Powers of Municipalities FAQ 1
What procedures must a municipality follow when it sells land and may a municipality sell land for below fair market value?
Cities and villages are expressly authorized to sell and convey property. See Wis. Stat. secs. 61.34(3) and 62.22(1). The statutes do not specify any procedures a municipality must follow when selling property. We often get asked whether a municipality must, when selling property, solicit bids and sell to the highest bidder. A municipality may, but is not required to, use a competitive bidding process when selling property. A municipality may, just as well, choose to list the property with a real estate broker or establish any other reasonable sales procedure.
When a party interested in buying a particular parcel of land from a municipality initiates discussion with the municipality about the possibility of purchasing the parcel, the municipality may negotiate exclusively with the interested party and need not publicly advertise the property's availability before selling the property to the interested party.
We have advised municipalities in the past, however, that they should obtain an appraisal of any parcels to be sold to eliminate the possibility of a successful taxpayer's suit challenging the adequacy of the purchase price. The Wisconsin Supreme Court has held that a sale of municipal property authorized by the governing body may be voided if a taxpayer can establish (1) illegality, (2) fraud or (3) a clear abuse of discretion on the part of the governing body. Newell v. Kenosha, 7 Wis.2d 516, 96 N.W.2d 845 (1958); Hermann v. Lake Mills, 275 Wis. 537, 82 N.W.2d 167 (1957). If a municipal governing body sells property for substantially less than a fair consideration in money or other benefits, it may be found to have abused its discretion. See Hermann v. Lake Mills, supra. This is especially true if the land is sold to private parties who intend to use the land for purely private purposes.
When municipalities sell property to nonprofit organizations or governmental entities for a municipal public purpose, the sale price is less of a concern. Under such circumstances, the sale price could even be below fair market value as long as the amount of loss incurred by the municipality as a result of the sale is for a public purpose under the public purpose doctrine. In fact, sec. 62.22(2) specifically authorizes the donation of municipal property to nonprofit, private corporations for a public purpose. The public purpose doctrine requires that a municipality's expenditure of public funds be for a public purpose. Hopper v. City of Madison, 79 Wis.2d 120, 256 N.W.2d 139, 142 (1977).
The courts have stated that what constitutes a public purpose is, in the first instance, a matter for the legislature to determine and that the legislature's determination is entitled to great weight. Id. The courts have established the following test for determining whether a particular appropriation is for a public purpose:
For the public purpose requirement to be met, the subject matter of the appropriation must be a public necessity, convenience or welfare. Each case must be decided with reference to the object sought to be accomplished and to the degree and manner in which that object affects the public welfare. Factors which may be considered include the course or usage of the government, the objects for which taxes have been customarily levied, the objects which have been considered necessary for the support and proper use of government, the extent to which the expenditure results in competition with private enterprise, the presence or absence of a general economic benefit, the number of citizens benefited, and the necessity and infeasibility of private performance.
Id., 256 N.W.2d at 143 (all citations omitted). For further discussion of the public purpose doctrine see League legal opinion Powers of Municipalities 852.
Finally, some sales of municipal property must be referred to the plan commission, if there is one, for its recommendation before final action is taken by the governing body. Wis. Stat. sec. 62.23(5). See also Scanlon v. Menasha, 16 Wis.2d 437, 114 N.W.2d 791 (1962).