Could a Louisiana public water district ignore a contract overpayment instead of trying to recover it?

Plain-English summary

In 2005, Tony C. Tillman reported that one Louisiana water district had increased the wholesale rate it charged another without the consent required by their contract. The increase had gone unnoticed for years and produced an estimated $152,000 overpayment. The Attorney General concluded that the paying district could not simply walk away from the money. Doing nothing to recover an amount paid beyond its contractual obligation would violate the Louisiana Constitution's prohibition on donating public funds.

The opinion required the district's commissioners to use every reasonable means to recover the overpayment. It did not prescribe a specific refund, credit, lawsuit, or dollar threshold. It said what was reasonable depended on the circumstances and sound business practices. The answer addressed the reported overpayment; it did not adjudicate the parties' contract dispute.

Currency note

This opinion was issued in 2005. 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 water district decide the overpayment was too troublesome to pursue?

The AG said it could not make no recovery effort. Because the reported payment exceeded the amount owed under the contract, letting the other district keep it without trying to recover it would amount to an impermissible use of public funds under the opinion's constitutional analysis.

Did the AG require a lawsuit or a particular refund method?

No particular procedure was specified. The opinion called for every reasonable means of recovery and said that reasonableness had to be assessed case by case, using sound business practices and principles.

Did the constitution matter even though both parties were water districts?

Yes. The opinion applied the constitutional prohibition on donating a political subdivision's funds to the excess payment made under this contract. It did not create an exception because the recipient was another public entity.

Background and statutory framework

Tony C. Tillman asked about the obligations of the Board of Commissioners of Ebarb Waterworks District No. 1 of Sabine Parish under a wholesale water contract with South Toledo Bend Waterworks District. According to the request, South Toledo had raised its rate without the other parties' knowledge or approval, and Ebarb had paid approximately $152,000 more than the contract required. The requester asked whether Ebarb had to obtain a refund, credit, or other compensation, or could disregard the overpayment.

The AG applied La. Const. Art. VII, Sec. 14, which bars a state political subdivision from donating public money or things of value. It treated payment beyond a contractual obligation as prohibited and concluded that Ebarb had to pursue reasonable recovery measures. The opinion left the choice of measures to a case-specific assessment.

Citations

• La. Const. Art. VII, Sec. 14 (prohibition on donating public funds).

Source

• Landing page: https://www.ag.state.la.us/Opinions
• Original PDF: https://www.ag.state.la.us/Opinion/Download/05-0082

Original opinion text

April 20, 2005
OPINION NUMBER 05-0082

90-A-2 PUBLIC FUNDS – Loan, Pledge or Grants
Mr. Tony C. Tillman
La. Const. Art. VII, Sec. 14
P.O. Drawer 648
Public agencies must attempt to recover
overpayments made under a contract.
Leesville, Louisiana 71496-0648

Dear Mr. Tillman:

You requested an Attorney General’s opinion regarding the obligations of the Board of Commissioners of the Ebarb Waterworks District No. 1 of Sabine Parish (“Ebarb”) in dealing with an overpayment. You indicated that a contract exists between Ebarb and South Toledo Bend Waterworks District (“South Toledo”) whereby South Toledo sells water at a wholesale rate to Ebarb. The water that is used is withdrawn by South Toledo from the Toledo Bend Reservoir, and payments are made to the Sabine River Authority for the water. Once the water is treated and transported to Ebarb, Ebarb sells the treated water back to the Sabine River Authority. Both Ebarb and South Toledo were funded by loans from the Rural Utility Service of the U.S. Department of Agriculture. Therefore, the contract in question requires the consent and concurrence of Ebarb, South Toledo, Sabine River Authority and the Rural Utility Service.

The contract was put into place a number of years ago, and within a matter of months, unbeknownst to the other parties, South Toledo increased the rate it charged under the contract. Neither Ebarb, the Sabine River Authority nor the Rural Utility Service was aware of, approved or agreed to such an increase. The increased rate was charged for a number of years before it was discovered. As a result, Ebarb has been overcharged and has overpaid approximately $152,000 under the contract. Your question is whether Ebarb is obligated to either obtain a refund, credit or some other compensation for the overpayment, or may Ebarb merely ignore the overpayments and “walk away” from such monies.

It is the opinion of this office that a public agency would be in violation of the Louisiana Constitution if no recoupment efforts are made. Article VII, Section 14 of the Louisiana Constitution of 1974 provides, in pertinent part, the following:

“Section 14. (A) Prohibited Uses. Except as otherwise provided by this constitution, the funds, credit, property, or things of value of the state or of any political subdivision shall not be loaned, pledged, or donated to or for any person, association, or corporation, public or private…”

Page 2

Mr. Tony C. Tillman
OPINION NUMBER 05-0082
Page – 2 –

Article 7, Section 14 of the Louisiana Constitution clearly prohibits the donation of public funds. Thus the state or any of its political subdivisions may not loan, pledge or donate its funds or anything of value to or for any person when it is under no obligation to do so. See City of Port Allen v. Louisiana Municipal Risk Agency, 439 So.2d 399 (La. 1983); Beaird-Poulan, Inc. v. Department of Highways, 362 F.Supp. 547 (W.D.La.1973). We have interpreted legal obligation to mean that the expenditure of funds be sanctioned, authorized by law, or in the discharge of a legal duty. Attorney General Opinion Nos. 02-0162 and 00-0014.

An overpayment, above what is required under the contract at issue, is prohibited by Article VII, Section 14 of the Louisiana Constitution. It stands to reason, therefore, that the Board of Commissioners of the Ebarb Waterworks District No. 1 of Sabine Parish must exercise every reasonable means to recover the overpayment. Reasonable means must be determined on a case-by-case basis and on sound business practices and principles. In accord is Attorney General Opinion No. 03-0444.

Trusting this adequately responds to your request, we remain

Yours very truly,

CHARLES C. FOTI, JR.
ATTORNEY GENERAL

BY: _________
KENNETH L. ROCHE, III
Assistant Attorney General

CCF, JR/KLR, III/mjb

Page 3

OPINION NUMBER 05-0082

90-A-2 PUBLIC FUNDS – Loan, Pledge or Grants

La. Const. Art. VII, Sec. 14

Public agencies must attempt to recover overpayments made under a contract.

Mr. Tony C. Tillman
P.O. Drawer 648
Leesville, Louisiana 71496-0648

Date Received:

Date Released: April 20, 2005

KENNETH L. ROCHE, III
ASSISTANT ATTORNEY GENERAL