Does a Mississippi school district issuing a shortfall promissory note have to prove the shortfall would prevent it from meeting its financial obligations?

Plain-English summary

Mississippi has two statutes that look related but actually impose different conditions on local governments that need to borrow against an anticipated revenue shortfall. The General Shortfall Statute, Miss. Code Ann. § 27-39-333, lets political subdivisions issue promissory notes when revenue comes in lower than budgeted, but only if the shortfall "will prevent the political subdivision from meeting its financial obligations." The School Shortfall Statute, § 37-57-108, lets a school district issue notes when revenue is below budget, "in an amount and in the manner set forth in Section 27-39-333."

Madison County School District had a $1.585 million shortfall for fiscal year 2019-2020 and wanted to issue a shortfall note. Its attorney asked the AG whether the school district had to also satisfy § 27-39-333's financial-distress test, given the cross-reference.

The AG concluded no. The "in the manner set forth" language in the School Shortfall Statute pulls in the procedure of § 27-39-333, the way the note is issued, the rate, the repayment schedule, the inclusion in the levying authority's tax base, but not its threshold condition. The financial-distress test in § 27-39-333(2) is a precondition for issuance, not part of the manner of issuance. So a school district has only one threshold to meet: revenue actually collected or estimated is less than the amount in the duly adopted budget.

Notably, the AG modified five prior opinions (Cartier 1994, Wallace 1999, Mayfield 2010, Caves 2014, Necaise 2016) that had read the School Shortfall Statute as importing the General Shortfall Statute's financial-distress test. Those prior opinions had said a school district had to prove the shortfall would prevent it from meeting its financial obligations. The AG concluded that reading was too broad and contradicted the statutory text.

Currency note

This opinion was issued in 2020. 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.

Background and statutory framework

Section 37-57-108, the School Shortfall Statute, was enacted to give school districts a streamlined alternative to the General Shortfall Statute. Two structural differences are worth noting. First, the school version exempts the district from notice and consent requirements: it does not have to publish notice, secure voter consent, or get the approval of the tax-levying authority. Second, the threshold condition is simpler: revenue collected or estimated to be collected is less than budgeted, period.

The General Shortfall Statute applies to political subdivisions broadly. Its threshold condition has three pieces: ad valorem taxes or other anticipated local revenue is less than budgeted; the shortfall is due to circumstances unanticipated at budget formulation; and the shortfall "will prevent" the subdivision from meeting its financial obligations. That last requirement is the financial-distress test the school district was concerned about.

The opinion walks through the well-settled rule that a specific statute controls a general statute, citing Benoit v. United Companies Mortgage of Mississippi, Inc., 504 So. 2d 196 (Miss. 1987), and Lincoln County v. Entrican, 230 So. 2d 801 (Miss. 1970), both Mississippi Supreme Court decisions (the "So. 2d" reporter is the Southern Reporter, used for Mississippi state court decisions). Where § 37-57-108 deals specifically with school district shortfall notes, its terms control over § 27-39-333's general terms.

The AG's textual move is to parse "in the amount and in the manner set forth in Section 27-39-333" carefully. "Amount" pulls in the dollar cap (25% of the relevant budget), and "manner" pulls in mechanics like maximum interest rate (§ 75-17-105 cap), the three-year equal-installment repayment schedule, the requirement for the tax-levying authority to levy taxes sufficient for repayment, and the inclusion of proceeds in the next year's tax-revenue computation. None of those go to the threshold question of whether the note may be issued in the first place.

The opinion then squarely overrules prior opinions that read the cross-reference more broadly. The five modified opinions are Cartier (Oct. 6, 1994), Wallace (Dec. 10, 1999), Caves (Feb. 26, 2014), Necaise (Apr. 8, 2016), and Mayfield (Apr. 3, 2010). Bond counsel and school district attorneys should treat the broader reading as no longer the AG's position.

Common questions

Q: What does a Mississippi school district have to show to issue a shortfall note now?
A: Only that the revenue actually collected or estimated to be collected from local sources is less than the amount in the duly adopted budget for that fiscal year. A good-faith determination of that fact, made by the school board, is enough.

Q: Is the 25% cap still in place?
A: Yes. The note cannot exceed 25% of the budget anticipated to be funded from the shortfall sources. That comes from the "amount" cross-reference to § 27-39-333.

Q: Does the school district need approval of the tax-levying authority?
A: No, that is one of the procedural simplifications § 37-57-108 expressly carves out. The school district does not need to publish notice, secure elector consent, or get tax-levying authority approval.

Q: How is the note repaid?
A: Per the "manner" cross-reference, the note is repaid in equal installments over the three fiscal years following issuance. The levying authority for the school district levies an ad valorem tax sufficient to repay the note plus interest at its next regular meeting.

Q: What about the prior AG opinions saying otherwise?
A: This opinion expressly modifies the portions of Cartier (1994), Wallace (1999), Mayfield (2010), Caves (2014), and Necaise (2016) that read the School Shortfall Statute as importing the financial-distress test. School district counsel should rely on this 2020 opinion going forward.

What this means for you

For school district business officers: A revenue shortfall in your district triggers § 37-57-108 directly. You need a board finding that revenue is below budget; you do not need to show that the district cannot meet its financial obligations. That is a meaningfully easier standard.

For school board members: When you vote to authorize a shortfall note, your minutes should reflect the good-faith determination that revenue is short of budget. Tie the resolution to § 37-57-108 specifically, not to § 27-39-333.

For bond counsel: Update opinion templates and disclosure language. Prior opinions that recited the financial-distress test as a precondition for school district shortfall notes are no longer correct as a matter of AG guidance.

For tax-levying authorities (boards of supervisors): You do not approve school district shortfall note issuance, but you do levy the repayment tax under the "manner" portion of § 27-39-333. Coordinate with the district on repayment timing.

For other political subdivisions (counties, municipalities): Your shortfall note authority is still under § 27-39-333, including its financial-distress test. The 2020 opinion does not change that. The carve-out is for school districts only.

Citations and references

Statutes:
- Miss. Code Ann. § 37-57-108 (School Shortfall Statute)
- Miss. Code Ann. § 27-39-333 (General Shortfall Statute)
- Miss. Code Ann. § 75-17-105 (interest rate caps)
- Miss. Code Ann. §§ 27-39-305, 27-39-320, 27-39-321, 37-57-107 (revenue limitation provisions)

Cases:
- Benoit v. United Companies Mort. of Miss., Inc., 504 So. 2d 196 (Miss. 1987), Mississippi Supreme Court rule that a specific statute controls a general statute
- Lincoln Cnty. v. Entrican, 230 So. 2d 801 (Miss. 1970), same

Modified prior AG opinions:
- MS AG Op., Cartier (Oct. 6, 1994)
- MS AG Op., Wallace (Dec. 10, 1999)
- MS AG Op., Mayfield (Apr. 3, 2010)
- MS AG Op., Caves (Feb. 26, 2014)
- MS AG Op., Necaise (Apr. 8, 2016)

Source

• Landing page: https://attorneygenerallynnfitch.com/divisions/opinions-and-policy/recent-opinions/
• Original PDF: https://attorneygenerallynnfitch.com/wp-content/uploads/2020/08/H.Adams_August-10-2020-School-District-Shortfall-Statute.pdf

Original opinion text

August 10, 2020

Holmes S. Adams, Esq.
Madison County School Board Attorney
1018 Highland Colony Parkway, Suite 800
Ridgeland, Mississippi 39157

Re: School District Shortfall Statute

Dear Mr. Adams:

The Office of the Attorney General is in receipt of your request for the issuance of an official opinion.

Issues Presented

Mississippi Code Annotated Section 37-57-108 (the "School Shortfall Statute") authorizes a school district to issue a shortfall note "in the amount and in the manner set forth in Section 27-39-333" (the "General Shortfall Statute"). You ask:

Does the phrase, in the manner set forth in Section 27-29-333, mean that in order to avail itself of a shortfall note, a school district is also required to make the representation that the shortfall "will prevent the school district from meeting its financial obligations" which is contained in the General Shortfall Statute. See Miss Code Ann. Section 27-29-333(2).

(Emphasis in original.) (We assume your reference to "Section 27-29-333" was a mistake and that you intended to cite to "Section 27-39-333.")

Background Facts

In your request, you provide:

For fiscal year 2019-2020, the amount of revenue the District actually received from taxes levied by the Madison County Board of Supervisors was less than the amount provided for in the District's duly adopted budget for the same fiscal year. Pursuant to Miss. Code Ann. Section 37-57-108, the Board intends to issue a shortfall promissory note in the amount of the shortfall (the difference of the amount budgeted and amount received) for fiscal year 2019-2020. That difference is $1,585,721.39.

Brief Response

No. A school district is not required by Section 37-57-108, in order to issue a shortfall promissory note, to determine that the shortfall will prevent the school district from meeting its financial obligations.

Applicable Law and Discussion

The School Shortfall Statute, which is specific to local school districts, provides:

In the event that the amount of revenue collected or estimated to be collected from local sources, on behalf of a school district during a fiscal year, is less than the amount provided for in the duly adopted budget of said school district for the fiscal year, then the school district may issue promissory notes in an amount and in the manner set forth in Section 27-39-333, not to exceed the estimated shortfall of revenue from local sources, but in no event to exceed twenty-five percent (25%) of its budget anticipated to be funded from the sources of the shortfall for the fiscal year. A school district issuing notes under the provisions of this section shall not be required to publish notice of its intention to do so or to secure the consent of the qualified electors or the tax levying authority of such school district.

Miss. Code Ann. § 37-57-108 (emphasis added).

The General Shortfall Statute, which applies to political subdivisions in general, provides in relevant part:

(2) Any political subdivision which, during a fiscal year, estimates that the amount of the ad valorem taxes or other anticipated revenue from local sources to be collected therein is less than the amount estimated at the time of formulation of its budget for the fiscal year due to circumstances which were unanticipated at the time of formulation of the budget and which will prevent the political subdivision from meeting its financial obligations may, with the approval of the levying authority for such political subdivision, issue promissory notes in an amount equal to the estimated shortfall of ad valorem taxes and/or revenue from local sources but in no event to exceed twenty-five percent (25%) of its budget anticipated to be funded from the sources of the shortfall for the fiscal year.

(3) The proceeds of such notes shall be used in the budget or budgets in which the shortfall occurred and shall be used solely to offset the shortfall in such budgets for the fiscal year. The rate of interest paid thereon shall not exceed that amount set forth in Section 75-17-105, Mississippi Code of 1972. The indebtedness shall be repaid in full, including interest thereon, in equal installments, during the three (3) fiscal years next succeeding the fiscal year in which the notes were issued. For the payment of such indebtedness, the levying authority for the political subdivision shall, at its next regular meeting at which ad valorem taxes are lawfully levied, levy an ad valorem tax sufficient to repay the indebtedness in full, including interest. The proceeds of the notes shall be included as proceeds of ad valorem taxes for the purposes of the limitation on increases in revenue for the next succeeding fiscal year under Section 27-39-305, 27-39-320, 27-39-321 or 37-57-107, Mississippi Code of 1972, whichever is applicable depending upon the purpose for which such proceeds are used.

Miss. Code Ann. § 27-39-333 (emphasis added).

In MS AG Op., Cartier (Oct. 6, 1994), our office was asked about the timing of a school district's budgetary shortfall given that the school district's and board of supervisor's fiscal year did not coincide. There, we stated that Section 37-57-108 "incorporates" Section 27-39-333, and thus applied the entirety of Section 27-39-333 to promissory notes issued by school districts pursuant to Section 37-57-108. The Cartier opinion was subsequently cited in support of the finding that, in order to issue a shortfall promissory note, a school district must demonstrate that the shortfall will prevent the district from meeting its financial obligations for that year. See MS AG Op., Wallace at 1 (Dec. 10, 1999); MS AG Op., Caves at 3 (Feb. 26, 2014); MS AG Op., Necaise at 3 (Apr. 8, 2016); MS AG Op., Mayfield at 2 (Apr. 3, 2010). However, the requirements for determining whether a promissory note may be issued under Section 37-57-108 differ from such requirements under Section 27-39-333. A school district need only "ma[ke] a good faith determination that the estimated revenue is less than the amount provided for in the duly adopted budget" before issuing a note "in the manner set forth in Section 27-39-333." See Miss. Code Ann. § 37-57-108.

Section 37-57-108 was enacted to provide a new method, specific to school districts, for issuing notes to meet revenue shortfalls. MS AG Op., Dyson at 2 (Aug. 18, 1993); MS AG Op., Pope at 3 (Sept. 19, 2014). Unlike promissory notes issued under Section 27-39-333, a school district issuing promissory notes under Section 37-57-108 is not required to "publish notice of its intention to do so or to secure the consent of the qualified electors or the tax levying authority of such school district." Miss. Code Ann. § 37-57-108.

The conditions precedent to issuing a shortfall promissory note are statutorily distinct as well. A political subdivision, other than a school district, may only issue a promissory note pursuant to Section 27-39-333 if it:

estimates that the amount of the ad valorem taxes or other anticipated revenue from local sources to be collected therein is less than the amount estimated at the time of formulation of its budget for the fiscal year due to circumstances which were unanticipated at the time of formulation of the budget and which will prevent the political subdivision from meeting its financial obligations . . . .

Miss. Code Ann. § 27-39-333(2). Under the School Shortfall Statute, a school district may issue a promissory note if "the amount of revenue collected or estimated to be collected from local sources, on behalf of a school district during a fiscal year, is less than the amount provided for in the duly adopted budget of said school district for the fiscal year." Miss. Code Ann. § 37-57-108.

This office is of the opinion that the General Shortfall Statute's requirement that a shortfall "prevent the political subdivision from meeting its financial obligations" is a condition precedent to issuing the shortfall note in the first place, and does not relate to the "manner" in which such note is issued. See Miss. Code Ann. § 27-39-333(2). Accordingly, the School Shortfall Statute's reference to issuing notes "in the same manner set forth in Section 27-39-333" does not encompass the General Shortfall Statute's condition precedent related to the issuer lacking the ability to meet its financial obligations.

Additionally, it is a well-settled principle of statutory construction that a specific statute controls over a general statute. Benoit v. United Companies Mort. of Miss., Inc., 504 So. 2d 196, 198 (Miss. 1987) ("[W]here a special and particular statute deals with a special and particular subject its particular terms as to that special subject control over general statutes dealing with the subject generally" (quoting Lincoln Cnty. v. Entrican, 230 So. 2d 801, 804 (Miss. 1970)). Accordingly, for shortfall promissory notes issued by a school district, the School Shortfall Statute would control over the General Shortfall Statute, to the extent a conflict exists between the two. Thus, there is no requirement under the School Shortfall Statute that the school board determine that the shortfall will prevent the school district from meeting its financial obligations.

As noted above, in Cartier, this office opined that Section "37-57-108 incorporates Miss. Code Ann. Section 27-39-333," and, for this reason, found that a school district seeking to issue shortfall notes must demonstrate that the shortfall would prevent the district from meeting its financial obligations. MS AG Op., Cartier (Oct. 6, 1994) (emphasis added). Our opinion in Mayfield adopted this same theory, MS AG Op., Mayfield at 2 (Apr. 3, 2010), and subsequent opinions reached this conclusion based on our Cartier opinion. See MS AG Op., Necaise at 3 (Apr. 8, 2016); MS AG Op., Wallace at *1 (Dec. 10, 1999). We believe this interpretation is too broad because it contradicts the express statutory language in the School Shortfall Statute, which provides that notes issued by school districts are only affected by the General Shortfall Statute with respect to the "amount" and "manner" in which the note is issued. To the extent this opinion conflicts with our prior opinions, namely, our Wallace, Caves, Necaise, Cartier, and Mayfield opinions cited herein, the conflicting portions of those prior opinions are hereby modified.

If this office may be of any further assistance to you, please do not hesitate to contact us.

Very truly yours,

LYNN FITCH, ATTORNEY GENERAL

By: /s/ Beebe Garrard
Beebe Garrard
Special Assistant Attorney General