Arkansas Supreme Court rules GIF dollars unconstitutional

The Arkansas Supreme Court on Thursday sided with former state lawmaker Mike Wilson that leftover state dollars meted out to eight planning and development districts by the Arkansas Legislature is “unconstitutional.”

The court returned its decision as scrutiny continues to heighten around state lawmakers and their handling of so-called GIF, or General Improvement Funds. Already, former State Sen. Jon Woods, R-Springdale, and former Rep. Micah Neal, R-Springdale, were indicted on charges related to alleged kickbacks related to GIF funding. Neal has admitted guilt, while Woods is fighting the charges.

Just a month ago, the Supreme Court justices heard oral arguments on Sept. 7 by Wilson’s attorney, Johnson Ogles, that nearly $3 million in GIF handed out to Lonoke-based nonprofit Central Arkansas Planning and Development District Inc. (CAPDD) was illegal.

According to court filings, in the 2015 General Assembly by agreement of the legislature, each Senate member was allocated $285,000 and House members received $70,000 totaling $15 million to be designated “as he or she alone saw fit” from the GIF kitty for local “projects in individual Senate or House districts of each member.

In making his case, Ogles argued the management and disbursement of GIF dollars did not pass constitutional muster because it violated a 10-year old law that that budget appropriations must have a distinct purpose.

“As a means of avoiding the Constitutional prohibition against local and special acts, members of the General Assembly have joined in unlawful concert with Defendant Central Arkansas Planning and Development District, Inc. and other Planning and Development Districts, in a scheme or artifice whereby appropriations of tax funds are made to the Planning and Development Districts, which privately contact by telephone individual members of the House and Senate for approval of ‘grants’ to favored local projects,” the court filing stated.

Wilson’s lawsuit further stated that the CAPDD board of directors “routinely” unanimously approved grant applications without discussion, debate or dissent.

“The funds are then sent to the grant applicants for public presentation accompanied by publicity photographs of the legislators claiming credit for granting the funds,” the court filing states. “In purpose and effect, the Defendant Central Arkansas Planning and Development District, Inc. simply acts as a money-laundering machine for individual legislators for the sole purpose of evading the force of the constitutional prohibitions and decisions of the Supreme Court.”

Wilson originally filed his illegal-exaction suit in Pulaski County Circuit Court more than two years ago alleging that certain legislation from the 2015 session that appropriated general improvement funds to eight planning and development districts violated the Arkansas Constitution. CAPDD is one of the eight districts that consists of the mayors of cities and county judges in Faulkner, Lonoke, Monroe, Prairie, Pulaski and Saline counties.

In the original Pulaski County Circuit Court case, Judge Chris Piazza granted a summary judgment in favor of the defendants. Wilson appealed to the Arkansas Supreme Court, and CAEDD cross-appealed the circuit court’s rulings in Wilson’s favor on standing and mootness.

“For the reasons set out below, we reverse and remand on direct appeal, and we affirm on cross-appeal,” Associate Justice Robin Wynne wrote in the high court’s ruling. Justices Rhonda Wood and Shawn Womack concurred and dissented in part.

Until the 2017 session, lawmakers without much scrutiny handed out surplus or “pork” funding that could be directed by them or the governor to specific local projects, such as firehouses, community centers, boys and girls clubs, parks, and special one-time developments.

However, Gov. Asa Hutchinson in January, just before the 2017 session began, urged the legislature to do away with GIFs to local communities and threatened to veto any “unfunded mandates” that crossed his desk during the 2017 general session.

“I understand what we call the GIF funds, and that many of you have come up to me and said, ‘that has been so helpful to our community or we might not have gotten it otherwise,’” the governor said. “But today, our state revenue needs to be utilized for state purposes first of all, and secondly, we understand that GIF money has been abused.”

Hutchinson’s speech at the annual state convention of the Arkansas Municipal League occurred only a week after Neal pleaded guilty to one count of conspiracy to commit honest services fraud. Later in early March, Woods was also indicted on charges related to the alleged kickback schemes.

The DOJ indictment said the two legislators authorized and directed the Northwest Arkansas Economic Development District, which was responsible for disbursing the GIF, to award a total of $600,000 in GIF money to two nonprofits. Of the $600,000, Neal personally authorized and directed a total of $175,000 to the organizations. In return for those actions, Neal received approximately $38,000 in bribes from officials at those nonprofit organizations.

Wilson’s complaint asked the high court to block Auditor of State Andrea Lea and the Department of Finance and Administration Director Larry Walther from making or approving any future GIF disbursements. It also asked the high court to direct CAPDD to repay the state treasury $2,987,500 with interest, as well as attorneys’ fees and all other proper relief.

Ahead of today’s decision by the high court, Arkansas Democratic Party Chairman Michael Gray demanded that Attorney General Leslie Rutledge and the Arkansas State Police launch an investigation into lawmakers’ fraudulent use of GIF money in a kickback scheme.

“When you hold a position of power, you have the opportunity to use that power for the good of the people, or to use it for selfish gain,” Gray said in a statement. “It would appear many legislators have chosen the latter. The FBI has taken notice, already issued one indictment, and they’ve warned more may come. This money could have been used to bolster community programs such as emergency services and food pantries. Instead, these legislators chose to put themselves over their communities.”

Republican Lt. Gov. Tim Griffin, who presides over the Arkansas Senate, today cheered the Supreme Court’s decision. “I applaud the Arkansas Supreme Court’s decision that the current General Improvement Fund (GIF) system is unconstitutional. Surplus funds belong to the taxpayer, and the taxpayers of Arkansas deserve a system that is transparent, accountable, and less susceptible to corruption,” Griffin said.