Week in Review

State Capitol Week in Review

LITTLE ROCK – A lawsuit filed last week asks the state Supreme Court to remove a proposed amendment on usury limits from November general election ballots The proposed amendment would raise maximum interest rates that non-bank lenders, such as car dealers and furniture stores, may charge Arkansas customers.

The amendment under challenge is one of three referred to November general election ballots by the legislature during the 2009 regular session. It is called Issue 2 to distinguish it from the other two proposed amendments referred by the legislature last year.

Issue 2 would raised the usury limit on interest rates charged by non-bank lenders to 17 percent. The maximum legal rate in Arkansas now, as written in the state constitution, is 5 percentage points above the federal discount rate. That rate is 0.75 percent, therefore retailers may legally charge no more than 5.75 percent on consumer loans.

The proposed amendment, whether or not it stays on the ballot and whether or not it is approved by Arkansas voters, will not affect interest rates charged by banks and credit unions because they are regulated by federal laws.

Issue 2 has other purposes besides raising the usury limit. It would repeal limits on the interest rates that local governments pay when they issue bonds. When local governments borrow money for capital projects they issue bonds.

The Constitution now limits what maximum they can pay to either two percentage points or five points above the federal discount rate, depending on the type of bonds.

That limit has made it difficult for local governments to find investors willing to purchase bonds because the rate of return is so low as to be uncompetitive. For that reason, the Arkansas Municipal League has endorsed Issue 2, arguing that it will promote more community projects and create jobs by making capital more available.

Issue 2 would repeal the limits now in the Constitution and authorize the legislature to set them. It would still require voters to approve bonds backed by taxes.

Another purpose of Issue 2 is to authorize state and local governments to issue bonds for energy efficiency projects. They would be secured by various revenue sources, including savings derived from the energy-saving projects as well as general revenues, special revenues and revenues from any taxes available to the governmental entity.

The lawsuit challenges the ballot title that voters will see when they read the proposed amendment in their voting booths. It alleges that the ballot title is not correct, as required by law, and that it is not the same ballot title that has been published in public notices over the summer months by the Secretary of State's office.

The lawsuit alleges that Issue 2 is actually three disparate amendments cobbled into one. The result, the lawsuit alleges, is that the legislature has referred five proposed amendments to the ballot, which is more than the three allowed by the Constitution.

The other two amendments have not been challenged. Issue 3 would expand the state's authority to issue bonds for industrial development under Amendment 82.

Issue 1 would establish a constitutional right to fish, hunt and trap wildlife.