Can a Mississippi city prepay three years of lease payments for ALPR cameras using a federal grant that must be spent in the same fiscal year?

Plain-English summary

The City of Gluckstadt got a $150,000 federal Homeland Security grant. The grant has a use-it-or-lose-it deadline: spend the federal funds in the current fiscal year or send them back. The city wanted to use the grant to obtain automatic license plate recognition (ALPR) cameras. Problem: the ALPR vendors do not sell cameras to public entities; they only lease them. So the city was looking at a three-year lease, with three years of payments, but only one fiscal year to spend the grant.

The city's proposed solution: prepay the entire three-year lease up front, in exchange for the city receiving the cameras at the time of payment. That fits the federal grant deadline. But it raises a Mississippi constitutional question. Article IV, Section 66 of the Mississippi Constitution and § 21-17-5(2) prohibit municipal donations of public funds. Is prepaying a three-year lease a "donation" because the city is giving money for services not yet rendered?

The AG said no, with the right structure. The Mississippi Supreme Court in Tunica Cnty. v. Town of Tunica and Craig v. Mercy Hosp.-Street Mem'l defined "donation" narrowly: "[t]he term 'donation or gratuity' implies absence of consideration, the transfer of money or other things of value from the owner to another without any consideration." When consideration is present, "Section 66 has no application at all." If the city receives the ALPR cameras at the time the lease payment is made, that is good and valuable consideration; the city is not giving away money for nothing.

The AG also referenced the standard caveats: this is a state-law opinion (no federal-grant-law analysis), the AG cannot interpret contracts, and whether the cameras actually constitute good and valuable consideration on the specific facts is a determination for the city's governing authority. The opinion suggests Gluckstadt contact DFA (Department of Finance and Administration) and the State Auditor for further compliance guidance.

What this means for you

If you are a Mississippi city official looking at a multi-year lease prepayment

The opinion holds that "if the City makes the factual determination that receiving the ALPRs at the time the lease payment is made constitutes good and valuable consideration, the payment would not be an impermissible donation in violation of state law." It frames the consideration question as a factual determination for the city's governing authority.

If you administer federal grants for a Mississippi municipality

The opinion states it is limited to "the interpretation of state public purchasing laws" and "offer[s] no opinion regarding the legality of using federal funds in a specific manner or the applicability of any federal or state regulations." It suggests contacting DFA and the State Auditor's Division of Technical Assistance for further guidance.

If you are an ALPR vendor leasing equipment to Mississippi cities

The opinion's reasoning turns on the city "receiving the ALPRs at the time the lease payment is made." It treats that contemporaneous receipt as the consideration that, if found by the governing authority, keeps the prepayment from being a prohibited donation under Article IV, Section 66.

If you are a city attorney advising on the donation question

The opinion relies on Tunica County and Craig: "[t]he term 'donation or gratuity' implies absence of consideration," and "when consideration is present, [Section 66] has no application at all." It holds a prepayment for which the city receives good and valuable consideration is not a prohibited donation, leaving the consideration finding to the governing authority.

Common questions

Q: What is "good and valuable consideration"?
A: Legal jargon for "something of real value the recipient receives in exchange." For a prepaid lease, the city is receiving the leased equipment for use over the lease term. If the equipment has real value and the city actually receives it, the consideration is good and valuable.

Q: What is the difference between a lease prepayment and an outright purchase?
A: Both involve the city paying money and receiving equipment. The difference is who owns the equipment at the end. In a purchase, the city owns it forever (until disposed of). In a lease, ownership stays with the lessor and the city has the right to use the equipment for the lease term, after which the equipment goes back to the lessor (or there may be a buyout option). Prepaying a lease is not the same as buying.

Q: Does this opinion mean any prepayment structure is fine?
A: No. The structure has to deliver consideration at the time of payment. Pre-paying a lease for equipment that will be delivered six months later, with nothing happening at the time of payment, is not the same as prepaying with simultaneous delivery. The latter is what the AG approved; the former is closer to the donation pattern.

Q: Does the opinion address federal grant rules?
A: No. It states it is "limit[ed] . . . to the interpretation of state public purchasing laws" and "offer[s] no opinion regarding the legality of using federal funds in a specific manner or the applicability of any federal or state regulations."

Q: Is leasing treated as a "purchase" under Mississippi law?
A: Yes. The opinion notes "the definition of 'purchase' includes leasing" (§ 31-7-1(h)), and that the City "intends to proceed under Section 31-7-13(c) because the cost to lease the ALPRs is over $75,000." The opinion does not analyze bidding compliance itself.

Q: Who decides whether the cameras are good and valuable consideration?
A: The opinion frames it as a factual determination for the city: the payment is lawful "[i]f the City makes the factual determination that receiving the ALPRs at the time the lease payment is made constitutes good and valuable consideration."

Background and statutory framework

The Mississippi Constitution Article IV, Section 66:

No law granting a donation or gratuity in favor of any person or corporation shall be enacted except by the concurrence of two-thirds of the members elect of each branch of the Legislature, nor by any city, town, or county.

Section 21-17-5(2) implements the constitutional rule for municipalities, prohibiting donations except as specifically authorized by statute.

The Mississippi Supreme Court has interpreted "donation" narrowly. Tunica Cnty. v. Town of Tunica, 227 So. 3d 1007, 1018 (Miss. 2017), quoting Craig v. Mercy Hosp.-Street Mem'l, 45 So. 2d 809, 814 (Miss. 1950): "[t]he term 'donation or gratuity' implies absence of consideration, the transfer of money or other things of value from the owner to another without any consideration." And Craig: "when consideration is present, [Section 66] has no application at all."

The AG built on this in Lynchard (Sept. 4, 2015) and McKenzie (Apr. 23, 2010): if a public entity receives something in return for the payment, the payment is not an impermissible donation.

Section 31-7-1(h) defines "purchase" to include leasing, so leases over $75,000 fall within § 31-7-13(c) bidding requirements. Section 7-5-25 limits the AG to prospective state-law questions, and the AG explicitly noted it could not opine on federal law or the validity of contracts.

Citations

• Miss. Const. art. IV, § 66
• Miss. Code Ann. § 21-17-5(2)
• Miss. Code Ann. § 31-7-1(h)
• Miss. Code Ann. § 31-7-13(c)
• Miss. Code Ann. § 7-5-25
• Tunica Cnty. v. Town of Tunica, 227 So. 3d 1007 (Miss. 2017)
• Craig v. Mercy Hosp.-Street Mem'l, 45 So. 2d 809 (Miss. 1950)
• MS AG Op., Lynchard (Sept. 4, 2015)
• MS AG Op., McKenzie (Apr. 23, 2010)

Source

• Landing page: https://attorneygenerallynnfitch.com/divisions/opinions-and-policy/recent-opinions/
• Original PDF: https://attorneygenerallynnfitch.com/wp-content/uploads/2024/05/Z.Giddy-May-24-2024-Prepayment-of-Lease.pdf

Original opinion text

May 24, 2024
Zachary L. Giddy, Esq.
Attorney, City of Gluckstadt
800 Avery Boulevard North, Suite 101
Ridgeland, Mississippi 39157
Re: Prepayment of Lease

Dear Mr. Giddy:
The Office of the Attorney General has received your request for an official opinion.

Background
According to your opinion request, the city of Gluckstadt ("City") wants to use grant funding to obtain automatic license plate recognition cameras ("ALPR"). The vendors for these ALPRs lease the cameras and do not allow public entities to purchase them. We understand from a later conversation that this is a federal Homeland Security grant of $150,000 and that all of the federal funds must be expended in this fiscal year.

Question Presented
May the City pay for a three-year lease for ALPRs up front if the City receives the leased cameras in return for the payment?

Brief Response
If the City makes the factual determination that receiving the ALPRs at the time the lease payment is made constitutes good and valuable consideration, the payment would not be unlawful.

Applicable Law and Discussion
Purchases made pursuant to Mississippi Code Annotated Sections 31-7-1, et seq. using federal grant funds must be made in accordance with any applicable federal and state laws and federal and state regulations. Opinions of this office are issued pursuant to Section 7-5-25 on prospective questions of state law only. This office cannot interpret or opine on the validity of contracts or on the validity or applicability of federal law and regulations. Thus, we offer no opinion regarding the legality of using federal funds in a specific manner or the applicability of any federal or state regulations and limit this opinion to the interpretation of state public purchasing laws.

With respect to Mississippi's public purchasing laws, the definition of "purchase" includes leasing. Miss. Code Ann. § 31-7-1(h). We understand that the City intends to proceed under Section 31-7-13(c) because the cost to lease the ALPRs is over $75,000.

In your request, you cite several previously issued opinions that equate municipal prepayment for goods and services with an unlawful donation. Municipalities are prohibited from making donations unless specifically authorized by statute. Miss. Code Ann. § 21-17-5(2); MISS. CONST. art. IV, § 66. However, analyzing Section 66 of the Mississippi Constitution, the Mississippi Supreme Court emphasized that "[t]he term 'donation or gratuity' implies absence of consideration, the transfer of money or other things of value from the owner to another without any consideration." Tunica Cnty. v. Town of Tunica, 227 So. 3d 1007, 1018 (Miss. 2017) (quoting Craig v. Mercy Hosp.-Street Mem'l, 45 So. 2d 809, 814 (Miss. 1950)). That is to say, when consideration is present, "Section 66 has no application at all." Craig, 45 So. 2d at 814.

This office has opined that if a public entity is receiving something in return for a payment made, that payment would not be considered an impermissible donation. MS AG Op., Lynchard at *3 (Sept. 4, 2015) (internal citations omitted); see also MS AG Op., McKenzie (Apr. 23, 2010) (opining that the county must receive good and valuable consideration to avoid an impermissible donation). Accordingly, if the City makes the factual determination that receiving the ALPRs at the time the lease payment is made constitutes good and valuable consideration, the payment would not be an impermissible donation in violation of state law.

We suggest that you contact DFA for further guidance on the applicability of any of its regulations. Because your question deals with the expenditure of public funds, you may also wish to contact the Division of Technical Assistance in the Office of the State Auditor.

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/ Beebe Garrard
Beebe Garrard
Special Assistant Attorney General