Opinion ID: 2060173
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Heading Rank: 3

Heading: Does ch. 234, Stats., create state debt in violation of art. VIII, sec. 4 and sec. 7, or constitute a pledge of the state's credit in violation of art. VIII, sec. 3?

Text: Art. VIII, sec. 4, forbids the state from contracting any debt except in the manner and amount provided by that article. The word debt, as used in the constitution, means all absolute obligations to pay money or its equivalent. This court, in State ex rel. Owen v. Donald (1915), 160 Wis. 21, 59, 151 N. W. 331, defined debt in the following manner: There is nothing particularly technical about the meaning of the word `debt' as used in the constitution. It includes all absolute obligations to pay money, or its equivalent, from funds to be provided, as distinguished from money presently available or in process of collection and so treatable as in hand. Earles v. Wells, 94 Wis. 285, 68 N. W. 964; Doon Tp. v. Cummins, 142 U. S. 366, 376, 12 Sup. Ct. 320. This court has heretofore consistently held that no state debt is created unless the state itself is under a legally enforceable obligation. Glendale Development v. Board of Regents (1960), 12 Wis. 2d 120, 106 N. W. 2d 430; State ex rel. Thomson v. Giessel (1955), supra; State ex rel. Thomson v. Giessel (1953), supra; State ex rel. Wisconsin Development Authority v. Dammann, supra . Ch. 234, Stats., contains an express negation of the Authority's power to incur state debt or pledge the credit of the state. Sec. 234.14 provides: ... The state shall not be liable on notes or bonds of the authority and such notes and bonds shall not be a debt of the state. All notes and bonds of the authority shall contain on the face thereof a statement to such effect. The initial appropriation of $250,000; sec. 234.19, Stats., which pledges the noninterference of the state in the contractual relationship between the Authority and the holders of its notes and bonds; sec. 234.26, which provides that the state may legally invest any sinking funds, moneys or other funds belonging to it or within its control in any notes or bonds issued by the Authority; and sec. 234.30, which commands all state departments and agencies to extend their full cooperation to the Authority, do not indicate the contracting of state debt as that term has been defined by this court. No absolute obligation is created to be satisfied or discharged out of future appropriations. However, sec. 234.15 (4), Stats., directs the governor and the secretary of administration to include in the biennial budget in odd-numbered years the amount certified by the chairman of the Authority as necessary to maintain the Authority's capital reserve fund. The capital reserve fund, among other things, services the payment of the principal and interest of the Authority's notes and bonds. This section further requires the governor to recommend to the legislature in even-numbered years the Authority's additions to the budget for servicing its debt. Future legislative approval is necessary before appropriations are to be made into the Authority's capital reserve fund. Thus, sec. 234.15, Stats., creates no presently binding legal obligation on the part of the state but merely constitutes an expression of future intention or aspiration. Other jurisdictions, construing similar legislative acts, have held that provisions similar to sec. 234.15, Stats., are intended only to express to succeeding legislatures an expectation and aspiration that the project might be found worthy of financial assistance, if later needed. Maine State Housing Authority v. Depositors Trust Co., supra; Massachusetts Housing Finance Agency v. New England Merchants Nat. Bank, supra ; In Re Advisory Opinion (Mich. 1968), supra; Martin v. Housing Corp., supra . It is argued that, despite the express negation of state debt contained in sec. 234.14, Stats., sec. 234.15 creates an expectation of financial assistance from the state to the Authority, and that investors will feel that the state is giving its credit to the Authority even though there is no binding legal obligation on the part of the state. Similar argument was raised and rejected in State ex rel. Thomson v. Giessel (1955), supra; State ex rel. Thomson v. Giessel (1953), supra; and State ex rel. Wisconsin Development Authority v. Dammann, supra . In State ex rel. Thomson v. Giessel (1953), supra, at page 199, this court stated: Respondent argues that the bond-buying public will feel that the state is giving its credit to the turnpikecorporation bonds even though there is no legal obligation on the part of the state, because it will be reasoned that the state could not afford to allow the project to fail. Obviously, this cannot be the test to be applied. The test of a `legally enforceable obligation' laid down in the Wisconsin Development Authority Case, supra, is the only sound one. No enforceable legal obligation is created on the part of the state to subsidize the debts of the Authority even though good judgment may dictate that it do so voluntarily. No state debt can be created where payment of state funds is to be made solely at the state's option. State ex rel. Thomson v. Giessel (1955), supra; Burnham v. Milwaukee (1897), 98 Wis. 128, 73 N. W. 1018. Respondents contend that ch. 234, Stats., evidences a moral obligation on the part of the state to insure the Authority's debts, and that such moral obligation is sufficient to create state debt within the meaning of art. VIII, sec. 4. [21] The term moral obligations recognizes the absence of any legally enforceable claim. It is generally held that the state is not compelled to recognize moral obligations, but it is free, through appropriate legislation, to satisfy that which it recognizes as its moral debt. [22] It is stated in 63 Am. Jur. 2d, Public Funds, pp. 457, 458, sec. 70: The essence of a moral obligation is that it arises out of a state of facts appealing to a universal sense of justice and fairness, even though upon such facts no legally enforceable claim can be based. A `moral obligation' justifying the enactment of a statute providing for the payment of compensation in a case in which no legal liability exists on the part of the state or its subdivisions is such an obligation as would be recognized by men with a keen sense of honor and with a real desire to act fairly and equitably without compulsion of law. However, it is generally recognized that a moral obligation is more than a mere desire to do charity or to appropriate money in acknowledgment of a gratitude. It is an obligation which, though lacking any foundation cognizable in law, springs from a sense of justice and equity which an honorable person would entertain, but not from a mere sense of doing benevolence or charity. Even if a moral obligation on the part of the state exists, the fact is that ch. 234, Stats., does not create a legally enforceable claim against the state by the holders of its notes and bonds. Whether future appropriations are made pursuant to sec. 234.15, depends upon the exercise of legislative wisdom of each successive legislative session when and if such requested appropriations are submitted to it for its consideration. Ch. 234 does not create a state debt within the meaning of art. VIII, sec. 4. [23] Respondents make a similar argument to support their contention that ch. 234, Stats., violates art. VIII, sec. 3. Art. VIII, sec. 3, provides: ... The credit of the state shall never be given, or loaned, in aid of any individual, association or corporation. It has been consistently held by this court that there can be no clash with art. VIII, sec. 3, Wisconsin Constitution, unless the giving of credit results in a legally enforceable obligation against the state. State ex rel. La Follette v. Reuter (1967), supra; State ex rel. Bowman v. Barczak, supra ; State ex rel. Thomson v. Giessel (1953), supra. In State ex rel. Wisconsin Development Authority v. Dammann, supra, at pages 196 and 197, this court stated: It is argued that the giving or loaning of credit does not necessarily mean the creation of an indebtedness, but includes the holding out of an expectation that payment will be forthcoming and belief or faith that the state will make the disbursement. From this defendant concludes that if plaintiff prevails, it follows that the state has not only loaned its credit but created a legally enforceable indebtedness in violation of sec. 4, art. VIII, Wis. Const.... . . . It is our conclusion that the giving or loaning of the credit of the state which it was intended to prohibit by sec. 3, art. VIII, Wis. Const., occurs only when such giving or loaning results in the creation by the state of a legally enforceable obligation on its part to pay to one party an obligation incurred or to be incurred in favor of that party by another party.... The express negation of the Authority's power to incur debt on behalf of the state or to pledge the state's credit protects the enactment from the alleged violation of art. VIII, sec. 3, Wisconsin Constitution. There is no violation of such constitutional provision unless the giving of credit results in a legally enforceable obligation against the state. Since we have determined that ch. 234 creates no state debt within the meaning of art. VIII, sec. 4, it follows that ch. 234 does not constitute a loan of the state's credit in violation of art. VIII, sec. 3.