Attorney General: Honorable James F. Abromaitis, State of Connecticut Department of Economic and Community Development, 1999-011 Formal Opinion, Attorney General of Connecticut

Attorney General's Opinion

Attorney General Richard Blumenthal

October 15, 1999

Honorable James F. Abromaitis
State of Connecticut Department of Economic
and Community Development
505 Hudson Street
Hartford, Connecticut 06106

Dear Commissioner Abromaitis:

You have requested our opinion on whether the Department of Economic and Community Development ("DECD") may accept discounted repayments of financial assistance from financially distressed funding recipients either without or before complying with the provisions of Conn. Gen. Stat.  3-7. In the example supplied in your letter, a company hoping to avoid bankruptcy may offer the Department forty cents on the dollar in settlement of its debt. It is our opinion that the legislature did not give DECD the authority to release funding recipients from their obligations, as it has for other public entities, such as the Connecticut Development Authority ("CDA"). Instead, the DECD must follow the provisions of  3-7 in order to accept discounted repayments; however, the DECD may renegotiate other terms of the assistance agreement, such as monthly payment amounts, which do not reduce the overall repayment obligation of the funding recipient.

Your letter indicates that funds loaned under the Economic Development and Manufacturing Assistance Act ("MAA"), Chapter 588l of the General Statutes, are the most likely to be the subject of discounted repayment or "work out" negotiations. Under the MAA, the DECD provides "financial assistance,"1 usually loans or grants, to "eligible applicants"2 in exchange for the applicant's agreement to undertake an economic development project which satisfies certain statutory criteria. The terms of the loans or grants, including repayment terms, are set forth in the assistance agreement signed by the DECD and the applicant, who becomes the funding recipient.

The acceptance of discounted repayments reduces the obligation of the funding recipient under the assistance agreement. We have opined previously that a state officer or agency may not decrease the obligation of a party to a contract with the state to pay for services fully performed by the state without statutory authority. 82 Conn. Op. Atty. Gen. (8/10/82) (Shedd). In this case, you have not cited to, nor have we been able to find, in the MAA or in the statutes setting forth the DECD Commissioner's general powers, language that authorizes the Commissioner to accept repayments from funding recipients in amounts less than the recipients are obligated to repay under their assistance agreement.

Significantly, the statutes governing the Connecticut Development Authority, a quasi-public agency that, like DECD, lends state money for economic development purposes, specifically authorize the CDA to "agree to revised terms of financing when such appears prudent,"  32-17a(a), and to adopt procedures for "the release or termination of loan security and borrower liability." Section 32-22a(b).3 There are no similar provisions in the MAA or other DECD statutes.4 Although your letter states that the ability to restructure agreements would improve "the amount, likelihood and timeliness of debt repayment to DECD," our courts have held that an agency "may not, by construction, supply omissions in a statute or add exceptions or qualifications, merely because it opines that good reason exists for so doing." Bailey v. Mars, 138 Conn. 593 (1952). The MAA was adopted in 1990, long after the CDA statutes cited. In view of the specific language in  32-17a and  32-22a, we must conclude that if the legislature intended to give authority to the DECD Commissioner to alter repayment obligations in assistance agreements, it knew how to do so. In the absence of such language in the DECD statutes, it is our view that the Commissioner's authority to accept discounted loan repayments is derived solely from 3-7, and therefore, the procedures of that statute must be followed.

Section 3-7 provides in relevant part:

(b) The Secretary of the Office of Policy and Management may authorize the cancellation upon the books of any state department or agency of any uncollectible claim for an amount greater than one thousand dollars due to such department or agency.

(c) Upon the recommendation of the Attorney General, the Governor may authorize the compromise of any disputed claim by or against the state or any department or agency thereof, and shall certify to the proper officer or department or agency of the state the amount to be received or paid under such compromise. Such certificate shall constitute sufficient authority to such officer or department or agency to pay or receive the amount therein specified in full settlement of such claim. The record of any compromise effected pursuant to the provisions of this section shall be open to public inspection in accordance with section 1-210.

Under this statute, the cancellation or compromise of a claim by or due to the State is authorized under two circumstances; first where the claim is "uncollectible"; and second, where the claim is "disputed."

Your letter refers to the provision on "disputed" claims,  3-7(c), but in the scenario described in your letter, the amount due does not appear to be "disputed," which we construe to mean contested. Rather, the concern you raise is the collectibility of funds when a funding recipient is facing financial hardship. If the loan or a portion thereof is uncollectible, the provisions of  3-7(b) apply, and authorize the Commissioner to recommend to OPM cancellation of the uncollectible portion.5 If OPM authorizes the cancellation of all or a portion of the amount due under the assistance agreement, the agreement could be amended to reflect the reduced amount due from the funding recipient.

In the less likely event that your recommendation to accept reduced repayments is based on the fact that the amount due from the recipient is "disputed," you are authorized under  3-7(c) to seek the compromise of the disputed claim from the Governor with the approval of the Attorney General. The Governor's certification of compromise would provide authority to amend the assistance agreement to reflect the reduced amount due. In either circumstance, however, since the procedures under  3-7 provide the authority for you to agree to accept reduced repayments, you may not enter a binding agreement before those procedures are employed.

Very truly yours,

RICHARD BLUMENTHAL
ATTORNEY GENERAL

Shelagh P. McClure
Assistant Attorney General

RB/SPM:rmj


1 Conn. Gen. Stat.  32-222(i) defines "financial assistance" as "grants extensions of credit, loans or loan guarantees, participation interests in loans made to eligible applicants by the Connecticut Development Authority or combinations thereof."

2 "Eligible applicant" means "any for-profit or non-profit organization...." Conn. Gen. Stat.  32-222(g).

3 See also  10a-163(f)(4), giving the Commissioner of Education the specific authority to "forgive" loans extended under the Teacher Incentive Loan Program. This is an example in a different context of specific legislative authorization to alter repayment obligations in a loan agreement.

4 Section 32-223(e) provides that "the Commissioner may establish the terms and conditions of any financial assistance..." but does not address his authority in the event of default or financial hardship of the borrower.

5 We have advised that to sustain a recommendation to cancel an "uncollectible" claim, there must be "some objectively verifiable evidence that there is no reasonable likelihood of collection of that debt within the foreseeable future." 82 Conn. Op. Atty. Gen. (8/10/82) (Shedd).


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