Does an Arkansas county's no-interest line of credit to repair a road grader fall within the Amendment 78 short-term financing rules?

Plain-English summary

Senator Jimmy Hickey, Jr. asked the Attorney General about a 24-month no-interest line of credit Little River County had taken out with Cat Financial in 2015 to pay for rehabilitating a county road grader. The deal was for $164,400. He asked three questions: did the deal conflict with Amendment 78's limits; could a deal of that shape ever fall within Amendment 78's definition of "short-term financing"; and could "rebuilding" a road grader be treated as a covered "constructing or reconstructing" of tangible personal property.

Attorney General Leslie Rutledge declined to opine on Question 1, because that would have required interpreting the actual contract terms, which is not the AG's role. On Question 2 she answered "yes" in general: a county can enter into a no-interest line of credit, with the conditions and limits of Amendment 78 and its implementing legislation observed. On Question 3 she answered "likely no": the ordinary meaning of "constructing" is "to form by assembling or combining parts; to build," and equipment "repairs" do not naturally fit that definition. That said, she allowed that there might be facts not before her, such as how extensive the rebuild was, that could change the answer.

Currency note

This opinion was issued in 2019. 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

Amendment 78, adopted by Arkansas voters in 2000, allowed cities and counties to incur short-term debt, pledging general credit, for the acquisition, construction, installation, or renting of real and tangible personal property "having an expected useful life of more than one (1) year." The General Assembly enacted implementing legislation, the Local Government Short-Term Financing Obligations Act of 2001, codified at Ark. Code Ann. § 14-78-101 et seq.

Amendment 78 distinguishes between two related instruments:

• A short-term financing obligation is the underlying debt, defined as "a debt, a note, an installment purchase agreement, a lease, a lease-purchase contract, or any other similar agreement." It must mature within five years and must be authorized by ordinance.
• A short-term financing agreement, defined at Ark. Code Ann. § 14-78-102(9), is "any loan, line of credit, note purchase or security agreement, mortgage or other similar agreement … pursuant to which a short-term financing obligation is secured, sold, or otherwise provided for." This is the wrapper that makes the obligation possible.

The amendment provides that financing obligations "may bear interest": language the AG read to mean that interest is permitted but not required, leaving room for no-interest arrangements.

Why the AG read "constructing" narrowly

The opinion turned on a definitional question. Neither Amendment 78 nor the implementing Act defines "constructing." Under standard Arkansas statutory construction, the AG looked to the ordinary meaning, citing The American Heritage Dictionary: "to form by assembling or combining parts; [to] build." Senator Hickey had described the financed work as "grader repairs," and the materials accompanying the request likewise referred to "equipment repairs."

The opinion noted that this is not a controlling definition: only the legislature or the courts can supply that: but expressed the view that "[o]ne does not normally think of equipment repairs as 'constructing.'" The opinion left the door open: "There may be other facts involved in this process that I am unaware of and that might affect this analysis. That kind of fact-finding is beyond the scope of an opinion from this office."

Common questions

Can a county take out a no-interest loan under Amendment 78?

The opinion concluded that yes, a no-interest arrangement is permissible. Amendment 78 says financing obligations "may bear interest," which the AG read as permissive: the obligation may charge interest, but does not have to.

What kinds of projects does Amendment 78 short-term financing cover?

The amendment covers acquiring, constructing, installing, or renting real property or tangible personal property with an expected useful life of more than one year. Maintenance and repair are not on that list, and the AG treated rebuilding a road grader as repair, not "constructing."

What is the maximum term for an Amendment 78 obligation?

Five years. The amendment requires that the obligation mature within, or have a term not to exceed, five years.

Was the AG saying Little River County's deal was illegal?

No. The opinion expressly declined to interpret the specific contract. It addressed only the framework: the no-interest feature was not a problem in itself, but if the financed work was equipment repair rather than construction, Amendment 78 likely was not the right authority for it.

Citations

Arkansas Constitution Amendment 78, § 2; Article 12, § 4; Article 16, § 1; Ark. Code Ann. §§ 14-78-101 et seq., including § 14-78-102(9) and § 14-78-103.

Source

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

Original opinion text

Opinion No. 2018-080
January 4, 2019
STATE OF ARKANSAS
ATTORNEY GENERAL
LESLIE RUTLEDGE
The Honorable Jimmy Hickey, Jr.
State Senator
3216 East 35th Street
Texarkana, AR 71854
Dear Senator Hickey:
This is in response to your request for an opinion concerning the short-term financing obligations set forth in Arkansas Constitution Amendment 78, § 2, for the purpose of acquiring, construction, installing or renting real property or tangible property having an expected useful life of more than one year.

Your correspondence states that on January 27, 2015, Little River County entered into a 24-month, no-interest line of credit with Cat Financial in the amount of $164,400. As I understand it, the county entered into this credit agreement to finance the costs of the rehabilitation and repair of a county road grader. Your request further states that one of the terms of the agreement was that Cat Financial would not charge the county interest if the amount was paid in full within a certain period of time. In light of the above-referenced scenario, you have asked the following questions:

1) Would the transaction listed above conflict with Ark. Const. Amendment 78, § 2 limits on short-term financing obligations for the purpose of acquiring, constructing, installing or renting real property or tangible property having an expected useful life of more than one year?

2) Would the transaction listed above be the type of agreement that could fall within the definition of short-term financing in Ark. Const. Amendment 78, § 2?

3) Is the rebuilding of a road grader considered a type of constructing or reconstructing of tangible personal property, which would be eligible for the use of Amendment 78 short-term financing?

RESPONSE

I cannot answer your first question with respect to the specific agreement, as the construction of a contract is generally beyond the scope of an Attorney General's opinion. But the answer to your second question is, in my opinion, generally "yes." As to your third question, it is my opinion that the answer is likely "no."

DISCUSSION

Question 1: Would the transaction listed above conflict with Ark. Const. Amendment 78, § 2 limits on short-term financing obligations for the purpose of acquiring, constructing, installing or renting real property or tangible property having an expected useful life of more than one year?

Question 2: Would the transaction listed above be the type of agreement that could fall within the definition of short-term financing in Ark. Const. Amendment 78, § 2?

I cannot answer your first question with respect to the specific agreement between Little River County and Cat Financial as that would require me to interpret the contract between the county and the financing company. Construction of a contract is generally beyond the scope of an Attorney General's opinion. However, with respect to your second question, it is my opinion that Amendment 78, and particularly its implementing legislation, would allow, as a general matter, a county to enter into a no-interest line of credit as long as the purposes, conditions, and limitations of the amendment and the legislation are met.

Amendment 78, a legislatively proposed constitutional amendment adopted by Arkansas voters in 2000, provides in relevant part that cities and counties may incur short-term debt, pledging its general credit, for the acquisition, construction, installation, or renting of real and tangible personal property "having an expected useful life of more than one (1) year." Although Amendment 78 is self-executing, the legislature made various provisions for its implementation in the Local Government Short-Term Financing Obligations Act of 2001 ("the Act").

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." In addition, the financing obligations may bear interest, which clearly implies that the obligations do not have to bear interest.

Meanwhile, the Act 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[.]" The Act further provides that "[t]he ordinance authorizing the obligations may provide for execution by the chief executive officer of the issuer of a short-term financing agreement or agreements defining the rights of the owners of obligations…" These short-term financing agreements may, in relevant part, "contain … any other terms, covenants, and conditions that are deemed desirable."

Although the Act does not specifically mention the paying of interest with respect to the short-term financing agreement, I believe that the language of section 14-78-103 highlighted above allows a short-term financing agreement to contain a no-interest provision. Accordingly, and in my opinion, when Amendment 78 and the Act are read together as they must be, I believe that a county could enter into a no-interest line of credit, so long as the conditions, requirements, and limitations of Amendment 78 and the Act are followed.

Question 3: Is the rebuilding of a road grader considered a type of constructing or reconstructing of tangible personal property, which would be eligible for the use of Amendment 78 short-term financing?

In my opinion, the answer to this question is likely "no," although that is not entirely clear. Section 2 of Amendment 78, as well as section 14-78-103(a)(1) of the Code, states that cities and counties may take on short-term debt for the purpose of "acquiring, constructing, installing or renting real property or tangible personal property." Your question boils down to the definition of "constructing," and specifically whether that word can be applied to the reconditioning of tangible personal property. Neither Amendment 78 nor its implementing legislation defines the word "constructing," and this office cannot provide a controlling definition of a term where the legislature or the courts have not done so.

The first rule in considering the meaning and effect of a statute or a constitutional provision is to construe it just as it reads, giving the words their ordinary meaning and usually accepted meaning in common language. When the language of the statute is plain and unambiguous, there is no need to resort to rules of statutory construction. But when the meaning is not clear, courts look to the language of the statute, the subject matter, the object to be accomplished, the purpose to be served, the remedy provided, the legislative history, and other appropriate means that shed light on the subject.

In my view, the word "constructing," as it is used in Amendment 78 and section 14-78-103, is plain and unambiguous. The ordinary and usually accepted meaning in common language of the word "constructing" is to "form by assembling or combining parts; [to] build." In your opinion request, you specifically refer to the county's entering this agreement "for the purpose of grader repairs" (emphasis added). And the information accompanying your request clearly refers to the equipment repairs. One does not normally think of equipment repairs as "constructing."

There may be other facts involved in this process that I am unaware of and that might affect this analysis. That kind of fact-finding is beyond the scope of an opinion from this office. But absent those additional facts, I do not believe the process you have described constitutes "constructing."

LESLIE RUTLEDGE
Attorney General