Does a Mississippi economic development district need an appraisal or court approval to sell industrial property to a private business?

Plain-English summary

The Covington County Economic Development District (EDD) bought land and built a blueberry-processing building with grants. The building is now leased to a vending business that uses it as a warehouse. The vending business offered to buy the building and land for less than the EDD's investment. The Board attorney asked: do we need an appraisal? do we need a court ruling? are board members personally liable if a court later says the consideration was nominal?

The AG's answers:

1. Appraisal: Not required by Section 19-5-99 before sale. (For surplus property under Section 19-7-3, also no appraisal required per the 1999 Griffin opinion.)
2. Court pre-approval: Not required. The EDD itself decides what is good and valuable consideration and what best promotes the public interest. A court might later review the determination if a taxpayer sues, but that's after-the-fact judicial review, not a precondition.
3. Personal liability: AG declines. Personal liability is a "mixed issue of law and fact" outside the scope of AG opinions.

The legal framework:

• Section 19-5-99(5)(a) gives EDDs broad authority to sell, lease, trade, or exchange industrial sites to public or private parties for industrial or warehouse use, on terms that "best promote and protect the public interest, convenience and necessity."
• Section 66 of the Mississippi Constitution prohibits donations of public funds or property to private parties.
• These two interact: the EDD must charge good and valuable consideration. It cannot give property away, but it can sell at a price that the EDD finds (and records on its minutes) is good and valuable, even if below cost or below appraised value.
• Prior opinions confirm the EDD can sell at less than appraised value or less than total invested amount (Lawrence 2003) and can even accept retirement of bond indebtedness as the consideration (Mock 1998).

What this means for you

For economic development districts considering a sale

You don't need an appraisal. You don't need court approval. What you do need:

1. A formal finding by the district that the consideration is good and valuable
2. A formal finding that the sale best promotes and protects the public interest, convenience and necessity
3. Both findings spread on the minutes
4. Documentation supporting the findings (job creation, tax base, retention of business, infrastructure use, etc.)

Below-cost or below-appraised-value sales are legally permissible, but they invite taxpayer scrutiny. The minutes need to document why the lower price still represents good and valuable consideration. "Continued use of the facility" or "retention of business in the county" are common rationales.

For county attorneys advising EDDs

Walk the board through the analysis on the record. Don't rely on a verbal "we think this is OK" — get specific findings into the minutes. Sample format:

"After consideration of [factors: business retention, employment, tax base, alternative uses, etc.], the Board finds that the consideration of $X for the property described as [legal description] constitutes good and valuable consideration. The Board further finds that the proposed sale will best promote and protect the public interest, convenience and necessity of the District."

If a taxpayer later sues, those findings provide the record on which a court would review the determination.

For board members worried about personal liability

The AG won't opine on personal liability. But the Mississippi framework generally:

• Public officials acting in good faith within their statutory authority are typically protected from personal liability
• Knowing or willful violation of clear statutory duties can create personal exposure
• Following procedure (deliberation, findings on minutes, record support) is the strongest defense

If the consideration is supported by a documented finding and the procedure is followed, personal liability is unlikely. If a board approves a sweetheart deal without findings or for clearly inadequate consideration, personal exposure increases.

Talk to the EDD's general counsel about specific risk factors before voting.

For private buyers negotiating with EDDs

You can negotiate a price below appraised value or below the EDD's investment, but understand the EDD will need a public-interest justification. Help the EDD's case by:

1. Documenting jobs you'll create or retain
2. Documenting capital investment in the property after purchase
3. Documenting the alternative (e.g., business leaves the county if a deal doesn't happen)
4. Agreeing to use restrictions or claw-back provisions if helpful

A clean record reduces taxpayer-suit risk for both sides.

For taxpayers monitoring EDD activity

You can challenge an EDD sale that you believe involved nominal consideration. The challenge is judicial: file suit, develop a record showing the consideration was inadequate, ask the court to set the sale aside or order remedial action.

The EDD's findings on the minutes are reviewable; they're not conclusive. A court can find that the EDD's determination of "good and valuable consideration" was not supported by substantial evidence.

Common questions

Q: What is "good and valuable consideration"?
A: Mississippi case and AG-opinion law treats it as something more than a token (peppercorn) consideration but doesn't require fair market value. The EDD's discretion is broad. Lawrence 2003 and Mock 1998 both validated below-cost transactions where the EDD made supporting findings.

Q: Can an EDD sell at $1?
A: Almost certainly not — that would be a token consideration, not good and valuable. Even retirement of debt or assumption of obligations was treated as good and valuable in Mock, but a true $1 sale to a friendly party would invite Section 66 challenge.

Q: What's "surplus property" under Section 19-7-3?
A: Property the local body has determined it no longer needs. Section 19-7-3 has its own procedures (advertised sale, sealed bids, etc.). The 1999 Griffin opinion held no appraisal is needed under that framework. EDDs can use Section 19-7-3 for surplus property, but Legislative restrictions on specific property may still apply.

Q: What if the EDD's price is significantly below the building's cost or current market value?
A: Permitted, with proper findings. The EDD has to articulate why it's still good and valuable consideration: business retention, jobs, tax base, alternative uses (or lack thereof), continued occupancy, etc.

Q: What's the difference between Section 19-5-99 disposition and Section 19-7-3 surplus disposition?
A: Section 19-5-99(5)(a) is the EDD's general authority to convey industrial sites for industrial/warehouse use. Section 19-7-3 is the surplus-property framework with advertised-sale procedures. They overlap and EDDs can use either, depending on the property's character.

Q: Can an EDD donate property to a public entity (city, county, school district)?
A: Different framework. Inter-governmental conveyances may have specific authorities. Section 66 doesn't bar transfers to other governmental entities the way it bars private donations.

Q: What happens if the consideration is later determined nominal by a court?
A: The court might void the conveyance, order restitution, or fashion other remedies. The buyer may face title issues. Personal liability for board members would depend on the facts (knowing/willful vs. good-faith error).

Q: How does the State Auditor fit in?
A: The State Auditor reviews public expenditures. An EDD sale at suspicious consideration could be subject to State Auditor scrutiny, with potential demand letters or recovery actions.

Background and statutory framework

Mississippi's economic development districts were created by Section 19-5-99 to promote industrial development. The 1994 Ellis opinion confirms this purpose.

Section 19-5-99(5)(a) authorizes EDDs to:

sell, lease, trade, exchange or otherwise dispose of industrial sites or rail lines situated within industrial parks to individuals, firms or corporations, public or private, for industrial or warehouse use, as well as the Mississippi Military Department or Mississippi National Guard for military use, upon such terms and conditions, and for such considerations, with such safeguards as will best promote and protect the public interest, convenience and necessity, and to execute deeds, leases, contracts, easements, and other legal instruments necessary or convenient therefor.

The "such considerations" language gives the EDD discretion. The "best promote and protect the public interest" standard provides the limit.

Section 66 of the Mississippi Constitution provides the constitutional baseline: "The legislature shall never grant extra compensation, fee, or allowance to any public officer, agent, servant or contractor, after service rendered, or contract made, nor authorize payment, or part payment, of any claim under any contract not authorized by law; but appropriations may be made for expenditures in repelling invasion, preventing or suppressing insurrections."

The interaction: EDDs have wide latitude on terms but cannot donate. The 2001 Webb, 1986 Slade, and 1998 Webb opinions all confirm that some good and valuable consideration is required.

The 2004 Williams opinion synthesized: an EDD's findings on what suffices for good and valuable consideration are subject to judicial review (after the fact, not before). The 2003 Lawrence opinion confirmed that below-cost, below-appraisal sales are permissible if findings are made. The 1998 Mock opinion validated bond-indebtedness retirement as good and valuable consideration.

The 2008 Smith opinion and 1999 Griffin opinion address surplus-property disposition under Section 19-7-3 (no appraisal required).

For personal-liability questions, the AG consistently declines under the rule that "mixed issues of law and fact" are outside AG-opinion scope (Head 1998, Hammack 1993, Lawrence 2007).

Citations and references

Statutes:
- Miss. Code Ann. § 19-5-99, economic development districts
- Miss. Code Ann. § 19-7-3, surplus public property disposition

Mississippi Constitution:
- Miss. Const. art. 4, § 66, prohibition on donations of public property

Prior AG opinions cited:
- MS AG Op., Webb (May 11, 2001); MS AG Op., Webb (May 15, 1998); MS AG Op., Slade (Mar. 27, 1986), good and valuable consideration required
- MS AG Op., Ellis (Sept. 21, 1994), purpose of EDDs
- MS AG Op., Williams (May 21, 2004), district determines consideration; subject to judicial review
- MS AG Op., Lawrence (May 30, 2003), below-cost sales permitted with findings
- MS AG Op., Mock (Feb. 6, 1998), bond retirement as good and valuable consideration
- MS AG Op., Smith (Sept. 26, 2008), Section 19-7-3 surplus sales by EDDs
- MS AG Op., Griffin (July 30, 1999), no appraisal required for surplus sales
- MS AG Op., Head (Nov. 25, 1998); MS AG Op., Hammack (Oct. 13, 1993); MS AG Op., Lawrence (July 20, 2007), AG declines liability questions

Source

• Landing page: https://attorneygenerallynnfitch.com/divisions/opinions-and-policy/recent-opinions/
• Original PDF: https://attorneygenerallynnfitch.com/wp-content/uploads/2022/03/T.Rogers-January-14-2022-Sale-of-Property-by-the-Covington-County-Economic-Development-District-to-a-Private-Enterprise.pdf

Original opinion text

January 14, 2022

Tommy B. Rogers, Esq.
Board Attorney, Covington County Board of Supervisors
Post Office Box 1415
Collins, Mississippi 39428

Re: Sale of Property by the Covington County Economic Development District to a Private Enterprise

Dear Mr. Rogers:

The Office of the Attorney General has received your request for an official opinion.

Background

According to your request, pursuant to Mississippi Code Annotated Section 19-5-99, the Board of Supervisors of Covington County (the "Board") established the Covington County Economic Development District (the "District"), and the Board was designated to manage the affairs of the District. You state that the District purchased certain land, and with the help of grants, constructed a building for the initial use of processing blueberries. We understand that the building is currently leased to a vending business which uses the building for warehouse purposes in selling and distributing various items that are sold in vending machines. You also state that the vending business now leasing the property has offered to purchase the building and the property upon which it is situated for an amount that is much less than the amount the District has expended for the purchase of the site and construction of the building situated thereon. We understand that there has been no appraisal made of the building and the land proposed to be conveyed to the private industry.

Questions Presented

1. Is the District required to obtain an appraisal of the building and site to determine the fair market value of said property prior to the transfer of the site and building?
2. Is the District required to obtain an opinion from a court of competent jurisdiction as to whether the consideration is nominal?
3. In the event that a taxpayer later files suit and a court finds that the consideration was nominal, and the sale should not have been approved, what is your opinion as to whether or not the members of the District, being the members of the Board, would be personally liable in said matter?

Brief Response

1. The District is not required to obtain an appraisal to determine fair market value of the referenced property prior to the disposal of the referenced property under Section 19-5-99.
2. The District is not required to obtain an opinion from a court of competent jurisdiction as to whether consideration for the referenced property is nominal or not.
3. To the extent your inquiry requires this office to make a legal assessment and/or make a determination about issues of liability, we are unable to respond by way of official opinion.

Applicable Law and Discussion

Section 19-5-99 authorizes counties and municipalities to establish economic development districts. MS AG Op., Webb at 1 (May 11, 2001). Section 19-5-99(1) sets forth the purpose of an economic development district, which is to promote industrial development. MS AG Op., Ellis at 1 (Sep. 21, 1994).

Your first question asks whether an economic development district is required to obtain an appraisal of a building and site to determine the fair market value prior to making a decision regarding consideration of the transfer of the site and building. Section 19-5-99(5)(a) governs the disposition by the economic development district of the property so acquired. MS AG Op., Williams at *1 (May 21, 2004). Section 19-5-99(5)(a) provides, in relevant part:

Economic development districts established under this section are authorized and empowered: (a) To sell, lease, trade, exchange, or otherwise dispose of industrial sites or rail lines situated within industrial parks to individuals, firms or corporations, public or private, for industrial or warehouse use, as well as the Mississippi Military Department or Mississippi National Guard for military use, upon such terms and conditions, and for such considerations, with such safeguards as will best promote and protect the public interest, convenience, and necessity, and to execute deeds, leases, contracts, easements, and other legal instruments necessary or convenient therefor.

…

State law also does not authorize an economic development district to donate the property to a private industry. MS AG Op., Webb at *1 (May 11, 2001). Rather, the law requires that such property be transferred for good and valuable consideration. Id. (citing MS AG Op., Slade (Mar. 27, 1986) and MS AG Op., Webb (May 15, 1998)).

In MS AG Op., Williams at *1 (May 21, 2004), we opined that an economic development district may not donate a piece of property in the district's industrial park to a new industry that would construct a processing plant with the industry's own funds. (Emphasis added.) The Williams opinion further stated:

Even though an economic development district is given wide discretion and broad authority with regard to disposal of industrial sites, Section 19-5-99(5)(a) contemplates that the governing authorities of the district effectuate any such transfer in exchange for good and valuable consideration in keeping with our constitutional mandate that prohibits donation or gratuity to private entities. Art. 4 Sec. 66 MISS. CONST. of 1890.

Id. at *1.

Accordingly, with respect to your first question, it is the opinion of this office that an economic development district is not required to obtain an appraisal to determine fair market value of the property to be sold.

Your second question asks if an economic development district is required to obtain an opinion from a court of competent jurisdiction as to whether consideration of the property to be sold is nominal or not. We previously opined that the determination of what suffices for "good and valuable consideration" is with the province of the economic development district and that the district's findings are subject to review by a court of competent jurisdiction. MS AG Op., Williams at *2 (May 21, 2004).

In MS AG Op., Lawrence at 2 (May 30, 2003), we opined that if an economic development district finds and spreads upon its minutes a determination that consideration which is less than the appraised value and less than the total amount invested in the site is good and valuable consideration and would best promote and protect the public interest, then transfer of the site to a private industry is permissible. Similarly, in MS AG Op., Mock at 2 (Feb. 6, 1998), we opined that if an economic development district made the determination that acceptance from an industrial tenant of a payment for a full retirement of an outstanding bond indebtedness would best promote and protect the public interest, the economic development district could convey the property to its tenant without further consideration.

With respect to your second question, even though this office has opined that an economic development district's findings on what suffices for good and valuable consideration is subject to review by a court of competent jurisdiction, there is no law that requires a district to obtain an opinion from a court as to whether the consideration is nominal or not on the front end. This determination would be subject to review as opposed to required to be reviewed by the court. It is the District's responsibility to make a determination of what would best promote and protect the public interest, not for a court to determine prior to each transaction.

Your third question asks us to opine on whether the members of the District, being the members of the Board, would be personally liable if a taxpayer later files suit and a court finds that the consideration was nominal, and the sale should not have been approved. Questions of liability involve "mixed issues of law and fact which cannot be addressed by an Attorney General's opinion." MS AG Op., Head at 1 (Nov. 25, 1998); see also MS AG Op., Hammack at 2 (Oct. 13, 1993) ("We cannot by opinion determine liability."); MS AG Op., Lawrence at *1 (Jul. 20, 2007) ("[W]e cannot speculate to the various potential liabilities which might arise and may not render an opinion in that regard.").

Because your third question asks us to opine on the Board members' potential liability, we are unable to respond by official opinion.

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

Sincerely,

LYNN FITCH, ATTORNEY GENERAL

By: /s/ Gregory Alston
Gregory Alston
Special Assistant Attorney General

Footnote: You do not indicate that the property referenced in your request is surplus property. However, we note that economic development districts may sell property that has been determined to be surplus pursuant to Section 19-7-3. MS AG Op., Smith at 1 (Sept. 26, 2008). We have previously opined that an appraisal is not required prior to disposal of surplus property under Section 19-7-3. MS AG Op., Griffin at 1 (July 30, 1999).