full pay-off at any time depends on the order that levied the tax and any bond covenants. The collector's commission on prepayments is capped at $50.

Q: Is the Holiday Island SID required to give me the list of district voters under the Arkansas FOIA?
A: SIDs are agents of the state and subject to the FOIA. The list of registered voters in the district kept for elections under § 14-92-204(b)(7) is presumptively a public record. The custodian carries the burden of proving an exemption.

Q: My neighbor's lot was reassessed lower than mine. Can the SID just waive my assessment?
A: Once the levy is in place, the SID cannot waive your AOB. Section 14-92-228 makes it a lien on the property until paid. Lueken v. Burch confirmed that improvement districts have no authority to release the lien except upon full payment.

Q: We bought the lot next door and combined the two. Will the SID treat the combined parcel as one?
A: The SID does not zone or adjust lot lines like a city, but its board of equalization can take the combined use into account when assessing or equalizing benefits under § 14-92-226(b). Whether the AOB is reduced for the combined parcel depends on how the board values benefits to the combined property.

Q: I'm three months late on my SID payment. What happens?
A: Ordinarily the county tax collector handles it. If the SID elects to enforce collection through chancery proceedings under § 14-94-122, the court adds a 25% penalty plus 6% interest plus costs to the judgment.

Q: Can the SID collect its own AOB instead of going through the county?
A: Only if it is an "eligible district" over 5,000 acres under §§ 14-92-601(a)(1) and (2). Otherwise the county tax collector is the proper collector under § 14-92-230(a) and (b).

Citations and references

Statutes:

• Ark. Code Ann. § 14-92-204(b)(7) (Repl. 1998) (voter list maintenance)
• Ark. Code Ann. § 14-92-220(c) (Repl. 1998) (SID financing through assessments)
• Ark. Code Ann. § 14-92-226(b) (Repl. 1998) (board as board of equalization)
• Ark. Code Ann. § 14-92-227(c) (Supp. 2015) (reassessment)
• Ark. Code Ann. § 14-92-228 (Repl. 1998) (assessment as lien)
• Ark. Code Ann. § 14-92-230(a)(1) and (b)(1)(A)(i) (Supp. 2015) (county collector duties)
• Ark. Code Ann. § 14-92-230(a)(2)(A) (Repl. 2015) (county clerk duties)
• Ark. Code Ann. § 14-92-230(b)(1)(A)(ii) (Supp. 2015) (commission cap on prepayments)
• Ark. Code Ann. § 14-92-232(b), (c) (Repl. 1998) (delinquency: certification or chancery)
• Ark. Code Ann. § 14-92-601(a)(1) and (2) (Repl. 1998) (eligible district threshold)
• Ark. Code Ann. § 14-92-602(a)(1) (Supp. 2015) (election to collect own assessments)
• Ark. Code Ann. § 14-94-122(b)(1) and (2) (Repl. 1998) (25% penalty in chancery enforcement)
• Ark. Code Ann. § 14-90-805 (Repl. 1998) (parallel municipal-improvement statute)
• Ark. Code Ann. § 25-19-103(7)(a) (Supp. 2015) (FOIA definition of public records)
• Ark. Code Ann. §§ 25-19-105(a)(1)(A), -106(a) (Supp. 2015) (FOIA disclosure rule)

Cases:

• Quapaw Cent. Bus. Impr. Dist. v. Bond-Kinman, Inc., 315 Ark. 703, 706, 870 S.W.2d 390, 392 (1994) (improvement districts as "agents of the state")
• Lueken v. Burch, 214 Ark. 921, 926, 219 S.W.2d 235, 238 (1949) (no authority to release lien except on full payment)
• Memphis Trust Co. v. St. Francis Levee Dist., 69 Ark. 284, 286, 62 S.W. 902, 903 (1901) (improvement districts distinguished from cities)
• Pate v. Piney Sewer Imp. Dist. No. 32, 15 Ark. App. 231, 233, 691 S.W.2d 882, 883 (1985) (factors for assessing benefits)
• Orsini v. State, 13 S.W.3d 167, 170 (Ark. 2000) (FOIA presumption of disclosure)
• Gannett River States Pub. v. Arkansas Indus. Dev. Comm's, 303 Ark. 684, 799 S.W.2d 543 (1990) (FOIA burden on custodian)

Source

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

Official summary

Are property owners who are subject to annual levies of the Assessment of Benefits (AOB) in a Property Owners Suburban Improvement District (SID) allowed to pay off the entire remaining principle amount of the AOB at any given time? Alternatively, is the SID allowed to refuse to accept a pay-off of the AOB and instead continue to levy an annual portion of the AOB plus interest? Q2) Does Arkansas law allow a SID to charge a monthly utility improvement fee as part of the water and sewer user bill for improvements to utilities without reducing the principal AOB? Are there any limitations to the rates a SID can charge for utilities such as water? At what point does a "user fee" (which is permissible) become a "tax" (which is not permissible)? Q3) Is a SID bound in all respects to the Arkansas Freedom of Information Act? More specifically, is a SID required to turn over a district voter list upon request? Q4) Does a SID have the legal authority to waive the AOB on parcels owned by select private entities? Q5) Does a SID have the legal authority to spend AOB money on marketing lots? What distinguishes advertising from marketing, if anything? Are in-kind contributions considered an advertising and/or marketing expense? Q6) Does a SID have the legal authority to make or allow lot line adjustments? Q7) Does a SID have the legal authority to "re-zone" or "reclassify" lots within the SID? Q8) Does Holiday Island Suburban Improvement District (HISID) have the legal authority to collect their own AOBs or should collection be handled by the Carroll County Collector's office? Can a SID collecting their own AOB charge a late fee penalty? If so, is that penalty capped by any law, usury cap, or reasonableness standard? RESPONSE: I cannot address Q's 2 and 5, relating to issues arising under the settlement agreement between HISID and property owners. Q1) It seems that SID assessments may be prepaid in at least some instances, but I cannot answer the factual question whether property owners in a particular SID may pay off the entire AOB at any given time. Q3) An SID is an agent of the State and subject to the FOIA. But I have no specific information regarding the voter list in question and therefore cannot definitively determine whether it is a nonexempt public record. Q4) An SID likely lacks authority to waive the AOB levy if the order providing for the levy of the tax has been entered. Q6&7) An SID does not actually adjust lot lines or re-zone or re-classify property like a city. But it may well be appropriate, if not necessary, for the SID to consider lot sizes and different use classifications when assessing or equalizing benefits accruing to the real property within the district by reason of the improvements or facilities. Q8) Ordinarily, the county collector is responsible for collecting SID assessments. An SID can choose, however, to enforce collection of delinquent assessments through court proceedings. And a 25% penalty will apply in that case.

Original opinion text

Opinion No. 2015-143
April 14, 2016
STATE OF ARKANSAS
ATTORNEY GENERAL
LESLIE RUTLEDGE
The Honorable Jeremy Hutchinson
State Senator
201 East North Street
Benton, AR 72015
Dear Senator Hutchinson:
I am writing in response to your request for my opinion on a number of questions
concerning the Holiday Island Suburban Improvement District ("HISID"). Your
request sets out eight issues and related questions.
Before restating your questions, I must note that I cannot address those relating to
issues arising under the settlement agreement between the HISID and property
owners. You reference this agreement in connection with questions regarding
rates and fees and certain expenditures. I cannot comment on questions that may
depend to some extent on interpretation of a judicially-approved settlement
agreement. Such questions are outside the scope of an Attorney General's
opinion. I must therefore respectfully decline to opine on the second and fifth
issues identified in your request and the questions related thereto.
The other questions you have posed are as follows:
(1) Are property owners who are subject to annual levies of the
Assessment of Benefits (AOB) in a Property Owners Suburban
Improvement District ("SID") allowed to pay off the entire
remaining principle amount of the AOB at any given time?
Alternatively, is the SID allowed to refuse to accept a pay-off of the
AOB and instead continue to levy an annual portion of the AOB plus
interest?
(3) Is a SID bound in all respects to the Arkansas Freedom of
Information Act? More specifically, is a SID required to turn over a
district voter list upon request?
(4) Does a SID have the legal authority to waive the AOB levy
on parcels owned by select private entities?
(6) Does a SID have the legal authority to make or allow lot line
adjustments?
(7) Does a SID have the legal authority to "re-zone" or
"reclassify" lots within the SID?
(8) Does HISID have the legal authority to collect [its] own
AOBs or should collection be handled by the Carroll County
Collector's office? Can a SID collecting [its] own AOB charge a
late fee penalty? If so, is that penalty capped by any law, usury cap,
or reasonableness standard?
RESPONSE
Question 1: Are property owners who are subject to annual levies of the
Assessment of Benefits (AOB) in a Property Owners Suburban Improvement
District ("SID") allowed to pay off the entire remaining principle amount of the
AOB at any given time? Alternatively, is the SID allowed to refuse to accept a
pay-off of the AOB and instead continue to levy an annual portion of the AOB
plus interest?
The prepayment of SID assessments is expressly contemplated by the statute that
governs the extension and collection of SID assessments:
For his or her services in making the collections, including
prepayments, the collector shall receive a commission of one and
one-half percent (1.5%). In the case of prepayments, the maximum
commission shall be the lesser of one and one-half percent (1.5%) or
fifty dollars ($50.00).
The statute does not, however, further address the matter of prepayments. Thus,
while it seems that SID assessments may be prepaid in at least some instances, I
cannot answer the general question whether property owners in an SID may pay
off the entire AOB at any given time. That question, and the related question
whether an SID can refuse such a pay-off and instead continue levying the
assessment annually, would require references to the particular SID and the
specific facts and circumstances surrounding the financing of its improvements
and operations.
Question 3: Is a SID bound in all respects to the Arkansas Freedom of
Information Act? More specifically, is a SID required to turn over a district
voter list upon request?
You state by way of background for this question that the HISID has received a
request for a list of the voters in the district and has refused to turn over the list.
As "agents of the state" supported through statutorily-authorized assessments,
suburban improvement districts are plainly subject to the FOIA.
The FOIA provides that unless otherwise specifically provided by law, all "public
records" and meetings shall be open to the public. In response to your particular
question regarding a "district voter list," therefore, the threshold question is
whether the list fits within the FOIA's definition of "public records." If it does,
then it is open to public inspection and copying unless covered by a specific
exemption in the FOIA or some other pertinent law.
The FOIA defines "public records" broadly to include "writings . . . or data
compilations in any medium required by law to be kept or otherwise kept and that
constitute a record of the performance or lack of performance of official
functions . . . ." The definition further provides that "[a]ll records maintained in
public offices or by public employees within the scope of their employment shall
be presumed to be public records."
I have no specific information regarding the voter list in question. But I take it
that the list is in fact kept by the SID, perhaps because each realty owner is
entitled to cast one vote on all questions submitted to the owners of realty in the
district. If the SID in fact keeps the list for voting purposes, then it seems clear
the list reflects the performance or lack of performance of official functions and
thus constitutes a "public record" under the above definition. It follows that the
list is likely subject to disclosure under the FOIA, unless the FOIA itself or some
other law specifically exempts it from disclosure.
There is a broad presumption in favor of disclosure of "public records" under the
FOIA, and the burden of proving exemptions rests with the custodian claiming an
exemption. My research has yielded no specific exemption mandating
nondisclosure of a list of voters of an SID. The list may therefore simply be a
"public record" subject to no specific exemption from disclosure, and thus subject
to inspection and copying under the FOIA. But I cannot definitively opine to that
effect without at least considering the basis upon which HISID claims it is exempt.
The initial decision whether to release records in response to a FOIA request rests
with the custodian, following a review of the particular record(s). The custodian
for HISID clearly bears the burden of proving an exemption, but I have been
provided no information regarding the list at issue; and there may be additional
facts, outside the limited information before me, to be considered in determining
whether a "district voter list" falls within an exemption.
Question 4: Does a SID have the legal authority to waive the AOB levy on
parcels owned by select private entities?
The Code section governing the levy of an SID assessment of benefits is
unambiguous in declaring that the tax assessed upon the real property of the
district "shall be a lien upon all the real property in the district from the time it is
levied . . . and shall continue until the assessment, with any penalty and costs that
may accrue thereon, shall have been paid." The Arkansas Supreme Court has
held, with regard to a virtually identical statute, that an improvement district
lacks the authority to release its lien except upon full payment of all assessments
levied against the property.
It is therefore my opinion in response to the above question that an SID likely
lacks authority to waive the AOB levy if the order providing for the levy of the tax
has been entered. The unpaid assessment will have created a lien against all
property in the SID at that point, which lien continues until the assessment is paid
in full.
Question 6: Does a SID have the legal authority to make or allow lot line
adjustments?
Question 7: Does a SID have the legal authority to "re-zone" or "reclassify"
lots within the SID?
I will address these questions together because I believe they call for essentially
the same analysis. Regarding Question 6, you report that the HISID has "allowed
property owners to buy adjoining lots and move the lot line of their property," and
that this has created useless leftover parcels "while property owners with extended
lot lines would still be paying only one AOB at the same rate of a regular sized
lot." As for Question 7, you state that HISID has "voted to rezone lots for various
reasons" and that "HISID's ability to rezone could affect the amount of AOB a
property owner has to pay" because "the amount of AOB on a lot is tied to that
lot's zoning classification."
I must note as an initial matter that, unlike a city, an SID does not actually engage
in the regulation of lot lines or the zoning of property. However, the size or area
of lots and the way property is zoned or classified are undoubtedly proper
considerations in connection with the assessment or reassessment of benefits, and
the equalization of such, in an SID. The Arkansas Supreme Court has identified
the "proper basis for the assessment of value" in an SID as follows:
[T]he proper basis for assessment of value for benefits to accrue to
each piece of property is to consider the value, area, location of the
property, the improvements thereon, its relation to other properties,
and every other element which might go to make up the sum total of
benefits.
In response to your particular questions, therefore, an SID does not actually adjust
lot lines or re-zone or re-classify property like a city. But it may well be
appropriate, if not necessary, for the SID to consider lot sizes and different use
classifications when assessing or equalizing benefits accruing to the real property
within the district by reason of the improvements or facilities.
Question 8: Does HISID have the legal authority to collect [its] own AOBs or
should collection be handled by the Carroll County Collector's office? Can a
SID collecting [its] own AOB charge a late fee penalty? If so, is that penalty
capped by any law, usury cap, or reasonableness standard?
You note in presenting this question that "HISID is not over 5,000 acres, yet they
have been collecting their own AOB." You also state that HISID "charge[s]
delinquent property owners who pay the AOB levy a late fee of 25%, even if the
payment is only one day late."
Ordinarily, the county collector is responsible for collecting SID assessments:
When the board of commissioners in a suburban improvement
district shall make the levy of taxes, it shall be the duty of the
assessor to extend the amount levied and set it opposite each benefit
assessed in a column marked "Annual Collection" . . . .
It shall then be the duty of the tax collector of the county to collect
each year the taxes extended upon the books along with the other
taxes until the entire levy is exhausted.
With regard, therefore, to HISID, the county tax collector should be collecting the
assessments if the area of this SID in fact is not at least 5,000 acres.
There is an exception, however, for delinquencies. While delinquent assessments
in SIDs are normally certified to the Commissioner of State Lands, an SID can
choose to enforce collection of delinquent assessments through court
proceedings. In that case, Ark. Code Ann. § 14-94-122 will govern the
procedural requirements. The court's judgment in such a case will include a
penalty, interest, and costs:
Delinquencies. If any taxes levied by the board under this chapter
are not paid at maturity, the county tax collector shall not embrace
the taxes in the taxes for which he shall sell the lands, but shall
report the delinquencies to the board of the district, which shall add
to the amount of the tax a penalty of twenty-five percent (25%).
The board shall enforce the collection by chancery proceedings in
the chancery court of the county in which the lands are situated
having chancery jurisdiction. The court shall give judgment against
the lands for the amount of the delinquent taxes, and the penalty of
twenty-five percent (25%) and interest thereon, from the end of the
sixty (60) days allowed for the collection thereof, at the rate of six
percent (6%) per annum, and all costs of the proceedings.
Thus, in response to the above question as regards a penalty, the 25% penalty will
apply if the SID has elected to enforce collection of delinquencies through court
proceedings.
Sincerely,
LESLIE RUTLEDGE
Attorney General