Can a property owner in an Arkansas suburban improvement district pay the full assessment in a lump sum, or must they pay over time in annual installments?

Plain-English summary

Representative Bob Ballinger asked AG Dustin McDaniel whether Holiday Island Suburban Improvement District ("SID") was correct to read A.C.A. § 14-92-228(a) as barring property owners from paying their assessments in a single lump sum. The statute says SID assessments are "to be paid in annual installments, not to exceed ten percent (10%) for any one (1) year."

The AG made two moves. First, on the abstract legal question, he concluded the statute does not universally and invariably prohibit prepayment. He pointed to A.C.A. § 14-92-330(b)(1)(A)(ii), which sets the collector's commission for prepayments. A statute setting the commission rate for prepayments necessarily presumes that prepayments can happen.

Second, on the Holiday Island question specifically, he declined to opine. Whether any particular district's assessments may be prepaid can depend on facts the AG cannot find: whether the assessment is for capital improvement or operations and maintenance, whether the assessment is pledged or intended to be pledged as security for bonds, whether the bonds are callable from prepayment proceeds, what the order imposing the assessment says about prepayment, and whether a settlement agreement governs the district. Holiday Island's assessments are in fact addressed in a binding settlement agreement (Bischoff v. Holiday Island SID, Carroll County Circuit Court, Feb. 18, 2014). The AG concluded that taking a position on the Holiday Island case would amount to executive-branch comment on a judicially-approved agreement, which exceeds his proper role.

Currency note

This opinion was issued in 2014. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here.

Common questions

Does the Arkansas SID statute let property owners prepay their assessments?
Not always, but not never either. The AG read A.C.A. § 14-92-228(a)(2) (which allows annual installments capped at 10% per year) together with A.C.A. § 14-92-330(b)(1)(A)(ii) (which sets a collector commission specifically for prepayments). The second statute would be meaningless if prepayments were universally barred. Whether a particular district allows prepayment can turn on the assessment order, any bond pledges, and any settlement agreement.

Why does it matter whether the assessment is pledged to bonds?
When a SID sells bonds backed by assessment revenue, prepayment can change the timing of cash flows the bondholders are counting on. Some bonds are callable (the district can pay them off early using prepayment proceeds); some are not. If the bonds are not callable, the district may need the steady installment stream to make scheduled debt service payments, and allowing prepayment could create a mismatch.

What's the difference between a capital improvement assessment and an O&M assessment?
Capital improvement assessments fund the original construction of the SID's infrastructure (water, sewer, roads, etc.) under A.C.A. § 14-92-225. Operation and maintenance assessments fund ongoing operations under A.C.A. § 14-92-239. They can be structured differently, and the prepayment question can come out differently for each.

Why did the AG decline to opine on Holiday Island specifically?
Two reasons. First, the AG cannot serve as a finder of fact. Resolving the Holiday Island prepayment question would require examining the specific assessment order, bond documents, and the settlement agreement. Second, Holiday Island's assessments are governed by a judicially-approved binding settlement agreement (Bischoff v. Holiday Island SID). Interpreting that agreement is a judicial function the AG does not undertake.

What is a "binding settlement agreement" and why does it matter here?
A settlement agreement is a contract that resolves litigation. When a court approves a settlement and enters it as an order, the agreement is binding on the parties and enforceable by the court. The Holiday Island settlement (Bischoff case, Feb. 2014) appears to spell out how assessments will be paid. Interpretation of that contract is for the court that entered it, not the AG.

Where can a Holiday Island property owner get a definitive answer?
The settlement agreement itself, in the Bischoff case, is the controlling document. A property owner should read the order, consider local counsel, and if a dispute persists, raise it with the circuit court that approved the settlement.

Background and statutory framework

Arkansas suburban improvement districts are political subdivisions created under A.C.A. §§ 14-92-201 et seq. They impose assessments on benefited property to fund infrastructure and ongoing services. The opinion identifies the following statutory pieces:

• A.C.A. § 14-92-228(a)(1): assessments are pledged as security for any bonds the district issues.
• A.C.A. § 14-92-228(a)(2): assessments "to be paid in annual installments, not to exceed ten percent (10%) for any one (1) year" (the language Holiday Island read as forbidding prepayment).
• A.C.A. § 14-92-225: capital improvement assessments.
• A.C.A. § 14-92-234 (Supp. 2013): bond pledge mechanics.
• A.C.A. § 14-92-239: operation and maintenance assessments.
• A.C.A. § 14-92-330(b)(1)(A)(ii) (Supp. 2013): collector's commission, including a separate maximum-commission rate for prepayments. The existence of a prepayment-specific commission rule is the AG's textual hook for concluding the statute presumes prepayments are possible.

The opinion treats the abstract prepayment question as resolvable under the statutory scheme, but treats the Holiday Island question as governed by the Bischoff settlement, which is a matter for the circuit court rather than the AG.

Citations

• A.C.A. § 14-92-228(a)(2) (Repl. 1998) (assessments paid in annual installments, not to exceed 10% per year)
• A.C.A. § 14-92-330(b)(1)(A)(ii) (Supp. 2013) (collector commission for prepayments)
• A.C.A. § 14-92-225 (Repl. 1998) (capital improvement assessments)
• A.C.A. § 14-92-239 (Repl. 1998) (operation and maintenance assessments)
• A.C.A. § 14-92-234 (Supp. 2013) (bond pledge mechanics)
• A.C.A. § 14-92-228(a)(1) (assessments pledged as bond security)
• Bischoff v. Holiday Island SID, No. O83WCV-12-69 (Carroll County Circuit Court, Feb. 18, 2014) (settlement governing Holiday Island assessments)

Source

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

Original opinion text

STATE OF ARKANSAS

THE ATTORNEY GENERAL
Dustin McDANIEL

Opinion No. 2014-045

June 23, 2014

The Honorable Bob Ballinger
State Representative

1757 Madison 7150

Hindsville, Arkansas 72738-9558

Dear Representative Ballinger:

This is my opinion on your question whether property owners may prepay
assessments imposed by Holiday Island Suburban Improvement District or must
pay the assessments, and interest thereon, in annual installments.

You quote a statute that provides in relevant part that a suburban improvement
district ("SID") assessment "'is to be paid in annual installments, not to exceed ten
percent (10%) for any one (1) year... .'" You state that Holiday Island "interprets
this statute as prohibiting property owners . . . from paying their assessments in
one lump-sum."

RESPONSE

In my opinion, the quoted statute does not universally and invariably prohibit
prepayment of SID assessments but, for the reasons stated below, I decline to state
an opinion on whether Holiday Island's assessments may be prepaid.

I conclude that the quoted statute does not universally and invariably prohibit
prepayments largely because governing law expressly contemplates that SID
assessments may be prepaid in at least some instances: "For his or her services in
making the collections, including prepayments, the collector shall receive a
commission of [a specified amount]. In the case of prepayments, the maximum
commission shall be the lesser of [two specified amounts]."

¹ A.C.A. § 14-92-228(a)(2) (Repl. 1998).

² A.C.A. § 14-92-330(b)(1)(A)(ii) (Supp. 2013) (emphases added).

323 CENTER STREET, SUITE 200 * LITTLE ROCK, ARKANSAS 72201
TELEPHONE (501) 682-2007 * FAX (501) 682-8084
INTERNET WEBSITE * http://www.ag.state.ar.us/

The Honorable Bob Ballinger
State Representative

Opinion No. 2014-045

Page 2

In my view, however, whether a particular SID's assessments may be prepaid may
depend on the prevailing facts and circumstances. Assessments may be for capital
improvements³ or for operation and maintenance.⁴ They may or may not be
pledged, or intended to be pledged in the future, as security for bonds,⁵ which
may or not be callable from prepayment proceeds. The order imposing the
assessments⁶ may or may not address the question of prepayments. In some
instances, property owners and a SID may have entered into an agreement
concerning the assessments, either in connection with the settlement of litigation
or otherwise. I understand that Holiday Island's assessments are in fact addressed
in a settlement agreement between Holiday Island and property owners.⁷

Because I am neither equipped nor charged to act as a finder of fact in rendering
opinions, and because taking a position with respect to Holiday Island's
assessments would amount to executive-branch comment on a question that may
depend on interpretation of a judicially-approved agreement, I decline to state an
opinion on whether Holiday Island's assessments are subject to prepayment.

Assistant Attorney General J. M. Barker prepared this opinion, which I approve.

Sincerely,

DUSTIN McDANIEL
Attorney General

DM/JMB:cyh

³ See A.C.A. § 14-92-225 (Repl. 1998).

⁴ See A.C.A. § 14-92-239 (Repl. 1998).

⁵ See A.C.A. § 14-92-234 (Supp. 2013).

⁶ See A.C.A. § 14-92-228(a)(1).

⁷ See Order Approving Binding Settlement Agreement, Bischoff v. Holiday Island Suburban Improvement
Dist., No. O83WCV-12-69 (Circuit Court, 19th Judicial Circuit East, Carroll County Western Division, Feb.
18, 2014).