Court Opinion

ID: 9674864
Source: CourtListenerOpinion
Date Created: 2023-08-24 04:36:41.0962+00
Date Added: 2024-06-11T18:16:29.969732
License: Public Domain

Darrell Hickman, Justice, concurring (substituted concurrence). I agree with the majority opinion, which is to hold, among other things, that so-called revenue bonds issued pursuant to Act 380 and Act 9 are illegal unless approved by the voters. But I would go further than the majority and hold that “revenue” bonds by any name or certificates of indebtedness, whether pursuant to Act 9 or Act 380 or any other provision, are unconstitutional unless the bond issue is approved by the voters, because that is what the constitution requires. First, we should examine what the City of Little Rock did in this case. Little Rock bought land and issued bonds to finance the building of ~a motel which was totally unconnected with any public enterprise such as a convention center or park. Why? The appellees contend it was done to aid tourism, which we can concede for argument to be a public endeavor, just as industry has been found to be a legitimate public purpose, because the people so found when they adopted Amendment 49 to our Constitution. The bonds in this case are tax-free — that is, the holders do not have to pay state or federal taxes on the interest earned. The bonds will be retired from the rent paid by the motel; when that is done, La Quinta may buy the land and motel for $100.00. We expressed deep concern with such schemes when we decided Purvis v. Hubbell, 273 Ark. 330, 620 S.W.2d 282 (1981). In that case it was argued that the bonds were legal for two reasons: (1) they were issued for a public purpose because a convention center was being built with the money, and (2) the bonds were purely “revenue bonds,” to be retired by income made by the center, not paid with taxes or general revenue resources of the city. That was not the case, but the majority found that the bond issue did not have to be approved by the voters as constitutionally required. In Purvis we issued this clear warning: After carefully considering our previous decisions, it appears there has been a gradual expansion of the concept of revenue producing bonds, which require no popular approval, as was authorized for instance in Snodgrass v. Pocahontas, 189 Ark. 819, 75 S.W.2d 223 (1934). However, a change should not be made retroactively, after public agencies and investors have relied on our decisions; but in other instances we have given notice that an interpretation of the Constitution may or will be changed. Clubb v. State, 230 Ark. 688, 326 S.W.2d 816 (1959); Hare v. General Contract Purchase Corp., 220 Ark. 601, 249 S.W.2d 973 (1952). Accordingly, we give notice of our intention to prospectively reconsider our cases at the next opportunity after the present opinion becomes final. (Italics supplied.) The warning has been ignored, as most warnings are. While the specific question is “revenue bonds,” the overall question is government indebtedness and the wide-spread abuse of government credit through bonds. We have in this case a bond issue which merely uses the city as a tool to obtain favorable financing for a purely private endeavor. How did we get to this point in Arkansas? The answer is gradually. The indebtedness of government has always been a sore subject with taxpayers, because they have to pay the debt — not the “government,” not those who govern, not those who conceive the endeavor, not those who incur the debt, nor those who benefit from it directly or indirectly. Bonded indebtedness, as well as long-term indebtedness, is the subject of strict and explicit constitutional provisions. These provisions, as well as the Revenue Stabilization Act 750 of 1973, as amended, are matters of pride to state officials as well as to the people of this state, although the pride is false. Article 16 and Amendment 13 of the Arkansas Constitution (1874) deal with state and local finance and taxation. The first sentence of both states: Neither the State nor any city, county, town or other municipality in this State, shall ever lend its credit for any purpose whatever. . . . Section 1 of Article 16 contemplates that local governments will have to incur some indebtedness for capital improvements and authorizes the issuance of bonds for those purposes. Those purposes are for every conceivable public work: streets, parks, sewer systems, water works, electrical systems, fire stations, libraries, airports, and a host of others. In 1928 article 16 section 1 was amended by Amendment 13 to provide for constructing, widening, or straightening streets within the corporate limits, constructing flying fields, and comfort stations, purchasing of fire fighting apparatus and fire alarm systems, street cleaning apparatus, public abattoirs, and incinerators or garbage disposals. Ordinary indebtedness is explicitly controlled. The constitution reads: The fiscal affairs of counties, cities and incorporated towns shall be conducted on a sound financial basis, and no county court or levying board or agent of any county shall make or authorize any contract or make any allowance for any purpose whatsoever in excess of the revenue from all sources for the fiscal year in which said contract or allowance is made. (Ark. Const. Art. 12 § 4 (1874) as amended by Amendment 10.) Amendment 20 governs state bonds and requires an election. It says: The State shall issue no bonds or other evidence of indebtedness pledging the faith and credit of the State or any of its revenues for any purpose whatsoever, unless approved by the voters. (Italics supplied.) These provisions direct that the state, counties and cities must live within their means; they can borrow money through a bond issue for explicit public purposes with one important condition — the public must approve the debt by a vote. These provisions have often proved to be a roadblock to governors, legislators, builders, bond salesmen, lawyers, county judges, and mayors who conceive and approve of certain public projects but have difficulty obtaining the approval of voters. The terms and conditions imposed on bond issues have also been troublesome. So, virtually all capital expenditures, state and local, are done through the use of revenue bonds without voter approval. There is no mention in the constitution of revenue bonds, or any bonds for that matter except those approved by voters. The concept of revenue bonds was first approved during the great depression in a series of cases. McCutchen v. Siloam Springs, 185 Ark. 846, 49 S.W.2d 1037 (1932); Jernigan v. Harris. 187 Ark. 705, 62 S.W.2d 5 (1933); Snodgrass v. The City of Pocahontas, 189 Ark. 819, 75 S.W.2d 223 (1934). These cases hold that bonds can be legal even though there is no vote; that since the people would not be taxed or their property appropriated to pay for the indebtedness, there was no violation of Amendment 13. But the court, in its avoidance of the constitution, made one serious mistake. For example, in the Snodgrass case, the court chose to call the fees used to pay the waterworks bonds “rentals,” which is nothing but a euphemism for taxes. It was reasoned that since the waterworks collected money from the users, that money would retire the bonds, instead of general revenues and, thereby, the waterworks would pay for itself. That completely overlooks the fact that the city imposes the water tax or use fee and orders the taxpayer to pay the bonds. It is simply a backdoor approach. The ordinary or at least the intended way that cities pay general obligations is to use money collected by ordinance from users of municipal services. The use of revenue bonds is simply a scheme to avoid the legal way a city can borrow money. Regardless, Snodgrass became the precedent for innumerable revenue bonds which did not have to be approved by a vote. That method, rather than issuing constitutional bonds, has become the norm for the obvious reason that voter approval is not required. The use of revenue bonds was and is today, in many instances, used for legitimate public purposes involving sound and needed public improvements. But the practice of issuing revenue bonds without a vote is a serious fault in the government process because there is no check by those who have to pay for the improvement on whether the decision of those to issue the bonds is sound, whether the project is needed and whether, indeed, there is corruption involved in the process. While in the early history of the use of revenue bonds and even recently elections were held, it has become obvious that the current practice is to avoid submitting to the voters the question of whether the so-called revenue bonds should be approved. The state, in a series of revenue bond issues, has avoided the constitution and issued bonds to build the Justice Building, the Revenue Building, and numerous college and university buildings. See McArthur v. Smallwood, 225 Ark. 328, 281 S.W.2d 428 (1955); Holmes v. Cheney, 234 Ark. 503, 352 S.W.2d 943 (1962); Miles v. Gordon, 234 Ark. 525, 353 S.W.2d 157 (1962). The revenue bonds in Smallwood get part of their “revenue” from a biannual appropriation directly from the legislature for “rent” to various state departments and agencies in the Justice Building, which in turn pay off the bonds. In 1982 that rent was over $175,000. The Justice Building and other buildings are being paid for out of general revenues, the so-called “revenue bonds” being retired just as though they were general obligations of the state. Such a practice is unconstitutional because this long term indebtedness was not approved by the voters in a valid election. In the case of university buildings, the students or others are supposed to pay the bonds with rent or fees; and the Revenue Building bonds are paid in part by fees and charges. The state is, in several current instances, charging itself rent on its own buildings. Over a period of twenty-four years, twenty-four million dollars in bonds have been issued in connection with the University of Arkansas. Some are obviously more sound than others, but none have been approved by the voters to my knowledge. The scheme for building the Multi-Agency Complex, a state office building, was first begun as part of a grandiose plan, which still exists, to issue seventy-two million dollars in bonds for construction of an extensive office complex immediately west of the Capitol Building. This was done through an agency called the Public Building Authority created by Act 236 of 1973. There was no voter approval for these bonds. The Public Building Authority bonds were declared unconstitutional in lower court. While the case was being appealed, the power of the Public Building Authority to issue bonds was repealed, and the court declared the issue moot. Act 270 of 1975. Morgan v. Sparks & Bryant, 258 Ark. 273, 523 S.W.2d 926 (1975). At the very next session of the legislature, however, the program was kept alive by Act 713 of 1975, which renamed the Public Building Authority the State Building Services. Part of the Multi-Agency Complex (the “Big Mac Building”) was built, which is a less expensive part of the original scheme, from appropriated funds. However, the authority remains for the legislature to approve bonds for that original scheme. Act 1223 of 1975. The legislature is charging its own agencies rent in this new building, an illegal practice, to be placed in a separate fund, for what purpose I do not know. State Building Services has become the legislature’s own private bonding authority for illegal appropriations to pay bonds and certificates of indebtedness. I cannot say for certain how many outstanding bonds exist for other state buildings, university buildings or property in general. (See Act 469 of 1965, Arkansas State Department of Health Building Commission; Act 399 of 1953, Department of Parks and Tourism; Act 186 of 1963, Arkansas Board of Mental Retardation.) Nor do I expect the executive and legislative branches of the state government will collect and publish just how many such bonds are outstanding. Recently, in the case of Wells v. Clinton, 282 Ark. 20, 666 S.W.2d 684 (1984), we examined, in part, the question of certificates of indebtedness which could amount to a twenty-five million dollar debt by the State of Arkansas. The state in this case is simply borrowing from itself, pledging revenues to pay it back. It is significant that we did not reach the question of the constitutionality of these certificates. We did hold that it was not an unlawful delegation of authority for certain decisions to be made in connection with those certificates, but we did not approve the certificates. The revenue used to pay off the certificates of indebtedness is in part from fees and in part from revenues produced by the Arkansas Department of Correction. I think part is being paid by interest from state money on deposit, but that is not clear. See Act 458 of 1983 and Act 12 of 1965. This latest scheme is a sleight of hand that permits the state to borrow from money collected for one purpose to be used for another. The state is simply issuing itself an IOU. It is deficit financing prohibited by our constitution. These are pledges of revenues of the State of Arkansas to pay a debt in violation of Amendment 20 to the Arkansas Constitution, which reads: [T]he State of Arkansas shall issue no bonds or other evidence of indebtedness pledging the faith and credit of the State or any of its revenues for any purpose whatsoever, except by and with the consent of the majority of the qualified electors of the State voting on the question at a general election or at a special election called for that purpose. Voters are undoubtedly not aware of these debt obligations. These bonds and certificates are all paid for with funds that should be in the state’s treasury for general appropriations. State revenue bonds, just as those issued in this case by the City of Little Rock, state on their face they are not general obligations, but “revenue bonds” to be paid for by the revenue generated. But in reality, if the bonded indebtedness encounters difficulty, the legislature simply pays it — a debt it denies it owes. See Act 907 of 1983. What we have is a proliferation of public buildings and projects which belong to the State of Arkansas and are being paid for by the State of Arkansas out of general revenues or out of special taxes or fees under schemes designed to avoid the Constitution of Arkansas. The problem of revenue bonds with local governments took a different turn. The main deviation occurred after World War II when it became evident that if our state was to progress we had to attract industry. The people readily approved Amendment 49 to the constitution, which, for the first time, would allow the state and local governments to issue bonds to promote private industry. Amendment 49 was needed to amend Amendment 13 which spelled out all the various public works for which cities and counties could issue bonds. Myhand v. Erwin, 231 Ark. 444, 330 S.W.2d 68 (1959). The amendment met a need which was unforeseen by the drafters of the 1874 Constitution. However, Amendment 49, adopted in 1958, contained the same provision concerning bonds as other constitutional provisions. The voters had to approve such bonds. No sooner than the people authorized “bonds” to be issued to finance industries after a proper vote, the legislature passed Act 9 of 1960 in an extraordinary session. This act called such industrial bonds “revenue” bonds, but an election was required. The purpose of Act 9 was to “implement and supplement the provisions of said Amendment 49 to the end of carrying out the broadest and most aggressive possible industrial development program. ...” The legislature directed that the act was to be liberally construed. In 1976, by Act 1239, Act 9 was amended to provide industrial “revenue” bonds could be issued without an election. No doubt, this legislation was intended to avoid the constitutional provisions pertaining to bonds and financing. Amendment 49 did not need Act 9 for implementation, but Act 9 needed Amendment 49. Myhand v. Erwin, supra. Act 9 was essentially approved in Wayland v. Snapp, 232 Ark. 57, 334 S.W.2d 633 (1960), where a majority of the court looked the other way when the constitution was violated. But Wayland cannot be used for a blanket approval of all Act 9 bonds, because just as in Myhand, a true Amendment 49 bond issue, there was an overwhelming voter approval. In 1971, Act 380 was passed. Act 380 is much like Act 9, as amended, in that it allows bonds to be issued by cities and counties without a vote, but expands the word “industry” used in Amendment 49 to include “tourism,” a rather nebulous term. At the same time that Act 380 recites it is for the purpose of implementing Amendment 49, it proceeds to violate it. It provides for no vote, states that the bonds are “revenue bonds,” increases the thirty year limitation in Amendment 49 to forty years, increases the interest limitations from six percent per annum to no limit and does away with the requirement for public sale of the bonds after advertisement. This brings us to the case of Purvis v. Hubbell, supra, and the current case. In review, what we have is a total corruption of Article 16 and Amendments 13, 20 and 49. We cannot and should not ignore the problem any longer. Whatever sound reasons may have existed for approving “revenue bonds” in Snodgrass, either no longer exist or should be abandoned if we are to keep the confidence of the taxpayers and the financial integrity of our government. It is strongly suggested that the bonds in this case pledge no tax or indebtedness of the city, that they are not even revenue bonds, and, therefore, the bonds do not violate any constitutional provision. That is true to a degree. But if the government is not involved in any way, how can it issue bonds? But it is, in this case; the city bought the land with city revenue, or at least city revenues were pledged (that is not clear); the city lent its credit to the bond issue in violation of Article 16. Furthermore, Amendment 49 is not limited to credit lending situations. Myhand v. Erwin, supra. Act 380 can only be legal if it is in accordance with Amendment 49. It is the sole authority for its existence. The bonds are not legal if Act 380 is not legal, and it is not totally legal. Actually, the reason for the bonds is more one of greed than public welfare. These are tax free bonds, which are approved by the federal government, and the city is merely being used as a tool to arrange this favorable financing for purely a private enterprise. The motel owners profit because they get a motel with a favorable financial arrangement; the bond salesmen profit, because they get to sell bonds and get a commission on what would ordinarily be a purely commercial loan situation; and the buyers get a tax-free income. What does the city get? Probably nothing. Should we care since the bonds state on their face that the city is not liable? Should we care about bondholders who would buy such bonds? Should we care because the federal government brought about this creation that deprives itself of income? We should care for two reasons. The city has expended funds in this endeavor by buying the land and incurring the liability of having to take over the motel. More important, we should care because it is illegal. Act 380, which provides for bonds without voter approval, violates Amendment 49 and cannot stand. If it cannot stand, the bonds are void. The public has never approved of any city, county, or state government issuing revenue bonds. We were the ones that initially approved this practice, and it is now our duty and obligation to prevent its further abuse by enforcing the constitution. Voter approval will harm no one. It will simply restore us to our claimed financial integrity. The warning was clear in Purvis v. Hubbell, supra. Not only should we strike down this bond issue as being a purely private one, we should place a moratorium on all further revenue bonds and enforce the constitution. The majority decision will have little or no effect on the general practice of local and state governments incurring debts in avoidance of the constitution, but it is a step in the right direction.