Kansas Attorney General Opinion 2017-005

February 3, 2017
ATTORNEY GENERAL OPINION NO. 2017- 5
Seth Jones, City Attorney
City of Erie, Kansas
101 N. Main
Erie, KS 66733
Re: 	Cities and Municipalities—General Provisions—Corporate powers
Corporations—Limited Liability Companies—Citation of Act; Definitions;
Member; City
Synopsis: 	A city may own shares in a limited liability company. 	Whether acquiring
shares in a limited liability company violates the public purpose doctrine is
a question of fact. The Interlocal Cooperation Act, K.S.A. 12-2901 et seq.,
provides a framework for arrangements wherein a city intends to reduce
financial risk by co-owning property with a third party. 	Cited herein:
K.S.A. 12-101; 12-2901; K.S.A. 2016 Supp. 12-2904; 17-7662; 17-7663.
* 	* 	*
Dear Mr. Jones:
As city attorney for the City of Erie (City), you ask our opinion on whether a city may
have an ownership interest in a limited liability company and whether creating a limited
liability company for the purpose of transferring ownership of the Erie Energy Center to
a third party violates the “public purpose doctrine” underlying K.S.A. 12-101. We will
address each question in turn.
Background
You provided us with the following information:

Seth Jones
Page 2
Several years ago, the City . . . built a peak power electrical generation
plant as part of a joint venture with Westar Energy. 	Essentially, the City
was to own the plant with Westar to pay for access to the additional
capacity . . . . In order to build the plant, the City . . . issued several million
dollars in bonds to cover the cost of construction. . . .
Unfortunately, the plant has not been profitable for the City. Westar rarely
runs the plant and the [cost of] maintenance and insurance exceeds the
funds received from Westar. The City has been approached by a third
party who has expressed interest in entering into an agreement in which
the City . . . would transfer ownership of the plant to a limited liability
company in which the City of Erie would be a minority member. In
exchange for this transfer, the third party would pay off all outstanding
bonds related to the plant. Further, the City would assign its contract with
Westar to the newly-formed limited liability company.
We understand “peak power” to mean additional capacity added to the electrical grid
during times of peak demand. We also understand “limited liability company” to mean a
limited liability company formed pursuant to the Revised Limited Liability Company Act.1
Analysis
Cities are empowered by the Home Rule Amendment to the Kansas Constitution to
“determine their local affairs and government.”2 The Home Rule Amendment overturned
what is often referred to as the Dillon Rule, which prevented cities from engaging in
business not explicitly authorized by statute, so that cities may now engage in business
unless it is prohibited by statute, whether explicitly or by preemption.3
Moreover, state law explicitly recognizes that cities may “[p]urchase or receive, by
bequest or gift, and hold, real and personal property for the use of the city.” 4 Kansas law
has long recognized that shares in a corporation are personal property, 5 and no
provision 	of 	the 	Revised 	Limited 	Liability 	Company 	Act 	prohibits 	extending 	this
conclusion to membership in a limited liability company. Indeed, the definition of a
“person” that can be a “member” of a limited liability company includes “a . . .
government, including a . . . county or any other governmental subdivision.”6
1 K.S.A. 2016 Supp. 17-7662, et seq.
2 Kan. Const. Art. 12, § 5(b).
3 See Kan. Atty. Gen. Op. No. 2000-25 (discussing the adoption of the Home Rule Amendment).
4 K.S.A. 12-101.
5 E.g., Stevenson v. Metsker, 130 Kan. 251, 267 (Kan. 1930) (Harvey, J., dissenting) (citing 14 C.J. 387
for the proposition that “it is now very generally agreed that shares of stock in corporations are personal
property”).
6 K.S.A. 2016 Supp. 17-7663.

Seth Jones
Page 3
We have not found any reported Kansas cases discussing a city acquiring partial
ownership of a company by purchasing shares of a corporation, 7 but we conclude the
authority granted by the Home Rule Amendment, the plain language of K.S.A. 12-101,
and the plain language of the Revised Limited Liability Company Act provide sufficient
authority for the City to become a member of and acquire a limited liability company
interest in a limited liability company.
We note, however, that a city may only expend public resources consistent with the
public purpose doctrine.
The public purpose doctrine . . . requires a unit of local government, in
exercising the powers conferred upon it, to spend funds only for a public
purpose. . . . [T]he question of whether a specific expenditure serves a
public purpose must be determined in light of the specific circumstances.8
Each case must be decided in the light of the existing conditions, with
respect to the objects sought to be accomplished, the degree and manner
in 	which 	that 	object 	affects 	the 	public 	welfare, 	and 	the 	nature 	and
character of the thing to be done; but the court will give weight to a
legislative 	determination 	of 	what 	is 	a 	municipal 	purpose, 	as 	well 	as
widespread opinion and general practice which regard as city purposes
some things which may not be such by absolute necessity, or on a narrow
interpretation of constitutional provisions. 9
Whether the specific arrangement you describe in your letter serves a public purpose is
a question of fact beyond the scope of an Attorney General opinion. 10 We therefore
decline to address your second question. 11
Finally, we note state law may provide an existing framework for the City to pursue in
this matter. Specifically, the Interlocal Cooperation Act 12 provides the mechanism for a
7 Compare Mitchell v. City of Wichita, 270 Kan. 56, 58 (2000) (noting the City of Wichita acquired a
privately owned water company and integrated the company’s pipelines into the city water supply).
8 Kan. Atty. Gen. Op. No. 1985-52 (concluding the acquisition and development of real property as an
industrial park is a legitimate exercise of a county’s power of local legislation where the legislature’s
authorization of economic development through the creation of industrial districts demonstrated a public
policy to promote economic and industrial development).
9 Kan. Atty. Gen. Op. No. 1982-229 (citing 64 C.J.S. Municipal Corporations, § 1835 [1950]).
10 See Kan. Atty. Gen. Op. No. 1991-89 (noting that while a public benefit may be derived from a
proposed expenditure that is not per se prohibited, the existence of a public benefit cannot be
conclusively determined); Kan. Atty. Gen. Op. No. 1991-66 (whether oil and gas lease which committed
hospital funds to oil and gas well maintenance costs—presumably to maintain revenue—was a legitimate
public purpose was “ultimately a question of fact” which could not be conclusively settled)
11 Attorney General’s Statement of Policy Relating to the Furnishing of Written Legal Opinions, ¶ 8 (only
questions of law will be answered).
12 K.S.A. 12-2901, et seq.

Seth Jones
Page 4
city to “cooperate with other localities, persons, associations and corporations on a
basis of mutual advantage.”13
Although your question was whether the City can hold an ownership interest in a limited
liability company, the specific arrangement you describe—where the city transfers its
ownership of the plant to a third party in exchange for assumption of the bond
obligation, but the City remains a minority owner partly responsible for any losses and,
presumably, partly to gain from any profit—is in the nature of the “joint or cooperative
undertaking” 14 contemplated by the Interlocal Cooperation Act.
In summary, we conclude the City may acquire shares in a limited liability company.
Because we cannot conclusively determine whether the arrangement you describe
serves a legitimate public purpose, we decline to offer an opinion on that question of
fact.
Sincerely,
Derek Schmidt
Kansas Attorney General
Craig Paschang
Assistant Attorney General
DS:AA:CP:sb
13 K.S.A. 12-2901.
14 Cf. K.S.A. 2016 Supp. 12-2904(e)(1).