Title: State Ex Rel. Amemiya v. Anderson
Citation: 545 P.2d 1175
Docket Number: 5826
State: Hawaii
Issuer: Hawaii Supreme Court
Date: January 23, 1976

545 P.2d 1175 (1976) STATE of Hawaii ex rel. Ronald Y. AMEMIYA, Attorney General, Plaintiff, v. Eileen R. ANDERSON, Director of Finance, State of Hawaii, Defendant. No. 5826. Supreme Court of Hawaii. January 23, 1976. *1176 Nobuki Kamida and Corinne K. Watanabe, Deputy Attys., Honolulu, for plaintiff. Charles M. Tonaki, Honolulu (Chuck, Wong &amp; Tonaki, Honolulu, of counsel), and Leo E. Sabatine, New York City (Wood, Dawson, Love &amp; Sabatine, New York City, of counsel), for defendant. Before RICHARDSON, C.J., KOBAYASHI, OGATA and MENOR, JJ., and LEWIS, Retired Justice, in place of KIDWELL, J., recused. *1177 KOBAYASHI, Justice. This is an action for declaratory judgment brought by State Attorney General, Ronald Y. Amemiya, as relator for the State of Hawaii (State or Attorney General), against Eileen R. Anderson, Director of Finance of the State (Director). The question submitted to this court for its resolution is whether or not the Director may issue, sell and deliver twenty million dollars ($20,000,000) worth of anti-pollution revenue bonds, authorized by Act 161, Session Laws of Hawaii 1973 (Act 161), and enter into a "project agreement"[1] with a private, profit-making utility company to finance a government-mandated anti-pollution project with the proceeds of the bond sales. The answer to the question depends upon whether the revenue bonds are chargeable against the State debt limitation. It is clear that, under Act 161, the intent of the legislature is that the bonds shall not be issued if they are chargeable against the debt limitation.[2] Since the case is being submitted on an agreed statement of facts, this court has original jurisdiction pursuant to section 4, Act 161, and HRS § 39-96. For the reasons stated below, we hold that the revenue bonds are chargeable against the State debt limitation. Hawaiian Electric Company, Inc. (Hawaiian Electric or Company) is a private corporation that has provided public utility electric service on the island of Oahu since the 1890s. Hawaiian Electric owns and operates a generating station at Kahe, Oahu, which fronts on the ocean and uses ocean water to cool the condensers of its steam turbines. The ocean water is presently being drawn through an intake basin located at the shoreline, passed through the condensers, and discharged through tunnels which terminate at the shoreline. In the process, the temperature of the water passing through the cooling system is raised approximately ten (10) degrees Fahrenheit, thus presenting a thermal pollution problem for the offshore waters. In order to meet both federal and state anti-thermal pollution requirements, Hawaiian Electric planned to install a new cooling system which would discharge the heated water approximately one thousand five hundred (1,500) feet offshore rather than at the shoreline as it is presently done. The cost of constructing and operating the proposed system (Kahe Project) is estimated at around twenty-million dollars ($20,000,000). To facilitate the financing of the Kahe Project,[3] Hawaiian Electric proposed that Act 161 be used and that a project agreement be entered into by Hawaiian Electric and the Department of Budget and Finance (Department). Section 39-126 of Act 161 authorizes the Department, with the approval of the Governor, to issue revenue bonds in such amounts as may be necessary to cover the cost of an anti-pollution project. The terms of the project agreement would unconditionally obligate Hawaiian Electric to pay to the Department during the term of the agreement such rates and charges in the form of rentals *1178 or installment sales payments or otherwise, sufficient to: (a) pay the principal and interest on the revenue bonds issued including any premiums payable upon any required redemption; (b) establish or maintain such reserve, if any, as may be required by the instrument authorizing or securing the revenue bonds; (c) pay the fees and expenses of the paying agents and trustees for such revenue bonds; and (d) pay the expenses incurred by the Department in administering such bonds or in carrying out the Kahe Project or the project agreement. The contemplated project agreement further provides: The Attorney General contends: (1) Act 161 violates Article VI, section 2 of the Hawaii Constitution in that it appropriates public money or public property or uses the public credit for other than a public purpose; (2) the Act 161 revenue bonds in question are chargeable against the State debt limit because they do not meet the requirements of Article VI, section 3, subparagraph (b) of the Hawaii Constitution; (3) Act 161 violates Article III, section 1 of the Hawaii Constitution in that it contains unlawful delegations of power; and (4) Act 161 violates Article I, section 4 of the Hawaii Constitution and section 1 of the Fourteenth Amendment to the United States Constitution (i.e. the due process and equal protection clauses) because of vagueness. The following are the relevant constitutional provisions and statutes: Article VI, section 2 of the Hawaii Constitution reads: Article VI, section 3(b) of the Hawaii Constitution reads: Sections 1(a) and (b), Act 161, Session Laws of Hawaii 1973, reads: Other pertinent sections of Act 161 are: Section 39-125 Definitions reads in part: Section 39-130 Project agreement reads in part: Section 39-131 Project revenue bonds reads in part: Among the issues raised by the State, we believe the following are sufficient to dispose of the case: 1. Whether the purpose of Act 161 constitutes a public purpose as required in section 2, Article VI, Hawaii Constitution. 2. Whether the anti-pollution revenue bonds are excludable under section 3(b), Article VI, Hawaii Constitution, and thus, not chargeable against the State debt limitation. Article VI, section 2 of the Hawaii Constitution states in relevant part: "No tax shall be levied ... nor shall the public credit be used, directly or indirectly, except for a public purpose... ." Determining what constitutes a public purpose is generally a question for *1181 the legislature to decide. Anderson v. O'Brien, 84 Wash. 2d 64, 70, 524 P.2d 390, 394 (1974); County of Alameda v. Janssen, 16 Cal. 2d 276, 281, 106 P.2d 11, 14, 130 A.L.R. 1141 (1940). The legislature has declared in the purpose section of Act 161 that "... financing of such anti-pollution measures through the assistance of the State [through the issuance of revenue bonds] is a public purpose." Though the legislature's determination is not conclusive, it is given wide discretion and should not be voided by the courts unless it is manifestly wrong, i.e. the purpose involved is clearly a private one. State ex rel. Farmers' Electric Cooperative, Inc. v. State Environmental Improvement Authority, 518 S.W.2d 68 (Mo. 1975); Hawaii Housing Authority v. Schnack, 39 Haw. 543 (1952); County of Alameda v. Janssen, supra. However, "[w]hen a constitutional question is properly presented, it is the duty of the court to ascertain and declare the intent of the framers of the Constitution and to reject any legislative act which is in conflict therewith... . The presumption, however, is in favor of constitutionality, and all doubts must be resolved in favor of the act." (Citations omitted.) Mitchell v. North Carolina Industrial Development Financing Authority, 273 N.C. 137, 144, 159 S.E.2d 745, 750 (1968). A few jurisdictions have found acts similar to Act 161, which allowed financing or credit-lending arrangements by the state to private enterprises, for anti-pollution purposes, to be for other than public purposes despite the benevolent objectives of the acts.[4] The vast majority of jurisdictions, however, have found a public purpose in such acts.[5] Though the minority view presents persuasive reasoning,[6] we are of the opinion that the purpose of Act 161 constitutes a public purpose as required in section 2, Article VI. Our opinion is premised upon several factors. First, during the 1968 State Constitutional Convention, the "public purpose" requirement of Article VI, section 2 was discussed by the Committee on Taxation and Finance in relation to the issuance of industrial development bonds.[7] The committee implied that they considered the issuance of industrial bonds to be for a public purpose but decided against trying to define "public purpose" for fear of weakening the section.[8] Although anti-pollution bonds were not considered at that convention, we believe that the obvious purpose of Act 161, which is to aid in the *1182 control of pollution, is as important as, or more so than, the encouraging of industrial development. See Industrial Development Authority of the County of Pinal v. Nelson, 109 Ariz. 368, 374, 509 P.2d 705, 711 (1973). Second, virtually every State appropriation, financing or lending of credit results in some private benefit. The crucial factor, we believe, is the ultimate objective of the Act; the fact that incidental benefits accrue to private interests is immaterial. The objective of Act 161 is to help private enterprises install facilities designed to fight air, water, sewage and other pollution. As pointed out by the court in Farmers' Electric, supra at 72-73, "There will not be any increase in productive capacity or prolongation of the useful life of any private industrial facility." The sole purpose of such facilities is to protect the health, safety and general welfare of the people of Hawaii. Third, as stated in a law review note on the public purpose doctrine and revenue bonds,[9] "... the exigencies of modern state government virtually compel the use of tax exempt financing as an incentive to publicly desirable activities in the private sector... . Just so, the public purpose doctrine need not be a static barrier to state activity in areas of consuming public importance." The Director of Finance of the State has conceded, in oral argument, that the anti-pollution revenue bonds can be issued only if the bonds fall within the exclusion provided in section 3(b). Section 3(b) in relevant part reads: In construing the above section we adhere to the well established rule that "[i]n the construction of a constitutional provision ... the words of the constitution are presumed to be used in their natural sense ... `unless the context furnishes some ground to control, qualify or enlarge [them].'" Employees' Retirement System v. Budget Director Ho, 44 Haw. 154, 159, 352 P.2d 861, 864-65 (1960). In the process of construing section 3(b), a reference to vol. I, Proceedings of the Constitutional Convention of Hawaii of 1968, is relevant: Standing Committee Report No. 52 of the 1968 Constitutional Convention recommended "a major redrafting" of section 3 of Article VI. Among the objectives were: Describing the provisions proposed to meet these objectives, the Committee said: The draft accompanying the Standing Committee Report, Committee Proposal No. 9, covered the present provisions (e), (f) and (g) of section 3, Article VI, Hawaii Constitution, having to do with excludable general obligation bonds, in a paragraph designated (g); and covered the definition of revenue bonds, presently found in the first paragraph of section 3, together with the present exclusion (b), in paragraphs designated (c), (d) and (e) and parts of (g). The latter specified: In the debates in the Committee of the Whole the chairman of the Standing Committee explained: In our opinion the logical and natural meaning of section 3(b) is as follows: 1. The law must obligate the issuer of the bonds to: 2. The issuer of the bonds must have sufficient proprietary control, for a period of time, over the undertaking, improvement or system to effectuate the above requirements imposed by law. Such control is necessary to provide the required security, in the form of revenues and/or tax, to make the above payments mentioned in subparagraph 1.a. The requirement of section 39-129 of Act 161 that the department "shall first find and determine ... that the person with whom it is proposed to enter into the project agreement is a responsible party" cannot be substituted for the requirement that the issuer maintain control. We reach the above construction of section 3(b) not only because it expresses the natural sense of the provisions in the section, but also because the context of the section furnishes no "ground to control, qualify or enlarge" our construction. In addition, the quoted paragraphs of the journal of the Proceedings of the Constitutional Convention of Hawaii buttress our interpretation of section 3(b). The Director, on the other hand, in her answering brief, at page 27, contends as follows: In our opinion the Director's reasoning is applicable to a revenue bond per se[11] and does not address itself to the question at hand: exclusion under section 3(b). *1185 The Director has failed to direct her attention to the following salient points of section 3(b): 1. It provides an exclusion. 2. It sets forth conditions that must be strictly complied with before exclusion can be had. We are of the opinion that sections 39-130 and 39-131 of Act 161 fail to require that the project agreement and the project revenue bonds meet the requirements of section 3(b) as construed herein. In addition, the terms of the contemplated project agreement clearly fail to meet said requirements. Thus, the revenue bonds herein are chargeable against the State debt limitation. [1] "Project agreement" is defined in Section 39-125(4) of Act 161 as: "any lease, sublease, conditional sale agreement, installment sale agreement, lending arrangement or other contract or agreement, or combination thereof, entered into under this part by the department for the financing from the proceeds of revenue bonds of an anti-pollution project." [2] Standing Committee Report No. 755 on S.B. No. 377, House Journal, Regular Session of 1973, reads in part at 1129: It is your Committee's specific intent that if the revenue bonds can be so counted against the State's debt limit, the provisions of this Act shall not be utilized. [3] By issuing revenue bonds through the State, marketability of the bonds is substantially increased and the interest expense is substantially reduced primarily because of the favorable tax treatment such anti-pollution revenue bonds receive pursuant to § 103(c) (4)(F) of the Internal Revenue Code (26 U.S.C.A. § 103). [4] E.g. Stanley v. Dep't of Conservation and Dev., 284 N.C. 15, 199 S.E.2d 641 (1973). [5] Opinion of the Justices, 359 Mass. 769, 268 N.E.2d 149 (1971); State ex rel. Farmers' Elec. Coop., Inc. v. State Env. Improvement Authority, 518 S.W.2d 68 (Mo. 1975). [6] The Supreme Court of North Carolina in Stanley conceded that although environmental control was necessary and would indeed benefit the public generally, no apparent necessity for the State to finance the projects was shown. The same controls would result regardless of State financial assistance because the private firms were compelled by law to install the anti-pollution facilities. Therefore, any assistance the State rendered resulted in clearly private gains to the firms that do get State assistance. This gives those firms an unfair advantage over competitors who do not obtain similar financing but still must comply with governmental pollution regulations. On the other hand, if revenue bond financing were provided for all industrial polluters, Sharp, J., raised the specter of a flood on the bond market with a detrimental effect on the borrowing power of local governments for needed public improvements. [7] Industrial development bonds are generally revenue bonds issued by a municipality to finance industrial plant construction or site purchases to encourage out-of-state companies to locate within that state. [8] "We feel that industrial development bonds perhaps should be issued but they should only be issued if they are in fact for a public purpose and if they are in fact for a public purpose, we have no doubt that the courts would hold that they were for a public purpose and we feel that trying to spell any constitutional definition as to what we mean by public purpose would serve no end and in fact might weaken the section... ." (Emphasis added.) [II Proceedings of the Constitutional Convention of Hawaii of 1968 at 419.] [9] Note, 52 N.C.L.Rev. 859, 875 (1974). [10] Employees' Retirement System v. Ho, 44 Haw. 154, 159, 352 P.2d 861, 864-65 (1960). [11] Section 3, Article VI of the Hawaii Constitution reads in part: [T]he term "revenue bonds" means all bonds payable solely from and secured solely by the revenues, or user taxes, or any combination of both, of a public undertaking, improvement or system.