Opinion No.
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The Honorable Mike Beebe State Senator 211 West Arch Avenue Searcy, Arkansas 72143

Dear Senator Beebe:

This is in response to your request for an opinion on the constitutionality of a contract between the City of Beebe and the Beebe Industrial Development Corporation. Specifically, you have enclosed a letter from a Beebe city alderman explaining that the Beebe Industrial Development Corporation, ("BIDC"), a nonprofit private corporation, several years ago appealed to the City of Beebe for money to help finance its operations. The City denied this request on advice of the city attorney, whose opinion it was that an outright appropriation or donation of funds would be unconstitutional. A contract was thereafter entered into between the City and the BIDC whereby the City of Beebe agreed to pay the BIDC for the provision of economic development services to the City. A copy of this contract is enclosed with your request.

The question presented is whether this contract will withstand constitutional scrutiny under Arkansas Constitution, art. 12, §5.

This issue has been addressed by previous opinions of the Attorney General. See Op. Att'y. Gen. Nos. 89-061 and 91-358, copies of which are enclosed. Opinion No. 89-061 addressed the question of whether the City of West Memphis could contract to make quarterly payments to the West Memphis Chamber of Commerce in return for industrial and economic development services. The opinion noted that "[a]s a general matter, it is my opinion that the city may contract for the provision of economic development services by a private organization and not necessarily run afoul of Article 12, Section 5." The opinion also notes, however, that a factual issue may arise as to whether adequate consideration actually supports the contract, and whether the contract is merely a subterfuge for accomplishing indirectly what is prohibited under Article 12, § 5. A similar conclusion was reached in Opinion No. 91-358, as to contracting for the provision of recreational programs.

It is my, opinion, consistent with prior opinions of the Attorney General, that contracts such as the one described in your request are not necessarily unconstitutional. They must, however, to withstand a constitutional challenge, be supported by adequate consideration. This is a question which could only be definitively resolved, as to a particular contract, by a factfinder.

The foregoing opinion, which I hereby approve, was prepared by Assistant Attorney General Elana C. Wills.

Sincerely,

WINSTON BRYANT Attorney General

WB:cyh