Opinion Number ( 1999 )

Dear Mr. Cornelius:

On behalf of the Industrial Development Board of the City of New Orleans, Louisiana, Inc. (the "Board") you are requesting clarification of Op.Atty.Gen. 99-267. You advised that the Board intends to issue taxable revenue bonds pursuant to Chapter 7 of Title 51 of the Louisiana Revised Statutes of 1950, as amended, to encourage the acquisition of land and the acquisition, construction, development and equipping of an approximately 710 unit multi-family residential housing development in the City of New Orleans (the "Project"). The Board intends to acquire the land and improvements constituting the Project and lease it for payments sufficient to pay debt service on the bonds, plus other payments. Part of the incentives that are to be offered to the private developer include the negotiation of a payment in lieu of taxes in an amount less than the ad valorem taxes would be if the Project were owned by the private developer.

You requested the opinion of this office with respect to (i) the exemption of the Project from ad valorem taxes while owned by the Board, and (ii) the ability of the Board to negotiate and require a payment in lieu of taxes during the term of the ownership of the Project by the Board and the lease of the Project to the private developer in an amount less than would be paid in taxes if the Project were subject to ad valorem taxation.

Op.Atty.Gen. 99-267 concluded that while the property is leased to the private developer and title to the property is held by the Board, the property will be exempt from ad valorem taxation. Furthermore, the Board may negotiate and require a payment in lieu of tax during the term of the ownership of the Project by the Board and the lease of the Project to the private developer in an amount less than would be paid in taxes if the Project were subject to ad valorem taxes, provided that the payment in lieu of taxes is not structured such that it constitutes a donation of public funds in violation of ArticleVII, Section 14 of the Louisiana Constitution. You request clarification of the portion of the last sentence which refers to Article VII, Section 14 of the Louisiana Constitution.

Upon further review, we have determined that the reference to Article VII, Section 14 of the Louisiana Constitution is erroneous. If the property is exempt from ad valorem tax, there can be no violation of Article VII, Section 14 of the Louisiana Constitution when the developer pays ad valorem taxes, even if the amount of taxes paid are substantially less than the amount that would have been paid in the event the developer owned the buildings and there was no tax exemption. Accordingly, Atty.Gen.Op. 99-267-A is modified accordingly.

We apologize for any inconvenience this may have caused.

Yours very truly,

RICHARD P. IEYOUB Attorney General

BY: MARTHA S. HESS Assistant Attorney General

RPI/MSH