DALLAS - An Arkansas law that authorizes local governments to finance energy-saving improvements at public facilities with revenue bonds supported by the utility cost savings seems to violate the state constitution, said state Attorney General Dustin McDaniel in an opinion released Monday.
"In my opinion to the extent the act authorizes the bonds to be repaid from tax dollars, the act is constitutionally suspect," McDaniel said.
Act 1980, which sailed through the 2005 Legislature with no dissenting votes, added performance-based energy efficiency projects to the list of capital projects that could be financed with the proceeds of revenue bonds. The bonds could be issued through an ordinance adopted by the governing body.
The act gave local governments the authority to issue energy revenue bonds. The government would use the proceeds to develop and implement energy saving measures, including more efficient lighting fixtures and heating and cooling systems.
Debt service on the revenue bonds would be supported by the difference between the actual energy costs with the new equipment and what the government would have paid if the equipment were not upgraded.
Bill sponsor Sen. Mary Anne Salmon, D-North Little Rock, said the act was intended to give local governments a lower-cost option for financing energy-saving improvements.
McDaniel said the law is in conflict with state constitutional amendments 62 and 65. Amendment 62 requires a vote of the people on the issuance of tax-backed debt. Amendment 65 allows local governments to issue revenue bonds without a popular vote only if they are not supported by non-tax revenue.
The savings realized by the energy-efficient systems is not revenue, the attorney general said. Amendment 65 requires revenue bonds to be supported by income derived from projects or improvements financed by the bonds.
"If all goes as expected, savings to city or county coffers are instead produced, in the form of reduced energy bills," McDaniel said. "The actual revenues used to pay the principal and interest on the bonds may therefore be the same source of revenues that the city or county formerly used to pay its higher energy bills.
"In my opinion, Amendment 65 is violated if the city or county merely uses the tax dollars that it would have otherwise used to pay its higher energy bills to pay the principal and interest on bonds."
Don Zimmerman, executive director of the Arkansas Municipal League, said to his knowledge no Arkansas municipality or county has issued energy revenue bonds.
"I know of only one county that considered those bonds, and no cities," he said. "It looks like there will not be any done now."
Zimmerman said neither his group nor the Association of Arkansas Counties had the energy revenue bond measure on their legislative agenda in 2005.
"It really wasn't an issue of ours," he said. "I haven't heard any interest in it being revived now."
The Pulaski County Quorum Court voted in February for a $6.1 million bond issue for an energy efficiency project but dropped the plan after its bond counsel questioned Act 1980.
Washington County attorney George Butler asked the county prosecutor to seek an opinion on Act 1980 from the attorney general because the county has considered issuing bonds for an equipment modernization project.
