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 county distributions from the Property Tax Relief Trust Fund can be pledged for bonds financing capital improvements or other lawful purposes, given restrictions on the county millage they replace.

Plain-English summary

Representative Les Warren asked whether money counties receive from the Property Tax Relief Trust Fund can be pledged to bond debt for capital improvements or other lawful purposes. The AG answered that it depends on the limitations already in place for the county's millage. The fund replaces property tax revenue counties do not collect because of the homestead tax credit.

The controlling rule is that relief fund distributions “shall be used for the same purposes and in the same proportions as otherwise provided by law.” A.C.A. § 26-26-310(a)(3)(B). The AG explained: “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.”

For the library example, Amendment 38 permits a county tax “for the purpose of maintaining and operating a public county library or a county library service or system.” The AG said that when a county library's millage may be used only for maintenance and operations, the relief fund money replacing that millage is similarly restricted. The opinion does not analyze other county millages or independently decide when relief fund receipts can be pledged as bond security.

What this means for you

If you manage county or library funds

Identify the property tax revenue that a relief fund distribution replaces before allocating it. The AG says the replacement money follows the original tax's purposes and proportions. For a library millage restricted to maintenance and operations, do not treat its replacement money as available for a different purpose merely because it arrived from a state fund.

If you are considering a library capital project

The AG's example is a library millage limited to operations and maintenance. Its relief fund replacement carries that same limit, so this opinion supplies no authority to use those replacement funds for a capital project. Review the limits on the specific revenue proposed for the project.

If you advise on a bond issue

The representative asked about a pledge to bond debt, but the AG answered through the underlying millage's use restrictions. Check those restrictions for the specific revenue and proposed use. The opinion does not establish a general pledge power, address road or school millages, or distinguish revenue bonds from general obligation bonds.

If you are a legislator

The AG notes in a footnote that Act 121 of 2025 limits legislative authorization of a different use of relief fund money: the different purpose must be approved by a three-fourths vote of each house of the General Assembly. That footnote does not address bond pledges.

Common questions

Can a county use library millage replacement money for a new building?

If the underlying library millage may be used only to maintain and operate the library, its relief fund replacement is restricted to those same purposes. The AG does not analyze a separate funding source for a new building.

Does the opinion approve pledges backed by relief fund money from other millages?

No such conclusion appears in the opinion. Its response is that the answer “depends on the limitations already in place for the county’s millage”; its concrete example is county library funding.

Why does a state distribution retain local use limits?

The fund replaces property tax revenue lost to the homestead credit. Under A.C.A. § 26-26-310(a)(3)(B), the county must use that replacement “for the same purposes and in the same proportions as otherwise provided by law.”

Does it matter what kind of bond a county wants to issue?

The opinion does not distinguish among bond types. It discusses the allowed use of the replacement funds, not the mechanics or authority for a particular bond issue.

Background and statutory framework

Amendment 38 authorizes a county tax for “maintaining and operating a public county library or a county library service or system.” The opinion identifies repair, upkeep, overhead, ongoing costs, and general and administrative expenses as uses of library funds, citing A.C.A. § 13-2-404(a)(2)(B). It also quotes the rule that those funds cannot be “diverted from the use for which they were levied,” citing § 14-168-324.

The AG describes the Property Tax Relief Trust Fund as replacing county property tax revenue lost to the homestead credit. A.C.A. § 26-26-310(a)(3)(B) requires its distributions to follow the same purposes and proportions as the funds being supplemented. Footnote 7 cites Act 121 of 2025 for the restriction on authorizing a different purpose without a three-fourths vote of each legislative house.

Citations

• Ark. Const. amend. 38, § 1
• A.C.A. § 13-2-404(a)(2)(B)
• A.C.A. § 14-168-324
• A.C.A. § 26-26-310(a)(3)(B)
• Act 121 of 2025

Source

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

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).