Opinion No.
Background
- City of Jonesboro seeks to fund capital improvements via a bond issue backed by franchise fees, with reimbursement from the capital improvements tax fund.
- Tax at issue is a local sales and use tax; one half of proceeds must be used for capital improvements, the other half for operating purposes.
- Act 25 requires a tax vote and also separate bond-vote requirements; the municipality previously held a tax vote but not a debt/bond vote.
- Amendment 65 allows revenue bonds without an election if debt is secured solely by non-tax revenues such as franchise fees.
- Reimbursement of franchise fees with tax proceeds could indirectly pledge tax revenues, potentially rendering bonds invalid under Amendment 65.
- Ballot language designated that tax proceeds be used for capital improvements; misuse to fund debt service or issuance costs may violate constitutional provisions.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Must Jonesboro hold a bond vote under Act 25 or Amendment 62? | Jonesboro lacks prior bond election for Act 25 debt. | Amendment 65 could permit debt without election if secured by franchise fees. | Tax vote alone is insufficient; no bond authority without a bond election under Act 25 or Amendment 62. |
| Can Amendment 65 authorize bonds without an election if secured only by franchise fees? | Franchise fees suffice to back bonds without taxes. | Bonds may be valid if secured solely by franchise fees, not by tax proceeds. | Bonds may be issuable without an election under Amendment 65 if secured solely by franchise fees. |
| Does reimbursement of franchise fees with sales tax impermissibly indirectly pledge tax revenues? | Indirect pledge could render bonds invalid under Amendment 65. | Depends on facts; indirect pledge is a fact-intensive issue to be resolved by court. | Indirect pledge risks invalidating bonds; outcome depends on detailed facts. |
| Are reimbursements limited to actual capital costs permissible under Act 25 and constitutional provisions? | Reimbursements may be limited to actual capital costs to satisfy tax-use obligations. | If reimbursements include debt service or issuance costs, likely unlawful. | Limiting reimbursement to actual capital costs likely permissible; broader reimbursement may breach law. |
| Did the tax ballot fairly disclose debt implications of using proceeds to service debt? | Ballot indicated financing but not debt; watermarked as pay-as-you-go. | Financing implies raising funds; tax ballot may not fully disclose debt implications. | Tax ballot did not fully disclose debt; proceeds may be restricted to capital costs only. |
Key Cases Cited
- Harris v. City of Little Rock, 344 Ark. 95 (Ark. 2001) (indirect pledge of tax revenues to support franchise-fee-backed debt questioned)
- City of Little Rock v. AT&T Communications of the Southwest, 318 Ark. 616 (Ark. 1994) (franchise fee receipts described as not limited to a single purpose; revenue tools discussed)