LITTLE ROCK — Arkansas voters favored two proposed constitutional amendments Tuesday intended to loosen restrictions on government bonds, including what interest rates they can pay and when they can be issued.
The two issues were aimed at fostering economic development, said Randy Zook, president of the Arkansas State Chamber of Commerce.
“Our message in efforts to pass both [ballot issues] focused on the fact that it’s all about more and better jobsin Arkansas,” Zook said, by giving the state more tools and flexibility to encourage development.
Issue 2 proposed amending the state constitution to remove the interest-rate caps on government bonds; raise the interest-rate limit for retail lending; and enable government entities to issue bonds for energy efficiency projects. The amendment, if passed, will give the Legislature power to set interestrates on government bonds.
With 1,492 of 2,406 precincts reporting, unofficial results were:
For. . . . . . . . . . . . . . . . . .293,987 Against . . . . . . . . . . . . . 163,537
If adopted, Issue 3 will change current Amendment 82 to loosen restrictions on financial incentives meant to attract big businesses to Arkansas. It takes away the requirement that a company create 500 jobs and invest at least $500 million in a project in order to receive financing from a state-backed general obligation bond. Instead, the new rule allows the Legislature to set standards for when companies can receive economic benefits on a case-bycase basis.
With 1,492 of 2,406 precincts reporting, unofficial results were:
For. . . . . . . . . . . . . . . . . . 283,199 Against . . . . . . . . . . . . . 170,436
Zook has said that the two issues go hand in hand - without raising interestrate limits, it would be difficult to persuade people to buy the bonds used to encourage businesses.
A Pulaski County circuit judge ruled Tuesday that votes on Issue 2 must be counted, denying a request for an injunction in a lawsuit that challenged that initiative.
Filed in September by April Forrester of Jacksonville, the suit alleged that the title of the proposal was a “manifest fraud upon the public” and that the amendment combined too many separate issues into one initiative.
Circuit Judge Mary Mc-Gowan ruled that the initiative’s ballot title was “complete enough to convey an intelligible idea of the scope and import of the proposed amendment,” and that the issues it addresses are all sufficiently related.
Eugene Sayre, the Little Rock attorney representing Forrester, said they have not decided whether to appeal the decision.
Tuesday’s vote on Issue 2 is the latest twist in Arkansas’ complicated relationship with interest rates. Voters defeated multiple measures to remove a 10 percent cap on rates over several decades, ultimately approving a measure in 1982 to tie rates to a fluctuating rate set by the Federal Reserve System. The federal discount rate is the rate at which banks can borrow money from theFederal Reserve.
The Arkansas Constitution currently lays out different limits for interest rates that can be paid on different types of government bonds as well as what retail lenders can charge.
But the federal rate is currently so low - 0.75 percent - that local governments say they cannot sell bonds, and businesses say they cannot charge consumers as much as they need to under the current restrictions. Under the rules currently in place, government bonds can only pay 2 or 5 percentage points above this rate, depending on what type of bonds they are. And retail lenders can only charge 5 percentage points above the discount rate.
A maximum interest rate of 17 percent per year will remain in place for retail lenders based in Arkansas.
Interest rates charged by federally insured depository institutions, like banks, are capped at 17 percent under a federal law passed in 2009 that overrode the state’s interestrate limits. That federal law was set to expire Dec. 31, but will become permanent if Issue 2 is passed.
In 2004, Arkansas voted to allow the state to issue general obligation bonds to pay for infrastructure, as a way to tempt companies to locate in Arkansas. Companies sometimes demand reduced taxes or other benefits in exchange for locating in a state.
But the threshold for using the bonds was too high, some said. Joe Holmes, spokesman for the Arkansas Economic Development Commission, said the provision has never been used because of the high threshold, and that the state has in some cases lost out on projects to nearby states with more generous financing rules.
Sayre said the opposition to the proposal was not wellfunded.
“I think [the passage] is indicative of the fact that therewas no money to oppose the interests of the used-car dealers and the rent-to-own furniture stores who want to raise the credit limit,” Sayre said.
An interest group called Committee for Arkansas’s Future raised $284,700 to advocate for the three proposed constitutional amendments on Tuesday’s ballot, according to the most recent filing with the Legislative Questions Committee. The group lists local chambers of commerce, regional economic development groups, private individuals and businesses such as America’s Car-Mart among its contributors.
Northwest Arkansas, Pages 11 on 11/03/2010