Does an Arkansas county have to get quorum-court approval before signing an ordinary office-copier lease?

Plain-English summary

Senator Uvalde Lindsey asked whether ordinary copier leases held by an Arkansas county were "short-term financing obligations" under Amendment 78 of the Arkansas Constitution and the Local Government Short-Term Financing Obligations Act of 2001. The practical question was whether the quorum court had to pass an approving ordinance for routine office-equipment rentals.

Attorney General Leslie Rutledge concluded that the answer was "not entirely clear" because Amendment 78's definition of "short-term financing obligations" lists "lease" alongside notes, debts, and lease-purchase contracts. Read in isolation, that wording could capture a copier lease. Read in the context of the whole amendment and its enabling statute, however, the AG concluded a reviewing court would probably treat ordinary office-equipment rentals as outside the scope of Amendment 78. Amendment 78's tax-exempt, negotiable-instrument, capital-improvement framework was a poor fit for a simple monthly copier rental.

The opinion stopped short of a categorical answer. It said the specific terms of any given lease still had to be reviewed by local counsel.

Currency note

This opinion was issued in 2017. 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.

Common questions

Q: What is Amendment 78?
A: An amendment to the Arkansas Constitution that lets cities and counties (1) form redevelopment districts and issue bonds for projects within them, and (2) incur short-term debt of up to five years to acquire, construct, install, or rent property with a useful life of more than one year. Section 1 governs redevelopment districts; section 2 governs the short-term financing instruments.

Q: Why did Amendment 78's wording even raise the question?
A: Section 2(b)(1) defines "short-term financing obligations" as "a debt, a note, an installment purchase agreement, a lease, a lease-purchase contract, or any other similar agreement." The word "lease" was the trigger. Senator Lindsey wanted to know whether the constitutional definition captured a routine office-equipment rental.

Q: Why did the AG think ordinary copier leases probably fell outside Amendment 78?
A: Three contextual cues. First, Amendment 78's section 1 (redevelopment districts) and section 2 (short-term financing) were intended to work together to expand municipal capital-improvement financing. Second, the implementing act treats the obligations like bonds: they have "proceeds," they are "negotiable instruments," and they are exempt from state, county, and local taxation. Those features fit municipal debt, not a monthly equipment rental. Third, the act distinguishes the obligation itself from a separate "short-term financing agreement" that is the security mechanism, again pointing to a structured-debt instrument rather than a vendor lease.

Q: Did any Arkansas court already address this?
A: Only obliquely. The Arkansas Supreme Court mentioned Amendment 78 in Town of Lead Hill v. Ozark Mountain Regional Public Water Authority (2015), holding that a 40-year water-purchase contract was "not a short-term financing obligation as defined by [A]mendment 78." The court recited the definition but did not parse it. The AG read the case as further support for a narrow reading of "lease."

Q: So could a county skip quorum-court approval entirely on a copier lease?
A: Not necessarily. The opinion only addressed Amendment 78. County contracting authority is also subject to other statutes, ordinances, and procurement rules that may require quorum-court action regardless of Amendment 78. The opinion expressly directed local counsel to scrutinize the specific lease terms.

Q: When could a copier lease cross into Amendment 78 territory?
A: The opinion did not draw a bright line, but the implicit signals are: terms that look like financed debt (interest charges, lease-purchase or balloon payments, proceeds-based structures) edge toward Amendment 78. A flat monthly rental for use of equipment with a return-at-end clause looks like an ordinary lease.

Background and statutory framework

Amendment 78 was added to the Arkansas Constitution to expand the financing tools available to cities and counties. Before the amendment, Article 12, section 4 and Article 16, section 1 imposed strict debt limitations on municipal corporations. Amendment 78 created a narrow exception: short-term (up to five-year) financing for tangible property with a useful life of over one year, approved by ordinance.

The Local Government Short-Term Financing Obligations Act of 2001 implements the amendment. The act treats these obligations as a structured debt product: it defines proceeds, makes the instruments negotiable, exempts them from taxation, and distinguishes the obligation from any separate security agreement. The cumulative picture, as the AG read it, is that the General Assembly was authorizing a kind of municipal mini-bond, not regulating ordinary vendor leases.

The Arkansas Supreme Court has touched the amendment only once. In Town of Lead Hill, the court rejected an Amendment 78 challenge to a long-term water-purchase contract on the threshold ground that the contract was not a "short-term financing obligation" at all. The case offers no extended analysis but, taken together with the statutory context, the AG read it as endorsing a narrow scope.

Citations and references

Statutes and constitution:

• Ark. Const. amend. 78
• Ark. Code Ann. §§ 14-78-101 to 14-78-110 (Local Government Short-Term Financing Obligations Act of 2001)

Cases:

• Town of Lead Hill v. Ozark Mt. Reg'l Pub. Water Auth., 2015 Ark. 360, 472 S.W.3d 118 (Ark. Supreme Court, holding 40-year water-purchase contract was not an Amendment 78 short-term financing obligation)
• Green v. Mills, 339 Ark. 200, 4 S.W.3d 493 (1999) (Ark. Supreme Court, statutory-construction context rule)
• Berry v. Gordon, 237 Ark. 547, 376 S.W.2d 279 (1964) (Ark. Supreme Court, in pari materia rule)
• Fiser v. Clayton, 221 Ark. 528, 254 S.W.2d 315 (1953) (Ark. Supreme Court, whole-statute construction)
• Bailey v. Abington, 201 Ark. 1072, 148 S.W.2d 176 (1941) (Ark. Supreme Court, applying statutory rules of construction to constitutional provisions)

Source

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

Original opinion text

Opinion No. 2016-128
April 25, 2017

STATE OF ARKANSAS
ATTORNEY GENERAL
LESLIE RUTLEDGE

The Honorable Uvalde Lindsey
State Senator
2257 East Gentle Oaks Lane
Fayetteville, AR 72703-6142

Dear Senator Lindsey:

This is in response to your request for an opinion on copier leases held by county governments. Your correspondence states that it is your understanding that a county in Arkansas has several copier leases, but has not required the quorum court to approve any of them by ordinance. In light of this understanding, you have posed the following question:

Are ordinary copier leases "short-term financing obligations" as contemplated by Amendment 78 and Ark. Code Ann. § 14-78-101, et seq.?

RESPONSE

The answer to this question is not entirely clear, given the definition of "short-term financing obligations" in Amendment 78. However, when looking at Amendment 78 and its supplementing legislation, the Local Government Short-Term Financing Obligations Act of 2001, as a whole, I do not believe a reviewing court would view a typical contract for the renting of office equipment as the type of interest-bearing debt obligations for capital improvements contemplated by that body of law. But the terms of a specific lease agreement would need to be reviewed and analyzed by local counsel to definitively assess Amendment 78's application to that agreement.

DISCUSSION

Amendment 78 enables cities and counties to form redevelopment districts to help finance redevelopment projects within those districts, and to incur short-term debt to raise funds to acquire, construct, install, or rent real and tangible personal property "having an expected useful life of more than one (1) year." The amendment, which amended the constitutional debt limitations under Article 12, section 4 and Article 16, section 1, refers to the debt instruments as "short-term financing obligations," defined as "a debt, a note, an installment purchase agreement, a lease, a lease-purchase contract, or any other similar agreement . . . ." These debt instruments, which must mature within, or have a term not to exceed, five years, must be approved by ordinance of the governing body "specifying the principal amount of the obligations to be issued, the purpose or purposes for which the obligations are to be issued, and provisions with respect to the obligations." Obviously, it is the use of the word "lease" in the above definition that has prompted your question, the answer to which is not self-evidently clear.

The rules of construction for statutes also apply when interpreting constitutional provisions. In construing statutes, the courts look to the language under discussion in the context of the statute as a whole, with similar parts considered in pari materia, rather than looking merely to isolated words or sections. The meaning reflected by the statute as a whole should take precedence over any meaning that may be reflected by isolated words or sections.

When looking at Amendment 78 in its full context, although this is not entirely free from doubt, it appears that its two sections were intended to work in tandem. As noted above, section 1 permits counties and municipalities to form redevelopment districts and to issue bonds to help finance redevelopment projects within these districts. Section 2, meanwhile, gives counties and municipalities a new way of raising funds by enabling them to incur short-term (no longer than five years) debt and using general or road-fund revenues to pay off the debt.

When both sections are read together in pari materia and the amendment is considered as a whole, it appears that the short-term financing authority given municipalities and counties by section 2 was intended to broaden "the constitutionally permissible range of financing options for making public improvements." This impression is buttressed by the language in section 3:

The authority conferred by this amendment shall be in addition to the authority of municipalities and counties to issue bonds and other debt obligations pursuant to Amendments 62, 65, and 72, and other provisions of the Constitution and laws of the state.

That the short-term financing obligations authorized by Amendment 78 likely do not encompass the type of lease agreement suggested by your question is further underscored by the language in the Local Government Short-Term Financing Obligations Act of 2001. That act speaks of the obligations, inter alia, as having "proceeds" and as being "negotiable instruments," and provides that the obligations and any interest thereon are exempt from "all" state, county, and local taxation, as municipal bonds would be. These would not appear to be the attributes of a simple rental agreement. Moreover, the act clearly distinguishes between the short-term financing obligations under Amendment 78 and a short-term financing agreement, which is defined as any loan, line of credit, note purchase or security agreement, mortgage or other similar agreement, "other than the short-term financing obligation itself, pursuant to which a short-term financing obligation is secured, sold, or otherwise provided for[.]" Thus, the obligations themselves and the proceeds therefrom provide the security for the short-term financing agreements contemplated by the act.

Amendment 78, and specifically the definition of short-term financing obligations, has not been the subject of much judicial scrutiny or analysis. In the only reported case touching upon Amendment 78, the Supreme Court quoted that definition in an opinion settling a contractual dispute between a town and its water supplier. The Court rejected the town's argument that its 40-year contract to purchase water, paid for by the town's water customers, violated the five-year limitation under Amendment 78. The Court, reciting but not undertaking an analysis of the definition, simply stated that the town's contract to purchase water was "not a short-term financing obligation as defined by [A]mendment 78." Absent additional judicial refinement, a court may similarly conclude that a simple rental contract for an office copier is not the kind of short-term financing obligation contemplated by Amendment 78, depending on the terms of the agreement.

In sum, it appears, when looking at this body of law as a whole, that a rental agreement for office copiers would not be the sort of short-term financing obligation contemplated by Amendment 78 or the Local Government Short-Term Financing Obligations Act of 2001. Judicial clarification, however, would be beneficial.

Additionally, the terms of any agreement would need to be scrutinized by local counsel to definitely determine whether a specific agreement would meet Amendment 78's definition of a short-term financing obligation. Such scrutiny is beyond the scope of an Attorney General's opinion.

Sincerely,

LESLIE RUTLEDGE
Attorney General