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Chancery Court’s interpretation of ‘public use’ will guide ruling on Westin money

Westin_Jackson_rgbBy TED CARTER 

How “public purpose” should be defined under Mississippi’s urban renewal laws is a question Hinds Chancery Judge Michael Singletary is thinking over.

The question is at the heart of a challenge to the use of tax dollars as collateral for loans on a Westin hotel planned for downtown Jackson.

In a hearing before Singletary April 9, lawyers for the City of Jackson argued the state’s urban renewal laws allow a “public use” designation to be put on deals that have public backing for a private project in a redevelopment zone. The potential benefit the hotel provides to the goal of restoring a blighted area gives the project its public purpose, city lawyers said.

Hence, the City can allocate $10 million in general fund money to the JRA to back revenue bonds for the hotel, they said.

Singletary scheduled the hearing after Jackson real estate developer Don Hewitt challenged the arrangement the City made with the JRA for providing $10 million in bond support to Capital Hotels Associates, a group of investors who plan to build the 204-room Westin with a redevelopment zone at 315 Tombigbee St. Singletary has promised to rule promptly.

Hewitt based his challenge on a section of the Mississippi Constitution of 1890 that forbids the use of public tax money for private purposes. The City and JRA, he contends, are stretching the definition of public use under urban renewal statutes by pledging the City’s credit to back up bonds for the hotel.

The City said the Legislature bolstered Jackson’s case for defining the hotel as a public purpose by declaring a “public propose” to be behind the $20 million in bonds the state approved for the project on behalf of Hinds County. The approval allowed the Mississippi Development Authority to sell the bonds, though the bonds are to be repaid by Hinds County in the event of debt default by Capital Hotels Associates.

Whether the Legislative’s definition is transitive to the City of Jackson and JRA is unclear.

One answer came from Jackson lawyer Spence Flatgard, a state bond attorney. He testified his review showed putting up the $10 million to backstop the hotel met the state’s definition of public use in an urban renewal zone. “The contribution agreement [between the City and JRA] is a legal exercise,” said Flatguard, who added he reviews around 200 bond agreements annually.

That a private project can be a public purpose is a basic principle of urban renewal laws, according to Flatgard. “The whole point is to bring in private enterprise,” he said, and emphasized his role in the process is limited to a review of the City’s contribution agreement with the JRA.

Just who can determine a public use in an urban renewal zone may have been judicially answered more than 20 years ago.

The Mississippi Supreme said in a Nov. 17, 1994 ruling that the job of defining “public purpose” rests with the courts – not the Legislature or other legislative bodies. The case came from a challenge a landowner had made to the  City’s attempt to takes his land for use by Harrah’s Casino. Vicksburg argued the property was in a designated urban renewal zone and thus a public purpose would be served by giving Harrah’s use of the property.

Not so, the high court ruled.

“The City’s argument is not well taken,” Chief Justice Fred L. Banks wrote in City of Vicksburg vs. C.N. Thomas.

“Whether there is a public use is a judicial question without regard to legislative assertions that the use is public,” Banks wrote in the court’s upholding a trial court ruling that authority for determining a public purpose rests with the courts.

In his challenge, Hewitt said the City of Jackson tried to further mold the funding into a public use by proposing to give the JRA the $10 million and having the JRA make the bond payments. The JRA, in turn, is to be repaid from hotel revenues.

“If these were revenue bonds the project would sit on its own and be repaid from revenues of the hotel,” he said.

The set up is simply a way for the City and JRA to issue urban renewal bonds that morph into general obligation bonds, Hewitt claimed.

The Mississippi Supreme Court has been asked to define the boundaries of a public use in a Hattiesburg case. The Chancery Court there recently ruled that the City of Hattiesburg could not backstop a loan to a developer of a private water and sewer plant. That case – Groundworx vs. City of Hattiesburg – is on appeal to the state Supreme Court.

About Ted Carter

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