Opinion ID: 1240566
Heading Depth: 2
Heading Rank: 3

Heading: Undertaking State Debt and Extending State's Credit

Text: Another ground upon which CAG challenges the legislation at issue involves the contention that West Virginia Code § 29-22-18a(d)(3) runs afoul of two constitutional provisions prohibiting the undertaking of debt by the state and the extension of credit by the state to private entities. We will examine these two constitutional claims separately.
CAG argues that the legislation at issue is in contravention of the constitutional provision stating that [n]o debt shall be contracted by this State. W.Va. Const. art. X, § 4. As we explained in State ex rel. Board of Governors v. O'Brien, 142 W.Va. 88, 94 S.E.2d 446 (1956), this provision was intended to prohibit the creation of debts, by the State, required to be repaid by a public tax. Id. at 97, 94 S.E.2d at 451; accord State ex rel. W.Va. Regl. Jail Auth. v. W.Va. Inv. Mgt. Bd., 203 W.Va. 413, 421, 508 S.E.2d 130, 138 (1998) (stating that [t]his Court has defined the basic intent and purpose of Article X, Section 4 as prohibiting legislative acts which would bind subsequent legislatures to appropriate money in subsequent fiscal years). In O'Brien, we applied this concept to hold that revenue bonds statutorily authorized [38] to be issued by the board of governors to finance certain buildings at West Virginia University which were payable solely from a special fund comprised of student fees did not create a debt in violation of article ten, section four. Our decision made clear that the constitutional concern presented by article ten, section four is the levying of a tax to satisfy the obligation of debt undertaken by the state. 142 W.Va. at 97, 94 S.E.2d at 451. Focusing on the distinction between an involuntary tax which is paid under compulsion and the voluntary payment of fees or costs, we upheld legislation authorizing a portion of proceeds from the sale of alcoholic beverages to pay off bonds issued to finance buildings utilized by certain state agencies and departments. See State ex rel. State Bldg. Commn. v. Moore, 155 W.Va. 212, 234, 184 S.E.2d 94, 107 (1971). As in O'Brien, the constitutional provision proscribing debt was avoided because the bonds at issue were not being paid for through imposition of a tax, but instead from the action of the members of the public who, on a wholly voluntary basis, purchase alcoholic liquors from the state. Id. at 234, 184 S.E.2d at 107. Both Moore and O'Brien fall into that category of cases, referred to as the `special fund doctrine' decisions, where challenged legislation has been determined not to be violative of article ten, section four based on the non-involvement of the state's general tax revenues. State ex rel. Hall v. Taylor, 154 W.Va. 659, 670, 178 S.E.2d 48, 55 (1971), overruled on other grounds by State ex rel. Resource Recovery-Solid Waste Disposal Auth. v. Gill, 174 W.Va. 109, 111, 323 S.E.2d 590, 592-593 (1984). In explaining this doctrine, we stated: [I]t has generally been held that an obligation payable from a special fund created by the imposition of fees, penalties, or excise taxes, and for the payment of which the general credit of the state is not pledged and resort may not be had to property taxation, is not a debt within the meaning of constitutional debt limitations. Such a limitation applies solely to that arising from a general levy and not excise taxes. Id. at 670-71, 178 S.E.2d at 55 (quoting 49 Am.Jur. States, Territories, and Dependencies, § 67). Acknowledging that a precise definition of the special or separate fund doctrine is difficult, we observed in Taylor that it is uniformly held, however, that the doctrine cannot be applied to a fund which is created and maintained, in whole or in part, by general tax revenues, for the reason that such would clearly violate the purpose and intent of constitutional provisions such as that involved in this case [art. X, § 4]. The basic intent and purpose of such constitutional provisions is to prohibit any legislative act which would bind subsequent legislatures to make appropriations of moneys in subsequent fiscal years. 154 W.Va. at 672-73, 178 S.E.2d at 56. In upholding the subject legislation with regard to the inhibitory debt provisions of section four of article ten, the circuit court looked to this Court's rulings in State ex rel. Marockie v. Wagoner ( Wagoner I ), 190 W.Va. 467, 438 S.E.2d 810 (1993), overruled on other grounds by State ex rel. W.Va. Regl. Jail Auth. v. W.Va. Inv. Mgt. Bd., 203 W.Va. 413, 421, 508 S.E.2d 130, 138 (1998). Wagoner I concerned the constitutionality of issuing revenue bonds for school building fund purposes to be paid from a portion of the previously established consumer sales tax receipts. Through that decision, we confirmed the well-established principle that `[s]ection 4 of Article X of the West Virginia Constitution... does ... [not] preclude the issuance of revenue bonds which are to be redeemed from a special fund.' Id. at 468, 438 S.E.2d at 811, syl. pt. 1, in part (quoting Syl. Pt. 6, Winkler v. State of W.Va. Sch. Bldg. Auth., 189 W.Va. 748, 434 S.E.2d 420 (1993)). In striking down the designated special revenue fund created from consumer sales tax revenues in Wagoner I, we clarified that: The Legislature may not designate funds that will be used to liquidate a revenue bond issue out of a current tax source that flows into the general revenue fund. If this practice were permitted, then a debt would be created that would burden the existing general revenue fund in violation of Section 4 of Article X of the West Virginia Constitution. Syl. Pt. 2, Wagoner I, 190 W.Va. at 468, 438 S.E.2d at 811. The Legislature responded to the constitutional impediment recognized by the Wagoner I ruling and amended West Virginia Code § 18-9D-6(b) (1993) to create a special fund known as the school building debt service fund that consists of moneys allocated from the net profits of the West Virginia Lottery. See W.Va.Code § 29-22-18(h) (1994). In upholding this funding mechanism, we held that: This method of funding the School Building Authority's revenue bonds does not violate section 4 of article X of the West Virginia Constitution since the monies allocated to the school building debt service fund are a new revenue source and since the legislature specifically provided in W.Va.Code, 29-22-18 [1990 and 1994] that the net profits from the West Virginia Lottery are not to be treated as part of the general revenue of the State. Syl. Pt. 3, in part, Wagoner II, 191 W.Va. at 462, 446 S.E.2d at 684. [39] We noted that while the lottery profits were initially made part of the general revenue fund, beginning in 1990 those funds were specifically designated for specified purposes and the Legislature expressly mandated that the lottery revenues shall not be treated ... as part of the general revenue of the state. Id. at 465-66, 446 S.E.2d at 687-88 (quoting W.Va.Code § 29-22-18(g) (1990)). In concluding that the subject legislation does not violate article ten, section 4, the circuit court applied the principles discussed in the Wagoner decisions, as well as our earlier decisions in O'Brien, Taylor, and Moore. To reach its ultimate determination that the State's general revenues are not implicated by the subject legislation, the circuit court first examined whether the special revenue fund doctrine would apply. Looking to the statutory provisions at issue, the lower court determined that West Virginia Code § 29-22-18a(a) clearly created a special revenue fund within the State Lottery Fund, and then concluded that the Economic Development Project Fund, although not denominated a special fund, clearly is one. The lower court, while correct in its conclusion, overlooked the statutory language that expressly designates the Economic Development Project Fund as a special revenue fund. W.Va.Code § 29-22-18a(d)(2). In addition, the lower court found significant the fact that the bonds shall be payable solely from the special fund provided in this section for the payment. W.Va.Code § 29-22-18a(d)(1). As further support for the Legislature's intention that the general revenues of this state never be called upon to pay off the subject bonds, the circuit court noted that the statute expressly contemplates the possibility of insufficient funds in a given month to cover the allocated one tenth of the projected annual principal, interest and coverage requirements. In such event, the deficiency shall be added to the amount transferred in the next succeeding month in which revenues are available to transfer the deficiency. W.Va.Code § 29-22-18a(g). Based on all of these factors, we are convinced that the financing mechanism established for payment of the revenue bonds that will be issued in connection with the selected grant projects properly comes within the special revenue fund doctrine. Given the Legislature's carefully constructed financing mechanism, we do not find any basis for concluding that the bond repayment schema under consideration can negatively affect the fiscal integrity of the state. [40] We reach this conclusion based on the fact that the bonds will not be satisfied out of general revenue appropriations. Accordingly, the concerns underlying the provisions of article ten, section four are not implicated by the subject legislation.
CAG argues that the subject legislation violates the provisions of article ten, section six by wrongly extending public aid for the benefit of private interests. The pertinent language of this constitutional provision provides: The credit of the state shall not be granted to, or in aid of any county, city, township, corporation or person; nor shall the state ever assume, or become responsible for the debts or liabilities of any county, city, township, corporation or person. W.Va. Const. art. X, § 6. As we explained in syllabus point five of Winkler: The plain language of Section 6 of Article X of the West Virginia Constitution is designed to restrict the State from granting credit to subordinate political subdivisions such as municipalities and counties, as well as to forbid the State from granting credit or assuming liabilities for debts of private persons or other entities. 189 W.Va. at 750, 434 S.E.2d at 422. Section six of article ten was made a part of our state constitution to avoid a specific historical problem encountered by Virginia: [41] The purposes of the section [art. X, § 6] are well known, being to guard against the mistakes of the mother Commonwealth of Virginia in granting aid to counties, and particularly in granting aid to organizations for the purposes of so-called public improvements, and in becoming stockholders of such organizations. It was not, we think, intended to inhibit the use of the State's funds in carrying out public purposes.... We do not think it inhibits the organization of public corporations for the purpose of carrying out governmental purposes. State ex rel. Dyer v. Sims, 134 W.Va. 278, 289-90, 58 S.E.2d 766, 773 (1950), rev'd on other grounds, 341 U.S. 22, 71 S.Ct. 557, 95 L.Ed. 713 (1951); accord State ex rel. Appalachian Power Co. v. Gainer, 149 W.Va. 740, 759, 143 S.E.2d 351, 364 (1965) (recognizing that article ten, section six was inserted in the Constitution primarily to prevent the practice which obtained earlier in Virginia of lending the state's credit to counties or to private internal development projects such as railroads, canals, toll roads and turnpikes). The objective of section six of article ten, like that of section four of that same article, is to protect the fiscal integrity of the state through the stated means of restricting the Legislature's ability to create longterm debt. Winkler, 189 W.Va. at 755, 434 S.E.2d at 427 (citing Gill, 174 W.Va. at 111, 323 S.E.2d at 592-593). For essentially the same reasons the subject legislation does not implicate the concerns at issue in section four of article ten, it fails to invoke the credit or debt concerns at the center of section six. As the circuit court aptly determined: Since the bonds are required to be repaid from the Economic Development Project Fund, a special revenue fund, and not out of compulsory tax payments, the credit of the State is not implicated. The bond financing and repayment provisions delineated in West Virginia Code § 29-22-18a(d) do not create a lien against the general revenue of the state because the bonds are to be repaid solely from a special revenue sourceexcess lottery funds that are not part of the general revenue of the state. As the provisions of the subject legislation make clear, there is no assumption by the state of any debt or liability of any political subdivision, county, city, township, corporation, or person. In arguing that article ten, section six is violated based almost entirely on whether the legislation at issue serves a public purpose, CAG overlooks the provision's primary objective of securing the state's fiscal integrity. While it is axiomatic that legislative appropriations must serve a public purpose, [42] that is not the constitutional concern, as discussed above, which article ten, section six is aimed at safeguarding. Nonetheless, the law is well established with regard to the public purpose doctrine: A legislative declaration of purpose, while not conclusive, is entitled not only to respect but to a prima facie acceptance of its correctness. Syl. Pt. 6, Waterhouse, 158 W.Va. at 197, 212 S.E.2d at 726. Moreover, [a] legislative determination of what is a public purpose will not be interfered with by the courts unless the judicial mind conceives it to be without reasonable relation to the public interest. Gainer , 149 W.Va. at 750, 143 S.E.2d at 359. The Legislature has provided a clear statement of the public purpose which it seeks to serve through the provisions of West Virginia Code § 29-22-18a(d). The intended object of the subject legislation is economic development and the anticipated benefit of utilizing the grant moneys for such development is both to retain existing business and industry [and thereby provide] the citizens of this state with economic security and to attract new business, commerce and industry. Id. While CAG vigorously challenges the Legislature's objective of advancing the economic interests of this state through commercial development, [43] this Court recognized the worth of commercial development more than twenty years ago in State ex rel. Ohio County Commission v. Samol, 165 W.Va. 714, 275 S.E.2d 2 (1980), stating: It does not require any lengthy discussion to realize that the renovation, expansion or creation of existing or new commercial projects gives much the same economic benefit to a community as would comparable activities in the industrial area. Each serves to create or maintain employment and enhance tax revenues, and thereby operates to benefit the community and public in general. Id. at 718, 275 S.E.2d at 4. Rather than being static in nature, the public purpose doctrine, because of its inherent responsiveness to societal needs and demands, is ever changing: What constitutes a public purpose varies with changing conceptions of the scope and function of government. As governmental activities increase by reason of the growing complexity of various phases of society, the concept of `public purpose' expands proportionately. Waterhouse, 158 W.Va. at 215, 212 S.E.2d at 735. Addressing both the fluidity of the public purpose doctrine and how economic development fits into that doctrine, the South Carolina Supreme Court articulated: Times change. The wants and necessities of the people change ... On the one hand, what could not be deemed a public use a century ago may, because of changed economic and industrial conditions, be such today. The consensus of modern legislative and judicial thinking is to broaden the scope of activities which may be classed as involving a public purpose. 37 Am.Jur., Municipal Corporations, Sec. 132. It reaches perhaps its broadest extent under the view that economic welfare is one of the main concerns of the city, state and the federal governments. [Emphasis supplied]. Nichols v. S.C. Research Auth., 290 S.C. 415, 351 S.E.2d 155, 161 (1986) (additional citations omitted); see also State ex rel. Brown v. City of Warr Acres, 946 P.2d 1140, 1146 (Okla.1997) (Summers and Watt, J., concurring) (observing that [w]hether a sufficient public purpose exists behind a city's expenditure of a public money for an economic development plan should be measured by contemporary economic challenges faced by municipalities). While legislative action is required to serve the public, rather than private interests, the realization of incidental benefits by private entities as a result of legislative efforts does not render the legislation unconstitutional for lack of a public purpose. As the Oklahoma Supreme Court remarked in Warr Acres: Municipalities today compete on a nation-wide level to attract new industry into their locality. A city cannot compete with other cities or even other states if other cities and states are competing with inducements devised under contemporary economic development plans.... This has been recognized in other states, as courts have construed public purpose requirements for the expenditure of public funds to encompass ever changing public needs and adapt to the ever increasing competition for industry development. Economic development plans devised to provide gainful employment, improve living conditions, attract industry and advance the economy, like the plan at issue here, in which the public benefits greatly outweigh the incidental benefit to a private person or corporation have been upheld. Id. at 1148 and cases cited therein (Summers and Watt, J., concurring) (emphasis supplied). Many years ago this Court addressed the broad sphere of permissible governmental activity in areas where the Legislature determines that government action is a necessary supplement to private enterprise to alleviate social problems. State ex rel. City of Charleston v. Coghill, 156 W.Va. 877, 881, 207 S.E.2d 113, 116 (1973). In ruling upon enabling legislation authorizing the City of Charleston to determine the amount of space in a public parking facility which would be leased to a private enterprise, this Court upheld public parking as a validly declared public purpose where the statement of legislative intent included the objective of `fostering the development of commerce and business within municipalities.' Id. at 880, 207 S.E.2d at 116 (quoting West Virginia Code § 8-16-4a(a)). Acknowledging that private interests might be affected through this legislation, we stated, although a parking facility designed for an acknowledged public purpose is constitutional, even though it confers ancillary and incidental benefits upon private persons, a parking facility which has as its primary and dominant purpose the conferring of private benefits, with only ancillary public benefits, would be an unconstitutional use of authority.... 156 W.Va. at 884, 207 S.E.2d at 118. This Court has similarly upheld various legislative acts against public purpose challenges despite the existence of incidental benefits to private interests. See Copenhaver, 153 W.Va. at 650, 171 S.E.2d at 554 (upholding West Virginia Housing Development Fund legislation enacted to provide public housing assistance); Gainer, 149 W.Va. 740, 143 S.E.2d 351 (upholding statute authorizing reimbursement of public utilities for relocation costs necessitated by highway construction on public purpose grounds against challenge of unconstitutionally extending state's credit); State ex rel. County Court of Marion Co. v. Demus, 148 W.Va. 398, 135 S.E.2d 352 (1964) (upholding Industrial Development Bond Act providing for issuance of self-liquidating bonds against challenge that legislation constituted an indirect granting of credit to private corporation); State ex rel. W.Va. Bd. of Educ. v. Sims, 139 W.Va. 802, 81 S.E.2d 665 (1954) (upholding legislation granting paid sabbatical leave to faculty of state educational institutions on public purpose grounds, while recognizing incidental personal benefit to faculty); State ex rel. Bd. of Govs. of W.Va. Univ. v. Sims, 134 W.Va. 428, 59 S.E.2d 705 (1950) (directing state auditor to pay medical costs of injuries incurred by student athlete in intercollegiate contest and finding public purpose in statute authorizing discretionary payment of such costs); State ex rel. Bd. of Govs. of W.Va. Univ. v. Sims, 133 W.Va. 239, 55 S.E.2d 505 (1949) (upholding legislation authorizing government pensions, finding that public benefit outweighed any ancillary private benefit). In ruling on the public purpose of the economic development at issue, the circuit court opined: The legislature apparently believes that downtown redevelopment districts will promote the vitality of retail business areas within municipalities, serve as an effective means for restoring and promoting retail and other business activity within said districts, will benefit municipalities by increasing the tax base within said downtown redevelopment district and will stimulate economic growth and job creation. While the Court cannot say that all of the anticipated results will necessarily flow from the creation of downtown redevelopment districts, it can be said that all of these stated purposes serve legitimate public purposes. (citation omitted) Like the circuit court, we find that the Legislatively declared objective of economic development is a valid public purpose, deserving of both judicial respect and occasion for the desired economic development to take place. Accordingly, we find no basis for interfering with the subject legislation on public purpose grounds.