DOJ: News Release

McGrath: Year-to-Year Lease Agreement Does Not Create Municipal Debt

HELENA – In an opinion released Thursday, Attorney General Mike McGrath said a lease agreement proposed by the City of Great Falls does not create a debt for the city that would fall within local government debt limits. The opinion also said a city-wide election is not required for such a contract.

Great Falls City Attorney David Gliko had requested the Attorney General’s opinion after the City of Great Falls proposed developing and operating a water park adjacent to the municipal swimming pool. Under the arrangement, the city would enter into a long-term lease for goods and fixtures required to operate the water park. At the end of the lease, the goods and fixtures would become city property. The contract also included a clause allowing the city to end the lease, without penalty, if it decided not to appropriate funds for the payments in any given year.

At issue was whether the arrangement created “indebtedness,” or an obligation for the city to appropriate funds in the future. If it did, the obligation would be subject to limits on municipal debt. In the Great Falls case, no debt was created, since lease payments would come from available city revenue and the city was under no legal obligation to continue the payments from year to year.

The opinion also addressed whether the agreement should be put up for a vote. Montana law calls for such elections when a government body – like a city or county – must levy taxes to pay off debts for which the city’s general credit is pledged. McGrath said that since the Great Falls proposal didn’t obligate the City to pay the full term of the lease payments, it wouldn’t require a city-wide vote.

An attorney general’s opinion carries the weight of law unless a court overturns it or the Legislature modifies the laws involved.

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