Could Louisiana co-sign a local government’s federal disaster-recovery loan?

Plain-English summary

The State Treasurer asked whether Louisiana could co-sign local governments’ promissory notes under the Community Disaster Loan Act of 2005. The federal rule called for a state co-signature or, if the state could not provide one, collateral from the local borrower. In 2005, the Attorney General said Louisiana could not co-sign.

The AG reasoned that co-signing would put the state’s credit behind a local loan without a legal obligation to do so, violating Article VII, Section 14 of the Louisiana Constitution. Because it found no authority to co-sign, it said no state officer could execute the note and did not answer whether the loan would count as net state tax-supported debt. The opinion did not decide the local borrower’s ability to provide collateral under the federal rule.

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 Louisiana guarantee a local disaster loan by signing the note?

No. The AG said a state co-signature would pledge state credit without a legal obligation and was constitutionally prohibited.

Could the Treasurer or another official sign on the state’s behalf?

No. Because the AG found the state lacked authority to co-sign, it said nobody could execute the note for Louisiana.

Did the AG classify the loan as state tax-supported debt?

No. It considered that question moot after concluding the state could not co-sign.

Background and statutory framework

The request concerned FEMA’s Special Community Disaster Loan Program, which offered loans to local governments suffering major-disaster revenue losses. The AG applied Article VII, Section 14’s prohibition on giving public credit without an obligation. Its ruling concerned the state guarantee, not every financing term of the federal program.

Citations

• Article 7, Section 14 of Louisiana Constitution (state-credit restriction applied by the AG).
• City of Port Allen v. Louisiana Municipal Risk Agency, 439 So.2d 399 (La. 1983) (cited in the footnote on the constitutional rule).

Source

• Landing page: https://www.ag.state.la.us/Opinions
• Original PDF: https://www.ag.state.la.us/Opinion/Download/05-0383

Original opinion text

October 24, 2005
Opinion Number 05-0383

8-A Bond Issue – Political Subdivisions
Mr. John Neely Kennedy, State Treasurer
90-A-2 Public Funds – Loan, Pledge or Grants
Chairman, State Bond Commission
Article 7, Section 14 of Louisiana Constitution
Department of the Treasury
La. R. S. 39:1367
State of Louisiana
State of Louisiana is not authorized to co-sign the
P.O. Box 44154
loan of a local government.
Baton Rouge, LA 70802-4154

Dear Treasurer Kennedy:

The Department of Homeland Security, Federal Emergency Management Agency (FEMA) passed a rule to implement the Special Community Disaster Loan Program authorized in the Community Disaster Loan Act of 2005. The rule sets forth the procedures and requirements for the program which is designed to provide loans to local governments for essential services because of lost revenues due to a major disaster. The rule requires that the state co-sign the local government’s promissory note or if the state declines to do so or cannot legally do so, the local government must pledge collateral security to cover the principle amount of the note.

You question if the state of Louisiana has authority to co-sign the promissory note of a local government. If so, you question who on behalf of the state could execute the note and is the loan net state tax supported debt under Louisiana law. In short, we do not believe that the state of Louisiana has authority to co-sign the promissory note of a local government.

The issue must be addressed in light of Article 7, Section 14 of the Louisiana Constitution. This article prohibits the state from donating, loaning or pledging public funds or anything of value when it is under no obligation to do so.1 By co-signing a local government’s loan, the state is donating its credit when it is under no obligation to do so. This is tantamount to a donation and is prohibited by the constitution.2

Because it is our opinion that the state is without authority to co-sign the loan, no one is authorized to execute the note on behalf of the state. Your question regarding whether or not the loan would be considered as net state tax supported debt is moot since it is our opinion that the state cannot co-sign the loan.

1
City of Port Allen v. Louisiana Municipal Risk Agency, 439 So.2d 399 (La. 1983).
2
Atty. Gen. Op. Nos. 03-0189 and 00-34.

Page 2

Opinion Number 05-0383
Mr. John Neely Kennedy, State Treasurer
Chairman, State Bond Commission
Department of the Treasury
Page -2-

We trust that this responds to your request. Should you have additional questions or comments please feel free to contact our office.

With kindest regards,

Yours very truly,

CHARLES C. FOTI, JR.
Attorney General

BY: _________
TINA VICARI GRANT
Assistant Attorney General

CCF, jr./TVG/dam

Page 3

Opinion Number 05-0383
Syllabus

8-A Bond Issue – Political Subdivisions
90-A-2 Public Funds – Loan, Pledge or Grants
Article 7, Section 14 of Louisiana Constitution
La. R. S. 39:1367

State of Louisiana is not authorized to co-sign the loan of a local government.

Mr. John Neely Kennedy, State Treasurer
Chairman, State Bond Commission
Department of the Treasury
State of Louisiana
P.O. Box 44154
Baton Rouge, LA 70802-4154

Date Received:

Date Released: October 24, 2005

Tina Vicari Grant
Assistant Attorney General