After Amendment 97, can an Arkansas city museum or A&P Commission spend public money on private economic-development projects?
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This page answers the general question as of 2017. Ezel answers yours: what it means for your facts, under current Arkansas law, with citations.
Plain-English summary
Representative Bob Johnson and Senator Jane English asked whether Amendment 97, which voters approved as Issue 3 in 2016, allowed entities funded by city revenues (such as a museum or an Advertising and Promotion Commission) to appropriate money to private corporations or individuals for economic-development projects or services.
Attorney General Leslie Rutledge concluded that, as a general matter, yes, the new authority in Article 12, Section 5(b) extends to local governmental agencies that serve as arms of a municipal corporation. The reasoning: before Amendment 97, the Arkansas Supreme Court had held that the original Article 12 § 5 prohibition on appropriating money to private entities applied to municipal arms (such as A&P Commissions and waterworks commissions), not just to the city itself. By symmetry, the new exception in subsection (b) extends to those same arms.
But the AG warned the answer was incomplete. Whether a specific agency could legally appropriate money to a private entity for economic development depended on two further questions: (1) is funding economic-development projects or services (as defined in Section 5(c)) within the agency's statutory mandate? and (2) are the particular funds the agency holds permitted to be used for that purpose? Those questions depend on the statutes governing each individual agency. The AG declined to answer for any specific entity.
The second question, whether the General Assembly could amend Section 5(b) by a three-fourths vote under Section 5(d) to permit such appropriations, was moot in light of the answer to the first.
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 did Amendment 97 (Issue 3, 2016) actually change?
A: Before Amendment 97, Article 12 § 5 broadly forbade any county, city, town, or municipal corporation from "obtain[ing] or appropriat[ing] money for, or loan[ing] its credit to, any corporation, association, institution or individual." That bar was enforced by the Arkansas Supreme Court in Halbert v. Helena-West Helena Industrial Dev. Corp. (1956). Amendment 97 added subsection (b), allowing such appropriations specifically to finance "economic development projects" or to provide "economic development services," both as defined in subsection (c).
Q: What counts as an "economic development project"?
A: Subsection (c) defines projects to include the land, buildings, equipment, infrastructure, and improvements suitable for: manufacturing/production/industrial facilities, research/technology/development facilities, recycling facilities, distribution centers, call centers, warehouse facilities, job-training facilities, and regional or national corporate headquarters facilities.
Q: What counts as "economic development services"?
A: Planning, marketing, and strategic advice for job recruitment, development, retention, and expansion; supervision and operation of industrial parks; and negotiation of contracts for the sale or lease of industrial parks.
Q: Why did the AG say agencies can use Section 5(b) authority?
A: Because the original prohibition was already understood to bind not just the city itself but its arms. The AG reasoned that if the prohibition extended to arms of the municipality, the carve-out should extend to them too. Otherwise the new authority would be artificially limited.
Q: Does that mean any A&P Commission or museum can fund any economic-development project?
A: No. The AG was careful: a constitutional permission is not a statutory mandate. Whether a particular A&P Commission, museum, or other agency may fund economic development depends on (1) whether economic development is among the purposes the agency was created to pursue and (2) whether the specific revenue source is restricted to other uses. A&P Commissions, for instance, are funded by a specific local tax with statutory restrictions on its use under Ark. Code Ann. ch. 26-75.
Q: What is the distinction between a "local governmental agency" and a "private entity that receives public funds"?
A: A footnote in the opinion drew this line. An entity does not become a local governmental agency just because it receives public funds. A museum that the city established is a governmental agency; a private nonprofit that operates a museum under a city contract is not. A&P Commissions are governmental agencies because the statute (§ 26-75-605(a)) requires that "any municipality levying a tax pursuant to this subchapter shall create by ordinance a municipal advertising and promotion commission." That distinction matters: arms of the municipality benefit from the Amendment 97 authority; private contractors do not.
Q: Could the General Assembly tweak Amendment 97 to broaden it?
A: The legislators asked about this as a backup question (Section 5(d) allows the General Assembly to amend subsection (b) by a three-fourths vote). The AG marked it moot because the answer to the first question made it unnecessary.
Background and statutory framework
Article 12 § 5 of the Arkansas Constitution is the state's version of a "lending of credit" clause, which exists in roughly 40 state constitutions to prevent public funds from underwriting private enterprise. Prior to Amendment 97, Arkansas had one of the strictest such clauses: a categorical prohibition on appropriations to "any corporation, association, institution or individual." The Arkansas Supreme Court enforced that broadly in Halbert, even rejecting indirect mechanisms like buying memberships in industrial development corporations. The court extended the prohibition to municipal arms in dictum in Adams v. Bryant and confirmed it in Arkansas Uniform & Linen Supply Co. v. Institutional Services Corp.
Voters approved Amendment 97 in 2016 to enable cities and counties to compete for economic-development projects. The amendment's defined categories (manufacturing, R&D, distribution, call centers, headquarters) reflect the kinds of investments most commonly the subject of state and local incentives.
The opinion's central question was structural: does the new economic-development authority piggyback on the same "arms of the municipality" doctrine that had governed the prohibition? The AG read the constitution coherently and answered yes.
Citations and references
Constitution and statutes:
- Ark. Const. art. 12 § 5 (as amended by Amendment 97)
- Ark. Code Ann. § 26-75-605(a) (Advertising and Promotion Commission creation)
- Ark. Code Ann. ch. 26-75 (A&P Commission funding and use restrictions)
Cases:
- Halbert v. Helena-West Helena Industrial Dev. Corp., 226 Ark. 620, 291 S.W.2d 802 (1956) (Ark. Supreme Court)
- Arkansas Uniform & Linen Supply Co. v. Institutional Services Corp., 287 Ark. 370, 700 S.W.2d 358 (1985) (Ark. Supreme Court)
- Adams v. Bryant, 236 Ark. 859, 370 S.W.2d 432 (1963) (Ark. Supreme Court)
- Gazaway v. Greene County Equalization Bd., 314 Ark. 596, 864 S.W.2d 233 (1993) (Ark. Supreme Court)
- Weiss v. McFadden, 353 Ark. 868, 120 S.W.3d 545 (2003) (Ark. Supreme Court, plain-language statutory interpretation)
Source
Original opinion text
Opinion No. 2017-003
May 4, 2017
STATE OF ARKANSAS
ATTORNEY GENERAL
LESLIE RUTLEDGE
The Honorable Bob Johnson
State Representative
511 North First, Suite 8
Jacksonville, AR 72076-4134
The Honorable Jane English
State Senator
3 Great Oak Court
North Little Rock, AR 72116
Dear Representative Johnson and Senator English:
This is in response to your request for my opinion on the following questions concerning economic development at the municipal level:
1) Arkansas Constitution, Article 12, § 5, as amended by Issue 3 at the 2016 general election, provides that a county, city, town, or other municipal corporation may obtain or appropriate money for a corporation, association, institution, or individual to finance economic development projects or provide economic development services. Does this language permit an entity funded by city revenues such as a museum or an Advertising and Promotion Commission to obtain or appropriate money to a corporation, association, institution, or individual for the purpose of financing economic development projects or providing economic development services?
2) If the answer to Question 1 is "no," may the General Assembly amend subsection (b) of Article 12, § 5 of the Arkansas Constitution with a three-fourths vote under subsection (d) of Article 12, § 5, to permit an entity funded by city revenues to obtain or appropriate money to a corporation, association, institution, or individual for the purpose of financing economic development projects or providing economic development services?
RESPONSE
It is my opinion in response to your first question that a municipal corporation's authority under Article 12, Section 5(b) of the Arkansas Constitution to obtain or appropriate money for economic development projects or services extends, as a general matter, to a local governmental agency that serves as an arm of the municipal corporation. The question will remain, however, whether financing economic development projects or providing economic development services (as those projects and services are defined by Article 12, Section 5(b)), is a proper function of a particular governmental agency, or a proper use of any funds that may be credited to or used by the agency. The answer to the latter question will depend upon both the project or services to be funded and any statutes or other governing authority pertaining to the local governmental agency. I am therefore unable to answer your first question as regards any particular entity.
Your second question is moot in light of my response to your first question.
DISCUSSION
Question 1: Does [Ark. Const. art. 12, § 5(b)] permit an entity funded by city revenues such as a museum or an Advertising and Promotion Commission to obtain or appropriate money to a corporation, association, institution, or individual for the purpose of financing economic development projects or providing economic development services?
Prior to its recent amendment, Article 12, Section 5 of the Arkansas Constitution stated in relevant part that "[n]o county, city, town or other municipal corporation, shall . . . obtain or appropriate money for . . . any corporation, association, institution or individual." Because of its broad proscription against "obtain[ing]" or "appropriate[ing]" money for "any corporation, association, institution or individual," this provision has been interpreted to bar any and all contributions by municipal corporations to private entities or persons regardless of the purposes served. The prohibition also applies to contributions by local governmental agencies that serve as arms of the municipal corporations.
As reflected in your question, Article 12, Section 5 was amended by Amendment 97 to the Arkansas Constitution. It now provides:
(a) No county, city, town or other municipal corporation, shall become a stockholder in any company, association, or corporation; or obtain or appropriate money for, or loan its credit to, any corporation, association, institution or individual.
(b) However, a county, city, town, or other municipal corporation may obtain or appropriate money for a corporation, association, institution, or individual to:
(1) Finance economic development projects; or
(2) Provide economic development services.
Amendment 97 defined "economic development projects" and "economic development services" as set forth in Article 12, Section 5(c). The same rules used to interpret statutes apply when interpreting the constitution. The primary rule of statutory interpretation is to read a statute as it is written. According to the plain language of Article 12, Section 5, as amended, a municipal corporation is authorized to "obtain or appropriate money for" a private entity or individual to finance certain projects or to provide certain services. Just as Article 12, Section 5's prohibition extends to a local governmental agency that serves as an arm of the municipal corporation, this authorization extends as well, in my opinion, to a local governmental agency. The municipal corporation in that case will, in effect, be "obtain[ing] or appropriat[ing]" money for the private entity or individual through the actions of its agency.
In my opinion, therefore, and as a general matter, a municipal corporation's authority under Article 12, Section 5(b) to obtain or appropriate money for economic development projects or services extends to a local governmental agency that serves as an arm of the municipal corporation. I cannot opine, however, regarding that constitutional provision's applicability to any specific local agency or any particular project. Such applicability in any given instance will depend upon both the project or services to be funded and any statutes or other governing authority pertaining to the local agency. I therefore cannot answer your first question as regards any particular entity.
Question 2: If the answer to Question 1 is "no," may the General Assembly amend subsection (b) of Article 12, § 5 of the Arkansas Constitution with a three-fourths vote under subsection (d) of Article 12, § 5, to permit an entity funded by city revenues to obtain or appropriate money to a corporation, association, institution, or individual for the purpose of financing economic development projects or providing economic development services?
My response to the previous question renders this question moot.
Sincerely,
LESLIE RUTLEDGE
Attorney General
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