DALLAS — A lawsuit filed in Arkansas state court last week could remove from the November ballot a constitutional amendment to eliminate restrictions on the interest rate carried by tax-exempt bonds issued in the state.
The suit targets the three-part Issue 2, which was one of three measures put onto the ballot by the 2010 General Assembly.
The proposed amendment would remove the current rate limitation on bonds issued by or loans to the state and its local governments.
The debt currently must have an interest rate no higher than 200 basis points above the discount rate posted by the Federal Reserve Bank of St. Louis, which is currently 0.75%.
It would also allow localities to issue bonds for energy-efficiency projects supported by the resulting cost savings.
A third provision would limit consumer loans to no more than 500 basis points above the Fed rate, with a maximum interest rate of 17%.
The suit against Secretary of State Charlie Daniels was filed Friday in Pulaski County district court and the Arkansas Supreme Court.
Hatfield & Sayre of Little Rock filed the suit on behalf of a Jacksonville resident.
The secretary of state’s office declined to comment.
Christopher Brockett, the attorney who is handling the suit for Hatfield & Sayre, said the description on the ballot of the proposed amendment is misleading and obscure.
“You would never know that it raises the usury limit to 17% unless you read the ballot question line by line,” Brockett said. “It looks like they’re trying to hide the real purpose of the amendment and mislead the public.
The suit also maintains that the three-part amendment violates the constitutional limit of three amendments that can be submitted to voters at an election.
Brockett said the measures should be submitted to voters separately.
“We’re not worried about the government bond provisions,” he said. “We know Arkansas needs to improve energy efficiencies. But Arkansans should at least know what they are voting on.”
The title on the November ballot question mirrors the title of the legislative joint resolution that put it to voters, Brockett said, but it should instead conform to language in the joint resolution that set out the title.
Arkansans will also be voting on an amendment making it easier for the state to issue general obligation bonds to attract economic development.
The proposal would replace the current minimum project size with unspecified requirements to be determined by the General Assembly.
The third question would establish hunting and fishing as constitutional rights.
The constitution adopted in the 1870s limited the interest rate in Arkansas at no more than 10%, but that was amended in 1982 to the current linkage to
the Fed rate.
“We’re the only state in the union with interests rates linked to the Fed rate,” Brockett said.
Sen. Blanche Lincoln, D-Ark., sponsored federal legislation in 2009 that exempted Arkansas issuers from the interest rate limit, but that exemption will expire at the end of 2010.
The General Assembly passed legislation in 2005 that gave cities and counties the ability to support revenue bonds for energy-saving improvements at public facilities through the utility costs that would be avoided.
However, Attorney General Dustin McDaniel issued an opinion in June 2008 that utility savings cannot be considered revenue and that the bonds would violate the constitutional requirements for voter-authorized debt. So far, none have been issued.
