DALLAS — The Arkansas Supreme Court on Thursday upheld a voter-approved constitutional amendment that eliminated the interest cap on state and local bonds.
The proposal was approved by 64% of voters in November 2010. It went into effect Jan. 1, but issuers were reluctant to go to market until the constitutional cloud was removed.
The court rejected opponents’ contention that Amendment 89 illegally combined three different measures that should have been listed separately on the ballot into a single question. The plaintiffs argued that the three provisions were put into a single question to avoid restrictions on how many constitutional amendments can be put onto the ballot by the General Assembly.
The majority opinion written, by Chief Justice John Hannah, upheld a November 2010 ruling by Judge Mary McGowan of Pulaski County Circuit Court that was issued just hours before the statewide vote.
Hannah said the purpose of the amendment was correctly listed on the ballot, and that its three provisions were sufficiently related to be valid as a single amendment.
The ballot title is intended to identify the measure, not to provide information on the measure to the voter, he said.
Attorneys for the plaintiff said the title was so flawed as to constitute “manifest fraud,” but the chief justice rejected that contention.
“Nothing was offered in the present case to show that there was an open and obvious fraud committed by the ballot title,” he said.
Edmond Hurst, senior managing director at Crews & Associates Inc., said the ruling was good news for Arkansas issuers. Bond attorneys were understandably shy about providing opinions until the question was resolved, he said.
“There’s not a huge backlog of issues that can now go to market, but at least we have access to all the tools in the tool kit,” Hurst said. “That cap really hurt taxable economic development bonds, and we can sure use all the help we can get.”
Hurst said the uncertainty over the cap also hindered issuers contemplating debt backed by the local sales tax. He said the city of Rogers in northwest Arkansas is looking at issuing up to $100 million of sales tax bonds.
“We’ve been fighting this fight for a long time, and now it is finally over,” Hurst said. “Before this amendment, we were in the strange position of tying rates for long-term debt to the interest on short-term notes.”
The interest-cap amendment replaced a constitutional provision that limited the interest rate on government bonds to no more than 200 basis points above the 90-day commercial paper discount rate posted by the Federal Reserve Bank of St. Louis.
It also allowed local governments to issue revenue bonds for energy-saving projects supported by the cost savings realized through more efficient equipment.
The amendment also set a cap of 17% for retail interest charges.
The lawsuit was filed Sept. 24 by Eugene Sayre of Hatfield & Sayre on behalf of Jacksonville resident April Forrester. In the original filing, Sayre asked that Issue 2 be removed from the printed ballot.
The Supreme Court sent the case to district court on Oct. 22, ruling that it lacked original jurisdiction and could not consider the request until it had been appealed from a lower court.
Hatfield later appealed to the higher court after the lower court decision.
Amendment 89 repealed Article 19, Section 13 of the Arkansas Constitution as well as amendments 30, 38, 62, 65 and 78.