by Tess Vrbin, Arkansas Advocate
September 12, 2025
Arkansas lawmakers decided Friday to release withheld funding to 40 cities and towns and give them extra time to update the state on required water and sewer system audits.
The decision came after the Legislative Joint Auditing Committee spent two hours debating whether to give the municipalities further grace for their unfiled 2022 audit reports, which were due to the state July 1, 2024. Each municipality must provide the delinquent report to Arkansas Legislative Audit by Dec. 31 or an engagement letter with a certified public accountant promising the report will be submitted by that date. Lack of compliance will result in the state withholding funds again.
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.
In order to receive turnback funds, municipalities must file audits of their water and sewer systems with Arkansas Legislative Audit no later than 18 months after the end of the audit’s fiscal year. Act 453 of 2023 states that lawmakers can ask the state treasurer to withhold the funds if a municipality misses the 18-month deadline, and the funds can only be restored if the municipality submits all its reports through the most recent fiscal year.
The Counties and Municipalities subcommittee of the Legislative Joint Auditing Committee voted in July to authorize the treasurer’s office to withhold these funds from 43 cities and towns whose 2022 water and sewer audits were outstanding at the time.
Since July, the municipalities of Delight, Horseshoe Lake and Pollard had their funding restored after submitting their reports for fiscal years 2022 through 2024, according to a list of delinquent municipalities Deputy Legislative Auditor Joe Archer provided the Advocate.
Of the remaining 40 municipalities, 14 have submitted their 2022 audit reports, according to the list, and nine have also submitted their 2023 audit reports. The remaining 26 municipalities have yet to submit any water and sewer audit reports for the past three fiscal years.
Turnback funds are disbursed on the 10th of every month, meaning the 40 municipalities did not receive their usual September disbursement. The two months of withheld funds from the municipalities total $477,797.71, according to data treasurer’s office fiscal director Kathie Williams provided the Advocate.
Committee debate
Sen. David Wallace, R-Leachville, was one of Act 453’s sponsors. He proposed the grace period until Dec. 31 and the release of the 40 municipalities’ turnback funds at Thursday’s Counties and Municipalities subcommittee meeting.
Wallace’s motion passed the subcommittee, but members of the full committee balked Friday when asked to approve the subcommittee’s actions.
Rep. Richard Womack, R-Arkadelphia, proposed that the committee vote separately on the turnback funds issue because the subcommittee’s decision might be “in direct conflict with state law.” Womack’s motion failed on a roll call vote.
There were no representatives present from the Attorney General’s office to comment on the legality of Wallace’s proposal. Legislative Audit Legal Counsel Emily White said the proposal implied that the 40 municipalities were “in compliance” with Act 453 “when based on our interpretation of the law, they might not be.”
White pointed out that Act 453 does not give the state treasurer’s office any discretion not to withhold turnback funds if lawmakers notify the office that a municipality’s audit reports are late.
Wallace said lawmakers’ responsibilities include making decisions outside of regular legislative sessions and “not to hide behind the bureaucracy.”
“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.
The committee accepted the subcommittee’s report, including the release of the turnback funds, on a roll call vote with 16 members voting yes. The decision authorized the Republican co-chairs, Rep. Robin Lundstrum of Elm Springs and Sen. Jim Petty of Van Buren, to notify the treasurer’s office that the body rescinded its July referral of the delinquent municipalities.
Lundstrum was among the 12 lawmakers to vote against the motion, calling it “dangerous uncharted territory” for the committee to effectively change a provision of a law.
Rep. Julie Mayberry, R-Hensley, also opposed the motion. She said she disagreed with Wallace that lawmakers can make decisions about how to apply laws outside legislative sessions.
“Whether you like the law or not, that’s what we voted on as legislators,” Mayberry said. “If it needs to be changed, then we need to do something to do it the right way. This is not the right way to do it. This is allowing a small, little group of people the power to override the rest of the members here.”
Local impact
Lawmakers who supported releasing the turnback funds said cities and towns in their districts were struggling and would continue to struggle if they lost more monthly income.
Rep. Mark McElroy, R-Tillar, said “small towns in the Delta” have few accountants at their disposal. He also said local governments have higher priorities than completing audits, such as providing safe water and sewer services.
Rep. Howard Beaty and Sen. Ben Gilmore, both Crossett Republicans, also said the withheld funds directly impact their constituents.
“We’re not changing law by taking this action,” Beaty said. “We’re giving grace to some communities that need it, some of the most impoverished communities that we have in the state.”
Beaty and Gilmore represent Lake Village, a city of about 2,000 people that had nearly $34,000 withheld in August and September.
The city froze its spending and hiring in response to the funding shortage, Lake Village Mayor Eddy Bush told the Advocate. He said the city has already provided the state a letter of engagement with an accountant promising the completion of the required audits by Dec. 31.
Bush and Elaine Mayor Lisa Hicks-Gilbert both said they were relieved to learn that their cities will receive their regularly scheduled turnback funds for the rest of the year.
The roughly $4,000 per month in turnback funds makes up the largest revenue source for Elaine, Hicks-Gilbert said. The city of just over 500 people is in McElroy’s district and has no local sales tax to bring in additional revenue.
Elaine residents rejected a ballot measure to create a local sales tax last year. Hicks-Gilbert said she urged citizens to support the measure in case the city’s state funding stopped or became precarious.
The funding shortage forced the city not to make some purchases, and it would have had to make budget cuts if lawmakers hadn’t decided to restore the funding, Hicks-Gilbert said.
“$4,000 or $5,000 is not a lot of money, but it is when it’s all you have to fall on,” she said.
Like Lake Village, Elaine has obtained letters of engagement from accountants who should complete the audits by year’s end, Hicks-Gilbert said.
