Can an Arkansas city use bonds, general funds, or rent to build housing for low- and moderate-income families?

Plain-English summary

Senator Greg Leding asked whether Fayetteville could fund housing for low- and moderate-income families and what limits apply to bonds, existing funds, housing-authority operations, and economic-development grants. The AG concluded that Article 12, § 5 does not prevent the city from using voter-approved bonds, rent revenue, or undedicated municipal general funds derived from sales tax for this housing. He treated public housing as a recognized public purpose and separated that city spending from an outright municipal donation of funds to a private entity.

The opinion gives several important limits. Money raised by a tax for one purpose cannot be redirected to another. Voter-approved bonds under Amendment 62 may finance public housing as a "capital improvement[] of a public nature." Revenue bonds under Amendment 65 may also finance it, but tax revenues cannot repay those revenue bonds. A housing authority may use rent receipts for bond payments and operating costs. The AG said housing-authority sale proceeds, used to facilitate appropriate financing of housing projects, would not affect the constitutionality of the debt issuance, while noting that the Act does not say how such proceeds must be used.

On management, the request listed municipal operation, leasing, subcontracting, donation to a nonprofit operator, and sale. The AG answered that the form of management "does not appear" to affect the constitutionality of debt issuance. He cited the housing authority's broad power to lease, sell, transfer, and dispose of property. That answer does not turn the listed options into a blanket ruling on every transfer's separate legal requirements.

The AG also answered that public housing facilities qualify as capital improvements under the cited municipal sales-tax subchapters; A.C.A. § 14-58-303 permits purchases and contracts for this public undertaking subject to its bidding rules; and A.C.A. § 26-73-108 does not prohibit income-qualified housing because income is not among its listed protected grounds. Whether money now spent on homelessness mitigation may be redirected depends on the source and restrictions of those funds; the AG lacked the details to decide.

An economic-development grant to a nonprofit presents a different problem. The AG read the grant statute's "economic unit" language narrowly and thought housing probably would not qualify. Even if it did, he said such a grant would likely face a challenge under Article 12, § 5 because housing does not fit the constitutional definitions of economic-development projects or services. He did not say a court had invalidated a particular housing grant.

What this means for you

City officials and housing planners

Identify the funding source before committing to a project. The opinion supports undedicated general funds and voter-approved bonds for this public purpose, but a dedicated tax cannot be diverted from its levied purpose. Keep tax revenues out of an Amendment 65 revenue-bond repayment stream. For purchases under A.C.A. § 14-58-303, the AG notes an ordinance procedure for first-class city purchases up to $35,000 and competitive bidding above that amount.

If you plan to use money already budgeted for homelessness services, review its authorizing terms. The AG expressly declined to say whether Fayetteville could redirect those specific funds without knowing their sources and restrictions.

Housing authorities and nonprofit operators

The housing authority has statutory powers to own, lease, sell, exchange, transfer, and dispose of housing-project property. The AG said the choice of operating arrangement did not appear to change the constitutionality of issuing debt for the housing project. He separately warned that a city generally cannot donate municipal funds to a private entity merely because the donation serves a public purpose. His opinion does not decide every term of a proposed property transfer, lease, or nonprofit arrangement.

Bond counsel and municipal attorneys

Distinguish Amendment 62 voter-approved bonds from Amendment 65 revenue bonds. The AG says the latter may be repaid from rents and other permitted non-tax sources, but not taxes. He also says the Housing Authorities Act does not direct how property-sale proceeds must be used, though their use for appropriate project financing would not affect the constitutionality of issuing the debt. An economic-development grant for housing is a separate, likely contested route under Article 12, § 5.

Common questions

Can a city use existing sales-tax money for housing?
The AG permits municipal general funds derived from sales tax when they are not dedicated to a particular purpose. Article 16, § 11 prevents applying revenue from a dedicated tax to a different purpose.

Can a revenue bond be repaid with a sales tax?
No under the Amendment 65 analysis in this opinion. Its definition of revenue bonds excludes taxes and assessments for local improvements from repayment sources.

Can the housing authority donate or sell the finished building? The question included donation and sale among possible dispositions. The AG said the form of management did not appear to affect the constitutionality of the debt issuance, and cited the authority's statutory power to "sell, lease, exchange, transfer, assign, pledge, or dispose of" property. He did not set a fair-market-value rule, forbid a gift of housing-authority property, or approve a particular transfer. A separate passage addresses a city's donation of municipal funds to a private entity.

Can money already spent on homelessness mitigation be moved to housing construction? The AG could not decide without knowing the source and restrictions of those funds. A city's ability to divert money intended for one public purpose to another is limited.

Does income screening violate the tax-funded-program discrimination statute? The AG answered no under A.C.A. § 26-73-108 because income level is not among that statute's listed grounds of race, color, religion, and national origin.

Could the city simply award a housing grant to a nonprofit? The AG thought the economic-development grant statute probably did not cover this housing project and said a grant would likely face an Article 12, § 5 challenge even if the statute covered it. He also described the ordinance, application, and ranking process that would apply if the city chose that route.

Legal basis in the opinion

For the disposition question, the AG says: "It does not appear that the form of management the city employs to operate the housing project will affect the constitutionality of debt issuance." He then quotes the housing authority's power to "sell, lease, exchange, transfer, assign, pledge, or dispose of any real or personal property or any interest in it." In discussing City of Jacksonville v. Venhaus, he says Article 12, § 5 "generally prevents a city from donating municipal funds to a private entity, even if the donation serves a public purpose." These passages address distinct questions.

Source

• Official Arkansas Attorney General opinion search: https://arkansasag.gov/divisions/opinions-foia/attorney-general-opinions-search/ (Opinion No. 2024-052, October 23, 2024; official 11-page PDF, including footnotes)

Original opinion text

TIM GRIFFIN
ATTORNEY GENERAL

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-income1 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.

1
In your opinion request, you interchangeably use “low and low/moderate income,” “low and low to moderate income,” and “low income.” For uniformity in this opinion, I use “low to moderate income” when referencing any of these.

323 CENTER STREET, SU ITE 200
LITTLE ROCK, ARKANSAS 72201
The Honorable Greg Leding
State Senator
Opinion No. 2024-052
Page 2

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”?
   The Honorable Greg Leding
   State Senator
   Opinion No. 2024-052
   Page 3

      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.2 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.3 And “economic development services” means planning, marketing, and advising in job development and industrial expansion.4 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.5 Arkansas law has generally recognized that public housing serves a public

2
See City of Jacksonville v. Venhaus, 302 Ark. 204, 788 S.W.2d 478 (1990) (reversing a trial court’s distribution of residual common-fund proceeds to charities as a violation of Article 12, § 5). 3 Ark. Const. art. 12, § 5(c)(1).
4
Ark. Const. art. 12, § 5(c)(2).
5
See Ark. Uniform & Linen Supply v. Institutional Servs. Corp., 287 Ark. 370, 700 S.W.2d 358 (1985) (holding that a city’s lease of a hospital to be operated by a nonprofit did not violate Article 12, § 5); City of Ft. Smith v. Bates, 260 Ark. 777, 781, 544 S.W.2d 525, 527 (1976) (stating that Article 12, § 5 was not meant to limit a city’s ability to acquire private property for a public purpose in exchange for fair and equitable consideration). The Honorable Greg Leding State Senator Opinion No. 2024-052 Page 4

purpose.6 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.7 But municipal general funds (i.e., funds not dedicated to a particular purpose) may be used for general municipal purposes.8 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.9 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.”10 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-

6
See, e.g., Holiday Island Suburban Imp. Dist. #1 v. Williams, 295 Ark. 442, 445–46, 749 S.W.2d 314, 316 (1988) (noting that, while property generally cannot retain a “public purpose” exemption from taxation if its use is restricted to certain members of the public, public housing, which is restricted to individuals earning below a certain median income, may be an exception); Kerr v. E. Cent. Ark. Reg’l Housing Auth., 208 Ark. 625, 626, 187 S.W.2d 189, 190 (1945) (holding that legislative acts authorizing creation of housing authorities to procure “relief from dangers to public health in cities and rural areas … through elimination of ‘slums’ and their incidents” were constitutional because they served a public purpose, as declared by the General Assembly); Hogue, 201 Ark. 263, 144 S.W.2d at 53 (holding that any expenditures of public funds permitted or required by the Housing Authorities Act were for a “public use”). 7 Ark. Const. art. 16, § 11 (“[N]o moneys arising from a tax levied for any purpose shall be used for any other purpose.”). 8 See Oldner v. Villines, 328 Ark. 296, 305, 943 S.W.2d 574, 579 (1997) (“When a tax is enacted by the General Assembly or approved by a vote of the people without the statement of a purpose, the resulting revenues may be used for general purposes.”). 9 Ark. Const. amend. 62, § 1(a).
10
A.C.A. § 14-164-303(2)(C)(ix). The Arkansas Community Redevelopment Financing Act uses this same definition. See A.C.A. § 14-168-301(4). The Honorable Greg Leding State Senator Opinion No. 2024-052 Page 5

income housing serves a “public purpose” under Article 16, § 5 of the Arkansas Constitution.11

3. Revenue bonds. Amendment 65 allows a city to “issue revenue bonds for the purpose
   of financing … capital improvements of a public nature.”12 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.”13 Voter approval is not needed for these bonds unless the General Assembly requires it.14 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.15

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.16

11
See Hogue v. Housing Authority of Little Rock, 201 Ark. 263, 144 S.W.2d 49, 53 (1940) (upholding the constitutionality of the Housing Authorities Act and stating that the Act “create[d] a public agency or authority to perform necessary public purposes and uses”). 12 Ark. Const. amend. 65, § 1.
13
Ark. Const. amend. 65, § 3(a).
14
See Ark. Const. amend. 65, § 1.
15
See Harris v. City of Little Rock, 344 Ark. 95, 100–01, 40 S.W.3d 214, 218 (2001) (“[R]evenue bonds may be repaid with rents, user fees, charges, or other revenues, other than tax revenues, derived from three sources: (1) the project or improvement financed by the bonds; (2) the operations of any governmental unit; or (3) any other special fund or source other than assessments for local improvement and taxes.”). 16 See Ark. Const. amend. 62, § 1(a); id. amend. 65, § 1.
The Honorable Greg Leding
State Senator
Opinion No. 2024-052
Page 6

It does not appear that the form of management the city employs to operate the housing project will affect the constitutionality of debt issuance.17 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.”18 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.”19 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.”20

The Arkansas Supreme Court has upheld the Housing Authorities Act and the powers it grants to housing authorities as constitutional.21 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.22 Municipal sales taxes may also be used for public housing.23 Alternatively, counties and cities may issue bonds after voter approval and may levy taxes to pay off the bonds.24

17
Your request only asks whether the manner of disposition affects the constitutionality of the debt issuance; it does not ask about the constitutionality of the listed manners of disposition themselves. Thus, the response to this question is limited to discussing the constitutionality of the debt issuance and does not address the constitutionality of the manner of disposition. 18 A.C.A. § 14-169-207(c)(1).
19
A.C.A. § 14-169-211(4).
20
A.C.A. § 14-169-215.
21
Kerr, 208 Ark. 625, 187 S.W.2d 189.
22
See A.C.A. §§ 26-74-203(3)(Z), 26-74-303(3)(Z).
23
See A.C.A. §§ 26-75-203(3)(AA), 26-75-303(3)(AA).
24
See A.C.A. §§ 26-74-204, -205, -304, -305 (counties); id. §§ 26-75-204, -205, -304, -305 (cities).
The Honorable Greg Leding
State Senator
Opinion No. 2024-052
Page 7

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.”25 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.”26 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.27

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.”28 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.”29 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.”30 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-

25
A.C.A. § 14-169-215(1).
26
A.C.A. § 14-169-236(a).
27
A.C.A. § 14-169-236(b).
28
A.C.A. § 14-169-215(5).
29
A.C.A. § 14-169-206(c).
30
A.C.A. §§ 26-75-201(a), 26-75-301(a).
The Honorable Greg Leding
State Senator
Opinion No. 2024-052
Page 8

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.”31

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.”32 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.33

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

31
See A.C.A. §§ 26-75-203(3)(AA), 26-75-303(3)(AA).
32
A.C.A. § 14-58-303(a).
33
A.C.A. § 14-58-303(b).
The Honorable Greg Leding
State Senator
Opinion No. 2024-052
Page 9

purposes, are questions [that the legislature] must decide upon its own judgment.”34 Accordingly, courts afford “great weight” to “legislative determinations of public purposes.”35 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.36 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.”37 A person’s income level is not listed among the prohibited grounds for discrimination. Therefore, the answer to your question is “no.”38

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”?

34
Clayton v. Berry, 27 Ark. 129, 130–31 (1871).
35
Turner v. Woodruff, 286 Ark. 66, 72, 698 S.W.2d 527, 530–31 (1985).
36
See Ark. Const. art. 16, § 11; Boone Cnty. v. Keck, 31 Ark. 387, 391 (1876) (“[T]he means of public corporations, which are created for public purposes, with powers to be exercised for the public good … should not be diverted from the purposes for which [they were] collected.”). 37 A.C.A. § 26-73-108(a)(1).
38
While unrelated to A.C.A. § 26-73-108, it is also worth noting that the court in Hogue held that the Housing Authorities Act, which authorized low-rent public housing, did not discriminate against private owners of dwelling accommodations or grant special privileges to certain citizens or classes of citizens. Rather, the Court reasoned that the legislature made a “reasonable classification” and that low-rent housing would “be available to all members of the public who presently or in the future fall within the classification made by the legislature.” 201 Ark. 263, 144 S.W.2d at 53. The Honorable Greg Leding State Senator Opinion No. 2024-052 Page 10

The City and County Economic Grant Authorization Act39 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.”40 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.”41

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.”42 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.”43 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.”44 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

39
A.C.A. §§ 14-173-101 to -105.
40
A.C.A. § 14-173-103(a).
41
A.C.A. § 14-173-102(3).
42
Id.
43
United States v. Williams, 553 U.S. 285, 294 (2008).
44
Sw. Airlines Co. v. Saxon, 596 U.S. 450, 458 (2022) (quoting Ali v. Fed. Bureau of Prisons, 552 U.S. 214, 225 (2008)). The Honorable Greg Leding State Senator Opinion No. 2024-052 Page 11

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.”45 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, § 5.46

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.47 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.48

Senior Assistant Attorney General Kelly Summerside prepared this opinion, which I hereby approve.

Sincerely,

TIM GRIFFIN
Attorney General

45
See, e.g., Ark. Att’y Gen. Ops. 90-279, 90-243.
46
Note that, as explained in response to your first question, the city may still contract with a private, nonprofit corporation for services that benefit the public, so long as the contract is supported by adequate consideration. See supra note 5. 47 See A.C.A. § 14-173-103(a).
48
A.C.A. § 14-173-105(c).