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

Senator Kim Hammer asked whether Benton City Council's reported redirection of part of a voter-approved fire pension tax into the city's general fund was an illegal exaction. According to the facts he gave the Attorney General, Benton voters approved a one-mill property tax for the fire department pension in 1972, and the council later directed 0.6 mills of its proceeds to the general fund. The AG did not determine the facts himself. He said a court would likely find the diversion an illegal exaction if the facts were as reported.

Arkansas Constitution article 16, § 11 says money from a tax levied for one purpose cannot be used for another. The opinion calls this a possible "public funds" illegal exaction: the approved tax itself was valid, but the complaint concerns use of the money it raised. The AG compares Hartwick v. Thorne, where bond funds approved for several projects were redirected after one project proved infeasible. The court upheld an illegal-exaction finding because voters supporting the omitted purpose had been misled.

The opinion states the likely legal result for the reported Benton diversion. It does not decide whether anyone will sue, what a court would order, whether past money could be recovered, or how any time limit would apply.

What this means for you

Benton taxpayers and pension participants

The AG's conclusion rests on the reported 1972 vote and the reported 1982 diversion. Article 16, § 13, cited in footnote 1, gives a citizen the right to bring an illegal-exaction suit. Whether the reported facts can be proved and what relief a court might grant are outside this opinion.

City officials and finance staff

Compare the purpose for which a tax was levied with the uses of its proceeds. The AG says the reported transfer of 0.6 mills from the pension tax to Benton's general fund would likely violate article 16, § 11. The council's reported ordinance does not change the purpose the voters approved in the AG's analysis.

Journalists and researchers

Describe the conclusion as a prediction, not a court judgment: the AG said a court would likely find an illegal exaction, based on facts supplied by the requester. This opinion does not report an actual lawsuit or a remedy.

Common questions

Was the 1972 tax itself unlawful?
The AG treated the one-mill tax described in the request as valid. His concern was the later use of part of its proceeds for the general fund, making this a possible public-funds case rather than an illegal-tax case.

Why would moving 0.6 mills matter if the city still funded part of the pension? The tax was reportedly approved to support the pension. Article 16, § 11 bars using tax proceeds for another purpose. The AG says voters may have supported the tax solely or primarily because the entire mill would go to the pension.

Did the AG order Benton to repay the pension fund?
No. The opinion predicts that a court would likely find an illegal exaction but says nothing about repayment or any other remedy.

Does the opinion state a deadline for bringing suit?
No. It does not analyze limitations periods or other defenses.

Background and statutory framework

Ark. Const. art. 16, § 11 states that money arising from a tax levied for a purpose cannot be used for a different purpose. Footnote 1 quotes article 16, § 13 as giving citizens a right to institute a lawsuit against illegal exactions. The opinion distinguishes an "illegal tax" challenge to a tax itself from a "public funds" challenge to improper use of revenue from a valid tax.

The AG cites Hartwick v. Thorne, 300 Ark. 502, 780 S.W.2d 532 (1989), on diversion from a voter-approved purpose. He treats the reported Benton redirection as analogous and says a court would likely find it contrary to article 16, § 11. He reserves factfinding to a court.

Citations

• Ark. Const. art. 16, § 11
• Ark. Const. art. 16, § 13
• May v. Akers-Lang, 2012 Ark. 7, at 7, 386 S.W.3d 378, 382
• Hartwick v. Thorne, 300 Ark. 502, 780 S.W.2d 532 (1989)

Source

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

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 1 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.” 2 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

1
Article 16, § 13 of the Arkansas Constitution gives any citizen the right to institute a lawsuit to protect against any illegal exaction. 2 Parsons v. Preferred Fam. Healthcare, Inc., 2023 Ark. 56, at 6, 662 S.W.3d 564, 659.
The Honorable Kim Hammer
State Senator
Opinion No. 2023-115
Page 2

as an “illegal tax” case. 3 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. 4

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. 5

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. 6 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. 7 When that diversion was challenged, the circuit court held it was an illegal exaction, and this ruling was upheld on appeal. 8 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. 9
3
May v. Akers-Lang, 2012 Ark. 7, at 7, 386 S.W.3d 378, 382.
4
Id.
5
“[N]o moneys arising from a tax levied for any purpose shall be used for any other purpose.” ARK. CONST. art. 16,
§ 11.
6
300 Ark. 502, 504, 780 S.W.2d 532 (1989).
7
Id. at 505, 780 S.W.2d at 531–32.
8
Id. at 505–06, 780 S.W.2d at 532.
9
Id. at 506, 780 S.W.2d at 533.
The Honorable Kim Hammer
State Senator
Opinion No. 2023-115
Page 3

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. 10 Those who voted in favor of the tax for that “purpose…[were] misled.” 11

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

10
Id.
11
Id.