|Legal Opinion: |
Text of Document: September 16, 1996
You have the following question: Can the city and various merchants jointly fund billboard space advertising certain private businesses in the city? In my opinion, the answer is probably no, but the question appears so close that it could go either way.
There is a two-pronged test for whether municipal expenditures are legal:
1. The expenditure must be for a public purpose.
2. The expenditure must be an authorized expenditure.
I was surprised to discover a statute that to some extent governs both prongs of the test. Tennessee Code Annotated, section 6-54-201 provides that:
Advertising the commercial, social, agricultural, industrial, scenic, recreational, historical, educational, and other advantages, the points of interest and attractions within the various municipalities of Tennessee, and tourist promotion generally are declared to be a municipal purpose. The official governing body of each municipality in this state is authorized and empowered in its discretion to appropriate from the general funds of each municipality a sum of money not to exceed thirty thousand dollars ($30,000) per annum for the purpose of advertising the commercial, social, agricultural, industrial, scenic, historical, educational, and other advantages, the points of interest and attractions therein for tourist promotion;..... [Emphasis is mine.]
That statute declares such expenditures to be a municipal purpose and authorizes such expenditures, with a cap of $30,000.
That authority appears to be quite broad. Tennessee Code Annotated, section 6-54-202 provides that the funds "shall be used and expended under the direction and control of the governing body of the municipal corporation or through such agency or agencies as they shall prescribe, and under such rules and regulations as the governing body of the municipality deems proper."
Is The Expenditure For A Public Purpose?
What is a public purpose cannot be precisely defined, and depends upon the facts in each case. [ Smith v. City of Pigeon Forge, 600 S.W.2d 231 (Tenn. 1980).] A legislative declaration of public purpose is not conclusive. However, legislative declarations of what is a public purpose are given heavy weight. [McCallie v. Mayor of Chattanooga, 40 Tenn. 317 (Tenn. 1959); Adams v. Memphis & L.R.R., 41 Tenn. 645 (1866).]
In the past, the courts have interpreted the public purpose doctrine quite narrowly with respect to municipal expenditures that benefit specific industries. In Ferrell v. Doak, 152 Tenn. 88, 275 S.W. 29 (1924), the Court found unconstitutional under Article II, Section 29 of the Tennessee Constitution an act permitting the City of Lebanon to impose a tax to build a factory, declaring in part that:
....the proposed factory will be privately owned and controlled so that, in the wages to be paid, the sale of its products and the prices to be fixed therefor, the earnings to be withdrawn by the private owners, and all other matters of management, including continuance of operation, or disposition of the business, the public will have no voice. Such contribution as will have been made from public funds in promotion of the business will be wholly unrepresented in the management and non-participant in the profits. [At 152 Tenn. 91-92.]
[Also see Abzill v. Lexington Mfg. Co., 188 Tenn. 477, 112 S.W.2d 522 (1949).]
In Smith, above, the court struck down an ordinance levying a one percent gross receipts tax on all businesses conducted in the city. Most of the tax was to be used to promote the tourism and business in the city. Citing Ferrell, the Court declared that the ordinance:
....[left] the public at large with only the remote hope that it may derive some incidental benefit from the promotion of private business enterprises wherein neither it nor its representatives have any participation in management or profits. [At 233.]
The Smith Court also distinguished two earlier cases upholding expenditures benefitting private businesses under the Industrial Building Bond Act of 1955 and the Industrial Park Act. [See McConnell v. City of Lebanon, 203 Tenn. 498, 314 S.W.2d 12 (1957); Mayor and Aldermen of the City of Fayetteville v. Wilson, 212 Tenn. 55, 367 S.W.2d 772 (1963). In those cases, said the Court, the expenditures in question were "authorized pursuant to clearly expressed public policy of the state, responsive to a declared crisis and with standards and checks to be exercised by public officials upon the use of the funds." [At 233.]
Where does all that leave us? Tennessee Code Annotated, section 6-54-201 contains an express declaration that municipal expenditures for certain advertising purposes constitute a public purpose. While not conclusive, that expression carries heavy weight in the courts. Tennessee Code Annotated, section 6-54-201 et seq. contains no expression of a crisis municipal expenditures on advertising are designed to address, and no standards governing such expenditures. However, that statute, the product of Public Acts 1937, Chapter 163, as apparently impliedly amended by Public Acts 1968, Chapter 475, was obviously a Depression Era act, and that the Depression was a crisis was probably self-evident. The 1968 amendment, which essentially reflects Tennessee Code Annotated, section 6-54-201 in its present form, mentions no crisis or problem the 1968 amendment was designed to address. Arguably, a a crisis similar to, if less compelling than, the Depression in the form of downsizing and other economic dislocations that have characterized American business and industry over the past decade or so supports the statute. I am not sure that the General Assembly necessarily need declare a "crisis" anew to support municipal expenditures benefiting businesses in general. However, the declaration of a crisis might be necessary to support municipal expenditures benefitting particular businesses. The same might be true with respect to legislatively-declared standards such expenditures must meet.
Is The Expenditure An Authorized Expenditure?
However, even if it is conceded that the proposed expenditures authorized by Tennessee Code Annotated, section 6-54-201 et seq. are for a public purpose, those expenditures seem to me to trip over the language of the statute itself, and for that reason fail the second prong of the test. That statute speaks of advertising in terms of public purpose and in terms of expenditures, but using similar terms:
1. As a public purpose: "[The commercial, social, agricultural, industrial, scenic, recreational, historical, educational advantages, the points of interest and attractions....and tourist promotion in general...."
2. As an authorized expenditure: "commercial, social, agricultural, industrial, scenic, historical, educational and other advantages, the points of interest and attraction therein for tourist promotion...."
It appears to me that the terms "advantages," refers to general and specific advantages of the city in those areas, rather than to specific commercial or industrial enterprises. Unfortunately, most indiviudal businesses and industries are not set apart as "points of interest" or "attractions," or "points of interest and attactions therein for tourist promotion." There might be exceptions. For example, the Jack Daniels Distillery in Lynchburg is a specific business, but probably qualifies as a tourist attraction and point of interest. But most businesses and industries will not be on a remotely similar plane in those respects.
Let me know if I can help you further in this or any other matter.
Sidney D. Hemsley
Senior Law Consultant