Opinion ID: 1426892
Heading Depth: 1
Heading Rank: 5

Heading: revenue stream typical self-liquidating obligation

Text: To be used for repayment are available sources other than those generated by the project itself; the quantum of legislative appropriations is uncertain; there is nothing in the authorizing statute that commits some definite percentage of total revenue to the repayment of the bonds. 73 O.S. Supp.1997 ง 168.6(E), (G) & (H). ALMA WILSON, J., with whom LAVENDER, OPALA, and WATT, JJ., join, dissenting: ถ 1 Today's judicial confiscation of art. 10, งง 23 and 25 annuls the right of the people to approve or disapprove multi-year deficit financing of an essential governmental function. For the first time, this Court gives its imprimatur to deficit spending by our legislative and executive officers. I cannot participate in the demise of our conservative fiscal management that is the hallmark of the Oklahoma Constitution. Since statehood, we have strictly adhered to the constitutional dictate that the people's resources be managed on a pay-as-you-go basis, leaving to the people their constitutionally preserved right to control the costs of borrowing and deficit spending. The Legislature and the Executive Branch should reconsider the evils of today's course of state expenditure. ถ 2 The Oklahoma Capitol Improvement Authority (OCIA), a state agency comprised of the Governor, Lieutenant Governor, State Treasurer, and five appointed executive department heads, filed its application for approval of a proposal to borrow approximately $325 million dollars through a ten-year bond issue. The net proceeds, in the amount of $300 million dollars, are to be utilized to partially fund the statewide highway system improvement projects listed in the Legislature's five-year plan. [1] The paperwork submitted by the OCIA to this Court would create an obligation on the part of OCIA to repay the borrowed money. In the proposed bond form, the OCIA promises to repay the borrowed money to the bondholders at maturity, in ten years, and to pay interest on the principal on a semiannual basis on the first day of May and November of each year commencing May 1, 1998. The funds pledged to the payment of the principal and interest on the bonds, in the bond form, are payments to be made to OCIA by the Oklahoma Department of Transportation (ODOT). The payments from ODOT to OCIA are subject to annual appropriation to ODOT. Incorporated as part of the OCIA resolution to issue the bonds is the agreement between OCIA and ODOT whereby ODOT agrees to lease highway improvement projects from OCIA for monthly payments as may be appropriated by the Legislature for that purpose. [2] ถ 3 OCIA urges that its obligation to repay the borrowed money is not a constitutional debt because: 1) ODOT's payments under the agreement are contingent upon annual appropriations; 2) future legislative bodies are not legally obligated to make the appropriations, even though they may be morally obligated; and 3) ODOT's payments are the only funds pledged to retire the bonds. In approving these so-called appropriation-risk bonds as not a debt, in the constitutional sense, the majority opinion, first, excludes the state highway system from the people's reserved legislative powers, and then, implicitly adopts the expanded special fund exception which this Court expressly rejected more than sixty years ago. ถ 4 First, the majority opinion seriously confines the legislative powers reserved to the people to legislative subject areas not specifically mentioned in the Constitution. Citing the art. 5, ง 36, art. 16, ง 1, and art. 21, ง 1, the majority opinion concludes that the Legislature, and not the people, have the power to determine policy for the state highway system. Never before has this Court read the constitutional provisions imposing specific duties on the Legislature to provide for public schools, public welfare, public roads, and the myriad of other subjects, as limitations on the people's constitutionally reserved legislative powers. ถ 5 As early as 1924, this Court recognized the importance of the state's highway system to the people: Aside from the building of institutions for education and religious training, probably no civic improvement is of greater necessity to our people than the construction of an adequate system of public highways. [3] And in 1937, this Court recognized the people's reserved power to determine whether a debt should be incurred through the issuance of bonds for highway improvement. [4] Today, however, the majority opinion removes the public highway system from the power of the people. ถ 6 Second, the majority opinion again departs from established law and adopts the expanded special fund exception to our constitutional debt limitation provisions. The state debt limitations are set out in art. 10, งง 23, [5] 24, [6] and 25. [7] Section 23 probibits the state from creating or authorizing the creation of a debt or paying a deficit, regardless of the form or source of the payment, except as provided in the annual budget balancing provisions of ง 23 and the provisions of งง 24 and 25. Section 25 prohibits state officials from contracting multi-year debts, unless the debt is authorized by law. It also prohibits a law authorizing the contracting of multi-year debts from becoming effective [8] until it has been approved by a majority vote of the electorate. [9] ถ 7 The Legislature has observed the prohibitions in art. 10, ง 25, whether authorizing state officials to contract debts for ordinary governmental expenses [10] or for economic development through creative financing. [11] Legislative intent in not referring 73 O.S.Supp.1997, ง 168.6 to a vote of the people can only be speculated. However, it is noted that ง 1 68.6 was considered and enacted in the press of the final days of the legislative session [12] and the failure to refer ง 168.6 to a vote of the people could have been an inadvertent omission in drafting. The people have not approved ง 168.6. [13] ถ 8 This Court has held that the constitutional debt limitations are expressed in plain and ordinary terms preserving to the people the right to know how much is available for appropriation [14] and the right to control the creation of debts in excess of the cash on hand. [15] In ordinary terms, a debt is a thing owed to another. Notwithstanding the clear expressions, this Court has defined debt within the constitutional debt limitations as an obligation for the payment of which resort may be had to state revenues. [16] ถ 9 A public obligation is a constitutional debt where the obligation will be paid in a subsequent fiscal year and the payment will be derived, in whole or in part, directly or indirectly, from revenues raised through the taxing powers or from state owned property. Pursuant to this legal standard, we have recognized two exceptions to the constitutional debt limitations: 1) the restricted special fund or self-liquidating exception; and, 2) the future installments for future services exception. ถ 10 The special fund exception was adopted in Baker v. Carter, 1933 OK ___, 165 Okla. 116, 25 P.2d 747, wherein application was made for approval to issue and sell bonds to build dormitories at the Oklahoma Agricultural and Mechanical College at Stillwater. The Court found that the dormitory bonds would be retired out of a special fund consisting of rentals of dormitory rooms; there would be no fixed liability of the state, nor direct obligation on behalf of the state; and, there was no showing of a strong reason for believing any contingency, immediate or remote, would ever arise whereby the debt would fall on the state. The Court concluded there is no constitutional or statutory inhibition against the issuance of dormitory bonds payable out of a special fund inasmuch as the rentals would belong to the college without an appropriation by the legislature and only the rentals were placed in the sinking fund pledged to payment of bonds and no state property would be pledged to pay the rentals. Baker v. Carter adopted the special fund exception: the constitutional debt limitation is not violated by an obligation which is payable out of a special fund, if the state is not liable to pay the same out of its general revenues should the special fund prove to be insufficient and the transaction by which the indebtedness is incurred cannot in any event deplete the resources of the state. ถ 11 The Baker v. Carter special fund doctrine was restricted in Boswell v. State, 1937 OK ___, 181 Okla. 435, 74 P.2d 940. In Boswell, the State Highway Commission sought approval of a bond issue authorized by statute. Motor fuel taxes were pledged to pay the obligation, but as herein, the bond provided that it was not a debt of the state. Boswell observed that whether the bond would be a state debt is a judicial question and not legislative or executive question; that the people reserved to themselves control over creation of debt; that the money raised by issuance of the bonds would be used for maintenance and construction of highways, ownership which is in the state by virtue of the sovereignty and no other legal entity can claim ownership; that whether one or another part of the state revenue is drawn upon is immaterial, so long as the revenue could be available for any public purpose which the Legislature may designate; and, that the special fund created by imposition of motor fuel taxes is not a special fund within the meaning of the special fund doctrine. Boswell explained that the special fund doctrine is a test to determine if any part of the special fund is raised under the state's taxing power โ if so, then the restricted special fund doctrine does not come into play, and, if not, then the obligations are self-liquidating and the restricted special fund doctrine applies. ถ 12 Boswell further explained that the expanded special fund doctrine applies to obligations that provide for the extension or improvement of state property, which obligations are payable out of the future net income of the property as improved. Boswell expressly rejected the expanded special fund doctrine. Boswell disapproved the proposed bonds because the highway improvement project was in no sense self-liquidating. That is, the special fund was created from specific taxes which constitute a part of the state's general revenue and could otherwise be devoted by the Legislature to any legitimate public use, and the existing roads would be used by those purchasing gasoline the same as any new construction. Boswell cautioned that confusion between the special fund doctrine and special funds, such as the highway maintenance and construction fund in the State Treasury, could lead to unwarranted extension of the restricted special fund exception to the constitutional debt limitation provisions. ถ 13 The restricted special fund doctrine established in Boswell has remained the law, until today. If a multi-year obligation for a construction project is to be paid from a special fund, the moneys of which are generated solely from the project and not from any state revenues that could be distributed to another public function, then the bond issue and the project are self-liquidating. [17] The restricted special fund doctrine, however, was further restricted in Application of Oklahoma Educational Television Authority, 1954 OK ___, 272 P.2d 1027, holding that the language in the 1941 amendment to art. 10, ง 23 โ without regard to source of money to be paid โ means all public revenue whether derived from the taxing power or from other sources, such as land rentals. The bonds in that case were to be paid from the revenues accruing to Public Building Fund from lands granted to state by federal government, hence, the restricted special fund or self-liquidating doctrine was not applicable. ถ 14 Because the proposed bonds, as contemplated by 73 O.S.Supp.1997, ง 168.6, would be repaid by legislative appropriation, the restricted special fund or self-liquidating exception does not apply. However, finding that the improved highways will generate additional motor fuel taxes, the majority opinion implicitly adopts the expanded special fund doctrine. The confusion of special funds of self-liquidating transactions and special funds for deposit of dedicated taxes by the majority is now insignificant, inasmuch as the debt limitation provisions are also of little or no significance with today's pronouncements. [18] ถ 15 Under the guise of stare decisis, the majority opinion strikes down our constitutional debt limitations. It is obvious from the established legal principles set forth above, the majority opinion does not rest on stare decisis. Rather, stare decisis requires this Court to hold that 73 O.S.Supp.1997, ง 168.6 falls squarely within the plain language of art. 10, ง 25 that a debt shall be authorized by law and No such law shall take effect until it shall, at a general election, have been submitted to the people and have received a majority of all the votes cast for and against it at such election. Until 73 O.S.Supp.1997, ง 168.6 shall take effect and have the force of law, there is no effective authorization for the Oklahoma Capitol Improvement Authority to borrow money for improvement of the highway infrastructure through a bond issue as proposed herein. ถ 16 True to my oath to uphold the Constitution of the State of Oklahoma, I will not participate in the demise of our clear constitutional requirement that the state maintain a balanced annual budget unless the people have given, at the ballot box, their prior approval of deficit spending. Today, this Court rules that a proposed ten-year highway bond issue would not create a state debt and therefore Oklahomans have no constitutional right to approve or disapprove of the bond indebtedness. The ruling is unmistakable โ our state constitution no longer protects unsuspecting Oklahomans from the fiscal irresponsibility of state officials.