Brawner: Issue No. 2 Explained

Arkansas News Bureau columnist Steve Brawner lays out the arguments for and against a proposed constitutional amendment that will appear on the ballot as Issue No. 2.

This amendment proposal, referred by the Arkansas General Assembly, would allow cities or counties to create districts where sales tax receipts could be used to pay for bonds for infrastructure improvements, for instance, street or sewer repairs in an entertainment district.

If approved, the measure would also allow for bonds to retire unfunded liabilities of closed police and fire pension plans and would allow local governments to use money from other sources to pay off short-term loan debt.

The sales tax receipts mechanism for infrastructure improvements was the lynchpin for the proposal. In other states where this type of financing is used, they are known as STAR bonds.

From Brawner’s column:

Here’s an example of how it would work. In Files’ hometown, there is a long, undeveloped stretch along the Arkansas River that really ought to be put to good use.

If voters approve this amendment, Fort Smith could decide to improve that specific part of town and find some big project, public or private, to anchor it – say an arena or a Bass Pro Shop. Then the city would issue STAR bonds to bondholders in order to pay for infrastructure – roads, bridges, etc. – throughout that district. Ideally, the infrastructure and the big project would attract other businesses, and the sales taxes from all of that activity would pay back, with interest, the bondholders who funded the infrastructure.

Part of the idea behind STAR bonds is that they transfer risk from taxpayers to investors. Typically, taxpayers would pay to build the roads along the Arkansas River, and if nothing happens, well, too bad for the taxpayers. Using STAR bonds, if the district flops, the bondholders supposedly would be the ones losing money. If the district were to succeed, then the bondholders would make money, and jobs would be created where, right now, there’s just mud and grass.

You can read Brawner’s full take from the Arkansas News Bureau at this link.