Can a Fayetteville-style Arkansas city use bonds, sales-tax revenue, or rent receipts to build housing for low- and moderate-income residents without violating the constitutional ban on public-private giveaways?
Subject
Six questions from State Senator Greg Leding about whether the City of Fayetteville may use bonds, sales-tax revenue, rental income, or economic-development grants to build housing for low-to-moderate-income families consistent with Article 12, § 5 of the Arkansas Constitution and various statutes.
Plain-English summary
Senator Leding asked the AG whether Fayetteville can use city money to build low-and-moderate-income housing. The constitutional concern is Article 12, § 5, which says cities cannot become stockholders in a private company or hand municipal money to private parties. The AG's overall answer is yes, with one important caveat about economic-development grants.
The opinion walks through six discrete questions:
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Can the city use voter-approved bonds, sales-tax revenue, or rental income to build the housing? Yes. Article 12, § 5 doesn't stop a city from contracting with a private entity for services that benefit the public, as long as the city gets adequate consideration. Public housing has been a "public purpose" in Arkansas at least since Hogue v. Housing Authority of Little Rock in 1940. Amendment 62 lets cities issue voter-approved general-obligation bonds for "capital improvements of a public nature," which the legislature has defined to include "[r]esidential housing for low and moderate income, elderly, or individuals with disabilities and families." Amendment 65 lets cities issue revenue bonds for the same purposes. Sales-tax revenue and general funds can also be used.
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Does it matter how the city manages the property (own and operate, lease, donate to a nonprofit, sell fee-simple)? No, the form of management does not affect the constitutionality of the debt issuance itself. The Housing Authorities Act gives a housing authority broad powers to lease, sell, manage, exchange, and dispose of property. The constitutional analysis focuses on whether the issuance serves a public purpose, which housing does.
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Does it matter what funding stream repays the bonds? Mostly no. Voter-approved sales-tax revenue can repay bonds. Rent revenues can repay bonds (the Housing Authorities Act expressly contemplates this). Sale proceeds from disposed housing can be used too. One important exception: Amendment 65 prohibits using tax revenues to repay revenue bonds (only rents, user fees, or other non-tax sources).
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Is housing for low-and-moderate-income families a "public purpose" under the relevant statute subchapters? Yes. Both subchapters define "capital improvements of a public nature" to include "[p]ublic housing facilities."
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Can the city use § 14-58-303 funds (mayoral purchasing authority) for housing? Yes, because public housing is a "public purpose" and an "undertaking of a public nature." First-class cities like Fayetteville must use the competitive-bidding process for purchases over $35,000 and an ordinance-defined process for smaller purchases.
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Does § 26-73-108 (anti-discrimination in tax-fund use) prohibit income-qualified housing programs? No. § 26-73-108 lists race, color, religion, and national origin as prohibited grounds. Income level isn't on the list.
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Bonus question: economic-development grants? The City and County Economic Grant Authorization Act (§§ 14-173-101 to -105) lets cities give grants to nonprofits for "economic development." The AG reads "economic unit" narrowly (using noscitur a sociis and ejusdem generis) so housing probably doesn't qualify. Even if it did, the grant would likely face an Article 12, § 5 challenge because housing isn't on the list of permitted "economic development projects" or "services" in subsections (b) and (c) of Article 12, § 5. Bottom line: don't try to fund the housing through an economic-development grant; use bonds, sales tax, or housing-authority revenues instead.
What this means for you
Fayetteville (and other first-class Arkansas cities) considering low-income housing programs
The AG opinion is a green light for the standard funding tools, with one road sign. Practical steps:
- Channel the work through the city's housing authority if it has one. The Housing Authorities Act (Title 14, Chapter 169) gives the authority broad operational, leasing, financing, and disposal powers, all of which the AG confirms are constitutional.
- For new bonds, use Amendment 62 (general obligation, voter-approved) or Amendment 65 (revenue bonds, no voter approval needed unless the legislature requires it). Both are explicitly available for public-housing capital improvements.
- For revenue bonds under Amendment 65, do not pledge tax revenues to repay them. Only rents, user fees, or other non-tax sources may secure the debt (Harris v. City of Little Rock, 344 Ark. 95). General-obligation bonds under Amendment 62 don't have this restriction.
- Avoid using economic-development grants under § 14-173-101 et seq. for housing. The AG specifically flags this as constitutionally suspect.
- Income-qualifying tenants is fine. § 26-73-108 prohibits race/color/religion/national-origin discrimination in tax-funded programs, not income screening.
- Document the public purpose. A city ordinance and a public-purpose finding by the city council strengthen the record if a challenger sues.
Housing-authority members
The AG opinion confirms the operational latitude you already have under § 14-169-215: leasing units, setting rents, owning property, selling, exchanging, mortgaging, and disposing of any real or personal property. Two takeaways:
- The constitutional cover for the city's debt issuance does not depend on how you operate the housing post-construction. You have flexibility on operational structure.
- § 14-169-236 still requires you to operate efficiently and to fix rents at the lowest possible rate consistent with paying off bonds and covering costs. The constitutional analysis is separate from this operational mandate.
Municipal attorneys and bond counsel
The opinion's three-funding-source analysis (general funds, GO bonds under Amendment 62, revenue bonds under Amendment 65) tracks the standard Arkansas municipal-finance toolkit. The clean structures are:
- GO bond issued under Amendment 62, secured by ad valorem property tax, voter-approved.
- Sales-tax revenue under Amendment 62 or under § 26-75-203(3)(AA) / -303(3)(AA) (cities) and § 26-74-203(3)(Z) / -303(3)(Z) (counties), supporting public-housing capital improvements.
- Revenue bond under Amendment 65, secured by rents and other non-tax sources.
For each, get the public-purpose ordinance on the record. If the work is partnered with a nonprofit operator, structure as a contract for services with adequate consideration (Ark. Uniform & Linen Supply v. Institutional Servs. Corp.; City of Ft. Smith v. Bates) so Article 12, § 5 isn't implicated.
The dangerous structure is a § 14-173-101 economic-development grant to a nonprofit housing developer. The AG's opinion describes it as "constitutionally suspect."
Low-income housing developers and nonprofit operators
If a city is partnering with you, they will almost certainly structure the deal as a contract for services or a lease from the city's housing authority, not as an economic-development grant. That has cash-flow and accounting implications for you. Confirm with the city which structure they're using before finalizing your business plan.
State legislators considering the funding question
If you want to expand cities' ability to fund affordable housing through economic-development grants, the cleanest fix is a constitutional amendment to Article 12, § 5 adding "low-and-moderate-income housing" to the list of permitted economic-development purposes in subsection (c). A statute alone won't fix the constitutional problem the AG flagged.
Citizens following local government decisions
The opinion doesn't mandate that a city must build housing. It clarifies what tools cities can use if they decide to. Sales-tax dedications and bond issues for housing typically appear on the ballot; this opinion tells you those measures are constitutional if approved.
Common questions
Q: Can my city use a sales tax to build low-income housing without going to the voters first?
The legislature has authorized cities to levy sales taxes for "capital improvements of a public nature," which includes public housing (§ 26-75-203(3)(AA)). Imposing or increasing a sales tax usually requires voter approval, but using existing general-fund money (which may have come from a non-dedicated sales tax) for housing does not require a separate vote.
Q: Does a city have to operate the housing itself, or can it lease the building to a private nonprofit?
Either works. The Housing Authorities Act (§ 14-169-215) lets the housing authority lease, manage, sub-contract operations, or sell. The constitutional analysis is the same: as long as the city gets adequate consideration (rent, services, lease payments), Article 12, § 5 isn't violated.
Q: Can the city give the building to a nonprofit outright?
Probably not without a struggle. City of Jacksonville v. Venhaus (302 Ark. 204) held that distributing public funds to charities (even for good purposes) violates Article 12, § 5. A donation needs to be supported by adequate consideration. Selling the building to a nonprofit at fair-market value is fine; gifting it isn't.
Q: Can a tax that was passed for road construction be redirected to housing?
No. Article 16, § 11 prohibits using tax revenues for any purpose other than the one for which the tax was levied. Voter-approved dedicated taxes lock in the purpose. Only undedicated general-fund money is freely usable.
Q: My city has a homelessness-services line item already. Can we shift that to homeless prevention by funding housing?
Depends on the funding source. The AG declined to give a categorical answer because it depends on whether the funding is dedicated, what stipulations apply, and what the source authorizes. Get specific about the funding line and check the authorizing ordinance or state statute before reallocating.
Q: What happens if a city tries to do this through an economic-development grant under § 14-173-101?
The AG opinion all but invites a constitutional challenge. Venhaus is bad precedent for the city. Even though Amendment 97 (2016) added subsections (b)–(d) to Article 12, § 5 to authorize some economic-development spending, housing is not on the list of permitted purposes (job-creating facilities like manufacturing, research, distribution, warehousing, or job training). The statute may technically allow the grant, but the constitutional risk is real.
Q: Does this opinion apply to second-class cities and incorporated towns?
The questions came from a senator about Fayetteville (a first-class city) and the AG framed his answers around first-class cities. Many of the underlying authorities (the Housing Authorities Act, sales-tax statutes, Amendments 62 and 65) apply to all classes of cities. § 14-58-303 covers first-class cities, second-class cities, and incorporated towns. The constitutional analysis (Article 12, § 5) is the same statewide.
Q: Does this give cities cover to build housing without state oversight?
No. The opinion clarifies the constitutional framework. State and federal funding programs (HUD, CDBG, HOME) bring their own oversight, audits, and reporting requirements. Bond issuance under Amendments 62 and 65 has its own statutory procedures.
Background and statutory framework
Article 12, § 5. Subsection (a) prohibits Arkansas cities and counties from becoming "stockholder[s] in any company, association, or corporation," or from "obtain[ing], appropriat[ing] money for or … loan[ing] [their] credit to any [private] individual or entity." This is the post-Reconstruction restriction on municipal subsidies to railroads and similar private entities, retained in the modern constitution.
Amendment 97 (2016) added subsections (b), (c), and (d), authorizing cities and counties to obtain, appropriate, or loan money for narrowly defined "economic development projects" (job-creating manufacturing, research, recycling, distribution, call centers, warehouses, job training) and "economic development services" (planning, marketing, advising in industrial expansion). Housing is not on either list.
Amendments 62 and 65. Amendment 62 lets a municipal legislative body authorize voter-approved bonds for "capital improvements of a public nature." Amendment 65 lets cities issue revenue bonds for capital improvements without voter approval (unless the legislature requires it). The legislature defined "capital improvements of a public nature" in the Local Government Bond Act (§ 14-164-303(2)(C)(ix)) to include residential housing for low-and-moderate income, elderly, and individuals with disabilities and families. The Arkansas Community Redevelopment Financing Act adopted the same definition (§ 14-168-301(4)).
Housing Authorities Act, Title 14, Chapter 169. § 14-169-207 provides that a city or county can declare a need for a housing authority by resolution, after which the authority may transact business. § 14-169-211 grants powers necessary to carry out duties, including making contracts and instruments. § 14-169-215 lists operational powers: leasing, setting rents, owning, holding, improving, selling, exchanging, transferring, assigning, pledging, or disposing of property. § 14-169-236 imposes the operational mandate to keep rents low and use rental revenue to pay bond principal and interest. The Arkansas Supreme Court upheld the Housing Authorities Act and its powers in Kerr v. E. Cent. Ark. Reg'l Housing Auth. (208 Ark. 625, 1945) and earlier in Hogue v. Housing Authority of Little Rock (201 Ark. 263, 1940).
§ 14-58-303 (mayoral purchasing). Authorizes the mayor or designee in first-class cities, second-class cities, and incorporated towns to make purchases for "public purposes." First-class cities must use competitive bidding for purchases over $35,000 and an ordinance-defined procedure below that.
§ 26-73-108 (anti-discrimination in tax-funded programs). Prohibits exclusion or denial of benefits "on the grounds of race, color, religion, or national original" in any program receiving Arkansas tax funds. Income level is not a prohibited classification.
Sales-tax statutes for capital improvements (§§ 26-74-203, -303 (counties); §§ 26-75-203, -303 (cities)). Authorize use of sales-tax revenues for "capital improvements of a public nature" including "[p]ublic housing facilities."
City and County Economic Grant Authorization Act (§§ 14-173-101 to -105). Allows cities and counties to establish grant programs for nonprofits to "encourage the location, relocation, creation, or development of a business, industry, manufacturing facility, transportation facility, or other economic unit." The AG reads "economic unit" narrowly through noscitur a sociis and ejusdem generis (citing United States v. Williams and Sw. Airlines Co. v. Saxon) so housing falls outside its scope. Even if a court read "economic unit" broadly to include housing, the grant would still face an Article 12, § 5 challenge because housing isn't on the Amendment 97 list.
Public-purpose precedent. Hogue (1940), Kerr (1945), and Holiday Island (1988) all recognize that public housing serves a public purpose. City of Jacksonville v. Venhaus (302 Ark. 204, 1990) draws the line: distributing public money to charities, even for good causes, violates Article 12, § 5. Ark. Uniform & Linen Supply v. Institutional Servs. Corp. (287 Ark. 370, 1985) confirms that a city may contract with a nonprofit to operate a public asset (a hospital lease) without violating Article 12, § 5, as long as the contract is supported by adequate consideration. City of Ft. Smith v. Bates (260 Ark. 777, 1976) holds Article 12, § 5 was not meant to limit a city's acquisition of private property for a public purpose with fair consideration. Oldner v. Villines (328 Ark. 296, 1997) holds that undedicated tax revenue may be used for general purposes. Harris v. City of Little Rock (344 Ark. 95, 2001) confirms that Amendment 65 revenue bonds may not be repaid with tax revenues.
Citations
- Ark. Const. art. 12, § 5 (and subsections (a), (b), (c)) (public-private subsidies)
- Ark. Const. art. 16, § 5 (public-purpose tax limit)
- Ark. Const. art. 16, § 11 (no diversion of dedicated tax revenue)
- Ark. Const. amend. 62 (voter-approved general-obligation bonds for capital improvements)
- Ark. Const. amend. 65 (revenue bonds for capital improvements; no tax repayment)
- Ark. Const. amend. 97 (added subsections (b)–(d) to art. 12, § 5)
- A.C.A. § 14-58-303 (mayoral purchasing authority)
- A.C.A. § 14-164-303(2)(C)(ix) (residential housing as capital improvement)
- A.C.A. § 14-168-301(4) (community-redevelopment financing definition)
- A.C.A. § 14-169-206, -207, -211, -215, -236 (Housing Authorities Act)
- A.C.A. §§ 14-173-101 to -105 (City and County Economic Grant Authorization Act)
- A.C.A. § 26-73-108 (no race/religion/etc. discrimination in tax-funded programs)
- A.C.A. §§ 26-74-203, -303; 26-75-203, -303 (sales-tax authority for public-housing facilities)
- A.C.A. §§ 26-75-201 to -223; 26-75-301 to -321 (capital-improvement bond and tax procedures)
- City of Jacksonville v. Venhaus, 302 Ark. 204, 788 S.W.2d 478 (1990) (charity-distribution unconstitutional)
- Ark. Uniform & Linen Supply v. Institutional Servs. Corp., 287 Ark. 370, 700 S.W.2d 358 (1985) (city-nonprofit lease constitutional with consideration)
- City of Ft. Smith v. Bates, 260 Ark. 777, 544 S.W.2d 525 (1976) (acquiring private property for public purpose)
- Holiday Island Suburban Imp. Dist. #1 v. Williams, 295 Ark. 442, 749 S.W.2d 314 (1988) (public-housing tax exemption)
- Kerr v. E. Cent. Ark. Reg'l Housing Auth., 208 Ark. 625, 187 S.W.2d 189 (1945) (Housing Authorities Act constitutional)
- Hogue v. Housing Authority of Little Rock, 201 Ark. 263, 144 S.W.2d 49 (1940) (public housing serves public purpose)
- Oldner v. Villines, 328 Ark. 296, 943 S.W.2d 574 (1997) (undedicated tax revenue free for general purposes)
- Harris v. City of Little Rock, 344 Ark. 95, 40 S.W.3d 214 (2001) (Amendment 65 bond repayment limits)
- Clayton v. Berry, 27 Ark. 129 (1871) (legislature decides public purposes)
- Turner v. Woodruff, 286 Ark. 66, 698 S.W.2d 527 (1985) (deference to legislative public-purpose findings)
- Boone Cnty. v. Keck, 31 Ark. 387 (1876) (no diversion of dedicated public funds)
- United States v. Williams, 553 U.S. 285 (2008) (noscitur a sociis canon)
- Sw. Airlines Co. v. Saxon, 596 U.S. 450 (2022) (ejusdem generis canon)
- Ali v. Fed. Bureau of Prisons, 552 U.S. 214 (2008) (canons applied)
Source
Original opinion text
Opinion No. 2024-052
October 23, 2024
The Honorable Greg Leding
State Senator
Post Office Box 1445
Fayetteville, Arkansas 72702-1445
Dear Senator Leding:
I am writing in response to your request for an opinion on whether the City of Fayetteville,
Arkansas, may use "bonded debt revenue or city sales tax (municipal general funds) for the
public purpose of helping to mitigate its housing shortage."
You ask the following questions, which I have slightly edited for clarity:
1. Does Article 12, § 5 of the Arkansas Constitution prohibit the City of Fayetteville
from building housing units for low- to moderate-income families with proceeds
from the sale of voter-approved bonds (designated for the specific purpose of
constructing housing for qualifying residents); current city sales tax (municipal
general funds); or anticipated revenue from rental revenues?
a. Would the disposition of constructed housing—municipally owned and
operated, leased, sub-contracted, donated to a non-profit operator, or sold
fee-simple—impact the constitutionality of debt issuance?
b. Would the revenue source for repayment—whether voter-approved sales
tax revenue, operating revenues from rent, or revenue from sale of real
property or structures—impact the constitutionality of debt issuance?
Brief response: Article 12, § 5 does not prevent Fayetteville from using voter-
approved bonds, rental revenues, or municipal general funds to
build low- to moderate-income housing. Additionally, the City of
Fayetteville, through its housing authority, has wide latitude in
how it chooses to construct and operate the housing units and
repay its bonded debt.
2. Would the use of such funds to construct rental housing units or other housing units
for low- to moderate-income families be considered a "public purpose" under
A.C.A. §§ 26-75-201 to -223 or A.C.A. §§ 26-75-301 to -321?
Brief response: Because the phrase "public purpose" does not appear in A.C.A.
§§ 26-75-201 to -223 or A.C.A. §§ 26-75-301 to -321, I take your
question to be asking whether housing units for low- to moderate-
income families could be considered "capital improvements of a
public nature." In that case, the answer to your question is "yes."
3. Would the use of such funds as outlined above be permissible under A.C.A.
§ 14-58-303 to allow the City of Fayetteville to purchase "supplies, apparatus,
equipment, materials, and other things requisite for public purposes in and for the
city" and to "make all necessary contracts for work or labor to be done or material
or other necessary things to be furnished for the benefit of the city, or in carrying
out any work or undertaking of a public nature in the city"?
Brief response: Yes. Because the construction of low- to moderate-income
housing serves a "public purpose" and is an undertaking "of a
public nature," the use of funds for such construction is
permissible under A.C.A. § 14-58-303.
4. Where does housing as "public good" fall under state regulations? If public money
spent in mitigation of homelessness and its consequences, in the form of services
contracted from non-profit agencies, litter removal and creek cleanup, or relocation
of campsites can justifiably be said to provide a public good, would not monies
spent in prevention of homelessness and its consequences similarly serve the same
public good? If so, would using the same funds in a manner that creates housing
solutions for the Fayetteville population be a permissible use of city funds to impact
the broad public economic benefit of access to the housing market?
Brief response: Courts have held that public housing serves a "public purpose,"
but whether money currently spent on mitigating the
consequences of homelessness may be redirected to homeless
prevention will depend on the source of those funds.
5. Does A.C.A. § 26-73-108 limit a municipality from operating an income-qualified
housing assistance program?
Brief response: No. Arkansas Code § 26-73-108 prohibits discrimination based on
a set of specific statuses, none of which are income level.
6. Do A.C.A. §§ 14-173-101 and -104 authorize a city of the first class to establish an
economic development grant intended to facilitate the construction of housing,
given the definition of "economic development grant program"?
Brief response: The City and County Economic Grant Authorization Act probably
does not allow a city to award an economic development grant to
a nonprofit corporation to construct housing. But even if it does,
the award of such a grant would likely face a constitutional
challenge under Article 12, § 5.
DISCUSSION
Question 1: Does Article 12, § 5 of the Arkansas Constitution prohibit the City of
Fayetteville from building housing units for low- to moderate-income families with
proceeds from the sale of voter-approved bonds (designated for the specific purpose of
constructing housing for qualifying residents); current city sales tax (municipal general
funds); or anticipated revenue from rental revenues?
It is my opinion that, for reasons explained below, the City of Fayetteville can use voter-
approved bonds, rental revenues, or municipal general funds derived from city sales tax to
build low- to moderate-income housing without violating Article 12, § 5.
1. Municipal general funds. Article 12, § 5(a) of the Arkansas Constitution prohibits cities
from becoming stockholders in any company, association, or corporation, or obtaining or
appropriating money for, or loaning their credit to, private individuals or entities. This
generally prevents a city from donating municipal funds to a private entity, even if the
donation serves a public purpose. The only exceptions are for economic development
projects and services as described in Article 12, § 5(b) and (c). The definition of "economic
development project" includes job-creating facilities, like manufacturing, research, and
recycling facilities; distribution and call centers; and warehouse and job-training facilities.
And "economic development services" means planning, marketing, and advising in job
development and industrial expansion. A housing development does not qualify as an
economic development service or project under Article 12, § 5(b) and (c).
Article 12, § 5 does not, however, prohibit a city from contracting with a private entity for
services that benefit the public, so long as the contract is supported by adequate
consideration. Arkansas law has generally recognized that public housing serves a public
purpose. Thus, it is my opinion that Article 12, § 5 does not prevent the City of Fayetteville
from contracting with a private entity to develop housing for low- to moderate-income
families.
With respect to which city funds may be used to develop the housing, the Arkansas
Constitution prohibits a city from applying tax revenue to a purpose other than that for
which the tax was levied. But municipal general funds (i.e., funds not dedicated to a
particular purpose) may be used for general municipal purposes. Therefore, the city can
use municipal general funds to supplement the construction of housing for low- to
moderate-income families.
2. Voter-approved municipal bonds. The Arkansas Constitution explicitly allows the
issuance of voter-approved municipal bonds for a specific public purpose. Amendment 62
permits a municipal legislative body to "authorize the issuance of bonds for capital
improvements of a public nature, as defined by the General Assembly," with voter
approval. And the General Assembly has, through the Local Government Bond Act of
1985, defined "capital improvements of a public nature" to include "furnishing, machinery,
vehicles, apparatus, or equipment for any public betterment or improvement, which shall
include … [r]esidential housing for low and moderate income, elderly, or individuals with
disabilities and families." Thus, the development of housing units for low- to moderate-
income families fulfills a purpose for which voter-approved municipal bonds may be
issued. Similarly, the Arkansas Supreme Court has confirmed that the construction of low-
income housing serves a "public purpose" under Article 16, § 5 of the Arkansas
Constitution.
3. Revenue bonds. Amendment 65 allows a city to "issue revenue bonds for the purpose
of financing … capital improvements of a public nature." Such "revenue bonds" are
defined as "all bonds, notes, certificates or other instruments or evidences of indebtedness
the repayment of which is secured by rents, user fees, charges, or other revenues (other
than assessments for local improvements and taxes) derived from the project or
improvements financed in whole or in part by such bonds, notes, certificates or other
instruments or evidences of indebtedness, from the operations of any governmental unit,
or from any other special fund or source other than assessments for local improvements
and taxes." Voter approval is not needed for these bonds unless the General Assembly
requires it. But note that while a city may repay revenue bonds using sources other than
the revenue generated by the bond-funded project, Amendment 65 prohibits using tax
revenues for the repayment of these bonds.
Question 1(a): Would the disposition of constructed housing—municipally owned and
operated, leased, sub-contracted, donated to a non-profit operator, or sold fee-simple—
impact the constitutionality of debt issuance?
As explained above, Article 12, § 5 generally prohibits cities from becoming stockholders
in any private enterprise or from obtaining or appropriating money for, or loaning their
credit to any private entity—with some exceptions for economic development. But the
Arkansas Constitution also allows cities to authorize the issuance of voter-approved bonds
for capital improvements of a public nature, like residential housing, and to issue revenue
bonds to finance such improvements.
It does not appear that the form of management the city employs to operate the housing
project will affect the constitutionality of debt issuance. The Housing Authorities Act
empowers a housing authority created by a city or county to "transact business and exercise
its powers" once the governing body adopts a resolution "declaring a need for the
authority." Each housing authority also has "all the powers necessary or convenient to
carry out" its duties, including the power to "make and execute contracts and other
instruments." Furthermore, housing authorities have the power to "lease or rent any
dwelling, houses, accommodation, lands, buildings, structures, or facilities embraced in
any housing project"; "establish and revise the rents" for them; "own, hold, and improve
real or personal property"; and "sell, lease, exchange, transfer, assign, pledge, or dispose
of any real or personal property or any interest in it."
The Arkansas Supreme Court has upheld the Housing Authorities Act and the powers it
grants to housing authorities as constitutional. Thus, the City of Fayetteville, through its
housing authority, has wide latitude in how it chooses to construct and operate the housing
project.
Question 1(b): Would the revenue source for repayment—whether voter-approved sales
tax revenue, operating revenues from rent, or revenue from sale of real property or
structures—impact the constitutionality of debt issuance?
The controlling statutes are generally written to be permissive with respect to how a
municipal housing authority may repay its bonded debt.
1. Voter-approved sales tax revenue. Because "public housing facilities" are "capital
improvements of a public nature," county sales taxes for capital improvements can be used
to build them. Municipal sales taxes may also be used for public housing. Alternatively,
counties and cities may issue bonds after voter approval and may levy taxes to pay off the
bonds.
2. Rent revenues. The Housing Authorities Act authorizes a local housing authority to
"lease or rent any dwellings … embraced in any housing project and … to establish and
revise the rents or charges for them." The Act also requires "each housing authority [to]
manage and operate its housing projects in an efficient manner so as to enable it to fix the
rentals for dwelling accommodations at the lowest possible rates." The revenue from such
rentals are used to pay "the principal and interest on the bonds of the authority"; cover
maintenance, operating, insurance, and administrative costs; and create a cash reserve to
meet future principal and interest payments.
3. Revenue from sale of real property or structures. As mentioned above, the Housing
Authorities Act also permits a local housing authority to "sell, lease, exchange, transfer,
assign, pledge, or dispose of any real or personal property and any interest in it." The Act
does not say how the proceeds of such a sale must be used, but it does state that all things
"done in or for the authorization, issuance, sale, execution, and delivery of notes and bonds
by housing authorities for the purpose of financing or aiding in the development or
construction of housing projects, and all notes and bonds heretofore issued by authorities,
are validated, ratified, confirmed, approved, and declared legal in all respects." Thus, to
the extent that the city, through its housing authority, conducts its financial affairs in a way
designed to facilitate the appropriate financing of its public housing projects, I do not
believe the use of sale revenue for such purposes will impact the constitutionality of debt
issuance.
4. Conclusion. In sum, it is my opinion that the city may use the funding sources listed
above to repay its bonded debt without affecting the constitutionality of the debt issuance.
Question 2: Would the use of such funds to construct rental housing units or other
housing units for low- to moderate-income families be considered a "public purpose"
under A.C.A. §§ 26-75-201 to -223 or A.C.A. §§ 26-75-301 to -321?
The two subchapters you cite are "intended to supplement all constitutional provisions and
other acts adopted for the acquiring, constructing, and equipping of capital improvements
of a public nature and the issuance of bonds for the financing of capital improvements of a
public nature." Because the phrase "public purpose" does not appear in either of these
subchapters, I take your question to be asking whether housing units for low- to moderate-
income families could be considered "capital improvements of a public nature." In that
case, the answer to your question is "yes." Both subchapters include "[p]ublic housing
facilities" within the definition of "[c]apital improvements of a public nature."
Question 3: Would the use of such funds as outlined above be permissible under A.C.A.
§ 14-58-303 to allow the City of Fayetteville to purchase "supplies, apparatus,
equipment, materials, and other things requisite for public purposes in and for the city"
and to "make all necessary contracts for work or labor to be done or material or other
necessary things to be furnished for the benefit of the city, or in carrying out any work
or undertaking of a public nature in the city"?
Arkansas Code § 14-58-303 grants the mayor or mayoral representative of a first-class city,
second-class city, or incorporated town the "exclusive power and responsibility to make
purchases of all supplies, apparatus, equipment, materials, and other things requisite for
public purposes in and for the city and to make all necessary contracts for work or labor to
be done or material or other necessary things to be furnished for the benefit of the city, or
in carrying out any work or undertaking of a public nature in the city." Cities of the first
class, like Fayetteville, must pass an ordinance to establish the procedure for making
purchases that do not exceed $35,000, while purchases exceeding $35,000 must be made
through the competitive bidding process.
As discussed above, the construction of low- to moderate-income housing units serves a
"public purpose" and is an undertaking "of a public nature." Therefore, the use of funds
for the construction of such units is permissible under A.C.A. § 14-58-303, so long as the
city complies with all statutory requirements regarding the competitive bidding process for
professional service contracts.
Question 4: Where does housing as "public good" fall under state regulations? If public
money spent in mitigation of homelessness and its consequences, in the form of services
contracted from non-profit agencies, litter removal and creek cleanup, or relocation of
campsites can justifiably be said to provide a public good, would not monies spent in
prevention of homelessness and its consequences similarly serve the same public good?
If so, would using the same funds in a manner that creates housing solutions for the
Fayetteville population be a permissible use of city funds to impact the broad public
economic benefit of access to the housing market?
Your first two questions appear to make an argument as to why you believe creating
housing solutions that prevent homelessness in Fayetteville would serve the "public good."
The Arkansas Supreme Court has said, "What is for the public good and what are public
purposes, are questions [that the legislature] must decide upon its own judgment."
Accordingly, courts afford "great weight" to "legislative determinations of public
purposes." And as I have mentioned in my responses to your above questions, the
Arkansas General Assembly and the courts have, through various statutes and cases,
recognized that public housing serves a public purpose.
The answer to your third question—whether money that the city currently spends on
mitigating the consequences of homelessness (e.g., on nonprofit contracts, litter removal,
creek cleanup, or campsite relocation) can be redirected to preventing homelessness—
depends on the funding sources for those initiatives and whether there are any stipulations
regarding how those funds may be spent. A city's ability to divert funds intended for one
public purpose to another public purpose is limited. Thus, without any information about
how these other initiatives are funded, I cannot say whether those funds may be redirected
to construct low- to moderate-income housing.
Question 5: Does A.C.A. § 26-73-108 limit a municipality from operating an income-
qualified housing assistance program?
Arkansas Code § 26-73-108 prohibits discrimination in the use of tax funds. It states, in
relevant part, "No citizen in the State of Arkansas in a county, city, or local community on
the grounds of race, color, religion, or national original shall be excluded from participation
in, be denied the benefits of, or be subjected to discrimination of services or participation
under any program or activity receiving Arkansas tax funds." A person's income level is
not listed among the prohibited grounds for discrimination. Therefore, the answer to your
question is "no."
Question 6: Do A.C.A. §§ 14-173-101 and -104 authorize a city of the first class to
establish an economic development grant intended to facilitate the construction of
housing, given the definition of "economic development grant program"?
The City and County Economic Grant Authorization Act authorizes cities and counties
"to establish by ordinance a program for the awarding of grants to any nonprofit
corporation, organization, or association to aid or assist or otherwise promote [local]
economic development." There is no appellate caselaw regarding what types of projects
can qualify for city or county economic-development grants. But the act states that the
grants to nonprofits are meant "to encourage the location, relocation, creation, or
development of a business, industry, manufacturing facility, transportation facility, or other
economic unit which creates jobs, employs people, or generates economic activity."
It is possible that the construction and operation of new housing could be considered
"creation" or "development" of an "economic unit" that "creates jobs, employs people, or
generates economic activity." In the short term, the creation of new housing would
employ contractors, construction workers, and other individuals who would be hired to
design and build the housing units. And in the long term, the housing would presumably
employ property managers, maintenance workers, and others to care for the property and
its upkeep.
On the other hand, two principles of statutory interpretation support a narrower
interpretation of "economic unit." One is the canon of noscitur a sociis, which provides
that a word is "given more precise content by the neighboring words with which it is
associated." The other is the related canon of ejusdem generis, which "instructs courts to
interpret a 'general or collective term' at the end of a list of specific items in light of any
'common attribute[s]' shared by the specific items." Here, the term "economic unit"
appears in a list alongside "business, industry, manufacturing facility, [and] transportation
facility." One could argue that the primary purpose of each of these preceding items is
economic, which suggests that for an entity to qualify as an "other economic unit," its
primary purpose should also be economic in nature. But the primary purpose of
constructing new housing for low- to moderate-income families is to provide homes for
Fayetteville residents. Under this reasoning, then, a housing development would not be
considered an "economic unit" because its primary purpose is not economic.
In my opinion, this narrower definition of an "economic unit" is a more appropriate reading
of the statute. But even if a housing project could qualify as an "economic unit" under the
City and County Economic Grant Authorization Act, the grant would still likely face a
challenge under Article 12, § 5 of the Arkansas Constitution. Before Amendment 97 added
subsections (b) through (d) to Article 12, § 5, this office issued multiple opinions stating
that the City and County Economic Development Grant Authorization Act was
constitutionally suspect "to the extent that it purported to authorize the award or transfer of
county or city funds to nonprofit corporations." The 2016 adoption of Amendment 97
largely remedied this problem by adding language to Article 12, § 5 that authorizes cities
and counties to obtain or appropriate money to private entities for certain economic
purposes. Still, the statutory purposes for which economic development grants may be used
are, in my opinion, broader than the purposes for which cities and counties may obtain or
appropriate money to private entities under Article 12, § 5. While a housing development
might be considered an "economic unit" that "creates jobs, employs people, or generates
economic activity" under A.C.A. § 14-173-102(3), it does not fall within the meaning of
an "economic development project" or "economic development service" as defined in
Article 12, § 5(c). In sum, even if the City and County Economic Grant Authorization Act
allows a city to award an economic development grant to a nonprofit corporation to
construct low- to moderate-income housing, the city's actions would still likely be
challenged as unconstitutional under Article 12, § 5.
Finally, if the City of Fayetteville does choose to use an economic development grant to
construct housing, the city cannot simply give money to the nonprofit of its choice. Rather,
the Fayetteville City Council must establish an economic development grant program by
ordinance—if one does not already exist—and accept applications from grantees as set
forth in the ordinance. The mayor or other designee must then review the grant
applications, rank them in order of which proposals best fulfill the economic goals and
objectives of the program, and award the grants to applicants based on rank order.
Senior Assistant Attorney General Kelly Summerside prepared this opinion, which I
hereby approve.
Sincerely,
TIM GRIFFIN
Attorney General