Can a Florida city use a city-owned building as collateral for a loan without a voter referendum?

Subject

Loan secured by municipal property, referenda

Plain-English summary

The city attorney for Lauderdale Lakes asked whether the city could borrow money secured by city-owned real property without holding a referendum. The Attorney General's office gave informal comments and concluded that it could not, at least not for a loan running more than 12 months.

A Florida city can borrow money and pledge its funds, credit, property, and taxing power to repay debt, but two provisions of Article VII of the state constitution limit that power. Section 10 generally bars pledging municipal credit for non-municipal purposes. Section 12 says a city may issue bonds or other debt payable from ad valorem taxes and maturing more than 12 months out only to finance capital projects and only with voter approval. The office explained that an unsecured loan repaid solely from sources other than property taxes needs no referendum. But once the city grants a security interest in real or personal property, with a right of foreclosure on default, the analysis changes: the threat of losing the property could coerce the city into levying property taxes to keep it, which makes the arrangement an indirect pledge of the city's ad valorem taxing power. So using a municipal building as collateral for a loan longer than 12 months requires referendum approval.

Currency note

This opinion was issued in 2011. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here.

Background and statutory framework

Section 166.111 authorizes a municipality to borrow money, issue certificates of indebtedness to finance capital and other projects, and pledge its funds, credit, property, and taxing power to repay them. That power runs into the limits in sections 10 and 12 of Article VII of the Florida Constitution. Section 10 prohibits pledging municipal credit or using the taxing power for other than municipal purposes. Section 12 allows debt payable from ad valorem taxation and maturing more than 12 months after issuance only to finance or refinance capital projects authorized by law and only when approved by the voters. Section 166.121 echoes this, recognizing that municipal bonds must be authorized by resolution or ordinance and, if the constitution requires it, by a vote of the electors.

The constitution does not require an election when the obligation is payable solely from non-ad valorem sources and does not pledge the city's taxing credit. The opinion drew the contrast from prior AG opinions and Florida case law: in AGO 80-09, a 24-to-60-month lease-purchase of a computer that granted the lessor a security interest with a right to repossess and sell on default was found to create a "security interest" that could coerce the city into levying taxes to avoid losing the equipment, making it an indirect pledge of ad valorem taxing power that required a referendum. The office noted that it and the courts have consistently held that, absent referendum approval, creating a security interest with a right of foreclosure on an installment purchase of equipment or real property by a county or city for a term over 12 months violates Article VII, section 12. The cases cited (State v. County of Dade and Nohr v. Brevard County Educational Facilities Authority) and the comparison to Bannon v. Port of Palm Beach District support that reading. Applied to Lauderdale Lakes, using a municipal building as security for a loan longer than 12 months would require voter approval.

Common questions

Does every municipal loan in Florida need a referendum?
No. A city can borrow for a valid municipal purpose and repay solely from non-property-tax sources without a referendum. The referendum requirement is triggered by debt payable from ad valorem taxes, or treated as such, maturing more than 12 months out.

Why does pledging a building as collateral trigger a referendum?
Because the right to foreclose could pressure the city into levying property taxes to keep the building. The office treated that as an indirect pledge of the city's ad valorem taxing power, which Article VII, section 12 says needs voter approval.

What about a loan of 12 months or less?
The constitutional referendum requirement in section 12 applies to obligations payable from ad valorem taxation maturing more than 12 months after issuance. The opinion framed the problem as one of loans for a term in excess of 12 months.

Could the city borrow against the building if it repaid from other revenue?
The opinion's concern was the security interest and right of foreclosure, not just the repayment source. Granting a foreclosable security interest in the building for a term over 12 months was what the office said required a referendum.

Citations and references

• s. 166.111, Fla. Stat. (municipal power to borrow and pledge funds, credit, property, and taxing power)
• s. 166.121, Fla. Stat. (authorization of municipal bonds by resolution or ordinance and, if required, by the electors)
• Art. VII, s. 10, Fla. Const. (limit on pledging municipal credit)
• Art. VII, s. 12, Fla. Const. (voter approval for capital-project debt payable from ad valorem taxes maturing over 12 months)
• State v. County of Dade, 234 So. 2d 651 (Fla. 1970)
• Nohr v. Brevard County Educational Facilities Authority, 247 So. 2d 304 (Fla. 1971)
• Bannon v. Port of Palm Beach Dist., 246 So. 2d 737 (Fla. 1971)
• AGO 80-09 (1980) and AGO 98-71 (1998) (security interest with right of foreclosure over 12 months requires referendum)

Source

• Landing page: https://www.myfloridalegal.com/ag-opinions/loan-secured-by-municipal-property-referenda
• Original PDF: https://www.myfloridalegal.com/print/pdf/node/8145

Original opinion text

Mr. Jorge R. Delgado

Attorney for the City of Lauderdale Lakes

200 East Law Olas Boulevard

Suite 1700

Fort Lauderdale, Florida 33301

Dear Mr. Delgado:

You have asked for this office's assistance in determining whether the City of Lauderdale Lakes may borrow monies secured by real property owned by the city without referendum approval.

In sum, it would appear that a city may not borrow monies secured by city-owned property for a term in excess of 12 months without referendum approval as required by section 12, Article VII of the Florida Constitution.

A municipality is authorized to borrow money and to issue certificates of indebtedness to finance any capital or other project permitted by the State Constitution and to pledge the funds, credit, property, and taxing power of the municipality for the payment of such debts.[1] The exercise of this power, however, is constitutionally limited by sections 10 and 12, Article VII of Florida's Constitution. Section 10 of Article VII generally prohibits the pledging of municipal credit or the use of a municipality's taxing power for other than municipal purposes.[2] Section 12 of Article VII provides that a municipality may issue bonds, certificates of indebtedness, or any form of tax anticipation certificates payable from ad valorem taxation and maturing more than 12 months after issuance only "to finance or refinance capital projects authorized by law and only when approved by vote of the electors[.]"[3]

The Florida Constitution does not require elector approval when certificates of indebtedness, revenue bonds, or security interests are payable solely from sources other than ad valorem taxes and do not otherwise pledge the governmental entity's taxing credit.[4] Thus, if the city borrows money for any valid municipal reason and repays that money solely from any source other than ad valorem tax revenues, no approving election or referendum is required.

In contrast to such an unsecured obligation of a governmental entity, the creation of a security interest in real or personal property with a right of foreclosure requires a referendum. In Attorney General Opinion 80-09, this office concluded that a municipality was not authorized to finance the purchase of a computer under a 24–60 month lease-purchase agreement granting a security interest in the equipment with an accompanying right of foreclosure or other remedy to enforce the performance of the city's obligation. The agreement considered in that opinion authorized the lessor to repossess and sell the equipment upon the default of the city, and this office determined that a "security interest" had been created in the equipment. The opinion discussed that security interest could result in the city being coerced into levying ad valorem taxes to avoid loss of the equipment, leading to the conclusion that such a contractual financing arrangement constituted an indirect pledge of the city's ad valorem taxing power requiring approval by the electors of the city pursuant to section 12, Article VII, Florida Constitution.[5]

This office and Florida courts have consistently found that absent referendum approval, the creation of a security interest with the right of foreclosure or recovery in the event of default in an installment purchase of equipment or real property by a county or municipality in excess of 12 months violates section 12, Article VII of the Florida Constitution.[6] While a municipality generally may borrow money to finance an undertaking for a municipal purpose, borrowing for a term in excess of 12 months on a loan that creates a security interest, such as using a municipal building as collateral, requires referendum approval.

Based upon the preceding discussion, it would appear that the City of Lauderdale Lakes may not use a municipal building as security for borrowing funds for a period in excess of 12 months absent referendum approval.

Sincerely,

Lagran Saunders

Assistant Attorney General

ALS/tsh

[1] Section 166.111, Fla. Stat.

[2] Cf. Bannon v. Port of Palm Beach Dist., 246 So. 2d 737 (Fla. 1971).

[3] See s. 166.121, Fla. Stat., recognizing that bonds issued pursuant to Part II, Ch. 166, Fla. Stat., "shall be authorized by resolution or ordinance of the governing body and, if required by the State Constitution, by affirmative vote of the electors of the municipality[;]" State v. County of Dade, 234 So. 2d 651 (Fla. 1970).

[4] See State v. Board of Public Instruction, Okaloosa County, 214 So. 2d 723 (Fla. 1968); State v. Orange County, 281 So. 2d 310 (Fla. 1973), in which the court upheld the issuance of capital improvement bonds without an election to finance the acquisition and construction of the county's share of racetrack and jai alai funds; Orange County Civic Facilities Authority v. State, 286 So. 2d 193 (Fla. 1973), holding that, with the sole exception of ad valorem tax revenues, any revenues of a county could be pledged for the retirement of the proposed civil facilities revenue bond issue.

[5] And see Ops. Att'y Gen. Fla. 76-121 (1976) and 73-164 (1973) (deferred payment plan created a conditional indebtedness on the part of the local governmental entity in the nature of a legal liability for a capital venture predicated upon the general credit; the plan placed the local governmental entity in a position of being coerced into levying a tax in order to prevent the loss of the property by foreclosure and was not permissible without an approving referendum).

[6] See State v. County of Dade, 234 So. 2d 651 (Fla. 1970); Nohr v. Brevard County Educational Facilities Authority, 247 So. 2d 304 (Fla. 1971) (possibility of the district's moral obligation to levy taxes or appropriate funds brought that bond issuance within the purview of s. 12, Art. VII, State Const.); Ops. Att'y Gen. Fla. 98-71 (1998) (fire control district may not grant a security interest in real or personal property for a period in excess of 12 months which includes the right of foreclosure in the event of the district's default as such an agreement would violate Art. VII, s. 12, Fla. Const.) and 80-09 (1980) (city may not finance purchase of computer and financing arrangement granting security interest in the equipment, with a right of foreclosure without referendum approval).