Opinion ID: 1320658
Heading Depth: 1
Heading Rank: 10

Heading: guaranty fund requirement

Text: Section 7 of the Act establishes the Guaranty Fund Requirement in language as follows: Notes and bonds may be issued by the authority pursuant to Section 5 (1) (a) of this act without regard to the Guaranty Fund limitation of this section. The Guaranty Fund shall not be pledged to secure either the interest on or principal of any notes or bonds issued pursuant to Section 5(1) (a). No notes or bonds may be issued pursuant to Section 5 (1) (b) unless the Guaranty Fund limitation hereinafter set forth in this section shall be complied with. No notes or bonds shall be issued pursuant to Section 5 (1) (b) unless the value of the Guaranty Fund, after taking into account any bond proceeds required to be credited thereto by a resolution authorizing the issuance of additional bonds, shall be not less than the Guaranty Fund Requirement. For purposes of this act, the Guaranty Fund Requirement shall mean the maximum amount of principal, sinking fund installment and interest becoming due in any future year on all bonds issued pursuant to Section 5 (1) (b) and then outstanding including the bonds then proposed to be issued. In calculating the principal amount of notes and bonds of the authority then outstanding, no account shall be taken of any outstanding notes or bonds which have been refunded as to both principal and interest or are to be refunded as to both principal and interest out of the proposed series of notes or bonds. Section 14 of the Act requires the Authority to report annually to the State Budget and Control Board the sum, if any, required to restore the Guaranty Fund to levels necessary to service bonds issued under § 5 (1) (b) and requires the Budget and Control Board to include in its annual report to the General Assembly a statement showing the amount necessary to fund the deficit and restore the Guaranty Fund Requirement. In addition to making this recommendation, the Budget and Control Board must also approve the issuance of any bonds or notes issued pursuant to the Act. Section 11 of the Act provides as follows: The notes, bonds, or other obligations of the authority shall not be a debt or grant or loan of credit of the State of South Carolina or any political subdivision thereof and neither the State of South Carolina nor any political subdivision thereof shall be liable thereon, nor shall they be payable out of any funds other than those of the authority and the Guaranty Fund; and all notes, bonds and other obligations issued pursuant to this act shall contain on the face thereof a statement to such effect. The basic question which the lower court decided, and which we must now determine is: Does this Act and the plan of promoting housing so involve the credit of the State that it can be said that the credit is pledged or loaned for the benefit of any individual, company, association or corporation? This Court has repeatedly held that all reasonable doubt must be resolved in favor of the constitutionality of an act. If a constitutional construction of a statute is possible, that construction should be followed in lieu of an unconstitutional construction. We approach the question now before us in the light of this rule. We are of the opinion that the Act commits the State of South Carolina and, by so doing, pledges its credit to make good any deficit arising because of default under both the Direct Mortgage Loan Program and the Mortgage Purchase Program. The fact that such deficit would be paid out of the Guaranty Fund, instead of the General Fund of the State, makes the obligation no less a pledge of the credit of the State. The lower court observed: The fund. ... is comprised purely and simply of tax revenues. When the State in effect says, The deficit will be paid out of the Guaranty Fund, the credit of the State, and the obligation to pay, is involved just as though the State should say, The deficit will be paid out of the General Fund, or some other fund. Section 11, quoted herein above, fails to devise a method of lessening the impact of the prohibition presented by Article 10, § 6 of the Constitution. It fails to accomplish the desired end without pledging the credit and the financial backing of the State. There can, of course, be no requirement by the legislature which created this Act that some future legislature appropriate funds to absorb a deficit reported to it by the Budget and Control Board as contemplated by § 14. A future legislature could refuse to replenish the Guaranty Fund. There is, however, on the part of the legislature always a compelling desire, if not a moral obligation, to protect the credit and the good name of the State by appropriating monies to make good deficits created by State agencies. We have referred to the Mortgage Purchase Program and the Direct Mortgage Loan Program. We now discuss the Loan to Lender Program and the Direct Construction Loan Program, neither of which directly pledges the Guaranty Fund to the payment of any deficit. Although the Act would not appear to pledge the Guaranty Fund, and thus the credit of the State, to programs coming under § 5 (1) (a) (Loan to Lender Program and Direct Construction Loan Program), the Act goes on to say in § 10:  Provided , however, that if any party of an agreement securing, directly or indirectly, the payment of the principal and interest on notes or bonds issued pursuant to Section 5 (1) (a) shall default in his or its obligations under such agreement, the authority may sell bonds pursuant to Section 5 (1) (b) for purposes of refunding the notes or bonds issued under Section 5 (1) (a) without regard to whether the notes or bonds to be refunded mature or are subject to redemption within ten years from the date of issue of the refunding notes or bonds. ... Sections 6 and 7, read independent of the rest of the Act, would appear not to commit the Guaranty Fund, but when these two sections are read in connection with § 10, it is inescapable that the credit of the State is involved and pledged for the purpose of securing the payment of notes and bonds issued pursuant to § 5 (1) (a). Appellants argue that even if it be held that those provisions relating to the Guaranty Fund are unconstitutional, the remainder of the Act is valid and should be sustained. It is the duty of the Court to sustain an Act insofar as it is valid. We conclude, however, that the three permanent programs and the one temporary program are so interdependent for their funding and repayment and so intertwined by reason of §§ 6, 7 & 10, that all programs are objectionable as violative of Article 10, § 6. In the lower court the Act was attacked on five basic grounds. The lower court sustained the position of the contestants of the constitutionality of the Act on one ground alone, holding that four other grounds were without merit. In this appeal the respondent has reasserted those four grounds as additional sustaining grounds and has asked this Court, if it should reverse the lower court, to sustain the result reached in the lower court on one or all of the four additional grounds. Inasmuch as we sustain the lower court on the same ground that the judge announced his ruling upon, we do not reach the merits of any other contentions. Affirmed. MOSS, C.J., and LEWIS and NESS, JJ., concur. BUSSEY, J., dissents.