Knowledgebase-Construction and Sale/Leaseback of Public Works Project by Municipality


Information Product

Title:Construction and Sale/Leaseback of Public Works Project by Municipality
Summary:MTAS was asked whether the proposed school construction is a "public works project" and whether the municipality has ample authority to buy real property for a public works project and then lease such property to another governmental entity.
Original Author:Bingham, Pamela
Co-Author:
Product Create Date:03/10/99
Last Reviewed on::06/19/2017
Subject:Contracts; Public works--Construction; Purchasing--Lease agreements; Schools
Type:Legal Opinion
Legal Opinion:

Reference Documents:

Text of Document: What follows is a brief analysis of the fact situation we discussed on the telephone this afternoon, along with the caveat that I prioritized this as a "rush" opinion; thus, I have not had sufficient time to do an in-depth evaluation of all the relevant statutes. In addition, MTAS does not have your private act charter on our data base. However, based on the materials I have reviewed at this time, which includes an opinion of the state attorney general, it is my qualified view that there is sufficient authority for the municipality to purchase real estate that will be used to construct a school and then lease such property to another governmental entity; in this case a special school district, see e.g., T.C.A. 49-2-501 et seq. (My opinion is qualified because I have not read your private act charter). This authority is derived from the state law governing the powers of municipalities to engage in the construction of "public works projects" and to purchase and lease real property.

T.C.A. 9-21-105, (20)(A) defines "public works project" in part as follows:

"Public works project" includes any one (1) or any combination of the following:
abattoirs, acquisitions of land for the purpose of providing or preserving open land, airports, alleys, ambulances, auditoriums, bridges, city and town halls, local government stables or garages, community houses, corrective, detention and penal facilities, including, but not limited to, jails, workhouses and reformatories, courthouses, culverts, curbs, dispensaries, drainage systems, including storm water sewers and drains, electric plants and systems, expositions, facilities for the handicapped, including physically and mentally handicapped, facilities for the indigent, fairgrounds and fairground facilities, fire department equipment and buildings, fire alarm systems, flood control, garbage collection and disposal systems, gas and natural gas systems and storage facilities, heat plants and systems, harbor and riverfront improvements, health centers and clinics, including medical and mental health centers and clinics, highways, major roads, highway and street equipment, hospitals, hotels and supporting or incidental facilities built by local governments which are built adjacent to and as a supporting facility of civic or convention centers located in municipalities which have created a central business improvement district under the provisions of the Central Business Improvement District Act of 1971, compiled in title 7, chapter 84, improvements made pursuant to a plan of improvement for a central business improvement district created pursuant to the Central Business Improvement District Act of 1971, compiled in title 7, chapter 84, incinerators, law enforcement and emergency services equipment, levees, libraries, markets, memorials, museums, nursing homes, parks, parking facilities, parkways, playgrounds, plazas, port facilities, docks and dock facilities, including any terminal storage and transportation facilities incident thereto, public buildings, preserves, railroads, including railway beltlines and switches, reclamation of land, recreation centers and facilities, reservoirs, rights-of-way, river and navigation improvements, roads, sanitariums, schools, transportation equipment for schools, sewers, sewage and waste water systems, including, but not limited to, collection, drainage, treatment and disposal systems, ship canals, sidewalks, stadiums, streets, swimming pools, thermal transfer generating plants and/or distribution systems, tunnels, viaducts, voting machines, water treatment distribution and storage systems, wharves and zoos... (emphasis added)

In addition, T.C.A. 9-21-107, which sets forth the powers of local government provides in part as follows:

9-21-107. Local governments; powers

All local governments have the power and are authorized, either singly or jointly with any one (1) or more other local governments, local government instrumentalities, the state, or a state or federal agency or jointly with one (1) or more of the above, to:

(1) Engage in the construction of any public works project which may be constructed within or without the local government, or partially within and partially without the local government. However, no local government shall engage in the construction of a public works project wholly or partly within the legal boundaries of another local government except with the consent of the governing body of the other local government; provided, that any county or metropolitan government may construct a public works project within a municipality within the county or metropolitan government without the permission of the governing body of the municipality;

(2) Operate and maintain any public works project for its own purpose or for the benefit and use of its inhabitants and, in the case of municipalities, also to operate and maintain such public works project for the benefit and use of the municipality and persons, firms and corporations therein and persons, firms and corporations, including municipal corporations, which are situated or whose residences or places of business are situated outside the territorial boundaries of the municipality but within the state and within a radius of twenty (20) miles from the territorial boundaries of the municipality; provided, that a joint project of any local government may, by agreement of the joint participants be operated or maintained, or both, by the local government itself, or by any one (1) of the other joint participants, or jointly by the local government and any one (1) or more of the joint participants, or jointly by any of the joint participants other than the local government;

(3)(A) Contract debts for the construction of any public works project or for the local government's share of the cost of any joint public works project;

(B) Contract debts in order to make grants, donations, reimbursements or loans to one (1) or more local governments, local government instrumentalities, or utility districts for the construction of any public works project;

( ) Borrow money;
(D) Issue bonds or notes to finance such construction, grant, donation, reimbursement or loan;
(E) Provide for the rights of the holders of such bonds or notes; and
(F) Secure such bonds or notes as hereinafter provided;

(4) Pledge the full faith, credit and unlimited taxing power of the local government as to all taxable property in the local government or a portion of the local government, if applicable, to the punctual payment of the principal of and interest on the bonds or notes issued to finance any public works project, except bonds or notes and the interest thereon payable exclusively from revenues of a public works project;

(5) In the case of a county or metropolitan government which contains within its boundaries a special school district and/or incorporated city or town maintaining a public school system separate from the county or metropolitan government public school system, the tax pledge authorized by subdivision (4), when pledged to the payment of bonds or notes issued to finance the construction of public schools of the county or metropolitan government serving outside the territorial limits of such special school district and/or incorporated city or town, may be a pledge of taxes to be levied only upon taxable property within that portion of the county or metropolitan government lying outside the territorial limits of such special school district and/or incorporated city or town;

(6) In the case of a county or metropolitan government which contains within its boundaries an incorporated city or town which constructs and maintains its streets, avenues, alleys and other highways separate from the county or metropolitan government, the tax pledge authorized by subdivision (4), when pledged to the payment of bonds or notes issued to finance the construction of streets, avenues, alleys and other highways of the county or metropolitan government lying outside the territorial limits of such incorporated city or town may be a pledge of taxes to be levied only upon taxable property within that portion of the county or metropolitan government lying outside the territorial limits of such incorporated city or town;

(7) Assess, levy and collect ad valorem taxes on all taxable property within the local government or a portion of the local government, if applicable, sufficient to pay the principal of and interest on the bonds or notes issued to finance any public works project, except bonds or notes and the interest thereon payable exclusively from revenues of a public works project;


(8) Fix, levy and collect fees, rents, tolls or other charges for the use of or in connection with any public works project and, in the event any agreements with holders of bonds or notes shall have been made as hereinafter provided, to fix, levy and collect such fees, rents, tolls and other charges in accordance with and subject to such agreements. Such fees, rents, tolls and other charges may also include any revenues derived by a local government from a lease, agreement or contract with any other local government, local government instrumentality, the state, or state or federal agency for the use of or in connection with a public works project. The power to fix, levy, and collect such fees, rents, tolls, or other charges shall include the power to impose charges for the privilege of parking motor vehicles in or upon any on-street or off-street parking facilities, and the power to facilitate the collection of such parking fees or other charges by the use of parking meters.... (emphasis added)

(9) Pledge all or any part of the fees, rents, tolls, or other charges received or receivable by the local government from any public works project or projects then existing or thereafter to be constructed, including also any revenues derived or to be derived by a local government from a lease, agreement or contract with any other local government, local government instrumentality, the state, or a state or federal agency for the use of or in connection with such public works project or projects, to the payment of all operating expenses of the public works project or projects, to the punctual payment of the principal of and interest on bonds or notes issued to finance such public works project or projects, or any other public works project or projects, or if the governing body of the local government shall by resolution so request, payments to the local government in lieu of ad valorem taxes on the property constituting such public works project or projects, not to exceed the amount of taxes payable on privately owned property of similar nature, and to covenant against thereafter pledging any such fees, rents, tolls, or charges to any other bonds or notes or any other obligations of the local government;

(10) Acquire by purchase, gift or the exercise of the right of eminent domain, to lease as lessor or lessee, and to hold, dispose of, and convey any property, real or personal, tangible or intangible, or any right or interest in any such property, in connection with any public works project, whether or not subject to mortgages, liens, charges or other encumbrances, and to construct any public works project subject thereto. In the acquisition of public works projects, no governing body shall have the right to exercise the power of eminent domain with respect to real or personal property which has been dedicated to a public use, or which is at the time being so used, unless the owners or authorities having jurisdiction over the property agree to such acquisition. No governing body shall construct any structure of any type on or over any property which has been dedicated to public use, or which is at the time being so used, unless the owners or authorities having jurisdiction over the property agree to the construction of such structure. A local government may use any right-of-way, easement or other similar property right necessary or convenient in connection with the acquisition, improvement, operation or maintenance of a public works project held by the state or any other local government; provided, that the state or such other local government consents to such use;
(Emphasis added)

(11) Enter on any lands, waters and premises for the purpose of making surveys, soundings and examinations in or for the furtherance of any public works project;

(12) Make contracts and execute instruments containing such terms, provisions and conditions as in the discretion of the governing body may be necessary, proper or advisable for the purpose of obtaining a grant, loan or other financial assistance from the state or any state or federal agency pursuant to a state or federal aid act; make all other contracts and execute all other instruments necessary, proper or advisable in or for the furtherance of any public works project; and carry out and perform the terms and conditions of all such contracts or instruments;

(13) Accept from any state or federal agency grants for or in aid of the construction of any public works project;

(14) Subscribe to and comply with any state or federal aid act and any rules and regulations made by the state or any state or federal agency with regard to any grants or loans, or both;
* * **

Based on the above statutes, it appears the proposed school construction is a "public works project," and that the municipality has ample authority to buy real property for a public works project and then lease such property to another governmental entity. The same question was posed to the State Attorney General in an unpublished opinion, Op. Tenn. Atty. Gen. No. U94-031. A copy of this opinion is attached for your convenience. In that opinion, the Attorney General was asked if was permissible for the City to construct a school and then lease it to a special school district. The opinion concluded that under the general law and under the city’s private act charter, there were no impediments to the planned construction, sale/leaseback.

I will review your charter and the statutes governing special school districts and will contact you if I find anything that modifies or contradicts the conclusions reached in this opinion.

Please remember that these legal opinions were written based on the facts of a given city at a certain time. The laws referenced in any opinion may have changed or may not be applicable to your city or circumstances.

Always consult with your city attorney or an MTAS consultant before taking any action based on information contained in this database.