Could Shreveport guarantee part of a private developer's construction loan for a riverfront project?

Plain-English summary

Shreveport proposed to guarantee up to $4 million of a private developer's $11 million commercial construction loan for a downtown riverfront entertainment project. The guarantee would end once the project was 90% leased. The Attorney General concluded that even this limited guarantee would amount to a prohibited donation of the city's credit to the developer.

The opinion applied Article VII, Section 14 of the Louisiana Constitution. It said the cited constitutional exceptions did not cover the proposed transaction and that the project's public value did not change the bar on this transfer of city credit.

Currency note

This opinion was issued in 2000. 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.

Common questions

Could the city guarantee only part of the developer's loan?
No. The AG treated the proposed guarantee of up to $4 million as a prohibited donation of Shreveport's credit.

Did release from the guarantee when the project was 90% leased change the result?

No. The proposed release term was part of the request, but the AG still concluded the guarantee was barred.

Did the downtown improvement goal authorize the guarantee?
No. The opinion said the contemplated project's worth did not determine whether the transfer of public credit was constitutional.

Background and statutory framework

The city considered a cooperative arrangement with Red River Real Estate Venture for a proposed entertainment district. Its loan guarantee would support construction financing from a commercial lender. The AG read Article VII, Section 14(A)'s ban on lending, pledging, or donating public credit as controlling and found none of the cited exceptions applicable.

Citations and references

• La. Const. Article VII, Section 14(A): prohibition on lending, pledging, or donating public credit.
• La. Const. Article VII, Section 14(B): exceptions the AG found inapplicable.

Source

• Landing page: https://www.ag.state.la.us/Opinions
• Original PDF: https://www.ag.state.la.us/Opinion/Download/00-0034

Original opinion text

February 29, 2000
OPINION NUMBER 00-34

90-A-2 PUBLIC FUNDS – Loan Pledge or Grants 71 MUNICIPALITIES
Honorable Keith Hightower
Mayor, City of Shreveport
City of Shreveport may not guarantee a portion of an economic
Post Office Box 31109
development prospect’s construction loan, as the guarantee would
be tantamount to a constitutionally prohibited donation of the City’s Shreveport, Louisiana 71130 credit.

Dear Mayor Hightower:

Reference is made to your recent correspondence regarding economic development in the City of Shreveport’s “Shreve Square” area, located in downtown Shreveport. According to your correspondence, the City is encouraging the development of Shreveport’s riverfront as an entertainment district (the proposed “Red River Entertainment District”) and has been working with a potential private developer of the area (Red River Real Estate Venture, L.L.C., a Louisiana limited liability company). On behalf of the City, you seek our opinion regarding a proposed loan guarantee, whereby the City would partially guarantee the developer’s loan, in order to assist the developer during the construction phase of its proposed project.

You have advised this office that the City is considering entering into a cooperative endeavor with the private developer, whereby the City would agree to partially guarantee a portion of an $11,000,000 commercial loan to the developer from a national banking association. Specifically, the City’s guarantee would be for up to the sum of
$4,000,000 during the construction phase of the developer’s project, and the City would be released from liability when the projected is 90% leased.

Implicitly, your question must be addressed in light of La. Const. Article VII, Section 14(A), which prohibits the “funds, credit, property, or things of value” of the state and its political subdivisions from being “loaned, pledged, or donated to or for any person, association, or corporation, public or private”. Although La. Const. Article VII, Section 14(B) provides certain exceptions to this rule, those exceptions do not apply to the contemplated transaction.

Please be advised that in our opinion the City’s guarantee of a loan made by a commercial lender to a private developer is tantamount to a donation of the “credit” of the City of Shreveport for the benefit of the private developer. As such, it is the opinion of this office that La. Const. Article VII, Section 14, prohibits the guarantee.

Page 2

Opinion Number 00-34
Honorable Keith Hightower
Page -2-

Our position in this regard is consistent with City of Port Allen v. Municipal Risk Agency, Inc. 439 So.2d (La. 1983), which interpreted Article VII, Section 14. Therein, Louisiana’s Supreme Court ruled that “…even if political subdivisions cooperate for a public purpose, they still may not give away their assets to other political subdivision, the United States government or public or private associations or corporations, or to individuals merely for a ‘public purpose’.”

Please note that this opinion is not an indication of our disapproval of the City's efforts to improve itself and its environs. On the contrary, this office is supportive of all municipal improvement and economic development projects. However, we note that the worthiness of the contemplated use of public funds is immaterial to the constitutionality of a transfer of public funds. See: James v. Rapides Parish Police Jury, 113 So.2d 88 (La. App. 2nd Cir. 1959), which interpreted a constitutional provision almost identical to the present Article VII, Section 14. Consistent with the opinion expressed in Attorney General's Opinion No. 96-163, we are constrained to opine that the City of Shreveport cannot guarantee the loan of a private developer.

We trust the foregoing to be of assistance. Please do not hesitate to contact this office if we can be of assistance in other areas of the law.

Yours very truly,

RICHARD P. IEYOUB
Attorney General

By:
JEANNE-MARIE ZERINGUE BARHAM
Assistant Attorney General

RPI/JMZB/dra

Page 3

Opinion Number 00-34
Syllabus

90-A-2 PUBLIC FUNDS – Loan Pledge or Grants
71 MUNICIPALITIES

City of Shreveport may not guarantee a portion of an economic development prospect’s construction loan, as the guarantee would be tantamount to a constitutionally prohibited donation of the City’s credit.

Honorable Keith Hightower
Mayor, City of Shreveport
Post Office Box 31109
Shreveport, Louisiana 71130

Received:

Released: February 29, 2000

Jeanne-Marie Zeringue Barham
Assistant Attorney General