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State High Court, attorneys general have addressed public backing of private sector

Westin_Jackson_rgbBy TED CARTER 

A decision to dunk out of a deal with a private gas company 71 years ago could sink the City of Jackson’s plans to co-sign a loan for construction of a downtown Westin hotel.

Those long ago circumstances and a stack of opinions from Mississippi attorneys general over the past 30 years are among the obstacles the Jackson Redevelopment Authority must overcome in getting Chancery Court approval to back $10 million in bonds for the $60 million hotel planned for Tombigbee Street. The “contribution agreement” before Chancery Judge William Singletary also includes a request by the Hinds County Board of Supervisors to back an additional $20 million in bonds for the hotel.

The AG opinions addressed a range of situations but reached the same conclusion: Mississippi’s Constitution forbids local governments and other public entities from using tax dollars for private purposes, no matter the potential gain for the public.

» READ MORE: AG opinions, legal precedent pose hurdles for deal to fund Jackson’s Westin Hotel

 

Jackson came out the winner in a 1944 Mississippi Supreme Court ruling in Bishopric  vs. City of Jackson by arguing it had no authority under the state constitution to go into the natural gas well drilling business with the Mark Twain Co. The City and Mark Twain Co. were to share the cost of drilling four wells – until Jackson got cold feet and backed out of the deal.

To free itself, Jackson cited Section 183 of the Mississippi Constitution — a municipality is prohibited from acquiring the capital stock of a corporation or loaning its credit in aid of a corporation.

“A city must be the sole proprietor of property in which it invests its public funds,” the court ruled.

Otherwise, the private party could have the power to keep “the municipality from performing its duty to the inhabitants,” the ruling adds.

The ruling hardly broke new ground. The Mississippi Supreme Court previously ruled Jackson violated the state constitution by building a street railway for a railroad company. In another case, the court held the City of Booneville breached the constitution by issuing taxpayer-funded bonds for a privately owned garment factory.

Here is a sampling of the Mississippi attorneys general opinions addressing the constitutionality of using public money for private purposes:

» Florence wants to back a loan a non-profit group would use to improve a park. “For the municipality to guarantee payment of the loan in question would be a violation of Mississippi Code Section 183 (1890),” the office of AG Edwin Lloyd Pittman advised on Oct. 28, 1986.

» The City of Long Beach wants to fund the purchase of gymnasium equipment to be used by a private group for a gym program on City property. “The proposed arrangement for conducting a gymnasium program by a private group on City property with City equipment would not be authorized,” the office of AG Pittman advised on Oct. 26, 1987.

» The Town of Isola wants to guarantee a loan for nonprofit private corporation Belzoni-Hollandale Community Development Corp. for a children’s center and wellness center. “A municipality may not guarantee a loan to a civic group for park improvements,” the office of AG Mike Moore advised in Sept. 6, 1996, citing Article 7, Section 183 of the state constitution.

» Bolivar County wants to join with five other counties to form, capitalize and operate an entity to be named the Mid-Delta Community and Individual Investment Corp. The corporation would loan money to residents, organizations and businesses to generate economic development. Funding would come partly from a U.S. Department of Housing and Urban Development loan to be repaid by the counties. “A board of supervisors may neither invest in a corporation nor obligate the full faith of the county as a guarantor of a loan to such corporation,” the office of AG Moore advised on Dec. 19, 1997, citing Section 183 of the Mississippi Constitution.

» The City of Greenwood wants to be a limited partner in a private partnership to build affordable housing. It would provide capital to the partnership. If unable to join the partnership, the City wants the Greenwood Housing Authority to be a limited partner. “The Mississippi Constitution prohibits a municipality from becoming a limited partner…. In addition, a municipality may not accept contingent liability of other entities…. Finally, we do not find authority for a Housing Authority to enter a limited partnership,” the office of AG Moore advised on Sept. 8, 2000.

» The publicly owned Marion General Hospital in Columbia wants to provide a $150,000 irrevocable letter of credit to an insurance carrier to cover a policy’s $50,000 deductible. “The execution of a letter of credit with a bank would be pledging the credit of the county hospital for the benefit of a corporation and, thus, violating” Section 183 of the Mississippi Constitution, the office of AG Moore advised on June 6, 2003.

» The Jefferson County Board of Supervisors wants to obtain a loan from the Southeast Mississippi Planning Development District secured by a county building. The loan would be used to make a loan to a private business that wants to move operations to the county. “We previously opined that a county may not borrow funds from a planning and development district without specific statutory authority…. A search of the existing code sections does not reveal any existing authority for the county to lend funds to a private business enterprise,” the office of AG Jim Hood advised on Aug. 9, 2013.

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About Ross Reily

Ross Reily is editor of the Mississippi Business Journal. He is a husband to an amazing wife, dad to 3 crazy kids and 2 dogs. He is also a fan of the Delta State Fighting Okra and the Boston Red Sox.

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