If an Arkansas city overpaid an employee, can the city council just decide not to chase the money back?

Plain-English summary

A first-class Arkansas city reportedly overpaid accumulated sick leave to several retiring employees. It had requested repayment, but its personnel committee was considering whether to pursue collection. Senator Kim Hammer asked whether the council could decide not to collect and whether that decision would defend the city against an illegal-exaction suit.

The Attorney General said the Arkansas Code imposed no express duty on a city to recover an overpayment. The city therefore had discretion to choose a course of action, ideally with its own legal counsel. But a taxpayer could still sue under Arkansas Constitution article 16, section 13 to seek recovery of wrongly spent public funds. The city’s noncollection decision was not, standing alone, a defense. The AG added that the city’s reasons for not pursuing collection might be relevant to a court’s consideration of all the circumstances. A court would decide whether the facts and law supported an illegal-exaction remedy and what remedy was appropriate.

Footnote 5 cited Burke v. Elmore as an example of a court ordering a refund of health-insurance benefits paid under an ordinance the city lacked authority to enact. This opinion did not decide whether the sick-leave payments at issue were unlawful or whether these retirees would have to repay them.

Currency note

This opinion was issued in 2021. 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

Did the city have to sue to recover the overpayment? No. The AG said the Arkansas Code contained no express requirement for a city to seek recovery of an overpayment of city funds.

Would a council vote not to collect defeat a taxpayer suit? No, not by itself. The AG said taxpayers retained their constitutional illegal-exaction action. The city’s reasons for declining collection could still be relevant to the court’s assessment of the facts.

Who decided whether taxpayers obtained a remedy? A court of competent jurisdiction, applying the law to the particular facts and circumstances. The AG did not decide whether the reported sick-leave overpayments met that test.

Why did the opinion cite Burke v. Elmore?
Footnote 5 cited it as an example of a refund order involving benefits paid under an ordinance the city had no authority to enact. The AG did not say its facts controlled the sick-leave matter.

Background and statutory framework

Arkansas Constitution article 16, section 13 gave citizens an illegal-exaction action concerning misuse of public funds. The AG cited Nelson v. Petroleum Co. for the provision’s broad reach and Samples v. Grady for its self-executing character. The city’s statutory freedom not to pursue collection did not extinguish that taxpayer action; the court could consider the city’s reasons and other circumstances in deciding relief.

Citations

• Ark. Const. art. 16, § 13
• Nelson v. Petroleum Co., 242 Ark. 273, 413 S.W.2d 46 (1967)
• Samples v. Grady, 207 Ark. 724, 182 S.W.2d 875 (1944)
• Burke v. Elmore, 341 Ark. 129, 14 S.W.3d 872 (2000) (footnote 5)

Source

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

Original opinion text

STATE OF ARKANSAS
Tue Attorney GENERAL
Lesuir RutLepGe

Opinion No. 2020-058

April 15, 2021

The Honorable Kim D. Hammer
State Senator

1201 Military Road PMB 285
Benton, AR 72015

Dear Senator Hammer:
This is in response to your request for an opinion on the following questions:

1) Does a City Council have the discretion to not legally pursue collection of a debt obligation against an individual or entity if the City Council has articulated reasons for not doing so, even if the debt arose from an unlawful payment of taxpayer funds?

2) Should a City Council determine that a debt obligation from an unlawful payment should not be pursued for collection for reasons it has articulated, is that determination a defense in an illegal exaction lawsuit brought over the City’s underlying unlawful payment? In other words, who has the ultimate decision-making authority to determine whether or not the collection of a City debt matter should be pursued, the courts or the legislative branch of city government?

The factual background provided in your correspondence indicates that these questions concern a miscalculation and consequent overpayment of accumulated sick leave to several individuals at the time of their retirement from a city of the first class. The city reportedly has requested repayment of the funds, but the matter has not been resolved and the city’s personnel committee is trying to determine the city’s course of action regarding the overpayment.

323 CENTER STREET, SUITE 200 * LITTLE ROCK, ARKANSAS 72201 TELEPHONE (501) 682-2007 * FAX (501) 682-8084 INTERNET WEBSITE * http://www.ag.state.ar.us/

The Honorable Kim D. Hammer
State Senator

Opinion No. 2020-058

Page 2

RESPONSE

With regard to your first question, a city is not required by law to seek recovery of an overpayment of city funds such as this. The city, therefore, has ‘‘discretion” in the sense that it can decide on a course of action, ideally in consultation with its own legal counsel. However, as explained further below in response to your second question, a taxpayer has the right to seek recovery of funds wrongly expended, regardless of whether the city has decided to pursue collection. The court in that case will make a determination based upon the particular facts and circumstances and will effect appropriate remedies.

DISCUSSION

Question 1: Does a City Council have the discretion to not legally pursue collection of a debt obligation against an individual or entity if the City Council has articulated reasons for not doing so, even if the debt arose from an unlawful payment of taxpayer funds?

The Arkansas Code contains no express requirement that a city must seek recovery of an overpayment of city funds.' The city, therefore, has “discretion” in the sense that it can decide on a course of action, ideally in consultation with its own legal counsel.

Question 2: Should a City Council determine that a debt obligation from an unlawful payment should not be pursued for collection for reasons it has articulated, is that determination a defense in an illegal exaction lawsuit brought over the City’s underlying unlawful payment? In other words, who has the ultimate decision-making authority to determine whether or not the collection of a City debt matter should be pursued, the courts or the legislative branch of city government?

The Arkansas Constitution gives taxpayers the right to seck recovery of unlawfully-expended city funds:

' See Op. Att’y Gen. 2000-199 (stating, in response to the question whether a city is required to seek recovery of unlawful payments or merely permitted to seek recovery, that “[t]here is no explicit requirement that a city seek the recovery of unlawfully paid city funds.”).

The Honorable Kim D. Hammer
State Senator

Opinion No. 2020-058

Page 3

Any citizen of any county, city or town may institute suit in behalf of himself and all others interested, to protect the inhabitants thereof against the enforcement of any illegal exactions whatever.”

This broad constitutional provision covers almost any misuse or mishandling of public funds.? It is self-executing and imposes no terms or conditions upon the right of the taxpayers to institute an action to prevent or remedy the misapplication of public funds.‘

Thus, in response to your particular question, the city’s decision not to pursue collection will not, standing alone, be a defense to an illegal exaction action. The city’s reasons for not pursuing collection may be relevant to an analysis of all the attendant circumstances. But regardless of the city’s decision, a taxpayer’s illegal exaction action will offer a remedy where the applicable law and relevant facts support such an action.» A court of competent jurisdiction will ultimately make this determination based upon the particular facts and circumstances and will effect appropriate remedies.

Sincerely,

LESLIE RUTLEDGE
Attorney General

? Ark. Const. art. 16, § 13.

3 Nelson v, Petroleum Co., 242 Ark. 273, 276-77, 413 S.W.2d 46, 48-49 (1967).

4 Samples v. Grady, 207 Ark. 724, 727, 182 S.W.2d 875, 877 (1944).

5 See, e.g, Burke v, Elmore, 341 Ark. 129, 14 S.W.3d 872 (2000) (ordering the refund of health

insurance benefits paid by a city for a wastewater operator based on an ordinance the city had no authority to enact).