Does a Mississippi economic development district need an appraisal or court approval to sell industrial property to a private business?

Plain-English summary

The Covington County Economic Development District (EDD) bought land and built a blueberry-processing building with grants. The building is now leased to a vending business that uses it as a warehouse. The vending business offered to buy the building and land for less than the EDD's investment. The Board attorney asked: do we need an appraisal? do we need a court ruling? are board members personally liable if a court later says the consideration was nominal?

The AG's answers:

1. Appraisal: Not required by Section 19-5-99 before sale. (For surplus property under Section 19-7-3, also no appraisal required per the 1999 Griffin opinion.)
2. Court pre-approval: Not required. The EDD itself decides what is good and valuable consideration and what best promotes the public interest. A court might later review the determination if a taxpayer sues, but that's after-the-fact judicial review, not a precondition.
3. Personal liability: AG declines. Personal liability is a "mixed issue of law and fact" outside the scope of AG opinions.

The legal framework:

• Section 19-5-99(5)(a) gives EDDs broad authority to sell, lease, trade, or exchange industrial sites to public or private parties for industrial or warehouse use, on terms that "best promote and protect the public interest, convenience and necessity."
• Section 66 of the Mississippi Constitution prohibits donations of public funds or property to private parties.
• These two interact: the EDD must charge good and valuable consideration. It cannot give property away, but it can sell at a price that the EDD finds (and records on its minutes) is good and valuable, even if below cost or below appraised value.
• Prior opinions confirm the EDD can sell at less than appraised value or less than total invested amount (Lawrence 2003) and can even accept retirement of bond indebtedness as the consideration (Mock 1998).

What this means for you

For economic development districts considering a sale

Under the opinion, the district does not have to obtain an appraisal before selling, and does not have to get a court ruling on whether the consideration is nominal before the sale. What the opinion does require is that the property be transferred for good and valuable consideration: it cannot be donated. Following the Lawrence opinion, the AG holds that if the district finds, and spreads upon its minutes, that consideration less than the appraised value and less than the total amount invested is good and valuable consideration and would best promote and protect the public interest, the transfer to a private industry is permissible.

For county attorneys advising EDDs

The opinion places the determination of what suffices for good and valuable consideration with the district itself, "subject to review by a court of competent jurisdiction." That review is after the fact, not a precondition: as the AG puts it, "It is the District's responsibility to make a determination of what would best promote and protect the public interest, not for a court to determine prior to each transaction." The opinion frames the finding as something the district makes and spreads on its minutes.

For board members asking about personal liability

The AG declined this question. The opinion states that questions of liability involve "mixed issues of law and fact which cannot be addressed by an Attorney General's opinion," and on that basis it does not opine on whether board members would be personally liable if a court later found the consideration nominal. The opinion gives no guidance, one way or the other, on personal exposure.

For taxpayers monitoring EDD activity

The opinion confirms that a district's findings on what counts as good and valuable consideration are "subject to review by a court of competent jurisdiction." It does not lay out a procedure for challenging a sale or describe any remedy; it says only that the determination is reviewable rather than conclusive.

Common questions

Q: Does an EDD need an appraisal before selling industrial property?
A: No. The opinion holds that under Section 19-5-99 the district is not required to obtain an appraisal to determine fair market value before disposing of the property.

Q: Does the district need a court to rule first on whether the price is nominal?
A: No. The opinion holds the district is not required to obtain an opinion from a court of competent jurisdiction on whether the consideration is nominal. The district makes that determination; a court can review it later, but is not required to approve it up front.

Q: Can an EDD sell below appraised value or below what it spent?
A: Yes, with the required finding. Citing the Lawrence opinion, the AG holds that if the district finds and spreads on its minutes that consideration less than the appraised value and less than the total invested amount is good and valuable consideration and would best promote and protect the public interest, the sale is permissible.

Q: Can the district just donate the property to the private business?
A: No. The opinion states that state law does not authorize an economic development district to donate property to a private industry; the property must be transferred for good and valuable consideration, consistent with the constitutional prohibition on donations or gratuities to private entities (Art. 4, § 66).

Q: What about property that is surplus?
A: A footnote to the opinion notes that economic development districts may sell property determined to be surplus under Section 19-7-3, and that the AG has previously opined (Griffin) that an appraisal is not required before disposal of surplus property under that section.

Background and statutory framework

Mississippi's economic development districts were created by Section 19-5-99 to promote industrial development. The 1994 Ellis opinion confirms this purpose.

Section 19-5-99(5)(a) authorizes EDDs to:

sell, lease, trade, exchange or otherwise dispose of industrial sites or rail lines situated within industrial parks to individuals, firms or corporations, public or private, for industrial or warehouse use, as well as the Mississippi Military Department or Mississippi National Guard for military use, upon such terms and conditions, and for such considerations, with such safeguards as will best promote and protect the public interest, convenience and necessity, and to execute deeds, leases, contracts, easements, and other legal instruments necessary or convenient therefor.

The "such considerations" language gives the EDD discretion. The "best promote and protect the public interest" standard provides the limit.

Section 66 of the Mississippi Constitution is the constitutional backstop the opinion invokes through the Williams opinion: it prohibits a donation or gratuity to private entities. As the AG quotes Williams, "Section 19-5-99(5)(a) contemplates that the governing authorities of the district effectuate any such transfer in exchange for good and valuable consideration in keeping with our constitutional mandate that prohibits donation or gratuity to private entities. Art. 4 Sec. 66 MISS. CONST. of 1890."

The interaction: EDDs have wide latitude on terms but cannot donate. The opinion cites the 2001 Webb, 1986 Slade, and 1998 Webb opinions for the rule that some good and valuable consideration is required.

The 2004 Williams opinion is the synthesis the AG leans on: an EDD's findings on what suffices for good and valuable consideration are subject to review by a court of competent jurisdiction, after the fact rather than before. The 2003 Lawrence opinion is cited for below-appraisal, below-invested-amount sales being permissible if the finding is made and spread on the minutes, and the 1998 Mock opinion for accepting retirement of an outstanding bond indebtedness as good and valuable consideration.

A footnote addresses surplus property: the AG cites the 2008 Smith opinion that economic development districts may sell surplus property under Section 19-7-3, and the 1999 Griffin opinion that no appraisal is required before disposal of surplus property under that section.

On personal liability, the opinion declines, citing the rule that "mixed issues of law and fact ... cannot be addressed by an Attorney General's opinion" (Head 1998, Hammack 1993, Lawrence 2007).

Citations and references

Statutes:

• Miss. Code Ann. § 19-5-99, economic development districts
• Miss. Code Ann. § 19-7-3, surplus public property disposition

Mississippi Constitution:

• Miss. Const. art. 4, § 66, prohibition on donations of public property

Prior AG opinions cited:

• MS AG Op., Webb (May 11, 2001); MS AG Op., Webb (May 15, 1998); MS AG Op., Slade (Mar. 27, 1986), good and valuable consideration required
• MS AG Op., Ellis (Sept. 21, 1994), purpose of EDDs
• MS AG Op., Williams (May 21, 2004), district determines consideration; subject to judicial review
• MS AG Op., Lawrence (May 30, 2003), below-cost sales permitted with findings
• MS AG Op., Mock (Feb. 6, 1998), bond retirement as good and valuable consideration
• MS AG Op., Smith (Sept. 26, 2008), Section 19-7-3 surplus sales by EDDs
• MS AG Op., Griffin (July 30, 1999), no appraisal required for surplus sales
• MS AG Op., Head (Nov. 25, 1998); MS AG Op., Hammack (Oct. 13, 1993); MS AG Op., Lawrence (July 20, 2007), AG declines liability questions

Source

• Landing page: https://attorneygenerallynnfitch.com/divisions/opinions-and-policy/recent-opinions/
• Original PDF: https://attorneygenerallynnfitch.com/wp-content/uploads/2022/03/T.Rogers-January-14-2022-Sale-of-Property-by-the-Covington-County-Economic-Development-District-to-a-Private-Enterprise.pdf

Original opinion text

January 14, 2022

Tommy B. Rogers, Esq.
Board Attorney, Covington County Board of Supervisors
Post Office Box 1415
Collins, Mississippi 39428

Re: Sale of Property by the Covington County Economic Development District to a Private Enterprise

Dear Mr. Rogers:

The Office of the Attorney General has received your request for an official opinion.

Background

According to your request, pursuant to Mississippi Code Annotated Section 19-5-99, the Board of Supervisors of Covington County (the "Board") established the Covington County Economic Development District (the "District"), and the Board was designated to manage the affairs of the District. You state that the District purchased certain land, and with the help of grants, constructed a building for the initial use of processing blueberries. We understand that the building is currently leased to a vending business which uses the building for warehouse purposes in selling and distributing various items that are sold in vending machines. You also state that the vending business now leasing the property has offered to purchase the building and the property upon which it is situated for an amount that is much less than the amount the District has expended for the purchase of the site and construction of the building situated thereon. We understand that there has been no appraisal made of the building and the land proposed to be conveyed to the private industry.

Questions Presented

1. Is the District required to obtain an appraisal of the building and site to determine the fair market value of said property prior to the transfer of the site and building?
2. Is the District required to obtain an opinion from a court of competent jurisdiction as to whether the consideration is nominal?
3. In the event that a taxpayer later files suit and a court finds that the consideration was nominal, and the sale should not have been approved, what is your opinion as to whether or not the members of the District, being the members of the Board, would be personally liable in said matter?

Brief Response

1. The District is not required to obtain an appraisal to determine fair market value of the referenced property prior to the disposal of the referenced property under Section 19-5-99.
2. The District is not required to obtain an opinion from a court of competent jurisdiction as to whether consideration for the referenced property is nominal or not.
3. To the extent your inquiry requires this office to make a legal assessment and/or make a determination about issues of liability, we are unable to respond by way of official opinion.

Applicable Law and Discussion

Section 19-5-99 authorizes counties and municipalities to establish economic development districts. MS AG Op., Webb at 1 (May 11, 2001). Section 19-5-99(1) sets forth the purpose of an economic development district, which is to promote industrial development. MS AG Op., Ellis at 1 (Sep. 21, 1994).

Your first question asks whether an economic development district is required to obtain an appraisal of a building and site to determine the fair market value prior to making a decision regarding consideration of the transfer of the site and building. Section 19-5-99(5)(a) governs the disposition by the economic development district of the property so acquired. MS AG Op., Williams at *1 (May 21, 2004). Section 19-5-99(5)(a) provides, in relevant part:

Economic development districts established under this section are authorized and empowered: (a) To sell, lease, trade, exchange, or otherwise dispose of industrial sites or rail lines situated within industrial parks to individuals, firms or corporations, public or private, for industrial or warehouse use, as well as the Mississippi Military Department or Mississippi National Guard for military use, upon such terms and conditions, and for such considerations, with such safeguards as will best promote and protect the public interest, convenience, and necessity, and to execute deeds, leases, contracts, easements, and other legal instruments necessary or convenient therefor.

…

State law also does not authorize an economic development district to donate the property to a private industry. MS AG Op., Webb at *1 (May 11, 2001). Rather, the law requires that such property be transferred for good and valuable consideration. Id. (citing MS AG Op., Slade (Mar. 27, 1986) and MS AG Op., Webb (May 15, 1998)).

In MS AG Op., Williams at *1 (May 21, 2004), we opined that an economic development district may not donate a piece of property in the district's industrial park to a new industry that would construct a processing plant with the industry's own funds. (Emphasis added.) The Williams opinion further stated:

Even though an economic development district is given wide discretion and broad authority with regard to disposal of industrial sites, Section 19-5-99(5)(a) contemplates that the governing authorities of the district effectuate any such transfer in exchange for good and valuable consideration in keeping with our constitutional mandate that prohibits donation or gratuity to private entities. Art. 4 Sec. 66 MISS. CONST. of 1890.

Id. at *1.

Accordingly, with respect to your first question, it is the opinion of this office that an economic development district is not required to obtain an appraisal to determine fair market value of the property to be sold.

Your second question asks if an economic development district is required to obtain an opinion from a court of competent jurisdiction as to whether consideration of the property to be sold is nominal or not. We previously opined that the determination of what suffices for "good and valuable consideration" is with the province of the economic development district and that the district's findings are subject to review by a court of competent jurisdiction. MS AG Op., Williams at *2 (May 21, 2004).

In MS AG Op., Lawrence at 2 (May 30, 2003), we opined that if an economic development district finds and spreads upon its minutes a determination that consideration which is less than the appraised value and less than the total amount invested in the site is good and valuable consideration and would best promote and protect the public interest, then transfer of the site to a private industry is permissible. Similarly, in MS AG Op., Mock at 2 (Feb. 6, 1998), we opined that if an economic development district made the determination that acceptance from an industrial tenant of a payment for a full retirement of an outstanding bond indebtedness would best promote and protect the public interest, the economic development district could convey the property to its tenant without further consideration.

With respect to your second question, even though this office has opined that an economic development district's findings on what suffices for good and valuable consideration is subject to review by a court of competent jurisdiction, there is no law that requires a district to obtain an opinion from a court as to whether the consideration is nominal or not on the front end. This determination would be subject to review as opposed to required to be reviewed by the court. It is the District's responsibility to make a determination of what would best promote and protect the public interest, not for a court to determine prior to each transaction.

Your third question asks us to opine on whether the members of the District, being the members of the Board, would be personally liable if a taxpayer later files suit and a court finds that the consideration was nominal, and the sale should not have been approved. Questions of liability involve "mixed issues of law and fact which cannot be addressed by an Attorney General's opinion." MS AG Op., Head at 1 (Nov. 25, 1998); see also MS AG Op., Hammack at 2 (Oct. 13, 1993) ("We cannot by opinion determine liability."); MS AG Op., Lawrence at *1 (Jul. 20, 2007) ("[W]e cannot speculate to the various potential liabilities which might arise and may not render an opinion in that regard.").

Because your third question asks us to opine on the Board members' potential liability, we are unable to respond by official opinion.

If this office may be of any further assistance to you, please do not hesitate to contact us.

Sincerely,

LYNN FITCH, ATTORNEY GENERAL

By: /s/ Gregory Alston
Gregory Alston
Special Assistant Attorney General

Footnote: You do not indicate that the property referenced in your request is surplus property. However, we note that economic development districts may sell property that has been determined to be surplus pursuant to Section 19-7-3. MS AG Op., Smith at 1 (Sept. 26, 2008). We have previously opined that an appraisal is not required prior to disposal of surplus property under Section 19-7-3. MS AG Op., Griffin at 1 (July 30, 1999).