Can a county pledge money it gets from the state's Property Tax Relief Fund as security for bonds that finance library capital improvements (a new building, renovation, etc.)?
Subject
Whether distributions from the Arkansas Property Tax Relief Trust Fund can be pledged to secure bond debt for capital improvements or other lawful purposes, when the underlying county millage that the relief fund is replacing has substantive use restrictions (such as a county library millage limited to maintenance and operations).
Plain-English summary
Representative Les Warren asked whether a county can pledge money it receives from the Property Tax Relief Trust Fund to secure bonds for library capital improvements. The answer turns on what the underlying millage allows.
The mechanics: Counties levy ad valorem property taxes on real and personal property. Some property owners qualify for the homestead tax credit (a state constitutional provision that reduces their property tax bill). Because the homestead credit reduces what the county actually collects, the General Assembly created the Property Tax Relief Trust Fund to reimburse counties for the lost property tax revenue. The state distributes the trust fund money to counties in proportion to each county's share of the statewide property tax reduction caused by the homestead credit.
The key statutory rule is in A.C.A. § 26-26-310(a)(3)(B): the funds a county receives from the Property Tax Relief Trust Fund "shall be used for the same purposes and in the same proportions as otherwise provided by law." Translation: the relief money inherits whatever restrictions applied to the original property tax it's replacing.
The library millage example walks this through. Amendment 38 to the Arkansas Constitution authorizes a county property tax "for the purpose of maintaining and operating a public county library or a county library service or system." A.C.A. § 13-2-404(a)(2)(B) and § 14-168-324 implement this and prohibit diverting library funds "from the use for which they were levied." So library millage money can be used for repair and upkeep of library property and equipment, overhead, and general/administrative expenses, but not for capital improvements like a new building.
Apply the rule: relief fund money replacing library millage is similarly restricted. The county cannot pledge it for capital-improvement bonds because the underlying library millage couldn't be pledged for that purpose either.
The opinion notes that recent legislation has clarified the use-restriction principle. Act 419 of 2025 will recodify A.C.A. § 19-5-1103 at A.C.A. § 19-26-281. Act 121 of 2025 amends both § 19-5-1103 and § 26-26-310 to clarify that distributions from the Fund must be used for providing property tax relief and that the General Assembly may not authorize a different use unless approved by a three-fourths vote of each house.
The implication is that the rule is not just an interpretive choice but a hardened statutory restriction: the relief fund flows the way the underlying tax flows, and the legislature has explicitly limited its own ability to redirect the money to new uses.
What this means for you
County treasurers and finance officers
Don't treat Property Tax Relief Trust Fund distributions as discretionary general revenue. Track them by underlying millage source and apply the same use restrictions. Practical steps:
- Tag each distribution with the originating millage. When the state distributes, the funds get credited to the county property tax relief fund, then distributed within the county per A.C.A. § 26-26-310(a)(3)(A). The internal accounting needs to mirror the millage allocations.
- Library, road, school, and other restricted millages stay restricted. A library millage replacement goes to library operations and maintenance, not to library bonds. A road millage replacement goes to roads, not to general fund. A school millage replacement goes to the same school purposes the underlying millage was levied for.
- General-purpose millage replacement is more flexible. If the underlying millage was a general county purpose tax with no statutory or ordinance-level restriction on use, the replacement money is correspondingly less restricted.
County judges and quorum courts
When you propose using relief fund money for any purpose, the first question is what underlying millage produced that share of relief fund. Pledging library-millage-replacement to bonds for a new library building is impermissible, even if politically attractive. A more conservative approach is to pledge only general-fund-equivalent revenue.
County library boards
The relief fund money is yours for operations and maintenance, just like the underlying millage. You cannot bond against it for a new library building. If your project requires capital financing, look at: voter-approved bonds backed by a separate ad valorem tax, the Library Endowment Fund, gifts and grants, or a separate millage approved by voters specifically for capital improvements.
Bond counsel
Two practical considerations:
- Underlying millage analysis. Before issuing bonds backed by relief-fund revenues, identify the underlying millage source for those revenues and verify that the millage's use restrictions allow the proposed bond purpose. If the millage couldn't be used for the bond purpose, the relief fund money can't either.
- Act 121 of 2025 analysis. The statutory clarification means that even legislative action cannot redirect relief fund use without a three-fourths supermajority vote. Don't structure deals on the assumption that the legislature can quickly authorize a new use.
Municipal finance officers
Cities receive shares of the relief fund through county-level distribution under § 26-26-310(a)(3)(A). The same use-restriction analysis applies: city millage replacement inherits whatever restrictions attached to the underlying millage.
Common questions
Q: My county library board wants to build a new branch. Can we use any property tax revenue?
Not from your existing operations-and-maintenance millage, and not from the relief fund money replacing that millage. Amendment 38 limits library millage to operations and maintenance. For a capital project, you'll need either: (a) voter approval of a separate millage specifically for capital purposes (some counties have done this), (b) a general-obligation bond issued under separate authority, (c) endowment, or (d) gifts and grants. The relief fund money cannot fund the project.
Q: Why did the legislature create the Property Tax Relief Trust Fund instead of just letting the homestead credit reduce county revenue?
To preserve county revenue. If the homestead credit just reduced county collections, counties would have a hole in their budget every year proportional to homestead participation. The Trust Fund replaces those collections from state revenue, keeping county budgets whole. The use-inheriting rule maintains the integrity of the underlying millage system: voters approved a library millage for library operations, and the replacement money for that millage similarly funds library operations.
Q: What if my county has a single combined millage for several purposes?
The same allocation rule applies. The replacement money is distributed in the same proportions as the underlying property tax. If the millage funded library, road, and general fund in 30/40/30 ratios, the relief fund replacement is allocated 30/40/30 with each portion restricted to its underlying use.
Q: Can the General Assembly redirect the relief fund to a new use?
Not without a supermajority. Act 121 of 2025 amends A.C.A. §§ 19-5-1103 and 26-26-310 to require a three-fourths vote of each house of the General Assembly to authorize use of relief fund money for a different purpose. This is a much higher bar than ordinary legislation, which signals that redirecting the relief fund is treated as a serious policy change.
Q: What does "for the same purposes and in the same proportions as otherwise provided by law" mean in plain English?
The relief fund follows the property tax it replaces. If the property tax could be used for X (and only X), the relief fund money can be used for X (and only X). If the property tax was allocated in particular percentages across multiple uses, the relief fund money is allocated the same way.
Q: Is the pledge restriction the same for general-obligation bonds vs. revenue bonds?
The opinion does not differentiate by bond type. The substantive question is whether the relief-fund money can lawfully be used for the bond's purpose. If the underlying millage allows the use (e.g., a road millage for road bonds), the pledge is permissible. If not (e.g., library millage for capital improvements), the pledge is not permissible, regardless of bond structure.
Q: Can we pledge relief fund money to bonds at all?
Yes, when the underlying millage allows. The opinion's analysis turns on the specific facts of library millage; for other millages with broader purpose authorizations (general-purpose county millage, road millage for road bonds, school district millage for permitted school purposes), the pledge analysis tracks the underlying millage's pledge authority.
Background and statutory framework
The constitutional authorization for county libraries is Arkansas Constitution Amendment 38, which authorizes "an annual tax on real and personal property" levied "for the purpose of maintaining and operating a public county library or a county library service or system" (Amendment 38, § 1).
The statutory implementation:
- A.C.A. § 13-2-404(a)(2)(B) covers the use of library millage for repair and upkeep of library property and equipment, overhead, and general/administrative expenses.
- A.C.A. § 14-168-324 prohibits diverting library funds "from the use for which they were levied."
The Property Tax Relief Trust Fund framework:
- A.C.A. § 19-5-1103 establishes the Trust Fund. (To be recodified at A.C.A. § 19-26-281 by Act 419 of 2025.)
- A.C.A. § 26-26-310(a)(2)(B): At the end of each month, the Chief Fiscal Officer of the State certifies the balance to the Treasurer of State, who distributes to each county treasurer "in accordance with the county's proportionate share of the total statewide property tax reduction for that calendar year" caused by the homestead credit.
- A.C.A. § 26-26-310(a)(3)(A): Funds received are credited to the county property tax relief fund and distributed within the county.
- A.C.A. § 26-26-310(a)(3)(B): The use-inheriting rule. Funds received from the Trust Fund "shall be used for the same purposes and in the same proportions as otherwise provided by law."
Recent legislative changes:
- Act 419 of 2025 will recodify A.C.A. § 19-5-1103 at A.C.A. § 19-26-281.
- Act 121 of 2025 amends A.C.A. §§ 19-5-1103 and 26-26-310 to clarify that distributions must be used for property tax relief, and the General Assembly may not authorize a different use unless approved by a three-fourths vote of each house.
The opinion's logic is straightforward: the Trust Fund's purpose is "property tax relief," meaning to replace the property tax revenue counties don't collect because of the homestead credit. The Trust Fund money is therefore a substitute for the underlying property tax, and the substitute carries the same use restrictions.
Citations
- Ark. Const. amend. 38, § 1 (county library millage)
- A.C.A. § 13-2-404(a)(2)(B) (permitted uses of library funds)
- A.C.A. § 14-168-324 (prohibition on diverting library funds)
- A.C.A. § 19-5-1103 (Property Tax Relief Trust Fund; to be recodified at § 19-26-281 by Act 419 of 2025)
- A.C.A. § 26-26-310 (distribution and use rules)
- A.C.A. § 26-26-310(a)(2)(B) (monthly distribution)
- A.C.A. § 26-26-310(a)(3)(A) (within-county distribution)
- A.C.A. § 26-26-310(a)(3)(B) (use-inheriting rule)
- Act 419 of 2025 (recodification)
- Act 121 of 2025 (clarifying use restrictions; three-fourths supermajority requirement)
Source
Original opinion text
Opinion No. 2025-005
April 29, 2025
The Honorable Les A. Warren
State Representative
Post Office Box 22900
Hot Springs, Arkansas 71903
Dear Representative Warren:
I am writing in response to your request for an opinion regarding county library funding. You state,
“For background purposes, various entities that receive ad valorem taxes also receive funding from
the state under the Property Tax Relief Trust Fund as outlined in Arkansas Code § 26-26-310.”
You explain that these funds are intended to replace some of the tax obligations relieved by the
homestead credit. Noting that “library millages are restricted to maintenance and operation issues,”
you ask the following question:
May funds received from the Property Tax Relief Fund be pledged to bond debt for
capital improvements or other lawful purposes?
RESPONSE
The answer to your question depends on the limitations already in place for the county’s millage.
Counties levy ad valorem taxes on their citizens’ real property. Some of those taxes are reduced
due to the homestead tax credit in our state constitution. So the General Assembly created the
Property Tax Relief Trust Fund to replace money the county would have received but for the
homestead tax credit. Money a county receives from the trust fund can only be used for the same
purposes and in the same proportions as the property-tax revenue the county would have received
but for the homestead property tax credit. Thus, if the millage property taxes that are used to fund
a county library are restricted to library operations and maintenance, the replacement money from
the trust fund will be similarly restricted.
DISCUSSION
Under Amendment 38 to the Arkansas Constitution, an annual tax on real and personal property
may be levied “for the purpose of maintaining and operating a public county library or a county
library service or system.”1 These funds can be used for the repair and upkeep of library property
1 Ark. Const. amend. 38, § 1.
TIM GRIFFIN
ATTORNEY GENERAL
323 CENTER STREET, SUITE 200
LITTLE ROCK, ARKANSAS 72201 The Honorable Les A. Warren
State Representative
Opinion No. 2025-005
Page 2
and equipment, overhead and ongoing costs, and general and administrative expenses.2 But they
cannot be “diverted from the use for which they were levied.”3
The Property Tax Relief Trust Fund is a special revenue fund that the General Assembly created
to reimburse counties for the property tax revenues not collected as a result of the homestead
property tax credit.4 At the end of each month, the Chief Fiscal Officer of the State certifies the
balance in the Fund to the Treasurer of State, and the Treasurer makes distributions from the Fund
to each county treasurer “in accordance with the county’s proportionate share of the total statewide
property tax reduction for that calendar year” as a result of the homestead property tax credit.5 The
funds received by the county treasurers are credited to the county property tax relief fund and are
distributed within the county as set forth in A.C.A. § 26-26-310(a)(3)(A).
Of particular importance to your question, the funds a county receives from the Property Tax Relief
Trust Fund “shall be used for the same purposes and in the same proportions as otherwise provided
by law.”6 In other words, the county cannot use money that it receives from the Property Tax Relief
Trust Fund for a purpose that differs from that of the funds being supplemented. This is because
the primary purpose of the Fund is to provide “property tax relief,” meaning that it is intended to
replace some of the funds a county does not collect as a result of the homestead property tax credit.7
Consequently, if a county library is funded by a millage property tax that may only be used to
maintain and operate the library, the replacement funds that the county library receives from the
Property Tax Relief Trust Fund would be similarly restricted.
Senior Assistant Attorney General Kelly Summerside prepared this opinion, which I hereby
approve.
Sincerely,
TIM GRIFFIN
Attorney General
2 A.C.A. § 13-2-404(a)(2)(B).
3 Id. § 14-168-324.
4 See id. § 19-5-1103. This section will be recodified at A.C.A. § 19-26-281. See Act 419 of 2025, § 5.
5 A.C.A. § 26-26-310(a)(2)(B).
6 Id. § 26-26-310(a)(3)(B) (emphasis added).
7 Recent legislation clarifies that distributions from the Fund must be used for providing property tax relief and that
the General Assembly may not authorize a use of the funds for a different purpose unless the purpose is approved by
a three-fourths vote of each house of the General Assembly. See Act 121 of 2025 (amending A.C.A. §§ 19-5-1103
and 26-26-310).