Arkansas voters will decide Issue 3 on Nov. 3, a proposed constitutional amendment that would allow the Legislature to authorize economic development districts in cities and counties. Those districts could offer tax incentives to businesses, but critics say the measure could also change how property-tax revenue reaches public schools.
The amendment was referred to the ballot by state lawmakers. Under the proposal, property within an economic development district would be exempt from some taxes that currently help fund schools. The districts could impose their own taxes, but the measure’s effect on existing constitutional requirements has become a central issue in the debate.
How school property taxes work
Arkansas’ school-funding structure includes a requirement created by Amendment 74. Every school district must levy at least 25 mills in property taxes for schools. That revenue goes to the state, which distributes it evenly among school districts. Districts keep property-tax revenue collected from mills above the 25-mill baseline.
Commercial property can provide a substantial share of the property-tax revenue used to fund schools. Issue 3 would create economic development districts in commercial areas and exempt those areas from taxes that schools rely on. The districts would have the option of levying taxes of their own.
The amendment also says conflicting provisions of the Arkansas Constitution would be modified or repealed. Critics interpret that language as allowing Issue 3 to override provisions connected to Amendment 74, which established the minimum school-tax levy.
“That’s a direct attack on how school districts are funded,” said Jim Ross, a former Little Rock School District board member.
Ross said the amendment is intended to remove Amendment 74’s protection within the economic development districts through constitutional language. He said the wording would make the arrangement less vulnerable to a future challenge before the Arkansas Supreme Court.
Earlier tax-increment financing dispute
Arkansas voters approved Amendment 78 in 2000, creating another economic development method based on tax-increment financing, commonly called TIF districts. TIF districts use future tax revenue connected to development to support projects.
In 2007, the Arkansas Supreme Court ruled that TIF districts could not use the 25 mills reserved for schools. The court said voters had not understood that Amendment 78 would repeal the school-funding mechanism established by Amendment 74. The ruling reduced the amount of revenue available through TIF districts, and their use declined.
Issue 3 would establish a new constitutional framework for economic development districts while addressing property-tax exemptions and conflicting constitutional provisions. The measure will appear on the statewide ballot with Arkansas voters choosing whether to approve or reject it on Nov. 3.
- Amendment 74: Requires each school district to levy at least 25 mills for schools.
- Amendment 78: Approved in 2000 to allow tax-increment financing districts.
- Issue 3: Would authorize economic development districts with tax incentives and property-tax exemptions.
