United States: Arkansas Constitution Amended To Encourage Economic Development

On November 8, 2016, Arkansas voters approved constitutional amendments that are intended to encourage job creation, job expansion and economic development.1 Specifically, the amendments allow local jurisdictions to obtain or appropriate funds to finance economic development projects or provide economic development services. Also, the amendments remove the limitation on the amount of general obligation bonds that the state may issue to finance infrastructure or attract economic development projects. Finally, the amendments allow local jurisdictions to issue bonds for economic development projects.

Amendments to Arkansas Constitution

Local Jurisdiction Authorization to Participate in Economic Development Projects or Services

Article 12 of the Arkansas Constitution was amended to add a caveat to the section that previously prohibited local jurisdictions (counties, cities, town, and other municipal corporations) from participating in economic development activities.2 The Constitution continues to provide that no local jurisdictions may "obtain or appropriate money for, or loan its credit to, any corporation, association, institution or individual."3 However, Article 12 is amended to provide that local jurisdictions may obtain or raise funds for these types of entities to finance economic development projects or provide economic development services.4

The amendments to Article 12 define economic development projects, economic development services and infrastructure.5 "Economic development projects" means the land, buildings, furnishings, equipment, facilities, infrastructure, and improvements that are required or suitable for the development, retention, or expansion of the following:

  • Manufacturing, production, and industrial facilities;
  • Research, technology, and development facilities;
  • Recycling facilities;
  • Distribution centers;
  • Call centers;
  • Warehouse facilities;
  • Job training facilities; and
  • Regional or national corporate headquarters facilities.6

"Economic development services" means: (i) planning, marketing, and strategic advice and counsel regarding job recruitment, development, retention and expansion; (ii) supervision and operation of industrial parks or other such properties; and (iii) negotiation of contracts for the sale or lease of industrial parks or other such properties.7 "Infrastructure" is defined as the following:

  • Land acquisition;
  • Site preparation;
  • Road and highway improvements;
  • Rail spur, railroad, and railport construction;
  • Water service;
  • Wastewater treatment;
  • Employee training which may include equipment for such purpose; and
  • Environmental mitigation or reclamation.8

Limitation on Amount of State Issued Bonds Removed

Amendment 82 of the Arkansas Constitution was amended to remove the cap placed on bonds issued by the state to pay for infrastructure and otherwise attract large economic development projects to Arkansas.9 Prior to amendment, there was a cap placed on bonds that limited them to 5 percent of the state's general revenue collected in the most recent fiscal year. With the cap removed, the state could, in theory, issue bonds up to 100 percent of the state's general revenue and attract substantially larger economic development projects. The Arkansas Development Finance Authority reserves the right to issue these bonds.10

Counties and Municipalities May Issue Bonds for Economic Development Projects

Voters approved various amendments to Amendment 62 of the Arkansas Constitution. Counties and municipalities may, with the consent of the majority of voters, issue bonds to finance economic development projects instead of facilities for the securing and developing of industry.11 Previously, "industry" was not defined in the Constitution and has been replaced with economic development projects as defined in the amendments to Article 12.12 As amended, the General Assembly or the legislative body is authorized to enact other taxes to retire the bonds.13 Amendment 62 retains the provision that any amount collected in surplus of the bond debt must be transferred to the general funds of the municipality or county.14 However, these bonds are no longer required to be sold exclusively at public sale and the bonds can be sold either in a public or private forum.15 Finally, local jurisdictions are allowed to form compacts for economic development projects.16 Prior to amendment, local jurisdictions could combine to secure and develop "industries," but this language has been replaced by "economic development projects" as defined in Article 12.17

Commentary

In the past, Arkansas was considered to be at an economic disadvantage compared to other states due to the funding limitations set by the Arkansas Constitution. The amendments to the Constitution seek to remove hindrances to economic growth through an economic development strategy, in which the state is empowered to be more active in pursuing businesses. Without changes to the Constitution, the ability of state and local agencies to negotiate the incentive packages required to attract these large projects would still be limited.

Despite gaining the support of a substantial majority of voters, the changes to Amendment 82 have been met with a mix of optimism and concern. Voters that supported enactment of the amendments are optimistic that the removal of the 5 percent cap on bonds will attract projects to the state that will improve the economic landscape and job market. Voters opposed to the amendments are concerned that overly aggressive legislation could lead to a mismanaged bond portfolio, potentially investing large portions of state revenues in risky business ventures. Despite the mixed reaction, the changes to the Arkansas Constitution do clarify the ability of the state to attract businesses to come to, or stay in Arkansas. State officials and voters hope that these changes serve to make Arkansas a more competitive force in the economic development market.

Footnotes

1 Issue No. 3, Arkansas General Election Ballot, Nov. 8, 2016, amending ARK. CONST. art. 12; amend. 62, 82; approved by over 65 percent of the voters.

2 ARK. CONST. art. 12, § 5.

3 ARK. CONST. art. 12, § 5(a).

4 ARK. CONST. art. 12, § 5(b).

5 ARK. CONST. art. 12, § 5(c). 

6 ARK. CONST. art. 12, § 5(c)(1).

7 ARK. CONST. art. 12, § 5(c)(2).

8 ARK. CONST. art. 12, § 5(c)(3).

9 Former ARK. CONST. amend. 82(b).

10 ARK. CONST. amend. 82(a).

11 ARK. CONST. amend. 62, § 2(a). 

12 ARK. CONST. amend. 62, § 2(d)(1).

13 ARK. CONST. amend. 62, § 2(c).

14 ARK. CONST. amend. 62, § 5.

15 ARK. CONST. amend. 62, § 3 (repealed).

16 ARK. CONST. amend. 62, § 9.

17 Id

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