Can a Louisiana city sell surplus land to a lower bidder because it prefers that bidder's proposed use?

Plain-English summary

Lake Charles had declared land surplus, obtained an appraisal, and advertised a public sale with a minimum bid. It wanted to reject the highest dollar offer if another bidder promised a preferred use and still paid at least the appraised amount. The Attorney General said the city could not choose the lower bid on those facts. After a public offering exposed the property to market bids, taking less than the highest offer would amount to giving away public value under La. Const. Art. VII, Sec. 14(A).

The opinion distinguished an appraisal's estimate from the price shown by actual bidding. It also questioned the city's effort to control later land use after declaring the parcel surplus and unnecessary for public purposes. The AG discussed both private and public sale routes, but its conclusion addressed this appraised public offering.

Currency note

This opinion was issued in 2006. Later property-sale statutes, constitutional decisions, or AG opinions may have changed the analysis. Check the current sale procedure and bid terms before disposing of public land.

What this means for you

City officials selling surplus property

Treat the appraisal as a minimum-price guide and evaluate the actual bids under the announced public sale. The AG said a preferred future use did not justify accepting less money than the highest bidder offered for this surplus parcel.

Prospective bidders and residents

Read the city's sale notice and the property appraisal, then compare the offered prices. This opinion's objection arose after a public sale produced a higher dollar bid; it does not decide every possible privately negotiated transaction.

Common questions

Was an offer above appraised value enough even if it was not highest?

No. The AG said the public offering revealed what bidders would pay; choosing a lower dollar bid for nonmonetary reasons failed to obtain fair value on the facts presented.

Could the city reserve a right to reject all bids?

The city had included that reservation, but the opinion did not give it permission to use the reservation to sell to a lower bidder based on preferred use. Its constitutional conclusion focused on that proposed selection.

Did the AG prohibit every private sale of surplus land?

No. It described a statute permitting public or private sale and preferred a public sale as sound policy. The holding addressed a lower-priced sale after an appraised public offering.

Background and statutory framework

La. R.S. 33:4712 supplied the sale procedure the city was using. La. Const. Art. VII, Sec. 14(A) prohibited donations of public value. The AG reasoned that a public bid following appraisal gave the best evidence of fair value, and concluded that the proposed lower-priced sale would violate the constitutional restriction.

Citations

• La. R.S. 33:4712 (surplus immovable property sale process).
• La. Const. Art. VII, Sec. 14(A) (public-assets restriction).

Source

• Landing page: https://www.ag.state.la.us/Opinions
• Original PDF: https://www.ag.state.la.us/Opinion/Download/06-0236

Original opinion text

October 23, 2006
OPINION NUMBER 06-0236
90-B-A PUBLIC FUNDS & CONTRACTS
90-B-3 PUBLIC LANDS
La. Const. Art. VII, Sec. 14(A);
Honorable Randy Roach, Mayor
La. R.S. 33:4711 et seq.
City of Lake Charles
Sale of surplus immovable property by City for an amount
P.O. Box 900
less than that offered by the highest bidder at a public
Lake Charles, LA 70602-0900
offering subject to an appraisal establishing a minimum
bid price would violate constitutional prohibition of donation of public funds.
Dear Mayor Roach:

You have requested the opinion of this office on whether the City of Lake Charles, when selling surplus immovable property in accordance with La. R.S. 33:4712, may reserve the right to reject the highest dollar bid submitted. According to your request, the City has determined that a piece of City owned immovable property is surplus and no longer needed for public purposes. Following the guidelines of La. R.S. 33:4712, the City has introduced a ordinance and advertised notice setting forth therein the minimum price and terms of the sale. In the Notice of Public Hearing and advertisement of the Sale, the City has reserved the right to reject any and all bids on the property. The declared purpose for reserving the right to reject any and all bids is to allow the City to evaluate the proposed use of the property for all bids which meet the minimum bid requirements and select the bidder, in part, based upon the proposed use even if the selected bidder does not submit the highest dollar bid. In doing so, the City hopes to see the property used in a manner which is consistent with the current use of other properties in the adjacent area and which would be in the best interest of the citizens of the City. Specifically, you ask whether the City may reject a higher dollar bid and sell the property to a lower bidder who has bid no lower than the appraised value.

The City’s proposed plan to select a bidder for the sell of its surplus immovable property must be examined in light of Article VII, Section 14 of the Louisiana Constitution of 1974. It 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

Opinion Number 06-0236
Honorable Randy Roach
Mayor, City of Lake Charles
Page -2-

This section mandates that, at a minimum, a public entity sell its surplus immovable property for fair value. Fair value is best achieved by public bid, after the minimum bid is established by appraisal. The appraisal is a professional estimate that attempts to determine the fair market value of the property. Fair market value means the price at which property would change hands between a willing buyer and a willing seller when neither party is under any compulsion to buy or sell and both parties have a reasonable knowledge of relevant facts. Once an appraisal is obtained the fair value of the property is best determined by a public offering which subjects the property to actual market conditions.

This approach is set out in La. R.S. 33:4711 et seq., which provides for either a private or public sale of immovable property declared by a public entity as surplus and no longer needed for public purposes. Our office has previously opined in Atty. Gen Op. No. 01-06 that although there is no prohibition against a private sale, “as a matter of good public policy and out of an abundance of caution, it is the opinion of this office that the proposed sale of surplus immovable property be made public.” Accordingly, the preferred approach would be for the City to have the surplus property appraised establishing the minimum bid price and then offer the property at a public sale with the City accepting the highest dollar bid price. In doing so, the City would assure compliance with Article VII, Section 14 of the state constitution and allow the City to properly discharge its duties to act prudently and responsibly when selling surplus property by achieving the highest return on its surplus property.

A sale of surplus immovable property that takes into account non-pecuniary factors and which is sold for less than the highest dollar bid would not result in a sale for fair value and would constitute a donation of funds by the City and would be in violation of the above quoted constitutional provision. In addition, any attempt by the City to maintain control over the property by factoring into a bid the proposed use of the property would be inconsistent with the declaration by the City that the property is surplus and no longer needed for public purposes.

Should the City elect to sell the property a non-collusion affidavit required by La. R. S. 38:2213 must be executed and entered into the official record of the proceedings of the City at least seven days prior to the sale.

It is therefore the opinion of this office that a sale of surplus immovable property by the City of Lake Charles for an amount less than that offered by the highest bidder at a public offering subject to an appraisal establishing a minimum bid price would violate Art. VII, Sec. 14 of the Louisiana Constitution.

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Opinion Number 06-0236
Honorable Randy Roach
Mayor, City of Lake Charles
Page -3-

I trust this addresses your request. Please contact us if we can be of further assistance.

Yours very truly,

CHARLES C. FOTI, JR.
ATTORNEY GENERAL

BY: ___
RICHARD L. MCGIMSEY
Assistant Attorney General

CCFjr/RLM:dam

Page 4

OPINION NUMBER 06-0236
Syllabus

90-B-A PUBLIC FUNDS & CONTRACTS
90-B-3 PUBLIC LANDS
La. Const. Art. VII, Sec. 14(A);
La. R.S. 33:4711 et seq.

A sale of surplus immovable property by the City of Lake Charles for an amount less than that offered by the highest bidder at a public offering subject to an appraisal establishing a minimum bid price would violate Art. VII, Sec. 14 of the Louisiana Constitution.

Honorable Randy Roach, Mayor
City of Lake Charles
P.O. Box 900
Lake Charles, LA 70602-0900

DATE RECEIVED:

DATE RELEASED: October 23, 2006

RICHARD L. MCGIMSEY
ASSISTANT ATTORNEY GENERAL