Opinion ID: 1175625
Heading Depth: 1
Heading Rank: 6

Heading: Creation of a State Debt Without Proper Public Authorization

Text: (5) Article XVI, section 1, of the California Constitution requires that any law which will create a debt of the Legislature and which, in combination with any previous debts, will exceed $300,000 must be passed by a two-thirds vote of each house of the Legislature and a majority of the people voting in a general or primary election. Respondent maintains that the Act authorizes the creation of such a debt in violation of this section. We disagree. Strictly speaking, the debts which will be created by the Act are debts of the Agency, not of the state, for they are to be paid not from the general funds of the state but from the housing project revenues (or, if necessary, from the reserve security fund already appropriated by the Legislature). We have held that debts which are payable solely from a special fund rather than from the state's general funds do not violate article XVI, section 1. (See City of Oxnard v. Dale (1955) 45 Cal.2d 729, 733 [290 P.2d 859].) Respondent, while conceding this point, argues that the state will be required by practical considerations to commit its general resources to the payment of these bonds in the event of a default. On this basis he concludes that the bonds will become, for all practical purposes, a charge against the state's general funds. Section 41707 of the Act appears to acknowledge that a default in payment on the bonds would have an effect on the state's credit. The section provides for a Housing Bond Credit Committee to determine for each bond issue the adequacy of the program's security in protecting the state's credit and to disapprove entirely, or reduce the amount of, the proposed issuance if the issue would create an undue risk. Furthermore, section 41364 contemplates that discretionary appropriations may be made by the Legislature if the Agency's funds prove insufficient to meet its obligations. It does not necessarily follow, however, that bonds issued under the Act will become a debt chargeable against the state's general funds. Neither the above sections nor any other provision of the Act creates any enforceable obligations against the state general funds. As we emphasized in California Educational Facilities Authority v. Priest, supra, 12 Cal.3d 593, indebtedness under article XVI, section 1, refers only to legally enforceable obligations against the state's general funds or taxing power. ( Id., at p. 607.) Since the Act creates no obligations of this type we conclude that it does not violate article XVI, section 1.