By Sam Watson and Abby Oliver
This fall, Arkansans will vote on four ballot issues. The For AR People staff already gave our (a bit snarky) takes on why we’re all voting NO on the first three ballot issues, but Issue 3 deserves a deep dive. It’s surprisingly complex, and while we’re all a No vote on it, reasonable minds can genuinely differ on this one.
So cards on the table: We’re still No voters on Issue 3, but we appreciate what proponents think it’ll be able to do. We just don’t think it actually will do that. Let’s dive in and walk through some critical shortcomings of Issue 3 compared to neighboring states.
What Issue 3 Is and What It Does
We recommend everyone read the full text of Issue 3, linked here, alongside a good, nonpartisan breakdown by the U of A Cooperative Extension Service. It’s important to know exactly what changes Issue 3 makes to the Constitution.
The proposed amendment lets the General Assembly – our state legislature – create “economic development districts,” or EDDs for short. These districts would be able to do lots of things to attract new developments and businesses intended to bring further, sustained investment to the surrounding community:
- Issue bonds to finance big, expensive projects;
- Receive loans, grants, and public funding;
- Potentially levy district-specific taxes or charges;
- Finance projects under this new, expanded constitutional authority; and
- Require certain tax obligations that wouldn’t be classified under already-existing constitutional authority.
That’s a lot of “tax lawyer” words. Basically, it opens up new districts, decided by the Legislature, that allow the districts to use public funds for economic development. Those EDDs wouldn’t be subject to the same taxes as non-EDD areas, but the EDD itself can levy taxes.
Property taxes, unfortunately for Issue 3, are the bread and butter of communities. One of the strongest arguments for data centers is the substantial tax revenue they bring in, even with sweetheart deals like the one Google and AVAIO got. Removing that tax revenue from districts hurts businesses outside the district, let alone county and city services that are largely funded via property taxes.
Why Amend the Constitution?
Proponents of Issue 3 argue that Arkansas doesn’t have the ability to incentivize businesses coming to Arkansas, and surrounding states do. We lose business when a company goes to Texas or Oklahoma, for instance. The reasons why we don’t have the same incentives are complex, but it’s partly because two guys named Brooks and Baxter fought over who got to be governor of Arkansas in 1874.
During Reconstruction, Arkansas desperately needed to repair damaged infrastructure and build new infrastructure. Unpopular bonds funded these projects, but the people of Arkansas decided they really didn’t want to be overtaxed and didn’t like the government using bonds to benefit certain businesses. When the Constitution was re-written and ratified in 1874, they included Article 12, Section 5, which prevents local governments from helping local businesses (some exceptions apply, and we suspect subject-matter experts in this winced at the phrasing. Apologies). Amendment 65 also prevents bonds from being used to attract new businesses.
Proponents of Issue 3 correctly state that the Constitution currently forbids using funds for these purposes. We’re not opposed to arguments that the state might be better off being able to use public funds like this – though some folks certainly disagree.
This is part A of one of our biggest criticisms of Issue 3. We don’t think the legislature should be able to sneak in more constitutional powers like this. Issue 3 affirmatively gives the General Assembly more power. Even if this was an Assembly we largely trusted, we would be extremely wary about giving lawmakers this kind of authority over localities and municipalities. Our preference would be a repeal of the limiting provisions in the Constitution. No powers would be actively granted to the Assembly, but they’d still have more flexibility in creating something similar to EDDs.
Part B of this criticism: if you’ll allow us some snark, this language is vague as hell, y’all. We’ve had many conversations with supporters of Issue 3, and some with the lawyers that wrote it. Yes, a constitutional amendment is necessary for EDDs to happen, but there’s no reason far more specificity couldn’t have been included in the amendment.
The benefits of being an EDD are explicitly granted by the General Assembly. As defined in the amendment, EDD means “a designated area within a city, county, or cooperative area established under authority granted by the General Assembly to promote economic development within the designated area.” Local voters would approve or reject bonds and obligations used to facilitate development in EDDs, yes, but the presence of the EDD itself is entirely dependent on the General Assembly.
We can’t get past that. The presence of the hypothetical SB647, proposed in 2025, doesn’t alleviate this concern. This legislation does not bind legislators; they could pass whatever they wanted. They could pass SB647 and repeal it the very next day. This doesn’t count as a “guardrail” if there’s no guarantee it crosses the Governor’s desk.
Thus, proponents saying this is actually a “local control” measure doesn’t really sway us. Parts of it? Yes. The fundamentals, as we read it, are very much not.
(Were SB647 part of the proposed amendment, this would be a very different story. It is not.)
A Tool in the Toolbox
Forty-eight states have some version of Issue 3, so proponents say we need it to compete with neighboring states. We compared Issue 3 with Texas and Oklahoma to see how an economic powerhouse and a state closer to Arkansas’s level match up.
Issue 3 both is and isn’t comparable with Texas and Oklahoma. We’re not saying Issue 3 supporters are misleading anyone by making that comparison – there are comparisons to be made here – but Issue 3 works differently and is intended to do different things. This part gets into the weeds, but here’s the bottom line: the comparisons Issue 3 supporters make with these states don’t tell the whole story.
Oklahoma
Oklahoma has “tax increment financing, or TIF. Voters approved the system in 1990 originally, and two years later passed the controlling legislation. Additional reporting requirements were added in 2023.
The TIF system generally reallocates newly generated tax revenue for development or redevelopment projects for a period of up to 25 years. Existing taxing jurisdictions continue receiving their baseline revenues, while eligible incremental revenues can be dedicated to financing development.
Oklahoma has annual reporting requirements for these districts and if there’s any excess money once development obligations are satisfied, it gets returned to the taxing authority. Property tax incentives usually only apply to new investments, and previously assessed property value can’t receive any exemptions.
Put otherwise, there’s lots of guardrails built into this system. Oklahoma had to do it in the same order Arkansas will – constitutional amendment, then controlling legislation – but they did so in a very different political and economic environment.
Texas
Texas has a similar history with tax increment financing. In 1979, the state authorized TIF through legislation, but concerns regarding the allocation of property tax revenues emerged, leading the attorney general to declare it unconstitutional. In 1981, Texas voters again voted on TIF legislation and accompanying constitutional amendment. The amendment passed and the legislation was later recodified as Chapter 311 of the Texas Tax Code.
Today, Texas uses Tax Increment Reinvestment Zones (TIRZs), which allows cities and counties to dedicate increases in property tax revenue toward development and redevelopment projects. Like Oklahoma’s system, the existing tax base remains available to the original taxing authorities, while additional revenue is available for financing new development.
Chapter 311 establishes safeguards for the TIRZs. Local governments must hold public hearings before creating a TIRZ and adopt project and financing plans detailing proposed improvements, estimated costs, financing sources, and anticipated debt. Districts are also subject to annual financial reporting requirements, and participating taxing authorities have a say in how much of their additional revenue is contributed. Other economic development tools available in Chapters 380 and 381 of the Texas Local Government Code allow cities and counties to offer incentives to encourage business investment. Any agreement made using these incentives must be reported to the Texas Comptroller and lives in a publicly searchable database.
So, like Oklahoma and Arkansas, Texas established its TIF system through constitutional amendments and implementing legislation. But the TIRZ system operates much differently from the EDD system proposed in Issue 3. Rather than redirecting increases in existing property tax revenues, Issue 3 proposes exempting the district altogether from existing property taxes and replacing those taxes with district-imposed charges.
This is the most important distinction. Arkansas already has a traditional TIF system, but its ability to use certain increases in school property tax revenues was restricted by the Arkansas Supreme Court in 2007. Issue 3 isn’t simply asking to expand that system but to create an entirely new constitutional financing structure, one that does not guarantee baseline revenue protections for existing taxing authorities.
In Conclusion…
Oklahoma and Texas, especially, show that we can create new economic development incentives while retaining traditional property taxation schemes and, importantly, establishing strict statutory safeguards. Texas’s history with TIF/TIRZ begs the question for Arkansas: do the legitimate limitations of our current system require establishing a new constitutional framework and massively expanding the Legislature’s power?
We think it doesn’t. There are real problems Issue 3 could solve, and we’re sympathetic to those arguments, but this is too far, too fast.
