Eugene McKay

Attorney General of Arkansas — Opinion
Opinion Delivered October 7, 1996

WINSTON BRYANT, Attorney General

Dr. Eugene McKay, Chancellor Arkansas State University-Beebe P.O. Drawer H Beebe, Arkansas 72012-1008

Dear Dr. McKay:

This is in response to your request for an opinion on the legality of a “short-term lending arrangement” proposed by Arkansas State University-Beebe to fund the acquisition of additional real property for the expansion of the University. Specifically, you indicate that it has been suggested that local banks could participate together in providing an unsecured open line of credit that would provide funds for land acquisition. You indicate that the line of credit would have a specified ceiling, specified interest rate and would require a minimum payment each year of ten percent of the outstanding principal plus the accrued interest. The University intends to make payment on this line of credit from “cash funds” and would not expend “general revenues” for the purpose. You indicate that although the financing would be short term, the balance due on the line of credit could extend beyond the end of a fiscal year and even beyond a biennium.

I have not been provided with any actual financing documents relative to this proposed transaction, and thus cannot opine definitively as to the legality of any particular agreements. The Beebe Branch of Arkansas State University should consult the counsel to whom it ordinarily looks for legal advice with reference to the legality of a particular arrangement.

I can state, however, that if the University proposes to use only “cash funds” to make payment on the line of credit, the arrangement can in all likelihood be lawfully drafted and termed a “revenue bond” under the provisions of Amendment 65 to the Arkansas Constitution. That Amendment defines the term “revenue bond” extremely broadly, to include most any evidence of indebtedness which is secured solely by funds other than assessments for local improvements and taxes. I have enclosed for your review a copy of Op. Att’y Gen. 90-067, which addresses this issue.

The foregoing opinion, which I hereby approve, was prepared by Deputy Attorney General Elana C. Wills.

Sincerely,

WINSTON BRYANT Attorney General

WB:ECW/cyh