Can an Arkansas city give $25 gift cards to volunteer EMS members as a thank-you?

Plain-English summary

The City of Fairfield Bay had spent $1,375 on Christmas gift cards, $25 each, for volunteers in its EMS program. The Division of Legislative Audit flagged the expenditure as a possible violation of Article 12, Section 5 of the Arkansas Constitution (which prohibits municipalities from giving money or property to corporations, associations, or individuals) and the broader public-purpose doctrine. State Representative Trevor Drown asked the AG whether the city had actually broken the law.

AG Leslie Rutledge declined to give a definitive yes-or-no answer because the question turned on facts that the AG could not investigate. But on the limited facts presented, the gift cards looked like a constitutional problem. Article 12 Section 5 bars not just cash donations but any expenditure that grants financial aid to private parties. The exception is consideration paid under a valid contract, including an oral one, for services rendered to the city. So if the EMS "volunteers" were operating under some form of service arrangement with the city (with the gift cards being part of the consideration), the donation prohibition would not apply. If they were purely gratuitous volunteers and the gift cards were ad-hoc gifts on top of that, Article 12 Section 5 would block the expenditure.

The fact that the city argued it was not "appropriating money" to any private party showed (in the AG's reading) a misunderstanding of how broadly Article 12 Section 5 has been interpreted. The fact that the cards were $25, below the $100 threshold in Arkansas's ethics-statute definition of "gift," was a red herring; that ethics-statute definition does not control whether a municipal expenditure is a constitutional donation.

If the city could clear the Article 12 Section 5 question by establishing a service-contract relationship, then under the public-purpose doctrine the EMS work itself was clearly a municipal purpose, so the expenditure would survive.

Currency note

This opinion was issued in 2016. 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 Article 12 Section 5 apply only to cash donations?
No. The Arkansas Supreme Court has read it to bar any expenditure that amounts to granting financial aid to a private entity or individual. Gift cards function as cash equivalents and fall under the same analysis.

Doesn't the $100 ethics-gift threshold mean a $25 gift card is fine?
That threshold (Ark. Code Ann. § 21-8-402) deals with disclosure obligations under the ethics rules for things a public official accepts. It has nothing to do with whether a municipality's expenditure to give something is constitutional. Those are different questions, and the AG declined to use one to answer the other.

Is there any way the gift cards could be legal?
Yes, if a court found that the city and the EMS volunteers had a valid contract for services (even an unwritten one), with the gift card as part of the agreed consideration. Then it would be a payment under contract, not a donation, and Article 12 Section 5 does not apply to contractual payments. The terms of any such contract, including its adequacy of consideration, would be factual questions for a court.

What happens if a court ultimately concludes the cards were a prohibited donation?
Article 16 Section 13 authorizes any taxpayer to sue to stop or recover illegal exactions, which the Arkansas Supreme Court has interpreted to include the misapplication of public funds. The auditor's finding is the procedural first step that can lead there.

Who decides whether an expenditure is a public purpose?
The legislative body (here, the city council) makes the initial determination. Great weight is given to that determination, but courts have the final say. See Turner v. Woodruff, 286 Ark. 66 (1985).

Background and statutory framework

Article 12, Section 5 of the Arkansas Constitution states: "No county, city, town or other municipal corporation shall become a stockholder in any company, association or corporation; or obtain or appropriate money for, or loan its credit to, any corporation, association, institution or individual."

The Arkansas Supreme Court has read that text broadly. In Halbert v. Helena-West Helena Indus. Dev. Corp., 226 Ark. 620 (1956), the Court struck down legislation that let cities buy memberships in local industrial development corporations, on the grounds that doing so was "indirectly" what Article 12 Section 5 forbids directly: granting financial aid to a private corporation. In City of Jacksonville v. Venhaus, 302 Ark. 204 (1990), the Court reversed a distribution of residual common-fund proceeds to nonprofit charities and required the money to go back to the municipalities for general municipal services.

The exception is contractual payment for services. In City of Ft. Smith v. Bates, 260 Ark. 777 (1976), the Court held that Article 12 Section 5 does not apply to payments under valid contracts. The AG's analysis turned on whether the EMS volunteer relationship was contractual or purely gratuitous, and on what role the gift cards played in that relationship.

The "public purpose doctrine" runs alongside Article 12 Section 5 as a common-law constitutional doctrine. The leading statement comes from Chandler v. Board of Trustees, 236 Ark. 256 (1963): the State cannot appropriate public funds to a private purpose. Article 16 Section 13 gives citizens standing to sue to stop illegal exactions, which Pledger v. Featherlite Precast Corp., 308 Ark. 124 (1992), explained covers misapplication of public funds.

Ark. Code Ann. § 14-58-303 gives mayors broad authority to make purchases and contracts for municipal purposes. The AG noted this authority would clearly apply to a contract for emergency medical services, so if the city wanted to structure the EMS arrangement as a service contract, it had the statutory power to do so.

Citations

Statutes: Ark. Const. art. 12, § 5; Ark. Const. art. 16, § 13; Ark. Code Ann. § 21-8-402(5)(B)(b)(vii)(a) (Supp. 2015); Ark. Code Ann. § 14-58-303 (Supp. 2015); Ark. Code Ann. § 10-4-403 (Supp. 2015).

Cases: Halbert v. Helena-West Helena Indus. Dev. Corp., 226 Ark. 620, 291 S.W.2d 802 (1956); City of Jacksonville v. Venhaus, 302 Ark. 204, 788 S.W.2d 478 (1990); Chandler v. Board of Trustees, 236 Ark. 256, 365 S.W.2d 447 (1963); City of Ft. Smith v. Bates, 260 Ark. 777, 544 S.W.2d 525 (1976); Pledger v. Featherlite Precast Corp., 308 Ark. 124, 823 S.W.2d 852 (1992); Turner v. Woodruff, 286 Ark. 66, 689 S.W.2d 527 (1985).

Prior AG opinions cited: 2015-005, 2012-138, 2010-114, 2007-153, 2001-364, 94-317, 91-410.

Source

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

Original opinion text

Opinion No. 2015-141
June 6, 2016
STATE OF ARKANSAS
ATTORNEY GENERAL
LESLIE RUTLEDGE

The Honorable R. Trevor Drown
State Representative
P. O. Box 1182
Dover, AR 72837-1182

Dear Representative Drown:

You have requested my opinion on the following question:

Did [the City of] Fairfield Bay violate Arkansas law by awarding volunteer EMS members a $25 gift card service recognition award?

The attachment to your correspondence indicates that this question was prompted by a particular finding by the State Division of Legislative Audit. The auditor noted the city's expenditure of "$1,375 for Christmas Gift Cards." The auditor's finding stated that the expenditure "could possibly conflict with the 'public purpose' doctrine" [citing a previous Attorney General Opinion] and art. 12, § 5 of the Arkansas Constitution. As further background for the above question, you state:

A constituent has been asked to sign [an audit] finding that states that Fairfield Bay violated Arkansas law by awarding volunteer EMS [emergency medical services] members a $25 gift card service recognition award at last year's Christmas party. The volunteer EMS program is being recognized as one of the 12 volunteer communities of the year at the [Arkansas Municipal League] conference in December.

Everyone receiving a service award gave more than 1,000 hours of volunteer labor to the political subdivision. This was considered exceptional service, worthy of a $25 service recognition gift card. It is necessary and appropriate to ensure a receptive climate to attract citizen volunteers for the awardees and the sacrifices of their spouses. The amount given does not rise to the $100 level necessary to be classified as a gift by the state in Ark. Code Ann. § 21-8-402(5)(B)(b)(vii)(a). The term "gift" does not include: Anything with a value of one hundred dollars or less.

This program gets more than one million dollars in volunteer effort each year, in a town of 2,338 citizens. The EMS volunteer program staffs two ambulances, 24 hours per day, 365 days a year with crews of three, which equates to approximately 52,560 hours.

Additionally, the City is not obtaining or appropriating money or loaning money to any corporation, association, institution, or individual.

RESPONSE

The limited facts before me seem to indicate that the gift cards amounted to a donation to private individuals, contrary to Article 12, section 5 of the Arkansas Constitution. I must emphasize, however, that the question whether a particular municipal expenditure violates this constitutional prohibition can be highly fact-intensive. I do not know how much fact-finding was undertaken by the auditor in this case, but the facts before me suggest that a thorough inquiry into the precise relationship between the EMS program (and by extension the recipients of the gift cards) and the City could be critical to definitively determining whether the gift cards were a prohibited donation. I cannot undertake that inquiry in the context of issuing an Attorney General opinion. While I consequently cannot definitively answer your question, I can discuss what I believe is the appropriate legal analysis based on the facts before me.

DISCUSSION

The Arkansas Constitution clearly imposes restrictions on a municipality's expenditure of public funds. Article 12, section 5, specifically precludes a city from obtaining or appropriating money for any corporation, association, or individual. As interpreted by the Arkansas Supreme Court, this constitutional provision bars all donations by municipalities to any private entity or person, regardless of whether the donation might serve a public purpose. It forecloses direct cash donations, as well as other municipal expenditures that amount to granting financial aid, i.e., donating to a private individual or entity.

Additionally, the overall "public purpose" doctrine precludes the expenditure of public funds for reasons other than a public purpose. The doctrine is a common law constitutional doctrine. Any use of municipal funds in derogation of art. 12, § 5 or the "public purpose" doctrine would invite challenge under Article 16, section 13 to the Arkansas Constitution. This constitutional provision authorizes citizens to institute suit to protect inhabitants from the enforcement of "illegal exactions" (the "misapplication of public funds").

Article 12, Section 5

Article 12, section 5 clearly bars the gift cards at issue if they amount to a donation. If this constitutional provision bars the expenditure, the analysis ends there. Moreover, the art. 12, § 5 prohibition is not limited strictly to cash donations. It applies with equal force to any expenditure of municipal funds that constitutes financial aid to private entities and individuals.

You state as part of the background information for your question, however, that the City "is not obtaining or appropriating money or loaning money to any corporation, association, institution, or individual." This suggests a belief that art. 12, § 5 is not implicated in connection with the gift cards. But the basis for that belief is not clear under the facts provided. It may be attributable to a mistaken belief that art. 12, § 5 only applies to actual cash donations.

Based upon the limited facts before me, it is my opinion that art. 12, § 5 must be considered in this case. Moreover, these limited facts point to the conclusion that the gift cards were given as private benefits outside the range of salary and benefits provided to public employees. But there may be some unresolved issues of fact that potentially bear on the question whether the gift cards were a prohibited donation. For instance, I note some variance between your description of the gift cards and that of the auditor. You refer to the gift cards as "service recognition gift cards," suggesting perhaps that the cards were an element of consideration paid for services rendered. The auditor described them as "Christmas Gift Cards," suggesting they were purchased simply to be given out gratuitously as gifts.

I note that you refer to the EMS program staff as "citizen volunteers," which seems to suggest that the EMS staff members provide gratuitous services to the City. I believe a resolution of the precise nature of the arrangement between the City and the EMS program and its staff is important to the art. 12, § 5 analysis and should be resolved by an authorized finder of fact, of which I am not one.

Depending on what facts are adduced from a thorough investigation of this matter, and particularly of the precise nature of the relationship between the City and the EMS program, as mentioned above, the possibility exists that the arrangement between the City and the EMS program or its "volunteers" may be in the nature of a contract for services. The Arkansas Supreme Court has recognized that art. 12, § 5 does not apply to payments under a valid contract. If supported by adequate consideration, a contractual arrangement, even if only an oral one, between the City and the EMS volunteers may well remove the gift card award from the art. 12, § 5 prohibition. The auditor, in his findings, refers to the "volunteer nature of the Rescue Squad" (emphasis added). This suggests some equivocation as to the precise relationship between the EMS program (and by extension the recipients of the gift cards) and the City. I do not know how much fact-finding the auditor undertook, but I believe a thorough inquiry into that relationship would be critical to definitively answering the question whether the gift cards amounted to a private benefit as opposed to an element of consideration paid for services provided under a valid contract.

Public Purpose Doctrine

If the facts establish that the gift cards are not barred by art. 12, § 5, the payment must still satisfy the common-law "public purpose doctrine." The determination of whether a particular expenditure is for a "public purpose" is to be made by the legislative body authorizing the expenditure. Although the propriety of a particular expenditure is ultimately resolved by the judiciary, great weight must be given to legislative declarations of public purposes.

Further bearing on this point is the legislative authority granted to mayors under Ark. Code Ann. § 14-58-303 (Supp. 2015):

In a city of the first class, city of the second class, or incorporated town, the mayor or the mayor's duly authorized representative shall have exclusive power and responsibility to make purchases of all supplies, apparatus, equipment, materials, and other things requisite for public purposes in and for the city and to make all necessary contracts for work or labor to be done or material or other necessary things to be furnished for the benefit of the city, or in carrying out any work or undertaking of a public nature in the city.

This statute, which would clearly apply to a municipal contract for emergency medical services, is consistent with more general statutes granting municipalities the authority to enter into contracts that relate to municipal affairs. It is without question that emergency medical service to a community is in the public interest and is a benefit to the City. And, as mentioned above, if it is determined that a contractual relationship between the City and its EMS team supported by adequate consideration, there can be little doubt the public purpose doctrine is satisfied.

Conclusion

In sum, the limited facts before me suggest that the gift cards amounted to a donation to private individuals, contrary to a plain reading of art. 12, § 5 of the Arkansas Constitution. I cannot definitively decide that issue because there may be other facts pertinent to the issue. But if upon further investigation and fact-finding it is determined that art. 12, § 5 does not prohibit the gift cards, then in my opinion the public purpose doctrine would be satisfied in this case. It is my hope that the foregoing will be of assistance in guiding the legal and factual analysis.

Sincerely,
LESLIE RUTLEDGE
Attorney General