Attorney general blocks municipal aid to small businesses

Mobile County Commissioner Connie Hudson is urging Alabama Attorney General Steve Marshall to revisit guidance he provided April 7 suggesting it was unlawful for municipal governments to provide economic development grants and loans to local businesses to bridge revenue gaps during the COVID-19 pandemic.

In response to “numerous inquiries” from around the state, Marshall published a letter Tuesday advising that “unless the grants and loans contemplated under these proposed programs serve a public purpose rather than merely confer a private benefit,” they would violate the State Constitution.

Thousands of small businesses across the state have been forced to close or curb services due to mandatory health orders and few have more than a few months of cash reserves. While the federal government’s $2 trillion economic stimulus plan passed March 27 will provide around $300 billion in relief for small businesses, many are unsure whether the cash will arrive in time to prevent a permanent closure, when restrictions will be lifted and if customers will return once they are.

In making his determination, Marshall analyzed Section 94.01 and Amendment 772 of the State Constitution, emphasizing it prohibits “any county, city, town or other subdivision of this state to lend its credit, or to grant public money or thing of value in aid of, or to any individual, association, or corporation whatsoever, or to become a stockholder in any corporation, association, or company, by issuing bonds or otherwise.”

Yet he also acknowledged the Alabama Supreme Court determined the statute is not violated when the funds are appropriated for a “public purpose.”

“Whether the funds are appropriated for a public purpose depends on if they bring about a ‘direct public benefit of a reasonably general character … to a significant part of the public’ rather than merely a remote and theoretical benefit,” he wrote.

Those appropriations, according to Amendment 772, must be made in a public meeting after being advertised at least seven days in advance in a newspaper of record, Marshall found. Further, in order to be applied, it must meet the Supreme Court’s requirement that “the benefit conferred be a ‘direct public benefit of a reasonably general character … to a significant part of the public.’”

“Grants, loans, interest payments and other similar awards to a private business for the sole reason of keeping that business operating would not meet [that] test,” Marshall wrote. “Whereas such payments would bestow a significant private benefit, any benefit to the public-at-large would be remote and indirect.… Furthermore, using entities such as the Chamber of Commerce or private banks as ‘pass-throughs’ to facilitate the expenditures does not change this analysis so long as ultimately public money is being lent or granted in aid of a private entity and no public benefit is served.”

In a response sent yesterday, Hudson implored Marshall to reconsider.

“As you are surely aware, present economic circumstances related to the coronavirus pandemic in counties and municipalities throughout Alabama and our country are unprecedented in our lifetime. Hundreds of small businesses deemed ‘non-essential’ in Mobile County have been forced to close and may very likely never reopen due to financial hardship,” Hudson wrote.

Suggesting local economic incentives or relief would indeed serve a “public purpose,” Hudson continued: “As businesses fail in communities across Alabama, I fear that our state and local economies will plummet and revenues will be severely impacted for the foreseeable future and possible many years to come. That in turn will drastically impact services provided to citizens by the state and local governments.”

Hudson told Marshall she was working with the Mobile Area Chamber of Commerce to propose a “Small Business Emergency Relief Grant Program … which would utilize, in part, county funds to provide life-saving grants to hundreds of small businesses.”

This evening, Hudson elaborated on the plan to Lagniappe, which would use $1 million from the county’s industrial development and emergency funds to provide grants of as much as $10,000 each to hundreds of businesses with between two and 100 employees that can demonstrate a need. If the program were given the go-ahead, she said the Chamber would handle the application and vetting process and the Commission could call special meetings weekly to approve each expenditure.
“My office was in the final stages of developing it … we had not presented it to the Commission yet, but we wanted to make sure we had all our Is dotted and Ts crossed and part of that was communicating with the attorney general’s office,” she said, reiterating that the long-term or permanent closure of hundreds of businesses would have a dramatic effect on both local and state budgets. “In light of that, my request was for [Marshall] to look at it in that perspective. And if you do, you can certainly prove in my opinion that any law is open to statutory interpretation.”

She said two attorneys working on behalf of the Commission reached the same conclusion.

One, county attorney Jay Ross, provided Hudson with his own guidance using case law and other sources to broadly define “public purpose.”

“Based upon our review of the court’s historic treatment of the Public Purpose Doctrine, we believe such a determination would be reasonable under the unprecedented circumstances surrounding the COVID-19 pandemic and its effect on small businesses,” he wrote. “It is reasonable to assert that, without the proposed grant program, hundreds or even thousands of small businesses in the county will not survive the period of time during which social distancing measures are enforced. Such a loss of business activity will undoubtedly have a negative impact on the development of the county’s economy and the ability of the county to attract new economic or industrial activity to the area.”

Later, Ross told Lagniappe there is no functional difference between a “formal opinion” and less formal “guidance” provided by the attorney general’s office, and in the interest of time, it wouldn’t benefit the county to litigate the definition of “public purpose” during an emergency declaration.

He said a program approved by the Auburn City Council late last month, in which the city resolved to cover the interest on small business loans of up to $25,000, may also be threatened by the guidance, and he couldn’t name, offhand, any instance in which Marshall has changed guidance or opinions after reconsideration.

At the County Commission meeting this morning, former County Commissioner and downtown business owner Steve Nodine questioned the reason of state laws allowing “billions of dollars” in cash and financial incentives to large corporations like Airbus, Austal, Walmart and Amazon, but they cannot do the same for small businesses. Nodine suggested Marshall could limit the “public purpose” definition to the COVID-19 pandemic specifically, or alternately, the Legislature needs to act. But in response to the state health orders, the Legislature recently voted to delay its current legislative session until April 28 at least.

“If we need laws changed, I implore upon you to contact your local representatives and tell them to get to Montgomery,” he said.

On Thursday, Lt. Gov. Will Ainsworth, the presiding officer of the Alabama Senate, spoke to FMTALK 106.5 and advised small business owners to seek the federal financial aid.

While he acknowledged Marshall’s guidance and said he was “in favor of getting small businesses going,” Ainsworth suggested the answer was not municipal grants and loans, but rather state tax abatements.

“On the short end there might be a little bit of pain, but on the long end it’s the right thing to do,” he said.