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Municipal Technical Advisory Service (MTAS)

Original Author: Bingham, Pamela
Date of Material: 04/11/2000

Finance--Debt obligation
Industrial development

City Obtains a Certificate of Public Purpose and Necessity Before Borrowing Funds to Buy Land for an Industrial Park

Reviewed Date: 04/22/2021
MTAS was asked whether a city must obtain a certificate of public purpose and necessity before borrowing funds to buy land for an industrial park.

Your question is whether a city must obtain a certificate of public purpose and necessity before borrowing funds to buy land for an industrial park. After reading the relevant statutes together, along with several opinions of the Attorneys General, it my view that the answer is yes, in spite of some of the confusing language (underlined below) set forth in T.C.A. §13-16-207(a)(1)(A). That statute provides in relevant part:

(a)(1)(A) Before a municipality may undertake to borrow funds to develop an industrial park under this part, it must obtain a certificate of public purpose and necessity under title 7, chapter 55, except that § 7-55-106 shall not apply to such certificate for an industrial park.

Title 7, Chapter 55 of the Code is entitled “Industrial Bond Building Act of 1955.” Those statutes address the broad power of municipalities to construct, acquire or improve industrial buildings and to issue bonds to finance such projects. T.C.A. § 7-55-105 provides that the building finance committee of the industrial development division of the Department of Economic and Community Development is empowered with the authority and duty to determine whether the public welfare is benefitted by a municipality entering into a given enterprise. Every municipality has the right to apply to the committee for a certificate of public purpose and necessity. And, if it is deemed advisable, the committee orders that certificate be issued.

T.C.A.§ 7-55-106 is the statute listed in § 13-16-207, wherein it states that “§ 7-55-106 shall not apply to such certificate for an industrial park.” Looking at the subject statute (T.C.A. § 6-55-106), this lengthy law sets forth the various factors to be considered by the committee in determining whether a certificate should be issued. For example, one mandate is that the committee must find that “there are sufficient natural resources readily and economically available for the use and operation of the particular industrial building and enterprise for at least ten (10) years...” Also included are a number of requirements that the municipality must fulfill after a certificate has been issued, including “the use of energy conserving design and construction,” for example, in the building. T.C.A. § 7-55-106 (C)

In contrast, the provisions of T.C.A. § 13-16-207, which is specifically applicable to industrial parks, impose less stringent and demanding requirements in order for a certificate to be issued:

The committee shall investigate, find and determine, upon application of any municipality therefor, as to whether a certificate of public purpose and necessity shall be issued to such municipality to engage in the establishment of an industrial park project . . .
[T]he committee shall find and determine affirmatively that:

(i) The project is well conceived and has a reasonable prospect of success;
(ii) There is a good probability that the project will be self-sustaining from the sale and lease of land in the industrial park, utility revenues derived from the provision and sale of utilities in the industrial park, ad valorem and other taxes resulting directly from the development of the industrial park, and other fees and charges for services provided to the industrial park;
(iii) The project will tend to provide proper economic development of the municipality, and will encourage industry to locate there; and
(iv) There are adequate property values and suitable financial conditions, so that the total bonded indebtedness of the municipality, solely for the purposes authorized by this part and by title 7, chapter 55, shall not exceed ten percent (10%) of the total assessed valuation of all the property in the municipality ascertained by the last completed assessment at the time of the issuance of such bonds.
T.C.A. § 13-16-207(a)(1).

In reading these statutes in pari materia, it is my opinion that a certificate of public purpose and necessity is required before a municipality can borrow funds to develop an industrial park; however, the requirements and criteria used by the committee are those listed in T.C.A. §13-16-207, and not in those set out in T.C.A. § 7-55-106. The meaning of a statute must be determined by viewing the statute as a whole, within its statutory context, and in light of its general purpose. City of Lenoir City v. Tennessee, 571 S.W.2d 297, 299 (1978); Crown Enterprises, Inc. v. Woods, 557 S.W.2d 491, 493 (1977).

In Op. Tenn. Atty. Gen. No. 79-317, the State Attorney General opined:

“We believe that the financing arrangement which you have described wherein the Industrial Development Board will obtain an irrevocable letter of credit from the banks guaranteeing both the purchase price payments any payment for the improvements with the corporation executing a note to the banks for the total amount of the funds advanced under the letter secured by a first mortgage on the industrial park property is a financing arrangement authorized under § 6-2808. We would caution, however, that the full faith and credit of the Town of Covington cannot be pledged to the financing of this industrial park project without first obtaining a certificate of public purpose and necessity from the Building Finance Committee under the Industrial Park Act. T.C.A. § 13-1307.
(Emphasis added)

In a second opinion, the question the Attorney General was asked was what degree of discretion, if any, does the Building Finance Committee possess in interpreting and applying the provisions of T.C.A. § 13-16-207(2) to a county's application for a certificate of public purpose and necessity prior to the development of an industrial park under the provisions of the Industrial Park Act, T.C.A. §§ 13-16-201 etseq.? The answer in that opinion was that the Building Finance Committee does not possess the authority to waive compliance with the provisions of T.C.A. § 13-16-207(2), rather, the committee must affirmatively find that a county's proposal for financing an industrial park is in compliance with T.C.A. § 13-16-207(2) in order to award a certificate of public purpose and necessity. Op.Tenn. Atty. Gen. No. 85-237 (Emphasis added)

In summary, a review of the statutes and opinions from the Attorney General support the conclusion that a municipality must fulfill the conditions of the statute in order to be granted a certificate of public purpose and necessity; and that such certificate is a prerequisite to obtaining funding for the development of an industrial park.