Can the City of Benton legally redirect 60% of a voter-approved 1-mill firefighter pension tax into the city's general fund?
Plain-English summary
In 1972, the citizens of Benton voted for a 1-mill property tax to support the Benton Fire Department Pension. Ten years later, in 1982, the Benton City Council passed an ordinance reducing the amount paid into the pension fund to 0.4 mills, with the remaining 0.6 mills redirected into the city's general fund. Senator Hammer asked whether this redirection violates the Arkansas Constitution's illegal exaction clause.
The AG cannot make a final factual finding (that requires a court), but he gave a clear analytical answer: yes, a court would likely find this an illegal exaction.
Article 16, Section 11 of the Arkansas Constitution provides: "[N]o moneys arising from a tax levied for any purpose shall be used for any other purpose." Section 13 gives any citizen the right to file an illegal-exaction lawsuit.
There are two flavors of illegal exaction: "illegal tax" (the tax itself is unauthorized) and "public funds" (the tax is legal but the money is being misapplied). The Benton situation is a public funds case because the original 1972 vote was a valid tax. The question is whether the 1982 redirection misapplied the proceeds.
The Arkansas Supreme Court's leading case is Hartwick v. Thorne, 300 Ark. 502, 780 S.W.2d 532 (1989). The City of North Little Rock issued bonds for a list of street and drainage projects, including a particular drainage canal. After the bond election, the city found the canal infeasible and redirected funds to other projects. The court ruled that the redirection was an illegal exaction because voters who supported the bond solely or primarily because of the canal had been misled.
The same analysis applies to Benton. Voters who approved the 1972 millage solely or primarily to fund the firefighter pension were misled when 60% of the revenue was redirected to general municipal purposes. A.C.A. art. 16, § 11 prohibits using tax money for purposes other than the one for which it was levied, even when the city council acts in good faith.
What this means for you
Citizens of Benton (and former Benton firefighters)
If you were a Benton voter in 1972 or a Benton taxpayer since, you can sue. Article 16, Section 13 of the Arkansas Constitution gives any citizen standing to file an illegal-exaction lawsuit to protect the inhabitants from misuse of tax money. The remedies available include:
- An injunction stopping further diversion
- A declaratory judgment that the diversion was unlawful
- Reimbursement of misdirected funds (returning the 0.6 mills to the pension fund)
- An accounting of the diverted funds
Talk to a Benton-area attorney about whether the case is worth bringing. Statutes of limitation, laches, and equitable defenses may affect retrospective recovery, but prospective relief (stopping the ongoing diversion) is more straightforward.
Firefighter pension fund administrators
If your fund has been receiving only 0.4 mills since 1982 instead of the voter-approved 1.0 mill, the difference is potentially recoverable. The illegal-exaction doctrine has a long reach in Arkansas and "[n]either fraud nor bad faith must be shown" (Hartwick). A formal demand letter to the city, then a citizen lawsuit if rejected, would be the typical path.
City attorneys and municipal officials in similar situations
Voter-approved millages are tightly bound to the purpose stated on the ballot. Once revenue is collected, redirecting it to a different purpose, even in good faith, even with city council approval, runs into Article 16, Section 11. If you need to change the use of voter-approved tax revenue, the right path is to put a new measure on the ballot. A city council ordinance does not have the legal capacity to override the voters' purposive grant of taxing authority.
If your municipality has done what Benton did and you are reading this, get ahead of it. Audit voter-approved millages, identify any that have been redirected, and bring proposed redirections back to the voters. The longer the diversion runs, the larger the potential reimbursement.
Other taxpayers
If you suspect your city or county is misapplying voter-approved tax revenue, the illegal-exaction lawsuit is your tool. The constitutional provision is "self-executing" (Op. 2020-058) and "imposes no terms or conditions" on the citizen's right to sue. Standing is broad: any citizen of any county, city, or town can sue on behalf of all interested inhabitants.
Common questions
What is "illegal exaction"?
A taxpayer suit doctrine in Arkansas constitutional law. Article 16, Section 13 says: "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." There are two types: (1) illegal tax (the tax itself is unlawful) and (2) public funds (the tax is legal but the proceeds are being misused).
Why is this a "public funds" case rather than an "illegal tax" case?
The 1972 voter-approved millage was lawful. The challenge is to how the city is spending the proceeds, not to the tax itself. Public funds cases concern misuse or misapplication of legitimately collected revenue.
Did the city act in good faith?
The opinion does not address motive. Per Hartwick, neither fraud nor bad faith must be shown for an illegal exaction. The constitutional rule does not turn on intent. If the diversion is "contrary to law," it is unlawful regardless of why the city did it.
Can the city now hold a new vote to ratify the redirection?
Possibly going forward. A new voter-approved measure could change the purpose. But that does not retroactively cure the past redirection. Past misappropriated funds are recoverable.
Is there a statute of limitations on illegal-exaction lawsuits?
There may be one for damages or reimbursement claims (typically 3 to 5 years for most causes of action), but injunctive and declaratory relief is generally available regardless of how long the diversion has been ongoing because the violation continues. Equitable defenses like laches could complicate matters.
Why does Article 16, Section 11 say "no moneys arising from a tax levied for any purpose shall be used for any other purpose"?
This is a foundational principle of public finance: tax revenue is dedicated to its stated purpose at the time it is levied. The provision protects voters from the bait-and-switch where they approve a tax for one purpose and the government redirects it. Hartwick squarely applies the rule to bond issues with multiple stated purposes; the same logic applies to general millages.
Background and statutory framework
The constitutional rule. Ark. Const. art. 16, § 11: "[N]o moneys arising from a tax levied for any purpose shall be used for any other purpose."
Citizen standing. Ark. Const. art. 16, § 13: "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."
Two types of illegal exaction. Per May v. Akers-Lang, 2012 Ark. 7, 386 S.W.3d 378 (Arkansas Supreme Court), there are two kinds: (1) illegal tax cases, where the tax itself is unauthorized; (2) public funds cases, where a legal tax is misapplied. The Benton matter falls into the second category.
The leading case. Hartwick v. Thorne, 300 Ark. 502, 780 S.W.2d 532 (1989) (Arkansas Supreme Court), addressed bond proceeds where North Little Rock voters had approved bonds for street, drainage, and underpass improvements including a specific drainage canal. After the election, the city diverted the canal funds to other projects when the canal proved infeasible. The Court held the diversion was an illegal exaction:
If bond money is raised for purposes A, B, and C, it is unconstitutional for the money [to] be used only for purposes A and B. Those voting in favor of the bond issue solely or primarily because of the designated use provided for by purpose C are misled.
Recent precedent. Parsons v. Preferred Family Healthcare, Inc., 2023 Ark. 56, 662 S.W.3d 564 (Arkansas Supreme Court), confirmed that an illegal exaction occurs when a city's tax or payment "either is not authorized by law or is contrary to law."
Citations
- Ark. Const. art. 16, § 11 (no moneys from tax levied for one purpose shall be used for another)
- Ark. Const. art. 16, § 13 (citizen standing for illegal exaction lawsuits)
- Parsons v. Preferred Fam. Healthcare, Inc., 2023 Ark. 56, 662 S.W.3d 564 (definition of illegal exaction)
- May v. Akers-Lang, 2012 Ark. 7, 386 S.W.3d 378 (illegal tax vs. public funds cases)
- Hartwick v. Thorne, 300 Ark. 502, 780 S.W.2d 532 (1989) (bond fund diversion as illegal exaction)
Source
Original opinion text
Opinion No. 2023-115
April 18, 2024
The Honorable Kim Hammer
State Senator
1201 Military Road PMB 285
Benton, Arkansas 72015
Dear Senator Hammer:
You have requested my opinion regarding article 16, § 11 of the Arkansas Constitution. You report that the citizens of the city of Benton voted in 1972 for a "1 mill property tax to support the Benton Fire Department Pension." You also report that the Benton City Council passed an ordinance in 1982 to reduce the amount paid to the pension fund to 0.4 mills with the remaining 0.6 mills being paid into the city's general fund. You ask whether the Benton City Council's diverting of 0.6 mills of the 1-mill property tax from the pension fund into the city's general fund is an illegal exaction.
RESPONSE
While I am not a factfinder when issuing opinions and based on the facts as you have relayed them, I believe a court would likely find that the Benton City Council's diversion of 0.6 mills from the original 1-mill property tax is an illegal exaction.
DISCUSSION
The determination of whether an illegal exaction has occurred is fact intensive, and I am not a factfinder when issuing opinions. But I can provide the legal framework a court would use to make that determination.
An illegal exaction occurs when a city's tax or payment "either is not authorized by law or is contrary to law." So the first question to consider is whether the potential illegal exaction deals with a tax or a payment. If a person challenges the tax itself as illegal, that type of case is known as an "illegal tax" case. Conversely, if a person challenges the illegal spending or misapplication of funds generated from a legal tax, that type of case is called a "public funds" case.
Based on the information you provided, this appears to be a potential "public funds" illegal exaction. You report that the citizens of Benton initially approved a 1-mill property tax for the Benton Fire Department Pension but that the city council later redirected 0.6 mills of the 1-mill tax to the city's general fund. Because this issue concerns how the tax funds are being redirected, that is, how they are being applied, the matter is best classified as a "public funds" question. Thus, if the redirection of funds is either contrary to law or not authorized by law, it is an illegal exaction. As discussed below, I believe a court would likely find that the council's vote to divert the funds was contrary to law and, therefore, void.
The council's vote is likely contrary to Arkansas law. Specifically, under article 16, § 11 of the Arkansas Constitution, a city cannot apply funds collected from a valid tax to any purpose other than the purpose for which the tax was levied.
In addition, even when a city council is acting in good faith, the citizens who voted to fund the original purpose have been misled when that purpose is not fully funded. In Hartwick v. Thorne, the citizens of North Little Rock voted to issue bonds to construct an underpass, a drainage canal, and various other street and drainage improvement projects. After the election, the city council found that the original drainage canal proposal was not feasible and diverted the funds for the drainage canal to other street and drainage improvement projects. When that diversion was challenged, the circuit court held it was an illegal exaction, and this ruling was upheld on appeal. The circuit court explained that the electorate may have relied on the drainage canal proposal in deciding their vote:
If bond money is raised for purposes A, B, and C, it is unconstitutional for the money be used only for purposes A and B. Those voting in favor of the bond issue solely or primarily because of the designated use provided for by purpose C are misled.
As noted earlier, the first vote by the citizens of Benton enacted a valid tax to benefit the Benton Fire Department Pension. When the council voted to move part of the money derived from that tax into the general fund, that ordinance was likely contrary to article 16, § 11. Some of the citizens of Benton may have voted for the 1-mill property tax "solely or primarily because" an entire mill would go to support the pension fund. Those who voted in favor of the tax for that "purpose…[were] misled."
In summary, the disputed activity relates to possible misspending or misapplication of public funds that were collected through a legally valid tax. And a court would likely find that the city council's diverting 0.6 mills of the original property tax into the city's general fund was contrary to Arkansas law. Based on that conclusion, a court would likely find that the redirection is an illegal exaction.
Assistant Attorney General Jodie Keener prepared this opinion, which I hereby approve.
Sincerely,
TIM GRIFFIN
Attorney General