Arkansas Supreme Court upholds interest rate amendment

story by Roby Brock and Michael Tilley
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The Arkansas Supreme Court upheld a lower court’s ruling that a constitutional amendment dealing with state interest rates and special funding bonds is constitutional.

Proposed Amendment 2, which was passed by voters (64% approved) and became Amendment 89 to the Arkansas Constitution, had three key provisions.

First, it gives the Legislature permission to change interest rate caps on government bonds and loans with changing market conditions.

Secondly, it eliminates a current below market interest rate cap on consumer loans and sets an interest rate cap of 17% on those loans.

And finally, the amendment allows for energy savings financing. This would allow local government units to float bonds paid back by the savings from energy efficiency.

April Forrester of Jacksonville filed a lawsuit to overturn the Amendment, saying the language was confusing to voters and violated the Arkansas Constitution because it combined three issues into one amendment.

In a majority opinion released Thursday (June 23), the court said the ballot title of the amendment that was approved by voters last November "does not constitute a manifest fraud on the public." The court also said that another argument used by opponents of the proposal — that the three aspects of the amendment weren’t cohesively relevant to each other — was invalid.

"(A)ll of its parts are reasonably germane to each other and to the general purpose or object of the initiative," Justice Jim Hannah wrote in his opinion. "The general subject of amendment 89 is economic development and debt to the general subject of the amendment. Each relevant section of amendment 89 speaks to a form of that general subject."

However, Justice Donald Corbin dissented in the opinion, saying it is “crystal clear that the legislature engaged in the prohibited practice of logrolling when it included section 3, which increases the maximum rate of interest that may be charged on loans and contracts.”

Corbin also mocked the claim that changing the interest rate cap would help economic development.

“I simply fail to see how raising the maximum cap on interest rates from six percent (6%) per annum to seventeen percent (17%) per annum encourages economic development,” Corbin wrote.

Edmond Hurst, Senior Managing Director with Little Rock-based Crews and Associates, hailed the court decision. His firm has worked in other states on energy savings bonds as well as traditional bond financing.

"We now have a larger toolbox to promote economic development and grow our communities. This decision keeps us from being severely handicapped in raising capital as compared to other states. Communities in Arkansas now have the green light to consider sales and use tax bond issues for capital improvement projects and economic development bonds to grow jobs," Hurst told Talk Business.

"I am confident that we will look back in just a year or two from now and see significant projects that were able to be completed as a result of Amendment 2."