Can an Arkansas city release a clean-up lien on property so a nonprofit can buy and redevelop it, without violating the constitutional ban on giving public funds to private entities?

Plain-English summary

The Forrest City Downtown Revitalization Project (FCDRP), a 501(c)(3) nonprofit, wanted to buy a downtown parcel and turn it into a park with an amphitheater and greenspace. There was a problem: the property carried a roughly $30,000 cleanup lien the city had imposed under Ark. Code Ann. §§ 14-54-901 through -904 to recover what the city had paid to clean up the property. The Forrest City Council voted unanimously to release the lien if FCDRP succeeded in buying the property. A council member then asked whether that release would violate Article 12, section 5 of the Arkansas Constitution, which bans municipalities from donating money or property to private entities.

Attorney General Leslie Rutledge said no, the lien release was not unconstitutional. Article 12, section 5 prohibits any donation by a municipality to a private entity, regardless of whether it serves a public purpose, per Halbert v. Helena-West Helena Industrial Development Corp., 226 Ark. 620, 291 S.W.2d 802 (1956), and the Arkansas Supreme Court reinforced the rule in City of Jacksonville v. Venhaus, 302 Ark. 204, 788 S.W.2d 478 (1990). But a cleanup lien under § 14-54-904 is not the same as municipal property. The lien is a recovery mechanism. Unlike an improvement-district lien (Ark. Code Ann. § 14-90-805(b), Lueken v. Burch, 214 Ark. 921, 219 S.W.2d 235 (1949)), the cleanup-lien statutes do not require full payment as a condition of release. So the city has flexibility to release the lien on conditions other than full payment. Doing so means the city does not get paid for its cleanup services, but that non-collection is not a donation of money or property within the meaning of article 12, section 5.

There is one important limit. Once the lien amount has been certified to the county tax collector under § 14-54-904(a)(2), the lien becomes part of "delinquent taxes," and there is no general authority to forgive taxes that are owing. So the release option works pre-certification only.

Because the AG answered no on Question 1, she did not need to address Questions 2 (whether the city could accept less than full payment) and 3 (mayor or council approval).

What this means for you

If you are a city attorney advising on a similar lien-release request

Two things to confirm before relying on this opinion. First, what kind of lien is it? Cleanup liens under §§ 14-54-901 to -904 fit this analysis. Other municipal liens (improvement districts under § 14-90-805(b), tax liens, paving assessments) have their own statutes that often require full payment before release. The structure of the lien statute is what matters; "we put a lien on the property" is too generic.

Second, has the lien been certified to the tax collector under § 14-54-904(a)(2)? If yes, the city can no longer release it because the amount has become "delinquent taxes" with no forgiveness authority. If no, the council retains discretion to release.

When releasing, document the rationale. The AG's opinion treats the city's loss of cleanup-cost recovery as a non-donation because the lien itself is not municipal property in the constitutional sense. Council minutes that explicitly capture the public benefit (downtown park, festivals, citizen-centered redevelopment) are good optics, but the constitutional answer in this opinion does not turn on a public-purpose justification.

If you are a nonprofit looking to acquire property with a city cleanup lien

The path is straightforward but timing-sensitive. Before the city's lien amount has been certified to the county tax collector, you can negotiate a release as part of your purchase agreement. Get the council's resolution authorizing the release, and verify the tax-collector certification status with the city or the county. Once certification has happened, the property's clean-up cost becomes part of the tax bill and the city no longer has authority to release it.

You may want to negotiate the release as conditional on closing, the way Forrest City did here, so the city is not left with neither payment nor a lien if your purchase falls through.

If you are a mayor or council member

You have authority to release a pre-certification cleanup lien for a property your city is trying to see redeveloped. You do not need to require full payment. You should still expect that the decision will draw scrutiny: when you give up a recovery, document the public reason and follow your usual procedural rules. The constitutional question is settled in this opinion as of 2021, but the political accountability is not.

Common questions

Q: Why is releasing a lien not the same as donating money?
A: Because the cleanup-lien statutes do not give the city a vested property interest that survives until paid. Section 14-54-904(a) gives the city ten years to enforce the lien, but does not say the lien continues until the costs are paid. The Arkansas Supreme Court in Tucker v. Holt, 343 Ark. 216, 33 S.W.3d 110 (2000), described the lien as a recovery mechanism, not as a freestanding property interest. So when the city decides not to enforce, it is choosing not to collect, not giving away an asset.

Q: How is this different from an improvement-district lien?
A: An improvement-district lien (Ark. Code Ann. § 14-90-805(b)) "shall continue until the local assessment, including any penalty and costs that may accrue thereon, shall be paid." The Arkansas Supreme Court in Lueken v. Burch, 214 Ark. 921, 219 S.W.2d 235 (1949), said improvement districts have no authority to release their liens except on full payment. Cleanup liens lack that "shall continue until paid" language, so the city has more flexibility.

Q: When is the lien certified to the tax collector?
A: Under § 14-54-904(a)(2), the city can either foreclose in circuit court or certify the amount to the county tax collector for collection as delinquent taxes. The certification is a step the city has to choose to take. If the city has not yet certified, it can release. Once certified, the rule shifts (and the AG cited Op. Att'y Gen. 97-306 for the lack of forgiveness authority on certified amounts).

Q: Does article 12, section 5 ever block a release like this?
A: Not for cleanup liens, in this AG's view. The article-12 question would be a real issue if the city were giving cash, transferring real property it owned, or paying to provide services that benefit only a private entity. Releasing a non-vested lien is a different category.

Q: What about Halbert and Venhaus?
A: Both cases struck down arrangements where a city's money or property went to a private entity. Halbert (1956) struck down a state law letting cities buy memberships in private industrial-development corporations. Venhaus (1990) reversed a chancellor's distribution of common-fund proceeds to private nonprofits, ordering the funds returned to the municipalities for general municipal services. Those cases do bar genuine donations. They do not require a city to enforce every recovery mechanism.

Background and statutory framework

Ark. Code Ann. §§ 14-54-901 through -904 give Arkansas cities authority to act when private property reaches an unsightly or unsanitary condition. The city can correct the condition itself and charge the cost to the property owner. The unpaid charge becomes a lien on the property under § 14-54-903.

Section 14-54-904 supplies two enforcement avenues:

1. Foreclose on the lien in circuit court within ten years.
2. Certify the amount to the county tax collector, where it becomes part of delinquent taxes.

Until certification, the lien is a recovery vehicle the city can choose to enforce or not. After certification, the amount is a tax obligation that operates under the tax-collection framework, where general non-forgiveness rules apply.

Article 12, section 5 of the Arkansas Constitution provides:

No county, city, town or other municipal corporation, shall ... obtain or appropriate money for, or loan its credit to, any corporation, association, institution or individual.

The Arkansas Supreme Court reads this as an absolute bar on direct or indirect donations of municipal funds or property to private entities, no matter how useful the public purpose. 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). The AG and the Court both treat a non-collected receivable that the city was not constitutionally required to collect as outside the scope of "money or property" within article 12, section 5.

Citations

• Ark. Const. art. 12, § 5 (no municipal donations to private entities)
• Ark. Code Ann. §§ 14-54-901 to -904 (cleanup-lien framework)
• Ark. Code Ann. § 14-54-903 (lien creation)
• Ark. Code Ann. § 14-54-904(a) (10-year enforcement window)
• Ark. Code Ann. § 14-54-904(a)(2) (certification to tax collector)
• Ark. Code Ann. § 14-90-805(b) (improvement-district lien continues until paid, comparison)
• 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)
• Tucker v. Holt, 343 Ark. 216, 33 S.W.3d 110 (2000)
• Lueken v. Burch, 214 Ark. 921, 219 S.W.2d 235 (1949)
• Op. Att'y Gen. 97-306 (no general forgiveness of certified delinquent tax amounts)
• Ops. Att'y Gen. 2019-029, 2017-088, 2017-035, 2015-141, 2007-245 (article 12, § 5 and lien-enforcement parameters)

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. 2021-056
October 5, 2021
The Honorable Steve Hollowell
State Representative
P.O. Box 1203
Forrest City, AR 72336-1203
Dear Representative Hollowell:

This is in response to your request for an opinion concerning the purchase of real
property by a non-profit entity. In this regard, you have provided the following
background information:

The Forrest City Downtown Revitalization Project, hereafter referred
to as FCDRP, is a 501(c)(3) non-profit entity. Its purpose and mission
is to benefit the citizens of Forrest City through the redevelopment
and revitalization of the downtown area. No individuals or specific
business entities receive any revenue or direct benefit from the
organization. All revenues, if any, are utilized to support programs
for the benefit of Forrest City and all its citizens.

FCDRP seeks to purchase real property in downtown Forrest City
from a third party. The underlying property has a lien attached to it
in the amount of approximately thirty thousand dollars ($30,000.00).
The lien relates to efforts and costs incurred by the City of Forrest
City for cleanup and upkeep of the property.

FCDRP has made presentations to the Forrest City Council reflecting
plans for a downtown park including an amphitheater and greenspace.
They plan to host music and other community festivals. Citizens and
groups would rent the facility with those fees being used to maintain
the park. The City Council voted unanimously to release the
underlying lien provided FDCRP was successful in purchasing the
property. Concern has risen as to whether the City can release the lien
without violating the Constitution of the State of Arkansas.

In light of the foregoing background information, you have asked the following
questions:

1. Is the release of lien by the city to a non-profit organization a
   violation of Article 12, Section 5, of the Constitution of the State
   of Arkansas, since the city would not receive any payment toward
   the lien other than the anticipated future benefit to and for its
   citizens?

2. If the response to Question 1 is in the affirmative, could an
   agreement be reached by the City of Forrest City and FCDRP to
   pay and offer consideration that is less than the lien amount to
   satisfy any constitutional concerns? If so, can the monetary
   amount take into consideration the non-monetary benefits to the
   City?

3. If the response to Question 2 is in the affirmative, would the mayor
   or the Forrest City, City Council have the final approval authority
   regarding the matter?

RESPONSE

Although your first question asks about "the release of lien ... to a non-profit," I
gather from the background information provided in your correspondence that the
actual question is whether the city's release of the lien against the property (and the
consequential non-payment of the city's clean-up costs) would be a violation of
Article 12, section 5 of the Arkansas Constitution. With that understanding, I
believe the answer is "no." Responses to your remaining questions appear
unnecessary in light of my response to Question 1.

DISCUSSION

Question 1: Is the release of lien by the city to a non-profit organization a
violation of Article 12, Section 5, of the Constitution of the State of Arkansas,
since the city would not receive any payment toward the lien other than the
anticipated future benefit to and for its citizens?

According to the background information provided in your request for my opinion,
the City Council of Forrest City voted to release a $30,000 lien against certain
property, provided that the property was purchased by the Forrest City Downtown
Revitalization Project (FCDRP). It appears the lien was imposed pursuant to Ark.
Code Ann. § 14-54-901 through -904 (Repl. 1998 and Supp. 2019), which
authorizes a city to correct an unsightly and unsanitary condition on real property
and charge the cost to the owner. The city is given a lien against the property to
cover the associated cost. The city can either foreclose on its lien in circuit court
or make its own appealable determination of the amount owed, which will be
recorded and collected as delinquent taxes.

Your question as I understand it is whether a city's release of such a lien (and the
consequential non-payment of the city's clean-up costs) would be a violation of
Article 12, section 5 of the Arkansas Constitution, which provides in pertinent part
that "[n]o county, city, town or other municipal corporation, shall ... obtain or
appropriate money for, or loan its credit to, any corporation, association, institution
or individual."

As I have previously explained, art. 12, § 5 essentially prohibits private individuals
or entities from receiving donations of municipal property. It prohibits direct cash
donations as well as other municipal expenditures that amount to granting financial
aid, i.e., donating to a private individual or entity. As interpreted by the Arkansas
Supreme Court, art. 12, § 5 bars all donations by municipalities to any private entity
or person, regardless of whether the donation might serve a public purpose.

I do not believe art. 12, § 5 stands as a barrier to a city releasing property from a
clean-up lien obtained by the city under sections 14-54-901 through -904. As
summarized by the Arkansas Supreme Court, this body of law "authorizes the
imposition of a lien in order for a municipality to recover a fee for the cost of
providing services that the property owner refuses to perform." There are two
avenues for enforcing the lien and collecting that fee. But unlike some lien statutes,
this body of law does not state that the lien continues until the costs are paid. So
the city may decide to release the clean-up lien under conditions other than full
payment. The city may not be paid for its services in that case. But that non-
payment does not evidence a donation of municipal property or an expenditure that
amounts to financial aid (as prohibited by art. 12, § 5).

Question 2: If the response to Question 1 is in the affirmative, could an
agreement be reached by the City of Forrest City and FCDRP to pay and offer
consideration that is less than the lien amount to satisfy any constitutional
concerns? If so, can the monetary amount take into consideration the non-
monetary benefits to the City?

Question 3: If the response to Question 2 is in the affirmative, would the mayor
or the Forrest City City Council have the final approval authority regarding the
matter?

Responses to these questions appear unnecessary in light of my negative response
to your first question.

Sincerely,
LESLIE RUTLEDGE
Attorney General

[Footnotes:
1 Ark. Code Ann. § 14-54-903 (Supp. 2019).
2 Id.
3 Ark. Code Ann. § 14-54-904 (Supp. 2019).
4 Ops. Att'y Gen. 2019-029, 2017-088.
5 See Ops. Att'y Gen. 2017-035 (citing Halbert v. Helena-West Helena Indus. Dev. Corp., 226 Ark. 620, 291 S.W.2d 802 (1956)), 2015-141.
6 See Halbert, supra; City of Jacksonville v. Venhaus, 302 Ark. 204, 788 S.W.2d 478 (1990).
7 Tucker v. Holt, 343 Ark. 216, 222, 33 S.W.3d 110, 114 (2000).
8 See n.3 and accompanying text. See also Op. Att'y Gen. 2007-245.
9 Compare Ark. Code Ann. § 14-54-904(a) ("The liens provided for in § 14-54-903 may be enforced and collected at any time within ten (10) years after a lien has been filed ....") with Ark. Code Ann. § 14-90-805(b) (Repl. 1998) ("The [municipal improvement district] lien shall continue until the local assessment, including any penalty and costs that may accrue thereon, shall be paid."). See Lueken v. Burch, 214 Ark. 921, 926, 219 S.W.2d 235, 238 (1949).
10 This presumes that the lien amount has not been certified to the tax collector. See Ark. Code Ann. § 14-54-904(a)(2). Once certified, the lien amount goes on the tax books as "delinquent taxes." See Op. Att'y Gen. 97-306.]