Could Vivian co-sign or guarantee another party's bank loan under an economic development agreement?

Plain-English summary

The Town of Vivian was entering a cooperative economic development agreement, and another party asked the town to co-sign or guarantee its bank note. In Opinion 03-0189, the AG said Vivian could not undertake that debt obligation without prior written approval from the State Bond Commission.

The opinion relied on Article 7, Section 8 of the Louisiana Constitution for the approval requirement. It also raised Article 7, Section 14, which prohibited a political subdivision from donating, loaning, or pledging public funds. The AG said a guarantee could violate that provision if the cooperative agreement did not obligate the town to provide it. The office assumed the agreement complied with applicable statutes and expressly declined to decide its content or validity.

Currency note

The issue date is not legible in the available official extract. 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.

What the opinion meant at issuance

Town of Vivian officials

The AG treated co-signing or guaranteeing the note as incurring debt. It said prior written Bond Commission approval was required. It separately identified a possible constitutional problem with pledging public resources if the town had no obligation under the cooperative agreement.

Other agreement parties

The opinion did not decide whether the agreement legally obligated Vivian to guarantee a note. Its conclusion about the possible public-funds violation depended on that question, which the AG left open.

Common questions

Q: Could Vivian guarantee the bank note without State Bond Commission approval?
A: No. The AG said the town first needed written approval because the guarantee would incur a financial obligation.

Q: Would Bond Commission approval alone settle the public-funds question?
A: The opinion identified a separate Article 7, Section 14 issue: without an obligation under the cooperative agreement, the guarantee might be an impermissible pledge. The AG did not decide the agreement's terms.

Q: Did the AG find the economic development agreement valid?
A: No. It assumed statutory compliance for purposes of the answer and said it was not opining on the agreement's content or validity.

Background and statutory framework

The mayor asked about guaranteeing another party's bank note under a cooperative economic development agreement. The AG cited Article 7, Section 8 of the Louisiana Constitution for prior Bond Commission approval of municipal debt and Article 7, Section 14 for the limit on donating, loaning, or pledging public funds.

Citations and references

Constitutional provisions cited: Article 7, Section 8 and Article 7, Section 14 of the Louisiana Constitution.

Source

• Landing page: https://www.ag.state.la.us/Opinions
• Original PDF: https://www.ag.state.la.us/Opinion/Download/03-0189

Original opinion text

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DEPARTMENT OF JUSTICE
One American Place
301 Main Street, Suite 600
CIVIL DIVISION
P.O. Box 94005
BATON ROUGE
TEL.: (225) 342-7013
FAX: (225) 342-2090
RICHARD P. IEYOUB
70804-9005
ATTORNEY GENERAL

o pinion Number g 0 ?.OO303-0189

       Honorable Hayward D. McCormick                71         Municipalities

Article 7, Section 8 of the Louisiana Constitution
Town of Vivian
Article 7, Section 14 of the Louisiana Constitution
P.O. Box 832
Vivian, LA 71082
Town of Vivian cannot co-sign or guarantee a
bank note without prior, written approval of State Bond Commission.
Dear Mayor McCormick:

The Town of Vivian is entering into a cooperative economic development agreement.
One of the parties to the agreement has asked that the town co-sign or guarantee a bank note on their behalf. You question if the town may legally do so.

You do not question the validity of the co-op and we will assume, therefore, that the co- op complies with the applicable statues. Article 7, Section 8 of the Louisiana Constitution mandates that a political subdivision of the state obtain written approval of the State Bond Commission before it can incur any type of debt or financial obligation.
Thus, the town cannot co-sign or guarantee a bank note, i.e. incur debt, without prior, written approval of the State Bond Commission. We recommend that you contact the Bond Commission for further instruction.

We also note that Article 7, Section 14 of the Louisiana Constitution prohibits the state or one of its political subdivisions from donating, loaning or pledging public funds. This article is violated when the state or a political subdivision of the state gives up something of value when it is under no obligation to do so. Unless the co-op creates an obligation for the Town to do so, such a guarantee may violate Article 7, Section 14.
Again, however, we are not opining on the content or validity of the co-op.

With kindest regards,

Yours very truly,

RICHARD P. IEYOUB
Attorney General

BY:
VICARI GRANT
Assistant Attorney General
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