Can an Arkansas city release a clean-up lien on property so a nonprofit can buy and redevelop it, without violating the constitutional ban on giving public funds to private entities?

Plain-English summary

The Forrest City Downtown Revitalization Project (FCDRP), a 501(c)(3) nonprofit, wanted to buy a downtown parcel and turn it into a park with an amphitheater and greenspace. There was a problem: the property carried a roughly $30,000 cleanup lien the city had imposed under Ark. Code Ann. §§ 14-54-901 through -904 to recover what the city had paid to clean up the property. The Forrest City Council voted unanimously to release the lien if FCDRP succeeded in buying the property. A council member then asked whether that release would violate Article 12, section 5 of the Arkansas Constitution, which bans municipalities from donating money or property to private entities.

Attorney General Leslie Rutledge said the release would not violate article 12, section 5 on the facts presented. That provision prohibits municipal donations to private entities even if they serve a public purpose. The AG reasoned that the cleanup-lien statutes do not require full payment before release, unlike the improvement-district lien statute discussed in a footnote. She concluded that the city's nonpayment for its cleanup services would not evidence a donation of municipal property or an expenditure amounting to financial aid.

The AG's analysis expressly assumes the lien amount had not been certified to the tax collector. Footnote 10 says that after certification the amount goes on the tax books as "delinquent taxes" and, for lack of general authority to forgive taxes owed, the lien may not then be released.

Because the AG answered no on Question 1, she did not need to address Questions 2 (whether the city could accept less than full payment) and 3 (mayor or council approval).

What this means for you

If you are a city attorney advising on a similar lien-release request

Two things to confirm before relying on this opinion. First, what kind of lien is it? Cleanup liens under §§ 14-54-901 to -904 fit this analysis. Other municipal liens (improvement districts under § 14-90-805(b), tax liens, paving assessments) have their own statutes that often require full payment before release. The structure of the lien statute is what matters; "we put a lien on the property" is too generic.

Second, has the lien amount been certified to the tax collector under § 14-54-904(a)(2)? The AG's footnote says the lien may not be released once certified. Before certification, the AG concluded that article 12, section 5 does not prevent the city from releasing this kind of cleanup lien on conditions other than full payment. The opinion did not decide whether the mayor or council has final approval authority.

The AG treated the loss of cleanup-cost recovery as neither a donation of municipal property nor an expenditure amounting to financial aid. Her conclusion did not depend on the anticipated public benefit of the proposed redevelopment.

If you are a nonprofit looking to acquire property with a city cleanup lien

Before the lien amount has been certified to the tax collector, the AG said the city may release a cleanup lien on conditions other than full payment without violating article 12, section 5. Footnote 10 says release is unavailable after certification. The opinion does not prescribe a purchase-agreement procedure or decide which city official has final approval authority.

You may want to negotiate the release as conditional on closing, the way Forrest City did here, so the city is not left with neither payment nor a lien if your purchase falls through.

If you are a mayor or council member

The AG concluded that article 12, section 5 does not require full payment before a city releases an uncertified cleanup lien under the cited statutes. She did not answer the requester's question about whether the mayor or council has final approval authority.

Common questions

Q: Why is releasing a lien not the same as donating money? A: The AG noted that the cleanup-lien statutes provide ways to collect cleanup costs but do not state that the lien continues until full payment. In her view, nonpayment following release does not evidence a donation of municipal property or financial aid. Tucker v. Holt describes the statute as authorizing a lien to recover the cost of municipal services; the constitutional conclusion here is the AG's.

Q: How is this different from an improvement-district lien? A: An improvement-district lien (Ark. Code Ann. § 14-90-805(b)) "shall continue until the local assessment, including any penalty and costs that may accrue thereon, shall be paid." The Arkansas Supreme Court in Lueken v. Burch, 214 Ark. 921, 219 S.W.2d 235 (1949), said improvement districts have no authority to release their liens except on full payment. Cleanup liens lack that "shall continue until paid" language, so the city has more flexibility.

Q: When is the lien certified to the tax collector? A: Under § 14-54-904(a)(2), the city can either foreclose in circuit court or certify the amount to the county tax collector for collection as delinquent taxes. The certification is a step the city has to choose to take. If the city has not yet certified, it can release. Once certified, the rule shifts (and the AG cited Op. Att'y Gen. 97-306 for the lack of forgiveness authority on certified amounts).

Q: Does article 12, section 5 ever block a release like this? A: The AG found no article 12, section 5 violation for the release described in the request, assuming the amount had not been certified to the tax collector. The opinion does not evaluate every kind of municipal lien release.

Q: What about Halbert and Venhaus?
A: Both cases struck down arrangements where a city's money or property went to a private entity. Halbert (1956) struck down a state law letting cities buy memberships in private industrial-development corporations. Venhaus (1990) reversed a chancellor's distribution of common-fund proceeds to private nonprofits, ordering the funds returned to the municipalities for general municipal services. Those cases do bar genuine donations. They do not require a city to enforce every recovery mechanism.

Background and statutory framework

Ark. Code Ann. §§ 14-54-901 through -904 give Arkansas cities authority to act when private property reaches an unsightly or unsanitary condition. The city can correct the condition itself and charge the cost to the property owner. The unpaid charge becomes a lien on the property under § 14-54-903.

Section 14-54-904 supplies two enforcement avenues:

1. Foreclose on the lien in circuit court within ten years.
2. Certify the amount to the county tax collector, where it becomes part of delinquent taxes.

The AG's footnote limits the release analysis to a lien amount not yet certified to the tax collector. It says an amount already certified goes on the tax books as delinquent taxes and may not be released.

Article 12, section 5 of the Arkansas Constitution provides:

No county, city, town or other municipal corporation, shall ... obtain or appropriate money for, or loan its credit to, any corporation, association, institution or individual.

The AG cited Arkansas Supreme Court decisions for the bar on municipal donations to private entities, regardless of public purpose. Halbert v. Helena-West Helena Indus. Dev. Corp., 226 Ark. 620, 291 S.W.2d 802 (1956); City of Jacksonville v. Venhaus, 302 Ark. 204, 788 S.W.2d 478 (1990). The conclusion that releasing this cleanup lien would not evidence a donation of municipal property or financial aid is the AG's analysis in this opinion.

Citations

• Ark. Const. art. 12, § 5 (no municipal donations to private entities)
• Ark. Code Ann. §§ 14-54-901 to -904 (cleanup-lien framework)
• Ark. Code Ann. § 14-54-903 (lien creation)
• Ark. Code Ann. § 14-54-904(a) (10-year enforcement window)
• Ark. Code Ann. § 14-54-904(a)(2) (certification to tax collector)
• Ark. Code Ann. § 14-90-805(b) (improvement-district lien continues until paid, comparison)
• Halbert v. Helena-West Helena Indus. Dev. Corp., 226 Ark. 620, 291 S.W.2d 802 (1956)
• City of Jacksonville v. Venhaus, 302 Ark. 204, 788 S.W.2d 478 (1990)
• Tucker v. Holt, 343 Ark. 216, 33 S.W.3d 110 (2000)
• Lueken v. Burch, 214 Ark. 921, 219 S.W.2d 235 (1949)
• Op. Att'y Gen. 97-306 (no general forgiveness of certified delinquent tax amounts)
• Ops. Att'y Gen. 2019-029, 2017-088, 2017-035, 2015-141, 2007-245 (article 12, § 5 and lien-enforcement parameters)

Source

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

Original opinion text

STATE OF ARKANSAS
ATTORNEY GENERAL
LESLIE RUTLEDGE
Opinion No. 2021-056
October 5, 2021
The Honorable Steve Hollowell
State Representative
P.O. Box 1203
Forrest City, AR 72336-1203
Dear Representative Hollowell:

This is in response to your request for an opinion concerning the purchase of real property by a non-profit entity. In this regard, you have provided the following background information:

The Forrest City Downtown Revitalization Project, hereafter referred to as FCDRP, is a 501(c)(3) non-profit entity. Its purpose and mission is to benefit the citizens of Forrest City through the redevelopment and revitalization of the downtown area. No individuals or specific business entities receive any revenue or direct benefit from the organization. All revenues, if any, are utilized to support programs for the benefit of Forrest City and all its citizens.

FCDRP seeks to purchase real property in downtown Forrest City from a third party. The underlying property has a lien attached to it in the amount of approximately thirty thousand dollars ($30,000.00). The lien relates to efforts and costs incurred by the City of Forrest City for cleanup and upkeep of the property.

FCDRP has made presentations to the Forrest City Council reflecting plans for a downtown park including an amphitheater and greenspace. They plan to host music and other community festivals. Citizens and groups would rent the facility with those fees being used to maintain the park. The City Council voted unanimously to release the underlying lien provided FDCRP was successful in purchasing the property. Concern has risen as to whether the City can release the lien without violating the Constitution of the State of Arkansas.

In light of the foregoing background information, you have asked the following questions:

1. Is the release of lien by the city to a non-profit organization a
   violation of Article 12, Section 5, of the Constitution of the State of Arkansas, since the city would not receive any payment toward the lien other than the anticipated future benefit to and for its citizens?

2. If the response to Question 1 is in the affirmative, could an
   agreement be reached by the City of Forrest City and FCDRP to pay and offer consideration that is less than the lien amount to satisfy any constitutional concerns? If so, can the monetary amount take into consideration the non-monetary benefits to the City?

3. If the response to Question 2 is in the affirmative, would the mayor
   or the Forrest City, City Council have the final approval authority regarding the matter?

RESPONSE

Although your first question asks about "the release of lien ... to a non-profit," I gather from the background information provided in your correspondence that the actual question is whether the city's release of the lien against the property (and the consequential non-payment of the city's clean-up costs) would be a violation of Article 12, section 5 of the Arkansas Constitution. With that understanding, I believe the answer is "no." Responses to your remaining questions appear unnecessary in light of my response to Question 1.

DISCUSSION

Question 1: Is the release of lien by the city to a non-profit organization a violation of Article 12, Section 5, of the Constitution of the State of Arkansas, since the city would not receive any payment toward the lien other than the anticipated future benefit to and for its citizens?

According to the background information provided in your request for my opinion, the City Council of Forrest City voted to release a $30,000 lien against certain property, provided that the property was purchased by the Forrest City Downtown Revitalization Project (FCDRP). It appears the lien was imposed pursuant to Ark. Code Ann. § 14-54-901 through -904 (Repl. 1998 and Supp. 2019), which authorizes a city to correct an unsightly and unsanitary condition on real property and charge the cost to the owner. The city is given a lien against the property to cover the associated cost. The city can either foreclose on its lien in circuit court or make its own appealable determination of the amount owed, which will be recorded and collected as delinquent taxes.

Your question as I understand it is whether a city's release of such a lien (and the consequential non-payment of the city's clean-up costs) would be a violation of Article 12, section 5 of the Arkansas Constitution, which provides in pertinent part that "[n]o county, city, town or other municipal corporation, shall ... obtain or appropriate money for, or loan its credit to, any corporation, association, institution or individual."

As I have previously explained, art. 12, § 5 essentially prohibits private individuals or entities from receiving donations of municipal property. It prohibits direct cash donations as well as other municipal expenditures that amount to granting financial aid, i.e., donating to a private individual or entity. As interpreted by the Arkansas Supreme Court, art. 12, § 5 bars all donations by municipalities to any private entity or person, regardless of whether the donation might serve a public purpose.

I do not believe art. 12, § 5 stands as a barrier to a city releasing property from a clean-up lien obtained by the city under sections 14-54-901 through -904. As summarized by the Arkansas Supreme Court, this body of law "authorizes the imposition of a lien in order for a municipality to recover a fee for the cost of providing services that the property owner refuses to perform." There are two avenues for enforcing the lien and collecting that fee. But unlike some lien statutes, this body of law does not state that the lien continues until the costs are paid. So the city may decide to release the clean-up lien under conditions other than full payment. The city may not be paid for its services in that case. But that non- payment does not evidence a donation of municipal property or an expenditure that amounts to financial aid (as prohibited by art. 12, § 5).

Question 2: If the response to Question 1 is in the affirmative, could an agreement be reached by the City of Forrest City and FCDRP to pay and offer consideration that is less than the lien amount to satisfy any constitutional concerns? If so, can the monetary amount take into consideration the non- monetary benefits to the City?

Question 3: If the response to Question 2 is in the affirmative, would the mayor or the Forrest City City Council have the final approval authority regarding the matter?

Responses to these questions appear unnecessary in light of my negative response to your first question.

Sincerely,
LESLIE RUTLEDGE
Attorney General

[Footnotes:
1 Ark. Code Ann. § 14-54-903 (Supp. 2019).
2 Id.
3 Ark. Code Ann. § 14-54-904 (Supp. 2019).
4 Ops. Att'y Gen. 2019-029, 2017-088.
5 See Ops. Att'y Gen. 2017-035 (citing Halbert v. Helena-West Helena Indus. Dev. Corp., 226 Ark. 620, 291 S.W.2d 802 (1956)), 2015-141. 6 See Halbert, supra; City of Jacksonville v. Venhaus, 302 Ark. 204, 788 S.W.2d 478 (1990). 7 Tucker v. Holt, 343 Ark. 216, 222, 33 S.W.3d 110, 114 (2000). 8 See n.3 and accompanying text. See also Op. Att'y Gen. 2007-245. 9 Compare Ark. Code Ann. § 14-54-904(a) ("The liens provided for in § 14-54-903 may be enforced and collected at any time within ten (10) years after a lien has been filed ....") with Ark. Code Ann. § 14-90-805(b) (Repl. 1998) ("The [municipal improvement district] lien shall continue until the local assessment, including any penalty and costs that may accrue thereon, shall be paid."). See Lueken v. Burch, 214 Ark. 921, 926, 219 S.W.2d 235, 238 (1949). 10 This presumes that the lien amount has not been certified to the tax collector. See Ark. Code Ann. § 14-54-904(a)(2). Once certified, the lien amount goes on the tax books as "delinquent taxes." Because there is no general authority for forgiving taxes that are owing, the lien may not be released at that point. See Op. Att'y Gen. 97-306 (opining that the General Assembly intended to require collection of the lien amount certified to the tax collector).]