Opinion ID: 2018446
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Heading: the constitutional limitation on debt

Text: Article XIII, section 1, of the Nebraska Constitution, provides in part: The state may, to meet casual deficits, or failures in the revenue, contract debts never to exceed in the aggregate one hundred thousand dollars, and no greater indebtedness shall be incurred except . . . . The exceptions need not be enumerated since none are applicable to the question before us. It is stipulated by the parties to this litigation that implementation of a project contemplated by the act will require, in one or more instances, the issuance of bonds in an amount in excess of $100,000, under section 9 of the act. The constitutional validity of an act of the Legislature is to be tested and determined, not necessarily by what has been done or possibly may be done under it, but by what the statute authorizes to be done under and by virtue of its provisions. United Community Services v. The Omaha Nat. Bank, 162 Neb. 786, 77 N.W.2d 576; State ex rel. Rogers v. Swanson, 192 Neb. 125, 219 N.W.2d 726. The issue is whether the provision of section 8 of the act earlier quoted and repeated here authorizes the contraction of debt or the incurrence of an indebtedness within the meaning of Article XIII, section 1, of the Nebraska Constitution. The Alcohol Plant Fund shall be used to make lease payments, if necessary, in an amount sufficient to pay the principal of, interest on, and premium, if any, on the bonds issued pursuant to this act to finance alcohol plants and to maintain amounts in any bond and bond reserve funds. § 66-828, R.S. Supp., 1979. The plain and evident purpose of the quoted portion of section 8 is to assure that if profits from the operation of the plants and facilities are insufficient to pay the bonds, the state will pay them either from the 1-cent gasoline tax, or from other future appropriations made by the Legislature, or from both such sources. The respondents concede the object of that provision is to commit the state to guaranteeing payment of the bonds. We quote from their brief: The second tier of the financing mechanism involves the establishment of a fund to assure the payment of the bonds. As a back-up to the revenues generated from operation of the alcohol plants and related facilities financed by the issuance of bonds, the Act authorizes the collection of certain moneys to in effect guarantee such bonds. The obvious reason for such guarantee is to assure the marketability of the bonds. No underwriter or investor would be likely to buy the bonds if required to rely solely upon the profitability of a particular venture and a lien upon the physical assets. The state is not to be the primary obligor on the bonds. However, previous opinions of this court, as well as the opinions of other courts which have had occasion to consider the question, make it very clear that even though the obligation of the state may be secondary or contingent, the obligation is nonetheless a debt within the meaning of Article XIII, section 1, Nebraska Constitution. State ex rel. Meyer v. Duxbury, 183 Neb. 302, 160 N.W.2d 88; Ruge v. State, 201 Neb. 391, 267 N.W.2d 748; Rochlin v. State, 112 Ariz. 171, 540 P.2d 643. See also, Austin v. Healy, 376 Ill. 633, 35 N.E.2d 78; Hubbell v. Herring, 216 Iowa 728, 249 N.W. 430. In State ex rel. Meyer v. Duxbury, supra , the Legislature created a commission to issue bonds, the proceeds of which were then to be loaned to cities to finance waste water treatment facilities. The cities in turn were to issue to the commission their own bonds, payable from anticipated revenue. This court, in holding the financing plan created a state debt in violation of the Constitution, said: But the act involved here authorizes a pledge of more than municipal bonds to secure the payment of the bonds issued by the commission. The act provides that the commission may pledge all or any part of the fees and charges to be received by the commission and all or any part of the assets of the commission as security for the payment of the bonds and notes issued by the commission. The act also provides that the commission may establish debt service reserve funds, to secure the payment of its bonds, and that the Legislature may appropriate supplemental funds from the general revenue fund of the state to supply any deficiency so that the debt service reserve funds may be maintained at the full amount prescribed in the act. The act further provides that: `It shall be the policy of the state and it does hereby pledge and agree that, to the extent appropriations may be made from state funds for the limited purposes herein indicated, the provisions hereof are intended as compensation to the commission as an agent of the state for the accomplishment of a state governmental purpose.' In Ruge v. State, supra , the court held constitutional the principal parts of a financing plan for the acquisition of a state office building in Omaha, to be built by the city and financed in part through means of a lease by the city to the state. In that case, the lease was cancelable at the will of the Legislature, and the act expressly provided the state had no binding obligation beyond the current year's rent. In the same case, however, we held unconstitutional a provision of the lease authorizing the state to pay liquidated damages upon termination of the lease, saying that such provision contravened the debt provision of the Constitution. We there said: In Section 28 of the lease the lessee agrees to pay to the lessor, upon termination of the lease, as liquidated damages for the default by the lessee: `    the reasonable costs incurred by Lessor in reletting the Land and the Public Facility and the reasonable costs of alterations incurred by Lessor in reletting the same, or the reasonable costs to Lessor necessary to place the Land and the Public Facility, or either of them, in condition for reletting, which costs shall be paid by Lessee to Lessor upon notice to Lessee that such reletting has been accomplished or such alterations have been completed, as the case may be, and of the amount of the costs thereof.' Under this provision the state assumes a liability of an undetermined amount, for which no appropriation has been made, and which will be payable, if at all, at some undetermined time in the future. Ruge v. State, supra . In Rochlin v. State, supra , the Supreme Court of Arizona had occasion to succinctly point out that secondary or contingent liabilities are debt. It said: Under Section 5 of Article 9, a debt can be either direct or contingent. A direct debt occurs when the State borrows money, pledging its credit as the sole source of payment. A contingent or secondary debt occurs when the governmental unit guarantees payment of revenue bonds, pledging its credit in the event that the revenues derived from the funded project prove inadequate to meet the bond obligations. Article 9, section 5, of the Arizona Constitution is, apart from the exceptions, substantially the same as Article XIII, section 1, of the Nebraska Constitution. In State ex rel. Meyer v. Steen, 183 Neb. 297, 160 N.W.2d 164, we said: One purpose of the constitutional limitation upon state indebtedness is to prevent the anticipation of revenue by the creation of obligations to be paid from revenue to be received in future fiscal periods. Art. XIII, § 1, Constitution of Nebraska. . . . Obligations which are to be paid from revenue subject to appropriation by future Legislatures are subject to the state debt limitation provision. See, also, Ruge v. State, supra ; State ex rel. Meyer v. Duxbury, supra . Even though the special fund doctrine might be said to be applicable to the portion of the APF coming from profits, that fact does not obviate the debt limitation problem. In this state the special fund doctrine is not applicable to obligations payable from excise taxes or other revenue subject to the control of the Legislature and available for any legal use. State ex rel. Meyer v. Steen, supra . It is clear the act purports to permit the state to guarantee unlimited payment of the bonds from excise taxes and other revenue subject to the control of the Legislature and available for any legal use. What the Legislature sought to do by the legislation found unconstitutional in Duxbury and in Ruge cannot in principle be distinguished from the case before us. The principles announced in those cases govern this one. L.B. 571 violates both the letter and the spirit of Article XIII, section 1, of the Nebraska Constitution, and is therefore in part, at least, unconstitutional and void. As will be noted from our previous summary of the act, it provides two separate avenues for the issuance of bonds, one being section 9 and the other that which incorporates the provisions of section 72-1403, R.R.S.1943. In the latter case, the statute contains an express provision that: . . . the State of Nebraska is not, and in no event shall be, liable for the payment thereof or interest thereon. There is no such limitation pertaining to bonds issued under section 9. The two methods are clearly alternatives. See section 20 of the act. However, this does not solve the constitutional problem so far as the incorporation of section 72-1403, R.R.S.1943, is concerned. If the bonds are issued under section 9, it is clear that section 8 commits the state to pay the bonds if the municipality does not. It is not absolutely clear from the terms of the act that such obligation exists if the bonds are issued under section 72-1403, R.R.S.1943. The act can be read as incorporating only the provisions of section 72-1403, R.R.S. 1943, which grant powers, and not incorporating the restrictions negativing the state obligation. If read in this way, then the same constitutional objections exist in the case of bonds issued under section 9. It seems absolutely clear, however, that the powers under section 72-1403, R.R.S.1943, would not have been granted without the guarantee under section 8. For the reasons later discussed in the immediately following section of this opinion titled Severability, the provisions incorporating section 72-1403, R.R.S.1943, must therefore fall if section 8 does. We must briefly take note of the respondent's contention that the act does not violate the debt limitation provision because the APF has already been appropriated. The contention is patently frivolous. Respondents simply want to change the definition of the term, presently appropriated. The general rule is that an obligation for which an appropriation is made at the time of its creation from funds already in existence, or for which definite provision has been made, is not within the operation of a limitation of indebtedness provision. 72 Am.Jur.2d, States, Etc., § 81, p. 474. However, a declaration of the Legislature of the purpose for which money will or may in the future be expended is not an appropriation. Stahmer v. State, 192 Neb. 63, 218 N.W.2d 893; Ruge v. State, 201 Neb. 391, 267 N.W.2d 748. No amounts are designated in the act. Even the amount of the prospective obligations are not known since they have not yet been incurred or even estimated. They cannot be known until bonds are issued. There are no profits subject to appropriation for there is no certainty there will be any profits. One of the elements of the APF is such funds as may be appropriated by the Legislature. (Emphasis supplied.) § 66-828, R.S.Supp., 1979. With reference to the part of the fund to come from the 1-cent gasoline tax, it is to be noted that it remains in the Highway Trust Fund until calls or demands are made on such fund pursuant to lease agreements entered into under this act. § 39-2215, R.S.Supp., 1979. That section also provides that any part not used either for the APF or to pay highway bonds is to be transferred monthly to the Highway Allocation Fund, established by section 39-2401, for such use as may be provided by law. It is plain there is no present appropriation or any appropriation at all in the sense in which that term is used in Article III, section 22, of the Nebraska Constitution.