Arkansas Advocate: Vote to return withheld funds to municipalities a no-go, attorney general says

 Legislative Joint Auditing Committee co-chairs Rep. Robin Lundstrum, R-Elm Springs, and Sen. Jim Petty, R-Van Buren, conduct the committee’s meeting on Friday, Sept. 12, 2025. | Tess Vrbin/Arkansas Advocate

By AINSLEY PLATT | Arkansas Advocate

The only way lawmakers can restore funds that have been withheld from 43 municipalities is to expunge a vote they took in July to prevent the state treasurer from releasing the money, the attorney general’s office opined this week.

The Legislative Joint Auditing Committee last month directed Arkansas State Treasurer John Thurston to restore so-called turnback funds that had been withheld because the affected towns and cities had failed to file required audits of their water and sewer systems by July 1, 2024.

That vote had no legal authority, according to the attorney general’s opinion, issued Monday and authored by Assistant Attorney General William R. Olson. Thurston’s office requested the opinion after the Joint Auditing Committee’s vote in September.

According to the opinion, Act 453 of 2023requires municipalities to submit water and sewer system audits to the auditing committee within 18 months of the end of the audit’s fiscal year. If those audits are not submitted, the committee may — but is not required to — direct the state treasurer to withhold turnback funds until the reports are submitted.

However, once the treasurer is directed to withhold the funds, it is required to do so, and it can only release them if it receives notice from Joint Auditing that “a municipality has submitted all applicable reports concerning water and sewer systems,” according to the opinion.

When the committee voted last month to return the funds, it was with the requirement that each municipality submit the missing audits by Dec. 31 or provide a letter from a certified public accountant that the audit would be submitted by that date.

“An engagement letter from a municipality promising to complete an audit and submit reports in the future does not satisfy the statutory condition for the release of funds,” the AG’s opinion said.

However, Olson said that if the committee expunged the initial vote to withhold the funds, then the “expunged notice would be treated as though it were never sent.”

“It is my opinion that a successful motion to expunge would authorize the Treasurer to release the withheld funds from the date of the July 2025 notices to the date of expungement because it is as if the original notice never existed,” Olson wrote.

Last month, Sen. Dave Wallace, R-Leachville and sponsor of Act 453, proposed restoring the funds with a grace period, arguing that the loss of the funds would harm small towns without the resources to get the audits done. Some lawmakers raised concerns that the vote was not legal.

“If we can’t come down here and make decisions that affect our state, we might as well go ahead and stay home and play dominoes,” Wallace said at the time.

Local governments receive two types of “turnback funds” from the state. General revenue turnback funds support basic local services such as emergency response. Turnback funds from state highway revenue go to municipalities and are required to be spent on maintaining roads that are continuations of state highways or former state highways.

Committee Co-Chair Rep. Robin Lundstrum, R-Elm Springs, said she did not believe lawmakers could expunge the vote this week during Legislative Joint Auditing’s monthly meeting because it wasn’t on the agenda. However, she said she was meeting with the House parliamentarian on Thursday to determine next steps and how an expungement vote might be done.

“This is completely new territory,” Lundstrum said in an interview. “Audit is considered Switzerland — it’s neutral, it’s not political, it’s not anything but numbers. It’s kind of the cold, hard facts type of deal. This is uncharted territory, it’s never been done. So we have to be real careful about what we’re doing.”