Economic Development Amendment and Enforcement of Fiscal Viola6ons DAVID SCHOEN

ARKANSAS MUNICIPAL LEAGUE

Job Crea6on, Job Expansion, and Economic Development Amendment 1.  Removesthelimita/ononamountofgeneralobliga/onbondsthestatemayissuetopayfor

economicdevelopmentprojects

2.  Allowsacounty,city,town,orothermunicipalcorpora/ontoobtainorprovidemoneyforotheren//estosupporteconomicdevelopmentprojectsorservices

3.  Clarifiestheauthorityofcoun/esandmunicipali/estoissuebondsforeconomicdevelopmentprojectsinsteadofundefinedindustrialdevelopmentpurposes

4.  Allowsstatelegislatorstoauthorizetheuseoftaxesotherthanspecialtaxestopayoffmunicipalandcountybonddebt

5.  Removestherequirementthatmunicipalandcountybondsmaybesoldonlyatpublicsale

6.  Allowsci/es,towns,schooldistricts,andcoun/estoformcompactsforeconomicdevelopmentprojects

Amendment to Ar6cle 12, § 5 PriortoAmendment:• Nomunicipalitymayobtainorappropriatefundsforanycorpora/on,associa/on,ins/tu/onorindividual

ALerAmendment:• Municipalitymayobtainorappropriatefundsforacorpora/on,associa/on,ins/tu/onorindividualifitqualifiesasanEconomicDevelopmentProjectorService

What Qualifies as an Economic Development Project or Service?

Economic Development Projects •  Land,buildings,furnishings,equipment,facili/es,infrastructureandimprovementsforthedevelopment,reten/onandexpansionofcertainfacili/esandcenterso Manufacturing,produc/on,andindustrialfacili/eso Research,technology,anddevelopmentfacili/eso Recyclingfacili/eso Distribu/oncenterso Callcenterso Warehousefacili/eso Jobtrainingfacili/eso Regionalorna/onalcorporateheadquartersfacili/es

Infrastructure •  Landacquisi/on•  Siteprepara/on•  Roadandhighwayimprovements•  Railspur,railroad,andrailportconstruc/on• Waterservice• Wastewatertreatment•  Employeetrainingandequipmenttosupportit•  Environmentalmi/ga/onorreclama/on

Economic Development Services • Planning,marke/ng,andstrategicadviceandcounselforjobrecruitment,development,reten/on,andexpansion

• Supervisionandopera/onofindustrialparksorsimilarproper/es• Contractnego/a/onsforthesaleorleaseofindustrialparksorsimilarproper/es

Stodola v. Lynch •  Plain/ffsclaimthatthedefendantci/es,LiUleRockandNorthLiUleRock,hadmadeunlawfulappropria/onsofcityfundstoprivatecorpora/ons,theRegionalChamberofCommerceandEconomicDevelopmentCorpora/on,inviola/onofAr/cle12,Sec/on5oftheArkansasCons/tu/on

•  PulaskiCountyCircuitCourtruledthatthecity’spaymentsviolatedAr/cle12’sabsoluteprohibi/onofusingcountyormunicipalfundstosupportprivatecorpora/onsandissuedinjunc/ontostoppayments

•  Ci/esappealedaLerAr/cle12,Sec/on5amendedforEconomicDevelopmentProjectsorServices

•  ArkansasSupremeCourtremandedcasewithinstruc/onstodismissthecomplaintandliLtheinjunc/onasAr/cle12nowpermitsmunicipali/estomakeappropria/onstoen//esforeconomic-developmentservices

Modifica6ons to Amendment 62 Local Capital Improvement Bonds

Amendment 62, § 1  PriortoModifica/on:• Municipali/escouldissuelocalcapitalimprovementbondsfor“industrialdevelopmentpurposes”

ALerModifica/on:•  Replaces“industrialdevelopmentpurposes”with“economicdevelopmentprojects”

Amendment 62, § 2  PriortoModifica/on:• Municipali/escouldpayfor“facili/esforthesecuringanddevelopingofindustry”

o “Industry”undefined•  Onlyspecialtaxes

ALerModifica/on:•  Replacesvague“industry”languagewith“economicdevelopmentprojects”•  Includes“othertaxes”

Amendment 62, § 3  PriortoModifica/on:•  Industrydevelopmentbondssoldonlyatapublicsale

ALerModifica/on:•  EconomicDevelopmentProjectbondscanbesoldpubliclyorprivately

o Processatthediscre/onofthegovernmenten/ty

Amendment 62, § 5  PriortoModifica/on:•  Useofspecialtaxrevenuescollectedinexcessoftheamountneededtopayoffbondstobeusedforaddi/onalbondissuesifapprovedbyvoters

ALerModifica/on:•  Eliminatestheauthorityofci/esandcoun/estouseexcesstaxrevenuestopayforotherbondissueso Anysurplustaxcollec/onswouldbetransferredtothecountyorcity’sgeneralrevenues

Amendment 62, § 9  PriortoModifica/on:•  Ci/es,towns,schooldistricts,andcoun/esenterintoacompactfor“industrydevelopment”

ALerModifica/on:•  Replacesvague“industry”languagewith“economicdevelopmentprojects”

What Are Available Remedies for Viola6on of Fiscal Management?

§ 14-77-101 et seq. Local Fiscal Management Responsibility Act • Theexecu/veofficerofthepoli/calsubdivision,uponbeingno/fiedofapublicofficeroremployee’sallegedviola/onofafiscalresponsibilityandmanagementlaw,isobligatedtoinves/gate•  Execu/veofficerformunicipali/es:

o Mayor,citymanager,orcityadministrator•  Publicofficeroremployee:

o Anyofficeroremployeeofacountry,municipality,orschooldistrictofArkansas•  Poli/calsubdivision:

o Anycounty,municipality,orschooldistrictofArkansas•  Fiscalresponsibilityandmanagementlaws:

o Poli/calsubdivisionsnottobecomestockholdersinorlendcredittoprivatecorpora/ons-excep/ons,ArkansasCons/tu/on,Ar/cle12,§5

o LocalCapitalImprovementBonds,ArkansasCons/tu/on,Amendment65

§ 14-77-103 & 104 Compliance & No6ce •  Ifallega/onshavemerit,thefactsandcircumstancesrela/ngtoaviola/onandanycorrec/veorremedialac/onshallbedocumentedandplacedinthepersonnelfilesofthepublicofficeroremployeeinvolvedintheviola/on

•  Execu/veofficershallgivepublicofficeroremployeeno/ceoffindingsandanycorrec/veorremedialac/ontobetaken•  No/cemustbeactual•  No/cemuststatethatemployee’sfailuretomakecorrec/veorremedialac/onwithinthirty(30)daysaLerthedateofno/fica/oncreatestherebuUablepresump/onthattheviola/onwascommiUedknowingly

§ 14-77-106 Inves6ga6on of Viola6ons •  Ifexecu/veofficerdeterminesthattherehasbeenviola/on,theexecu/veofficerortheLegisla/veJointAudi/ngCommiUeemayrequesttheappropriateprosecu/ngaUorneytoconductaninves/ga/onregardingtheviola/on• Theprosecu/ngaUorneyshallconducta/melyinves/ga/on•  Iftheprosecu/ngaUorneyfailstoconducta/melyinves/ga/on,execu/veofficermayrequesttheAUorneyGeneraltoconductaninves/ga/onintotheviola/ons

Prosecu6on and Damages §14-77-107.Civilac/onagainstviolator•  Appropriateprosecu/ngaUorneyorAUorneyGeneralmayfileacivilsuitagainstpublicofficeroremployee

§14-77-108.Knowingviola/ons;punishment•  Ifacourtfindsthatemployee“knowinglyviolatedtheprovisionsofthefiscalresponsibilityandmanagementlaws,”mayawarddamagesandimposeacivilpenaltybetween$100and$1,000foreachviola/on

§14-77-109.Knowingviola/ons;costrecovery•  Prosecu/ngaUorneyorAUorneyGeneralmayrecoveraUorneyfeesfrompublicofficialoremployee

§14-77-110.Applicabilityofprovisions•  Allac/onsandproceduresunderActarecivilinnature§14-77-111.Supplementtootherremedies•  RemediesintheActdonotprecludepursuinganyotheravailablecriminalorcivilcauseofac/on

§ 25-1-124 Repor6ng by Public Employee • ApublicemployeewithsupervisoryfiduciaryresponsibilityoverallfiscalmaUersofapublicemployershallreportalossofpublicfundstoArkansasLegisla/veAudit,includingwithoutlimita/on:A.  Apparentunauthorizeddisbursementsofpublicfunds;orB.  TheapparenttheLormisappropria/onofpublicfundsorproperty.•  Reportmustbemadewithinfive(5)businessdaysofthedatethepublicemployeelearnsofthelossofpublicfunds

•  EmployeewhopurposelyfailstoreportisguiltyofaClassAmisdemeanor

§ 21-1-601 et seq. Whistle-Blower Act •  Apublicemployershallnottakeadverseac/onagainstapublicemployeebecausetheemployee:1.  Communicatesingoodfaithtoanappropriateauthoritytheexistenceofwasteofpublicfunds,

property,ormanpower,includingfederalfunds,property,ormanpoweradministeredorcontrolledbyapublicemployer;oraviola/onorsuspectedviola/onofalaw,rule,orregula/onadoptedunderthelawofapoli/calsubdivisiono  Thecommunica/onmadeata/meandinamannerwhichgivesthepublicemployerreasonableno/ceofneedtocorrectthewasteorviola/on

2.  Par/cipatesorgivesinforma/oninaninves/ga/on,hearing,courtproceeding,legisla/veorotherinquiry,orinanyformofadministra/vereview

3.  Objectedtoorrefusedtocarryoutadirec/vethattheemployeereasonablybelievesviolatesalaworaruleorregula/onadoptedundertheauthorityoflawsofapoli/calsubdivision

4.  Reportsofalossofpublicfundsunder§25-1-124

§ 21-1-604 Civil ac6on for viola6on •  Apublicemployeewhoallegesaviola/onofWhistle-BlowerActmaybringacivilac/onforappropriateinjunc/verelieforactualdamages,orboth,within180daysaLertheoccurrenceofallegedviola/on

•  Publicemployeemustestablish,byapreponderanceoftheevidence,thattheemployeehassufferedanadverseac/onbecausetheemployeeorapersonac/ngonhisorherbehalfengagedorintendedtoengageinprotectedac/vity

•  Publicemployershallhaveanaffirma/vedefensetoacivilac/onbroughtbyapublicemployeeiftheadverseac/ontakenagainstapublicemployeewasduetoemployeemisconduct,poorjobperformance,orareduc/oninworkforceunrelatedtoacommunica/onmadepursuantto§21-1-603

§ 14-59-115 Du6es of Municipal Treasurer •  Treasurermustsubmitamonthlyfinancialreporttothecouncilorboardofdirectorsandmaintaintheaccoun/ngrecords

•  Iftreasurerdoesnotcomplyorrequeststhatspecificdu/esbereassigned,themunicipalitymayassignspecificdu/estoanotheremployeeormaycontractfortheservicestobeperformedbyaprivate,qualifiedpersonoren/ty

•  Beforethemunicipalityassignsorcontractswithapersonoren/tyforthedisbursingoffundsmust:1.  Establishbyordinanceamethodthatprovidesforinternalaccoun/ngcontrolsanddocumenta/onforauditand

accoun/ngpurposes2.  Treasurershallapprovethedisbursementoffunds3.  Ensurethatthepersonoren/tyisadequatelyinsuredandbondedandmeetsindustrystandards

•  Municipalitymaynotassigncollec/ngoffundstoanyoneotherthananmunicipalemployee,butmayassigndisbursingoffundsforpayroll,bondeddebt,orconstruc/onprojectsfundedwithbondproceeds

§ 14-59-117 Withholding of turnback for noncompliance •  IfArkansasLegisla/veAudit,publicofficial,orprivateaccountantdeterminesthatamunicipaltreasurerisnotsubstan/allycomplyingwithdu/es,shallreportthefindingstotheLegisla/veJointAudi/ngCommiUee

•  CommiUeeshallno/fythemayorandthecitycouncilofthemunicipality'snoncompliantaccoun/ngrecordsandallowmunicipality60daystobringthemintocompliance

•  ALer60days,ifAuditreviewstherecordsanddeterminesthatmunicipalityisnotincompliance:o  CommiUeeshallreportthenoncompliancetotheTreasurerofStatewhowillplace50%ofmunicipality’sturnbackinescrowun/lcompliance

o  Municipality’sgoverningbodymustassigndu/estoanotheremployeeorcontractqualifiedpersonoren/ty

•  ALer120days,ifAudithasnotreceivedarequestforreviewofrecordsfromthemunicipality:o  CommiUeewillno/fymunicipalityandTreasurerofStateofcon/nuednoncomplianceo  TreasurerofStatewillwithholdallturnbackun/lcompliance

•  ALer6months,ifAudithasnotreceivedarequestforreviewofrecordsfromthemunicipalitythentheCommiUeewillno/fymunicipalityandTreasurerofStateofcon/nuednoncomplianceo  Municipalityforfeitsallescrowedfundso  Maynotreceiveaddi/onalturnbackun/lcompliance

§ 14-62-101 et seq. Revoca6on of Charter of Municipal Corpora6on •  IfLegisla/veJointAudi/ngCommiUeeconcludestheprocessunder14-59-117andthenwithinthesubsequent3-yearperiodtheCommiUeeconcludestheprocessasecond/me,theCommiUeemayno/fytheAUorneyGeneralandGovernor

•  AUorneyGeneralshallfilepleadingsincircuitcourttorevokethecharterofmunicipality

•  Ifproven,courtshallrevokemunicipality’scharterandtheGovernorappointsaReceiver

•  Receivershallresolveoutstandingindebtednessandmakereportofproceedingsandac/onsevery6monthsinwhichallmoneysandpropertycollectedbyreceivershallbeaccountedfor

§ 14-59-118 Penalty for Failure to Perform Du6es

• Anymunicipaltreasurerwhorefusesorneglectstomaintainthebooksandrecordsisdeemedguiltyofmalfeasance,acriminalcharge

• Uponconvic/on,treasurerfinedbetween$100and$1,000andshallberemovedfromoffice

§ 10-4-419 Report of Improper or Illegal Prac6ces •  IfaudittotheLegisla/veJointAudi/ngCommiUeeorsubcommiUeereflectsevidenceofeither:

1.  Improperprac/cesoffinancialadministra/onorinadequacyoffiscalrecordso TheLegisla/veAuditormustreporttheevidencetotheappropriateexecu/veofficialandtothegoverningbodyofthepoli/calsubdivision

2.  Apparentunauthorizeddisbursementsorunaccounted-forfundsorpropertybyapublic

officialoremployeeo TheLegisla/veAuditormustreportthetransac/onstoprosecu/ngaUorneyforthecountyinwhichthepoli/calsubdivisionislocated,theGovernor,theappropriateexecu/veofficial,andthegoverningbodyofthepoli/calsubdivisionofthestate.

§ 10-4-419 Prosecu6on •  IfLegisla/veJointAudi/ngCommiUeedeterminesthatapoli/calsubdivisionhasnotcorrectedthedeficienciesnotedinpreviousreporto TheCommiUeemayrequesttheprosecu/ngaUorneytakeappropriateac/ontoassurethattherecordsofthepoli/calsubdivisionaremaintainedinaccordancewithlaw

•  Ifprosecu/ngaUorneyfailsorrefusestotakeappropriateac/onwithinareasonable/meaLerno/cefromtheCommiUeethatapoli/calsubdivisionisnotmaintainingitsrecordsinsubstan/alcompliancewithlaw,o TheCommiUeemayrequesttheAUorneyGeneraltakesuchappropriateac/onasmaybenecessarytoassurethattherecordsofthepoli/calsubdivisionaremaintainedincompliancewithlaw.

Ques6ons & Answers