Can a city in Arkansas use general fund money to subsidize its firemen's pension fund, and can it raise the Amendment 31 millage rate without holding another election?

Plain-English summary

State Senator Uvalde Lindsey asked AG Leslie Rutledge two related questions about funding the Fayetteville Firemen's Pension and Relief Fund. Background: Fayetteville voters approved a property tax of "not more than one mill" for firemen pensions in May 1957. The rate was originally .5 mill, increased to 1 mill, and later rolled back twice (to .5, then .4 mill) under Amendment 59. Actuaries had concluded the fund had inadequate assets to cover future benefits.

The AG answered:

1. Yes, the city can use general funds to subsidize the pension fund. Local Firemen's Funds were never limited to a single revenue source. The Arkansas Supreme Court has repeatedly described pensions and benefits as "increased or additional compensation" tied to the municipal function of fire protection, and municipal general funds can be used for general municipal purposes.

2. Yes, the city can raise the millage from .4 mill back toward 1 mill without a new election. The original ballot authorized "not more than one mill," and Amendment 31's implementing legislation contemplates a single election followed by annual levies that may vary up to the cap.

3. The amount of any one-year increase may be limited by Amendment 59. Wright v. Storey, 298 Ark. 508 (1989), held that a city's increase from .4 mill to 1 mill in one move was prohibited by Amendment 59 (the rollback amendment) "even though [the restoration] might have seemed permitted, literally, by [Amendment] 31." Whether and how Amendment 59 constrains a particular Fayetteville increase requires fact-finding the AG cannot do in an opinion.

Currency note

This opinion was issued in 2017. 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.

How the AG built the general-funds answer

Local Firemen's Funds began with Act 491 of 1921 (codified at Ark. Code Ann. §§ 24-11-809 and 24-11-803(b)). Section 14 of Act 491 (now § 24-11-803(b)) authorized boards of trustees to "accept and disburse ... any and all sums which may come into their hand through appropriation, gift or devise." So the funds were never limited to insurance-tax revenue.

When Amendment 31 was added in 1940 to permit an Amendment 31 property tax, neither the amendment nor its implementing legislation (Act 14 of 1941, now § 24-11-812) said the property tax was the only source. Section 24-11-812(e) specifically says the property tax revenues "shall be supplemental to and in addition to any funds provided for by any laws in effect at the time of the passage of this section."

McLaughlin, Trustee, v. Lovett, 204 Ark. 708 (1942), confirmed that a city has "the discretionary power to supplement the fund created" with Amendment 31 revenues, and that the implementing legislation "contemplates that the [Local Firemen's Fund] may be materially supplemented or increased by donations and otherwise."

Adamson v. City of Little Rock, 199 Ark. 435 (1939), held that pensions are "in the nature of increased or additional compensation," not gratuities, and thus a proper municipal expenditure tied to the municipal fire-protection function.

How the AG built the millage-increase answer

Two textual hooks supported the no-new-election conclusion:

• Amendment 31 says cities "may thereafter, levy a tax ... not to exceed [one mill]" after consent at "any general or special election." The word "any" implies a single election.
• Section 24-11-812(a)(1) says "[a]fter once being approved ... a tax not to exceed one (1) mill on the dollar ... shall be levied annually." The annual-levy structure contemplates rate variation within the cap.

Originally Section 3 of Act 14 of 1941 had made annual rate adjustments explicit, requiring the trustees to certify by October 1 each year an estimate of needed funds and the city to make a sufficient levy. That provision was repealed but never replaced with a prohibition on annual adjustments.

What Amendment 59 might do to the answer

Wright v. Storey, 298 Ark. 508 (1989), is the controlling case. A city had levied 1 mill since 1941, rolled back to .4 mill in early 1980 under Amendment 59, then in 1987 (without a new election) restored 1 mill. The Arkansas Supreme Court held the .4-to-1.0 jump was prohibited by Amendment 59.

Amendment 59 (codified in Ark. Const. art. 16, § 14) requires "rollback" of millage rates whenever assessed property values increase more than 10% in a countywide reappraisal. Worth v. City of Rogers, 341 Ark. 12 (2000), interprets Amendment 59. Op. Att'y Gen. 2004-179 had already opined that a city's proposed .4-to-1-mill increase without an election was factually indistinguishable from Wright and therefore controlled by it.

The AG was clear that Amendment 59's application to any particular Fayetteville increase is fact-intensive and beyond the AG's opinion authority. A city contemplating an increase should consult bond counsel or a tax-law specialist.

Common questions

Why is the millage capped at 1 mill?
Because that's what Fayetteville voters approved in 1957. Amendment 31 caps the city's authority at the cap voters approved.

Could Fayetteville go above 1 mill with a new election?
That's not what the AG was asked, but yes, an additional election authorizing a higher cap would presumably be needed. Amendment 31 itself caps the levy at 1 mill, so a higher cap would require a different mechanism.

Why does the AG distinguish supplementing a pension fund from paying pension benefits directly?
Because Op. Att'y Gen. 96-043 had held that a city paying pension benefits directly out of general funds was "in essence" running its own pension system outside the state-established system, which is a state affair beyond city power. Subsidizing the state-established Local Plan with general funds is different: the city is just funneling money into the existing system.

What if Fayetteville wants a small annual increase below the Wright threshold?
Per the AG's opinion, the city may increase annually as long as the rate stays at or below 1 mill. Whether and to what extent Amendment 59 limits the annual increase is fact-dependent. The AG flagged this issue without answering it.

Is this opinion still good guidance?
The structural analysis (general funds OK, no new election needed for increases within the cap) likely remains good. Amendment 59 application is always fact-intensive, and recent property reappraisals, court decisions, or statutory changes could alter the analysis. Verify current law before acting.

Background and statutory framework

The Arkansas Local Firemen's Pension and Relief Fund framework starts with Act 491 of 1921, sits constitutionally on Amendment 31 (1940), and is implemented through Act 14 of 1941 and successor legislation now codified at Ark. Code Ann. §§ 24-11-801 et seq. Amendment 59 (the rollback amendment) interacts with Amendment 31 millage levies through Wright v. Storey and Worth v. City of Rogers.

Municipal general-fund authority traces to Oldner v. Villines, 328 Ark. 296 (1997), and the basic municipal-corporations doctrine that "general funds" (those not dedicated to specific purposes) can be used for general municipal purposes.

Citations

• Ark. Const. amend. 31 (1940 amendment authorizing Local Firemen's Fund property tax)
• Ark. Const. amend. 59 (millage rollback)
• Ark. Const. art. 16, § 14 (added by Amend. 59)
• Ark. Code Ann. § 14-14-904(b) (annual county tax levy timing)
• Ark. Code Ann. § 24-11-803(b) (board acceptance of supplemental funds)
• Ark. Code Ann. § 24-11-809 (insurance premium tax revenues)
• Ark. Code Ann. § 24-11-812 (Amendment 31 implementing legislation)
• Acts 1921, No. 491 (original Local Firemen's Fund act)
• Acts 1941, No. 14 (Amendment 31 implementing legislation, original)
• McLaughlin, Trustee, v. Lovett, 204 Ark. 708, 163 S.W.2d 826 (1942)
• Adamson v. City of Little Rock, 199 Ark. 435, 134 S.W.2d 558 (1939)
• Wright v. Storey, 298 Ark. 508, 769 S.W.2d 16 (1989)
• Oldner v. Villines, 328 Ark. 296, 943 S.W.2d 574 (1997)
• Worth v. City of Rogers, 341 Ark. 12, 14 S.W.3d 471 (2000)
• Op. Att'y Gen. 96-043; 2004-179; 2015-127

Source

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

Original opinion text

Opinion No. 2016-092
January 12, 2017
STATE OF ARKANSAS
ATTORNEY GENERAL
LESLIE RUTLEDGE
The Honorable Uvalde Lindsey
State Senator
2257 East Gentle Oaks Lane
Fayetteville, AR 72703-6142
Dear Senator Lindsey:
This is in response to your request for my opinion concerning funding of a local
firemen's relief and pension fund. You submit this background information:
The Fayetteville City Council unanimously passed Ordinance #1136
on May 27, 1957, submitting to the voters of Fayetteville the
question of a levy of an annual tax of "not more than one mill" for
the purpose of paying pensions to retired firemen, widows and
dependent children. After being passed, an initial millage rate of .5
mill was established and collected as confirmed by Washington
County Tax Records of 1958. The millage rate was later increased
to 1.0 mill. To comply with Arkansas Amendment 59, the millage
rate was reduced to .5 mill and later to .4 mill, where it has
remained. According to actuaries, the Fayetteville Firemen's
Pension and Relief Fund has inadequate assets to cover all future
benefits. As such, all sources of revenue are essential to the
sustainability of the plan.
Your questions are:
Question 1: Does the Fayetteville City Council have the authority
to use money from "general funds" to subsidize the Fayetteville
Fireman's Pension and Relief Fund?
323 CENTER STREET, SUITE 200 • LITTLE ROCK, ARKANSAS 72201
TELEPHONE (501) 682-2007 · FAX (501) 682~8084
ARKANSASAG.GOV The Honorable Uvalde Lindsey
State Senator
Opinion No. 2016-092
Page 2
Question 2: Does the Fayetteville City Council have the authority
to increase the millage rate from its current level of .4 mill to a rate
of "not more than one mill", without submitting the question, again,
to Fayetteville voters?
Question 2a: If not, does the vote have to be conducted in a general
election as opposed to a special election?
RESPONSE
In my opinion, a city council may use money from the city's general funds to
subsidize a local firemen's relief and pension fund. It is further my opinion that
the council of a city whose voters approved an Amendment 31 tax by way of a
ballot that stated that the vote was on a tax of "not more than one mill," and which
is levying the tax at a rate of less than one mill, may increase the prevailing tax
rate without a new election. The amount by which the millage may be increased
may depend on prevailing facts and their application to one or more other
constitutional amendments or laws. Accordingly, I cannot render an opinion with
respect to the amount by which Fayetteville, or any other particular city, may
increase an Amendment 31 millage rate without an election. Because the premise
of Question 2a is not met, a response to this question is unnecessary.
DISCUSSION
Question 1: Does the Fayetteville City Council have the authority to use money
from "genera/funds" to subsidize the Fayetteville Fireman's Pension and Relief
Fund?
Local firemen's relief and pension funds ("Local Firemen's Funds") were first
provided for in Act 491 of 1921. The only source of money identified in Act 491
was a part of the revenues arising from the state tax on fire, tornado and marine
insurance premiums.1 But Act 491 also authorized each Local Firemen's Fund
board of trustees to "accept and disburse ... any and all sums which may come into
their hand through appropriation, gift or devise. "2
1 See Acts 1921, No. 491, § 12 (codified as amended as Ark. Code Ann. § 24-11-809 (Rep!.
2014)).
2 Id. at § 14 (emphasis added) (codified as amended as Ark. Code Ann. § 24-l l-803(b) (Rep I.
2014)). The Honorable Uvalde Lindsey
State Senator
Opinion No. 2016-092
Page 3
It was not until 1940 that Amendment 31, permitting the levy of a property tax to
support a Local Firemen's Fund, was adopted.3 Implementing legislation was
enacted the following year.4 Nothing in Amendment 31 or the implementing
legislation states or implies that a Local Firemen's Fund may receive only the
proceeds of an Amendment 31 property tax. To the contrary, the implementing
legislation provides that "[t]he funds provided for in this section [i.e., via the
property tax] shall be supplemental to and in addition to any funds provided for by
any laws in effect at the time of the passage of this section" and that the
implementing legislation is intended "to provide additional money for the [Local
Firemen's Fund]."5
The Arkansas Supreme Court has stated that a city has "the discretionary power to
supplement the fund created" by insurance-tax revenues, with revenues under an
Amendment 31 tax, and that the Amendment 31 implementing legislation
"contemplates that the [Local Firemen's Fund] may be materially
supplemented or increased by donations and otherwise .... "6
With respect to the propriety of a municipality devoting public money to a Local
Firemen's Fund, the Court has explained:
Pensions and benefits paid firemen and policemen are not gratuities or
bounties, but are in the nature of increased or additional compensation.
As the maintenance of police and fire departments is a municipal function,
the funds of the municipality may be used for that purpose.... The city
may devote so much of its funds as are available for this purpose.... If the
maintenance of fire and police departments is a municipal function, it
3 According to the Court in McLaughlin, Trustee, v. Lovett, 204 Ark. 708, 163 S.W.2d 826
(1942), an act of the General Assembly, Act 30 of 1939, authorized cities to levy up to 1.5 mills
to supplement Local Firemen's Funds but was held unconstitutional in Adamson v. City of Little
Rock, 199 Ark. 435, 134 S.W. 2d 558 (1939).
4 Acts 1941, No. 14 (codified as amended as Ark. Code Ann. § 24-11-812 (Repl. 2014)).
5 Ark. Code Ann. § 24-11-812( e) (emphasis added).
6 McLaughlin, 204 Ark. at 714, 163 S.W.2d at 829) (emphases added). The Honorable Uvalde Lindsey
State Senator
Opinion No. 2016-092
Page 4
cannot be said that compensating policemen and firemen with pensions
and disability benefits is not also a municipal purpose. 7
Clearly, then, providing adequate financing to a Local Firemen's Fund is a proper
municipal purpose. Municipal general funds (i.e., funds not dedicated to a
particular purpose) may be used for general municipal purposes. 8
It is accordingly my opinion that a city council may use money from the city's
general funds to subsidize a Local Firemen's Fund.9
Question 2: Does the Fayetteville City Council have the authority to increase
the millage rate from its current level of .4 mill to a rate of "not more than one
mill," without submitting the question, again, to Fayetteville voters?
In my opinion, the council of a city whose voters approved an Amendment 31 tax
by way of a ballot that stated that the vote was on a tax of "not more than one
mill," and which is levying the tax at a rate of less than one mill, may increase the
prevailing tax rate without a new election.
Amendment 31 provides that "[a]fter consent of the majority of those voting on
the question at any general or special election in cities of the first or second class,
the cities may thereafter, levy a tax ... not to exceed [one mill] on the dollar [for
Local Firemen's Funds]." (Emphasis added.) In my view, the word "any" implies
a single election.
The implementing legislation provides that "[a ]fter once being approved ... , a tax
not to exceed one (1) mill on the dollar ... shall be levied annually .... "10 It also
7 Adamson, 199 Ark. at 438-439, 134 S.W. 2d at 560.
8 See, e.g., Oldner v. Villines, 328 Ark. 296, 943 S.W.2d 574 (1997).
9 My opinion on this question is consistent with my earlier conclusion that a Local Fund's
liabilities are liabilities of the municipality, not just of the Local Fund's board. See Op. Att'y
Gen. 2015-127. Additionally, this question is distinguishable from the issue addressed in a
previous Attorney General opinion involving a city's payment of pension benefits. In Op. Att'y
Gen. 96-043, a city was paying benefits directly from its general fund. Because the establishment
and governance of pension systems--even for local employees-is a state affair, it was deemed
beyond the city's power to, in essence, pay retirement benefits wholly outside the state-
established system of Local Plans. Here, it is proposed that the city subsidize the Local Plan with
general fund monies, not pay pension benefits directly with such monies. The Honorable Uvalde Lindsey
State Senator
Opinion No. 2016-092
Page 5
provides that "[t]he levy shall be made by the city council ... on or before the time
fixed by law for levying county taxes, and the city council ... shall make out and
certify to the county clerk the rate of taxation levied .... " 11 The "time fixed by law
for levying county taxes" occurs annually.12 In my view, the implementing
legislation contemplates a single election, followed by annual levies of the tax, at
rates that may vary so long as they do not exceed one mill.13
It is accordingly my opinion that the council of a city whose voters approved an
Amendment 31 tax by way of a ballot that stated that the vote was on a tax of "not
more than one mill," and which is levying the tax at a rate of less than one mill,
may increase the prevailing tax rate without a new election.
A question remains as to the magnitude of the increase allowed in any one year. In
my view, neither Amendment 31 nor the implementing legislation would prohibit
a city from increasing the rate by any amount, provided the new rate does not
exceed one mill. A city contemplating such action should, however, consider the
extent, if any, to which other applicable law may limit its ability to increase the
millage rate.
In Wright v. Storey, 14 a city's electors had approved, in 1941, an Amendment 31
tax of "up to one mill" for a Local Firemen's Fund, and the city had levied the full
mill. The rate was rolled back to 0.4 mills sometime in early 1980 in compliance
10 Ark. Code Ann.§ 24-l l-812(a)(l) (emphases added).
11 Ark. Code Ann.§ 24-l 1-812(a)(2).
12 See Ark. Code Ann.§ 14-14-904(b) (Supp. 2015).
13 As originally enacted, the Amendment 31 implementing legislation explicitly provided for
annual adjustment, as necessary, of the millage rate: "On or before October 1 of each year the
Board of Trustees of the [Local Firemen's Fund] shall make out and certify to the city an estimate
of the amount of money necessary ... for the following year, and the city shall make its levy ...
sufficient to raise [that amount]." Acts 1941, No. 14, § 3. While this provision was repealed, it
was not replaced with a provision stating or implying that adjustments to the millage rate as often
as each year have been prohibited.
14 298 Ark. 508, 769 S.W.2d 16 (1989). The Honorable Uvalde Lindsey
State Senator
Opinion No. 2016-092
Page 6
with Amendment 59 to the Arkansas Constitution.15 In 1987, without another
election, the city once again certified the levy of a full mill.
The Arkansas Supreme Court held that the city's action in increasing its millage
from 0.4 mills to one mill was prohibited by the operation of Amendment 59,
"even though [the restoration] might have seemed permitted, literally, by
[Amendment] 31."16
The applicability of Amendment 5917 and the extent to which it may restrain a city
from a large percentage increase in a millage rate are questions that require fact
finding, in addition to the application of legal principles to those facts. Because I
am neither charged nor equipped to act as a finder of fact in issuing official
opinions, I am unable to render an opinion with respect to the amount by which
Fayetteville, or any other particular city, may increase an Amendment 31 millage
rate without an election.
Question 2a: If not, does the vote have to be conducted in a general election as
opposed to a special election?
Because my answer to your second question is a qualified "yes," the premise of
this question is not met.
Sincerely,
~~
Attorney General
15 See Ark. Const. art. 16, § 14 (added by Ark. Const. amend. 59). Amendment 59 requires the
adjustment or "roll back" of taxes whenever the assessed value of property increases by more
than 10% following a countywide reappraisal. See Worth v. City of Rogers, 341 Ark. 12, 14
S.W.3d 471 (2000).
16 Wright, 298 Ark. at 509, 769 S.W.2d at 17. The Court also disclaimed any consideration of
whether an election was required to permit the limited millage increase the Court regarded as
permitted by Amendment 59. Id. at 510, 18. A predecessor in this office opined that a city's
proposed millage increase from 0.4 mills to one mill, without an election, was factually
indistinguishable from Wright and therefore controlled by it. See Op. Att'y Gen. 2004-179.
17 See note 15, supra.