Can a Tennessee county use proceeds from its adequate facilities tax to pay debt service on bonds issued to build a new justice center?

Subject

Opinion No. 15-27, Use of Maury County Adequate Facilities Tax Funds to Service Public Facility Debt, March 27, 2015

Plain-English summary

A Maury County legislator asked whether the county could use revenue from its Adequate Facilities Tax (a privilege tax on new development authorized by 1991 Tenn. Priv. Acts, ch. 118) to make bond payments on a proposed justice center. The AG said yes, assuming the justice center is "reasonably related to new development" as the act requires. The Private Act limits the use of tax funds to "the purpose of providing public facilities, the need for which is reasonably related to new development." A justice center qualifies as a "government building" within the act's definition of public facilities. And because the act does not foreclose bond financing as part of "providing" a facility, debt service on a bond issued to build the project is part and parcel of providing the facility.

Currency note

This opinion was issued in 2015. 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

Maury County's Adequate Facilities Tax was authorized by 1991 Tenn. Priv. Acts, ch. 118, a privilege tax on new development in the county. Section 9 limits use of the tax to "providing public facilities, the need for which is reasonably related to new development." Section 2(n) defines "public facility" to include "roads and bridges, parks and recreational facilities, jails and law enforcement facilities, schools, libraries, government buildings, fire stations, sanitary landfills, water, wastewater and drainage projects, airport facilities and other governmental capital improvements." A justice center, housing courtrooms and court personnel, fits comfortably as a government building.

The Tennessee Supreme Court has noted that statutes are not presumed to contain implied limitations that they do not express (Lucius v. City of Memphis, 925 S.W.2d 522, 526 (Tenn. 1996)). Nothing in the act restricts how the county pays for a qualifying project, so combining adequate-facilities-tax revenue with bond financing is permissible. The narrower question, then, is whether using tax money to pay bond debt service counts as "providing" the facility. The AG concluded it does. If the county finances the project with bonds, debt service is the mechanism by which the facility actually gets built and paid for; the tax revenue is funding the project either way.

Common questions

What is an "adequate facilities tax"?
A privilege tax on new development. The idea is that growth (new homes, new commercial space) creates the need for new public infrastructure (roads, schools, jails), and the developer-side tax helps fund that infrastructure. The Maury County version is authorized by a private act, not the general state code, and so applies only in Maury County.

Does "reasonably related to new development" apply to the bond financing or just to the facility?
To the facility. The AG did not read the act as imposing a separate development-relatedness test on the financing mechanism. The question is whether the project itself was needed because of new development. If so, the act authorizes funding it (whether directly or through debt service).

Does this analysis apply to any Tennessee county's adequate facilities tax?
No. The opinion analyzed Maury County's specific private act. Other counties operate under their own private acts with potentially different language; the answer would depend on each act's wording.

Could the funds be used for operating expenses (staff, utilities)?
The opinion did not directly address that. The act's "for the purpose of providing public facilities" language reads as a capital-cost limit. Operating costs are usually funded from general revenues.

Citations

1991 Tenn. Priv. Acts, ch. 118 (Maury County Adequate Facilities Tax); Lucius v. City of Memphis, 925 S.W.2d 522 (Tenn. 1996); Home Builders Ass'n v. Williamson County, 304 S.W.3d 812 (Tenn. 2010) (statutory construction principles).

Source

• Landing page: https://www.tn.gov/attorneygeneral/opinions.html
• Original PDF: https://www.tn.gov/content/dam/tn/attorneygeneral/documents/ops/2015/op15-27.pdf

Original opinion text

STATE OF TENNESSEE
OFFICE OF THE ATTORNEY GENERAL
March 27, 2015
Opinion No. 15-27

Use of Maury County Adequate Facilities Tax Funds to Service Public Facility Debt

Question

May Maury County use funds generated by the Maury County Adequate Facilities Tax to service debt on a proposed justice center?

Opinion

Yes, assuming that the need for the justice center is reasonably related to new development in Maury County.

ANALYSIS

Engaging in new development in Maury County is a taxable privilege upon which the General Assembly, through 1991 Tenn. Priv. Acts, ch. 118 (the "Act"), has authorized that county to levy a privilege tax. This tax is known as the Maury County Adequate Facilities Tax. See id. at § 1. The Act specifies that "[a]ll tax funds collected by the County shall be used for the purpose of providing public facilities, the need for which is reasonably related to new development." Id. at § 9. The act defines a public facility as "[a] physical improvement undertaken by the County or city, including, but not limited to the following: roads and bridges, parks and recreational facilities, jails and law enforcement facilities, schools, libraries, government buildings, fire stations, sanitary landfills, water, wastewater and drainage projects, airport facilities and other governmental capital improvements benefiting the citizens of the County and/or city." Id. at § 2(n).

A "justice center" would presumably house courtrooms, clerks' offices, court personnel, and various other court functions. Such a facility would certainly qualify as a "government building" and would thus be a public facility under the act.

"Development" is defined to include "the construction, building, reconstruction, erection, extension, betterment, or improvement of land providing a building or structure of the addition to any building or structure, or any part thereof, which provides, adds to or increases the floor area of a residential or nonresidential use." 1991 Tenn. Priv. Acts, ch. 118, § 2(f). Certain exceptions are enumerated in section 6 of the private act.

In order to qualify for funding from the Adequate Facilities Tax, the need for the proposed justice center, or any other public facility, must be "reasonably related to new development." Whether the need for the proposed justice center is reasonably related to new development in Maury County is a fact-intensive question separate from the legal question that has been posed, i.e., how Maury County may use the funds collected under the Adequate Facilities Tax. For purposes of this opinion, we assume that the proposed justice center is reasonably related to new development.

The Act specifies that "[a]ll tax funds collected by the County shall be used for the purpose of providing public facilities, the need for which is reasonably related to new development." If the justice center is reasonably related to new development, then, under the Act, Maury County may use adequate facilities tax funds "for the purpose of providing" that justice center.

The Act does not prohibit other possible financing methods. While the Act expressly limits the use of the adequate facilities tax funds to the circumscribed purpose of providing for a qualified public facility, nothing in the Act restricts the use of the funds to projects capable of being fully funded solely by adequate facilities tax revenue and no other financing source. The General Assembly is not presumed to have implied any limitation that it did not express in the legislation. See, e.g., Lucius v. City of Memphis, 925 S.W.2d 522, 526 (Tenn. 1996) (declining to find a limitation on the applicability of a statute absent statutory language to that effect). Therefore, the use of non-tax sources, such as bond revenue, to fund the project does not run afoul of any limitation imposed by the Act on the use of the tax revenue.

The question then becomes whether using funds to "provide" a public facility includes using the funds to service debt on a project that is otherwise fundable by the tax. In our opinion, it does.

Well-established principles of statutory construction govern the interpretation of the Maury County Adequate Facilities Tax. See, e.g., Home Builders Ass'n v. Williamson County, 304 S.W.3d 812, 817 (Tenn. 2010). The primary rule governing our construction of any statute is to ascertain and give effect to the legislature's intent. To that end, we begin by examining the language of the statute. In our examination of statutory language, we must presume that the legislature intended that each word be given full effect. When the import of a statute is unambiguous, we discern legislative intent "from the natural and ordinary meaning of the statutory language within the context of the entire statute without any forced or subtle construction that would extend or limit the statute's meaning." Id.

Read without forced construction and giving the statutory language its plain meaning, the Act requires only that the adequate facilities tax funds be used to "provide" a qualified public facility. When used, as here, as a transitive verb, "provide" means "to supply or make available (something wanted or needed)." If the county government's means of providing the justice center is to issue a bond to raise the funds necessary for the project, then servicing the debt on that bond issue is simply part-and-parcel of providing the justice center. Using adequate facilities tax funds to service debt is thus a means for providing a justice center just as much as directly paying, upfront, the cost of the justice center with those funds. Thus, the plain and unambiguous language of the Act provides no basis on which to prohibit the use of adequate facilities tax funds to service debt on a qualifying public facility.

HERBERT H. SLATERY III
Attorney General and Reporter

ANDRÉE SOPHIA BLUMSTEIN
Solicitor General

BRAD H. BUCHANAN
Senior Counsel

Requested by:
The Honorable Sheila Butt
State Representative
106 War Memorial Bldg.
Nashville, TN 37243