## Facts

- The City of Little Rock enacted an ordinance authorizing about $16.5 million in capital-improvement revenue bonds to fund public projects, including park and recreational improvements and land acquisition related to a presidential park.
- The bonds were issued under Arkansas Constitution Amendment 65, which authorizes governmental units to issue revenue bonds payable from “rents, user fees, charges, or other revenues” from governmental operations.
- The ordinance pledged user fees from city parks and recreational facilities as the source of repayment and disclaimed any pledge of tax revenues.
- The City increased certain park and facility user fees to support repayment and placed the revenues in an enterprise fund used for park purposes.
- A taxpayer, Nora Harris, sued, alleging that pledging user fees to debt service would force the City to use tax revenues to cover park operating costs, creating an unconstitutional indirect pledge of taxes.
- Harris also claimed the increased charges were an unlawful tax and an illegal exaction.
- At trial, Harris presented no proof that the ordinance required the City to use tax revenues to cover operating costs or any shortfall; city testimony indicated such budget decisions would be discretionary with the city board, not mandated by the ordinance.

## Issues

1. Whether a municipal ordinance pledging only park user fees to repay Amendment 65 revenue bonds nonetheless violated Amendment 65 by indirectly pledging tax revenues based on predicted future budget choices.
2. Whether increased park and recreational facility user fees constituted an illegal tax or illegal exaction.

## Decision

- The Arkansas Supreme Court affirmed judgment for the City.
- The court held the ordinance did not violate Amendment 65 because the bonds were payable solely from pledged user fees and there was no proof of an actual or compelled indirect pledge of tax revenues.
- The court held the increased charges were lawful user fees, not an illegal tax or illegal exaction, because they were fair and reasonable and reasonably related to benefits conferred.

## Legal Principles

- Under Amendment 65, revenue bonds may be repaid from user fees and other operational revenues of a governmental unit, so long as tax revenues are not pledged for repayment.
- An “indirect pledge” theory requires proof that tax revenues are in fact committed or effectively required for debt repayment; speculative future budgeting choices are insufficient.
- A charge is a user fee rather than a tax when it is paid by users of a service, is fair and reasonable, and bears a reasonable relationship to the benefits conferred.
- Use of a dedicated enterprise fund and restriction of fee proceeds to the relevant service supports classification as a fee rather than a general-revenue exaction.

## Conclusion

The court upheld Little Rock’s issuance of Amendment 65 revenue bonds backed exclusively by park user fees and rejected a taxpayer challenge premised on speculative future use of taxes for operations, concluding that the fee increases were lawful user fees and not an illegal exaction.


Harris v. City of Little Rock, 40 S.W.3d 214 (Ark. 2001)