Can the Arkansas Treasurer sign a $450,000 contract for an online financial-literacy program without specific statutory authority?

Plain-English summary

In 2015 the Arkansas State Treasurer signed a four-year, $450,000 contract with EverFi, Inc., a Delaware for-profit, to develop and market an online financial-literacy program aimed at students in grades 4 through 6. The first $75,000 payment came from the "Prof. Fees" appropriation line in Act 743 of 2015 (the Treasurer's appropriation act). That line had insufficient funds, so the Department of Finance and Administration moved appropriation from "Data Processing Syst/Services" to "Prof. Fees" without prior Arkansas Legislative Council review. Legislative Auditor Roger Norman asked the AG two questions: did the Treasurer have authority to sign the contract, and was the funds transfer procedurally valid.

On the first question, AG Leslie Rutledge said the absence of an express statutory grant of authority did not, by itself, mean the Treasurer lacked legal authority. Purchasing commodities and services with appropriated funds is an executive function. Under Chaffin v. Arkansas Game and Fish Commission, 296 Ark. 431 (1988), legislative review-and-advice of executive professional-services contracts violates the separation of powers doctrine. The Treasurer is a constitutional executive officer (Amendment 73 Section 1(a)) and is expressly exempted from the Arkansas Procurement Law (Ark. Code Ann. § 19-11-203(13)). So the legality of the contract turned on whether it was a proper exercise of the Treasurer's authority to administer his appropriation consistent with his constitutional and legislative duties, not on whether there was a specific statute saying he could buy financial-literacy services. The Legislative Auditor still had authority under Ark. Code Ann. § 10-4-407(3) to call attention to the funds if she believed they were improperly spent.

On the second question, the AG said the premise was probably mistaken. DFA had cited Ark. Code Ann. § 19-4-525, which does not authorize "transfers" between appropriation items. Section 19-4-525 authorizes DFA to "invoke additional budget control" over special-purpose line items by recategorizing portions of them within the State's financial management system. The AG read DFA's action as a recategorization within the Data Processing Syst/Services item, not a transfer to a different appropriation item. Under that reading there was no transfer between items, and so no Arkansas Legislative Council review was required. The Treasurer's appropriation act gave Council-reviewed transfer authority only when a true transfer between Section 3 items occurred.

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 the Treasurer need a specific statute saying he can sign a contract?
Not generally, in the AG's view. Spending appropriated funds is an executive function. So long as the contract is a proper exercise of the Treasurer's constitutional and statutory duties and stays within his appropriated authority, the Treasurer can sign it.

What is the separation-of-powers concern with Legislative Council review?
Chaffin v. Arkansas Game and Fish Commission, 296 Ark. 431 (1988), held that the Legislative Council's practice of giving "review and advice" on executive agencies' professional-services contracts was unconstitutional. The legislature makes the laws and appropriates; the executive administers the law and expends the appropriations. Inserting the legislature into individual contracting decisions crosses that line.

Is the Treasurer subject to the Procurement Law?
No. Ark. Code Ann. § 19-11-203(13) lists "the elected constitutional offices of the state" among "exempt agencies." That is part of why the AG could focus the contracting analysis on broader executive authority rather than procurement-statute compliance.

Can the Legislative Auditor still raise concerns about how the Treasurer spent the money?
Yes. Ark. Code Ann. § 10-4-407(3) gives the Legislative Auditor authority to "call attention to any funds which, in his or her opinion, have not been expended in accordance with the law, appropriation, ordinance, regulation, or other legal requirement." The Treasurer's general contracting authority does not strip that audit power.

Was the funds movement actually a transfer between appropriation items?
The AG was not certain it was. DFA had cited § 19-4-525, which authorizes "additional budget control" by recategorizing within special-purpose items via the State's financial management system. The funds were spent from within the "Data Processing Syst/Services" item, which suggested recategorization rather than transfer. If no transfer happened, no Legislative Council review was required.

Background and statutory framework

Amendment 73 Section 1(a) of the Arkansas Constitution lists the Treasurer of State as a constitutional executive officer with a term subject to term limits. The Treasurer is exempted from the Arkansas Procurement Law (Ark. Code Ann. § 19-11-203(13) (Supp. 2015), listing "the elected constitutional offices of the state" among "exempt agencies").

The separation-of-powers backbone comes from Chaffin v. Arkansas Game and Fish Commission, 296 Ark. 431 (1988): the Legislative Council's review-and-advice over agency professional services contracts violated the constitutional separation of powers. Fed. Express Corp. v. Skelton, 265 Ark. 187 (1979), and Hooker v. Parkin, 235 Ark. 218 (1962), are cited for the classic division: legislature makes law and appropriates, executive administers and expends, judiciary interprets.

Acts 2015, No. 743 (the 2015 Treasurer's appropriation act) authorized the Treasurer, after Chief Fiscal Officer approval and prior Legislative Council review, to "transfer appropriation from any line item authorized in Section 3 Appropriation - Operations of the Treasurer's Office in this Act to any other line item authorized in Section 3."

Ark. Code Ann. § 19-4-525 authorizes DFA to "invoke additional budget control" over "special appropriations" via the State's financial management system. The AG drew a distinction between a § 19-4-525 recategorization within an item and a true cross-item transfer that would trigger Legislative Council review under the Treasurer's appropriation act.

The appropriation classification scheme comes from the General Accounting and Budgetary Procedures Law: personal services, maintenance and operation, grants and aid, and construction and permanent improvements, codified at Ark. Code Ann. §§ 19-4-521 to -524 (Repl. 2007 and Supp. 2015).

The audit power is in Ark. Code Ann. § 10-4-407(3): the Legislative Auditor may "call attention to" funds the auditor views as improperly spent.

Citations

Statutes: Ark. Const. amend. 73, § 1(a); Acts 2015, No. 743, §§ 3, 4; Ark. Code Ann. § 10-4-407(3) (Supp. 2015); Ark. Code Ann. § 19-4-525 (Repl. 2007); Ark. Code Ann. §§ 19-4-521 to -524 (Repl. 2007 and Supp. 2015); Ark. Code Ann. § 19-11-203(13) (Supp. 2015).

Cases: Chaffin v. Arkansas Game and Fish Commission, 296 Ark. 431, 757 S.W.2d 950 (1988); Fed. Express Corp. v. Skelton, 265 Ark. 187, 578 S.W.2d 1 (1979); Hooker v. Parkin, 235 Ark. 218, 357 S.W.2d 534 (1962).

Source

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

Original opinion text

STATE OF ARKANSAS
ATTORNEY GENERAL
LESLIE RUTLEDGE
Opinion No. 2016-016
June 17, 2016

Roger A. Norman, JD, CPA, CFE, CFF
Legislative Auditor
500 Woodlane Street, Suite 172
Little Rock, AR 72201-1099

Dear Mr. Norman:

This is in response to your request for my opinion on the following questions concerning a contract entered into by the State Treasurer:

First: Does the Treasurer have legal authority to enter into a contract concerning the development and marketing of an online "financial literacy" program to Arkansas students? Must the Treasurer have authority in Arkansas Code or legislation to contract concerning this subject?

Second: In securing a transfer of funds between appropriation items without prior review by the Arkansas Legislative Council, did the Treasurer follow the proper procedure to effect the transfer?

As background for these questions, you recite the following language in Act 743 of 2015 (the 2015 appropriation act for the Office of the Treasurer):

After receiving approval from the Chief Fiscal Officer of the State, and prior review by the Arkansas Legislative Council, the Treasurer of State is authorized to transfer appropriation from any line item authorized in Section 3 Appropriation - Operations of the Treasurer's Office in this Act to any other line item authorized in Section 3.

As further background, you state:

On August 7, 2015, the Treasurer contracted with EverFi, Inc. ("EverFi"), a Delaware for-profit corporation. A copy of the contract is attached. Essentially, the Treasurer agreed to pay EverFi $450,000 over a four-year period in return for EverFi's development and marketing of an online "financial literacy" program to Arkansas students, focusing on grades 4 through 6.

The Treasurer utilized the "Prof. Fees" appropriation of the Act to pay EverFi its first payment of $75,000. The original amount appropriated under that item was insufficient to cover this and subsequent payments. Therefore, working with the Department of Finance and Administration, the Treasurer obtained a transfer of needed appropriation from the "Data Processing Syst/Services" item to the "Prof. Fees" item. This transfer was not reviewed by the Arkansas Legislative Council prior to being effected, nor was it reviewed subsequently.

RESPONSE

Question 1 - Does the Treasurer have legal authority to enter into a contract concerning the development and marketing of an online "financial literacy" program to Arkansas students? Must the Treasurer have authority in Arkansas Code or legislation to contract concerning this subject?

As this question appears to acknowledge, there is no Arkansas statute authorizing the State Treasurer to enter into the contract that has prompted your request for my opinion. In my opinion, however, the absence of a specific legislative grant of authority does not automatically compel the conclusion that the Treasurer lacked legal authority to enter the contract. The purchase of commodities and services with appropriated funds is an executive function. And it goes without saying that the Treasurer of State is an officer of the executive branch of government.

It is therefore my opinion that the legality of the contract you have described does not turn merely on the presence or absence of an express legislative grant of authority to the Treasurer to contract concerning the contract's subject. In my opinion, the question instead turns on whether the contract represents a proper exercise of the Treasurer's authority to administer his appropriation consistent with his duties under the constitution and relevant legislation.

Of course, it is the power and duty of the Legislative Auditor, in performing audits of state entities, to: "[c]all attention to any funds which, in his or her opinion, have not been expended in accordance with the law, appropriation, ordinance, regulation, or other legal requirement...." In my opinion, you are authorized to call attention to the funds at issue if it is your opinion that they have not been properly expended. I believe you are authorized to take this action if you believe it justified, notwithstanding the Treasurer's general authority as a constitutional officer to contract for the purchase of commodities and services.

Question 2 - In securing a transfer of funds between appropriation items without prior review by the Arkansas Legislative Council, did the Treasurer follow the proper procedure to effect the transfer?

It appears that there was no actual "transfer" between appropriation items in connection with the expenditure at issue. If this is accurate, the premise underlying your question would be mistaken.

You state in the background for your request for my opinion that the Department of Finance and Administration (DF&A) "referred to Ark. Code Ann. § 19-4-525 as authority for this transfer." Section 19-4-525 does not use the term "transfer," however. Rather, that statute authorizes DF&A to "invoke additional budget control" with respect to the appropriation items, known as "special appropriations," covered by section 19-4-525:

All other appropriations made by the General Assembly which do not come under any of the classifications mentioned in this section shall be considered to be special appropriations and shall be used only for the specific purposes for which such appropriations are made. Except as otherwise provided by law, an agency receiving a special appropriation may not expend funds from any appropriation other than from the special appropriation for the special purpose covered by the special appropriation. However, the state's financial management system may invoke additional budget control using features of the system that are in addition to the appropriations of the General Assembly.

The expenditure at issue in your question was from such a "special appropriation" line item of the Treasurer's appropriation act, specifically, "Item No. (05) Data Processing Syst/Services." This line item is separate from the other four appropriation line items in section 3 of the Treasurer's appropriation act.

You state as further background for your question that the Treasurer worked with DF&A and "obtained a transfer of needed appropriation from the 'Data Processing Syst/Services' item to the 'Prof. Fees' item." But it seems to me that DF&A acted instead pursuant to section 19-4-525 and re-categorized some portion of the "Data Processing Syst/Services item" as professional fees. It appears that this action was taken for budget control purposes, consistent with section 19-4-525. The funds were only expended from within the broader "Data Processing Syst/Services" item, according to my understanding.

Under the facts as I understand them, therefore, there was no "transfer" between appropriation items in connection with the payment under the contract you have described. Accordingly, under these facts, Legislative Council review was not required. As you have noted, a section of the Treasurer's appropriation act authorizes the Treasurer to "transfer appropriation from any line item authorized in Section 3... to any other line item authorized in Section 3," subject to (1) approval by the Chief Fiscal Officer and (2) review by the Legislative Council. Because there was no such transfer with respect to the expenditure in this case, however, the requirement to obtain Legislative Council review did not apply.

My opinion is based on the facts as I understand them. But I am not a factfinder for purposes of Attorney General opinions. I note that additional factual development could lead to a different conclusion.

Sincerely,
LESLIE RUTLEDGE
Attorney General