Little Rock and North Little Rock must immediately stop paying their respective chambers of commerce and similar economic development promoters, under a judge's ruling Monday that said payments by the cities "clearly and totally" violate the Arkansas Constitution.
The cities' arrangements with the chambers and similar promoters -- the Metro Little Rock Alliance and the North Little Rock Economic Development Corp. -- are "window dressing" to get around the constitutional provision that bars municipalities from giving money to private businesses without getting something in return, Pulaski County Circuit Judge Mackie Pierce said.
The cities must cease the payments to the Little Rock Regional Chamber of Commerce, the North Little Rock Chamber of Commerce, the alliance and the development corporation, at least until a lawsuit over the funding arrangement is fully resolved, the judge said.
"You can't put lipstick on a pig and call it something else," the judge told the sides at Monday's 45-minute hearing. "It's a contract in name only."
City officials said they'll appeal the decision.
Little Rock pays $350,000 annually to the Little Rock chamber and its subsidiary, the Metro Little Rock Alliance; North Little Rock pays more than $265,000 annually to its North Little Rock chamber and the development corporation.
In return, the groups are supposed to provide economic development services, such as consultation and promotion.
But the cities don't have anything concrete to show for their money, Pierce said. There's no evidence the chambers or the promotion groups perform any specific services for the cities, he said.
"It's prohibited under the constitution," Pierce said. "I understand what this [money] goes for is good. But what I keep coming back to is, what if both cities said, 'We just don't have the funds to contribute.'"
Would that affect the chambers' operations? Pierce asked rhetorically.
"Not a bit," the judge said, answering his own question. "It would continue on in the same exact manner."
Pierce's ruling on the contracts was in response to a lawsuit challenging the legality of how the cities pay their chambers for economic development services.
Little Rock has given the Little Rock Regional Chamber of Commerce more than $3.9 million since 1993, according to the lawsuit, and it has provided the 12-county Metro Little Rock Alliance with $300,000 since 2012.
The suit states that North Little Rock has given at least $750,000 to the North Little Rock Economic Development Corp. since 2009, which accounts for 77 percent of the nonprofit group's revenue, while also providing a yearly appropriation, which can be as much as $16,000, for the North Little Rock Chamber of Commerce.
Little Rock residents Jim Lynch and Tony Orr with Glen Miller of North Little Rock -- represented by the Arkansas Public Law Center -- sued the cities and their mayors in January 2013. The suit argues that city tax revenue has illegally been used to pay the chambers and economic development associations.
Three judges recused from the case until it reached Pierce.
A decision by the judge on whether the use of city funding is an illegal exaction of tax dollars, as the plaintiffs claim, has yet to be made. But the judge ruled Monday that the plaintiffs have presented enough evidence to show the cities' contracts with the chambers and their associates are illegal under Article 12, Section 5 of the state constitution, which bars political subdivisions such as cities from becoming stockholders in, or lending credit to, private corporations.
"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 provision states.
Defending the cities were Little Rock City Attorney Tom Carpenter and John Wilkerson of the Arkansas Municipal League on behalf of North Little Rock.
Carpenter said the city needs the chamber contract because it's a "bureaucracy" that cannot otherwise provide economic development services, such as attracting new businesses and industry to the area or promoting the region through advertising.
"We can't do everything," he said. "So we have to contract with someone who can."
Carpenter said Article 12 is not the constitution's sole word on how municipalities can work with private companies for economic development. Amendments 65 and 78 to the constitution have given cities more leeway to contract for development services, Carpenter said, urging the judge to consider those changes in interpreting how Article 12 should be applied to the chamber arrangements.
The city-chamber agreements have been around for a while, some as long as 20 years, Wilkerson said. He said that if the arrangements were illegal, someone would have realized that before now.
"This is not a ruse. This is not a cover-up. This is the way we've done business for a long, long time," Wilkerson told the judge, comparing the North Little Rock appropriation to the money the city annually contributes to the Boys and Girls Clubs and similar nonprofit groups.
Attorney Jim McMath, who represents the plaintiffs with attorneys Sam Ledbetter and Sonia Rios, said the city funding to the chambers is a "political contribution."
"The taxpayers are subsidizing a special interest group," he told the judge. "The city is getting nothing more than any investor."
The cities don't get an accounting of how the chambers spend their money and don't ask for one, McMath said, pointing to testimony from Little Rock Mayor Mark Stodola, who said Little Rock can't get that kind of accounting from the chamber because it is a private organization. The city can require the Little Rock chamber submit to an audit but never has, McMath told the judge.
The chamber contracts annually with the city through an ordinance passed every year, he said.
North Little Rock doesn't contract with its chamber, instead defining their relationship through a resolution. But the city doesn't make any demands of it, McMath said. The development corporation is also funded by a resolution, coupled with a letter of agreement, he said.
The current arrangement means there's no public accountability for the cities' spending because none of the organizations are subject to the Freedom of Information Act, McMath told the judge.
To assure transparency, he suggested the cities establish their own economic development agents through the Public Corporation for Economic Development Act. Such entities would be subject to state open-records laws and provide accountability to the public, McMath said.
Metro on 01/06/2015