City payments to the chambers of commerce and other private economic development promoters in Little Rock and North Little Rock are illegal "donations" barred by the Arkansas Constitution, a Pulaski County circuit judge has formally ruled.
Tuesday's written decision clarifies what Circuit Judge Mackie Pierce has twice ruled: the contracts or financial arrangements the cities have with their respective chambers and other economic development boosters -- the Metro Little Rock Alliance and the North Little Rock Economic Development Corp. -- violate Article 12 of the state constitution.
Section 5 of the clause bars municipalities from appropriating money to private entities, either by investment, contribution or by lending their credit. Pierce's ruling is in response to a 2013 lawsuit filed by community activists Jim Lynch, Tony Orr and Glen Miller that disputed the legality of the cities' financial relationship with their chambers.
What makes the cities' financial relationships with the chambers and development groups illegal is that the municipalities don't get anything in return for the money they give out, the judge ruled. The cities don't have anything concrete to show for the money they've spent and mostly cannot account for how their money is used, Pierce ruled.
"The court finds, as a matter of law, that the 'contracts' at issue in this case are void for lack of legal consideration and are not valid contracts for the exclusive benefits of the cities of Little Rock and North Little Rock," the ruling states. "The court finds the ... annual lump sum appropriations are donations to the economic development efforts of the relevant chambers of commerce, economic development organizations and collaborative regional industrial projects operated by the [Little Rock chamber]. Defendants made the appropriations in the absence of discrete services rendered in return."
Economic development is a good cause, and the cities argue that the arrangements benefit their citizens, the ruling notes. But that argument does not overcome the letter of the law, according to the ruling.
"Defendants ... argue that the appropriations benefit their citizens," the decision states. "That may well be, and doubtless was the argument made in the past in support of transactions which history tells us led to the adoption of [Article 12]. Accepting this argument would nullify [the article.]
He ordered the cities to stop paying in January. Asked to reconsider by the cities, which submitted more evidence for his consideration, Pierce again came to the same conclusion at a hearing last week.
The cities of El Dorado, Siloam Springs, Springdale, Fayetteville, Bentonville and Rogers have been re-examining their financial relationships with their chambers as a result of the judge's decision. Voters will get a chance next year to eliminate those restrictions by constitutional amendment.
Little Rock has paid at least $3.9 million to the chamber since 1993, although a written contract has been in place only since 2008. The city has given about $300,000 to the Metro Little Rock Alliance since 2012. The city did not have a contract with the alliance until after the lawsuit was filed in 2013.
North Little Rock never has had a written agreement with its chamber but provides it an annual appropriation of as much as $16,000, according to the judge's findings. The city has given the North Little Rock Economic Development Corp. $250,000 annually since 2009 and is responsible for 77 percent of its funding with much of that money passing through the corporation and to the Metro Little Rock Alliance.
The judge's written decision, reflecting his previous rulings, is required so the cities can appeal to the Arkansas Supreme Court.
The plaintiffs agreed Wednesday to a request from Little Rock City Attorney Tom Carpenter for them to submit an amended order for consideration that added language previously agreed upon. It will be up to the judge whether to sign the amended version.
"The big thing is the court said at the first hearing that economic development is a public purpose. ... In putting this [order] together, that paragraph which had been agreed upon earlier was not there, and I think it was just an oversight," Carpenter said.
The inclusion of such language is central to the cities' planned appeal.
"The moment the court said that economic development is a public purpose, well, the law provides we can contract for public purposes, which is what we did," Carpenter said.
Asked for his reaction to the ruling, Carpenter said the court "decided to judge the wisdom of the contract instead of the legality of the contract."
If the judge's order is upheld by the Supreme Court, chambers of commerce across the state could be affected.
Jay Chesshir, president and chief executive officer of the Little Rock Regional Chamber of Commerce, said Wednesday that the ruling already has had a significant impact on economic development activities in his organization and statewide.
"Since the ruling in early January, many -- if not most -- of the approximately 45 organizations across the state who receive public contract dollars have had those dollars placed on hold. We're now entering into the sixth month of trying to continue to do as much work as possible without the funds in which we expected to receive contractually to do this work," Chesshir said.
The plaintiffs' argument that the same work would be completed without contracts with the city is simply not true, he said. And without those contracts continuing, the Little Rock chamber wouldn't be able to staff and operate at the same level, if at all, its economic development program that has recruited more than 13,800 jobs and almost $2 billion of capital investment to the region over the past 10 years, Chesshir said.
If the cities aren't successful upon appeal, it would be up to the chamber's board of directors and its executive committee to determine what its economic development activity would look like going forward.
"We are a private, nonprofit organization designed to serve its members. Recruiting new industry on behalf of the city of Little Rock is a service that the chamber has performed per its contract for many years. Without that public investment, we do not know what type of private investment could even be expected going forward," Chesshir said. "Even with strictly private investment beyond normal chamber operations, our economic development efforts would have to be significantly reduced."
North Little Rock City Attorney Jason Carter said that the city will appeal to ensure that its citizens know they are getting a benefit from the arrangement.
"However, regardless of appeal, we will continue to improve our economic development model," Carter wrote in an email. "It's important that our citizens have confidence in the city's procurement process. That it is fair. That it is transparent. That it returns a value commensurate with the cost. We have to pursue economic development. Irrespective of the outcome of this case, we should continue to improve how we do it."
Terry Hartwick, North Little Rock Chamber of Commerce president, said he expects the decision can be reversed on appeal.
"We feel the Supreme Court will overcome Judge Pierce's decision," Hartwick said. "What he said was the job [of economic development] will be done anyway. It doesn't just happen. We work very hard."
Hartwick added that the decision would reach beyond just Little Rock and North Little Rock and the chambers.
"When Judge Pierce made his ruling, what he said was any public funds going to any [company] that's not part of a professional services contract is illegal," Hartwick said. "It concerns people such as the Boys and Girls Club, the Argenta Downtown Council, anything that is a private entity. It affects, I guess, any private enterprise [corporation] that contracts with the city. And it's not just us, it's almost every chamber."
Metro on 06/11/2015