In late July, the Arkansas Leader of Jacksonville provided a reminder for Arkansas cities and bankers.
Arkansas law requires a municipal governing body to pass an ordinance to allow for bank executives to serve on city boards and commissions if an executive’s bank provides banking services to the city.
The issue came up because the Leader found that three executives at First Arkansas Bank & Trust of Jacksonville were serving on boards and commissions — the Water Commission, the Advertising & Promotion Commission and the Public Facilities Board. The city of Jacksonville uses several banks, including First Arkansas, which is headquartered in Jacksonville. The city has more than $23.5 million with First Arkansas, the Leader reported.
The city of Jacksonville had not passed an ordinance allowing it, but since the article was published, the city passed an ordinance to allow Larry Wilson to serve on the Water Commission and Roger Sundermeier to serve on the Advertising & Promotion Commission, a city spokesperson said.
Mike Wilson, the third bank executive, previously ended his term on the Public Facilities Board, according to a city spokeswoman.
The issue has raised questions about compliance with state law, although Sundermeier said he regularly recuses from votes regarding financial items. He also said the city’s attorneys have never brought the matter to his attention.
The prohibition extends from Arkansas Code Annotated 14-42-107(b), which says a city official can’t have an interest in the profits of a city contract unless the city specifically permits it. So if a bank holds a city’s banking services contract, a board member or executive of that bank would not be allowed to serve on any of the numerous boards and commissions that help run city government, unless specifically exempted.
The law intends to prevent self-dealing, ensuring city officials don’t improperly profit from their positions of public trust. It is important to note that there’s no indication the folks in Jacksonville have done anything unethical in their positions.
Arkansas has 500 cities and 70 state-chartered banks. There’s a good chance lots of cities are using their local banks to handle their deposits. There’s also a good chance that some executives at those banks are serving on parks commissions, water utility boards and planning commissions all over the state.
The issue is likely common, but it’s not clear how many of those cities have taken the additional step of passing an ordinance allowing all of it to be aboveboard.
Some cities have taken steps to allow for bankers to serve under these circumstances. The city of Searcy works with several local banks, including First Security Bank, which is headquartered in Searcy and is the fifth-largest bank in the state by assets. The city also works with First Community Bank of Batesville, RiverWind Bank of Augusta (Woodruff County), Centennial Bank of Conway and Regions Bank of Birmingham, Alabama.
The city passed an ordinance to comply with Arkansas Code 14-42-107, giving permission to specific executives to serve on Searcy’s planning commission, the library board and more.
It makes sense that cities would want to work with their community banks and have those banks’ leaders serve in public roles. After all, bankers have expertise in finance and managing the public money is a big part of local government. It’s also important for governments to safeguard against unethical practices.
The state provides a way for cities to check both boxes: They just need to pass an ordinance.
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