Source: http://masscases.com/cases/sjc/373/373mass904.html
Timestamp: 2019-04-22 20:09:04+00:00

Document:
Constitutional Law, Public purpose, Credit of the Commonwealth. Massachusetts Community Development Finance Corporation. Community Development Corporations.
On October 18, 1977, the Justices submitted the following answers to questions propounded to them by the Governor.
of the financing of certain community development projects as set forth in G. L. c. 40F, inserted by St. 1975, c. 866, Section 2.
The request recites that G. L. c. 40F, Section 4, permits the State Treasurer to sell up to $10,000,000 in Commonwealth bonds to purchase shares of the Massachusetts Community Development Finance Corporation (CDFC) and that the bonding was authorized by St. 1976, c. 481, Section 15. Under that bonding authorization, the Governor may request the State Treasurer to issue and sell up to $10,000,000 of Commonwealth bonds, and he must approve the interest on those bonds. The request further recites that the Governor has responsibilities to approve any such bonds under G. L. c. 29. See G. L. c. 29, Section 48, as appearing in St. 1977, c. 336, Section 2, and Section 49, as amended through St. 1977, c. 336, Section 4. Chapter 40F establishes CDFC and empowers it to use the proceeds of the sale of its common stock to invest in projects which meet detailed standards set forth in G. L. c. 40F, Section 4.
"1. Is the Community Development Finance Corporation, created pursuant to M.G.L. c. 40F, established primarily for a valid public purpose for which public funds can be expended consistent with Part 2, Article 4, c. 1, Section 1, of the Massachusetts Constitution?
"2. If the answer to Question 1 is in the affirmative, then can the Commonwealth, consistent with Amendment Article 62, Section 1, of the Massachusetts Constitution, borrow funds and purchase all of the capital stock of the Community Development Finance Corporation, which funds thereafter are to be invested by such Corporation, all as provided in M.G.L. c. 40F?"
in a firm which has been requested from time to time to give its opinion as to the validity of bonds issued by the Commonwealth.
The questions have been put to us in light of the Governor's duties with respect to the issuance of bonds whose proceeds will be used to purchase the common stock of CDFC. Those proceeds will be invested by CDFC under the particular restrictions of G. L. c. 40F, Section 4. Only the question of the propriety of the sale of the bonds presents a solemn occasion warranting an advisory opinion. See Answer of the Justices, 364 Mass. 838 , 844 (1973); Opinion of the Justices, 363 Mass. 889 , 898 (1973); Opinion of the Justices, 359 Mass. 769 (1971). Consequently, we answer the questions solely in terms of the problem which now confronts the Governor.
1. Question 1 inquires whether the expenditure of public funds for the purposes of CDFC is constitutionally proper. As just noted, this broad question need be answered only as it relates to the proceeds of the sale of Commonwealth bonds. We must consider (a) whether the objects of G. L. c. 40F and the goals of CDFC fulfil a public purpose, and (b), if there are benefits to private parties, whether those benefits are merely incidental to the achievement of the public purpose. Opinion of the Justices, 368 Mass. 880 , 885 (1975).
public money may be expended and invested." Such legislative findings are entitled to weight in any judicial assessment of whether the expenditure of public money is for a public purpose. Opinion of the Justices, 337 Mass. 777 , 781 (1958), and cases cited.
The declared purposes of St. 1975, c. 866, are public in character. Reducing unemployment and stimulating the economy are public purposes. Opinion of the Justices, 368 Mass. 880 , 885-886 (1975). See art. 88 of the Amendments to the Constitution of the Commonwealth, approved in 1966, declaring that industrial development is a public function; Opinion of the Justices, ante, 873, 876 (1977). It has been established beyond question that public purposes for the expenditure of funds include the elimination of substandard areas (Allydonn Realty Corp. v. Holyoke Hous. Auth., 304 Mass. 288 , 293-294 ), and the redevelopment of "substandard," "decadent" or "blighted open areas" (Opinion of the Justices, 334 Mass. 760 , 763 ; Papadinis v. Somerville, 331 Mass. 627 , 631-632 ), whether the proposed project involves residential, commercial, or industrial uses (Massachusetts Hous. Fin. Agency v. New England Merchants Nat'l Bank, 356 Mass. 202 , 210-211 ; Dodge v. Prudential Ins. Co., 343 Mass. 375 , 383 ; Opinion of the Justices, 341 Mass. 760 , 776-777 ). We have no doubt that, if fairly arrived at, the findings which CDFC's directors must make concerning each project and any "target area" will assure that the funds invested by CDFC will be devoted to public purposes. See G. L. c. 40F, Section 4.
capital markets or has been offered credit on terms that would preclude the success of the project. The directors of CDFC must further find that the community development corporation meets certain specific requirements, including (a) public membership, and election of a majority of its board of directors by the full membership (G. L. c. 40F, Sections 1, 4 ), and (b) sufficient control over the conduct of the project to ensure that "public benefit and public purposes are maintained" (G. L. c. 40F, Section 4 ).
We answer question 1, "Yes."
2. Question 2 asks whether the procedure by which the Commonwealth would borrow funds and purchase all of the common stock of CDFC and by which CDFC would then invest the stock proceeds as permitted by G. L. c. 40F involves an unconstitutional lending of the credit of the Commonwealth. Article 62, Section 1, of the Amendments to the Constitution, as appearing in art. 84, provides, "The credit of the commonwealth shall not in any manner be given or loaned to or in aid of any individual, or of any private association, or of any corporation which is privately owned and managed."
loan to the ultimate borrower," which is a lending of credit. See Opinion of the Justices, 322 Mass. 745 , 751 (1948). We think that the addition of intermediate steps in the transfer of funds borrowed by the State, first to CDFC and ultimately to community development corporations, does not change the essential character of the transactions as State guaranties of loans to ultimate borrowers. Thus, the answer to question 2 turns, not on whether the Commonwealth's credit is extended, but on whether a community development corporation is, in the words of art. 62, Section 1, a "private association" or a "corporation which is privately owned and managed."
Transp. Auth. v. Boston Safe Deposit & Trust Co., 348 Mass. 538 , 558 (1965).
We answer question 2, "Yes."
The foregoing answers and opinions are submitted by the Chief Justice and the Associate Justices subscribing hereto on the eighteenth day of October, 1977.
[Note 1] The fourth paragraph of Section 4 of G. L. c. 40F, which restricts CDFC's use of the proceeds of the sale of its common stock, reads as follows: "The corporation shall hold the proceeds of said investment in an account or accounts separate from other funds. The corporation shall use said proceeds for only two purposes: (1) to purchase capital participation instruments from community development corporations in return for an investment in a specific project only when the board of the CDFC finds that community development corporation will use the funds in support of a project consistent with the purposes of this chapter and (2) to invest said funds in any security eligible for investment under the provisions of section thirty-eight of chapter twenty-nine. Proceeds of these investments may be used to pay for the normal business expenses of the CDFC."
The last sentence of the quoted paragraph indicates that, if any portion of the proceeds of the sale of CDFC's common stock is invested and produces income, that income may be used for CDFC's normal business expenses. We have not been asked to opine on this provision; neither of the briefs makes a point of it. It appears, but with less than total clarity, that none of this investment income may be used to support the limited small business investment corporation which CDFC is authorized to establish. G. L. c. 40F, Section 5, third par. (2). We have no indication that, in any other respect, the "normal business expenses" of CDFC might not involve a proper public purpose.
[Note 2] In assessing whether a particular project is for a public purpose, the directors of CDFC will have to satisfy themselves that any private benefit which may derive from the project will be incidental to a primary public purpose.

References: art. 88
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 art. 84
 art. 62
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