Opinion ID: 1357557
Heading Depth: 1
Heading Rank: 3

Heading: EXPENDITURE OF AS 43.18.010(j) FUNDS

Text: Beirne regarded the transfer of the grant funds from LOC to himself as reimbursement for legitimate hospital project expenditures which he had paid or incurred. The trial court, however, ruled that using subsection .010(j) funds for reimbursement was not permissible. The court stated that .010(j) funds can be spent only for actual construction costs, not for other costs that may, when taken together, comprise the `total project cost.' The trial court explained its interpretation as follows: The court is aware that its interpretation of the last sentence of § 10(j) ... requiring state funds to be spent only on construction costs, could cause administrative difficulties in determining entitlements under the statute. For example, suppose a 125-bed hospital with a total project cost of $20 million and construction costs of three-fourths of that amount was completed in two years. Under the statutory formula, the facility sponsor would be entitled to receive up to $5 million at the rate of $312,500 per year. If the hospital is already built, however, it has no more construction costs in a literal sense, although it may be repaying debts attributable to construction costs. Arguably, then, it would not be entitled to receive any more funds under § 10(j), and the facility sponsor would in effect be penalized for the early completion of the project. Unfortunately, the legislative history of § 10(j) and other interpretative aids provide no resolution to this anomaly, and the rather narrow reading given to the last sentence of § 10(j) appears to be required by the words used in the statute. When § 10(j) is read in conjunction with § 10(f), a possible reading of the first subsection is that what was intended was to restrict the use of § 10(j) funds to hospitals, as opposed to other purposes for which revenue sharing funds may be spent. Under this reading, § 10(j) funds could be used not only for construction costs but for all project costs, including even the cost of maintenance and operation of the completed hospital. This is not, however, the intention expressed in § 10(j). Construction is clearly the subject of this subsection; the term is used five times. This is plain enough to preclude a second alternative interpretation of the last sentence which would allow funds received under § 10(j) to be spent for purposes other than construction unless the granting authority specifically restricts their use to construction only. The legislature has already imposed that restriction by the terms of § 10(j)... . Subsection 10(j) does not provide merely for reimbursement. We believe that the trial court construed section .010(j) too narrowly. The most striking thing about section .010(j) is that while its last sentence provides that [n]o funds received for construction shall be used for any other purpose, it does not specify that the annual grants of $2,500 per bed are funds received for construction. However, the statute does refer to a category of funds which are funds received for construction, namely, state matching aid for construction. Such funds are distinct from the $2,500 per bed allowance and are provided for in AS 18.25.010-.030. We believe, therefore, that the final sentence of section.010(j) does not mean that all section .010(j) grant funds are funds received for construction. That sentence expressly applies to the separate category of state matching aid for construction. It may also be construed as a grant of authority to the State Department of Community and Regional Affairs to specify in a particular grant that section .010(j) funds shall be used only for construction. However, there was no such condition on the grant received by LOC. This interpretation avoids the anomalies which follow from the conclusion that the $2,500 per bed annual payments must be expended directly for construction. A hospital might be completely built and construction costs paid many years before the annual per bed entitlement has been disbursed. Under the construction-costs-only view of section .010(j), such a hospital would be able to utilize the section .010(j) grant only during the limited period during which construction creditors were unpaid. For example, using the initial size and costs estimates in this case, assume that a 125 bed hospital costing $10,000,000 is built in two years. The hospital sponsor's entitlement would be $312,500 annually until $2,500,000 had been received, which would take eight years. It would be contrary to the apparent intent of section .010(j) to conclude that the hospital sponsor was not entitled to payments in the years following the completion of construction simply because there were no unpaid suppliers or contractors. [5] Our interpretation of section .010(j) is also consistent with the testimony of John Chenoweth, the state official in charge of the grant program at the time in question. [6] At trial Chenoweth was asked whether it was his interpretation of the grant that the funds had to be used directly for construction rather than just reimbursed for other expenditure. He answered that in his view reimbursement was permissible: I would have, I think, allowed a little bit of leeway here in terms of use of the funds, particularly since the recipient had one project and either had to commit them to that project or  or otherwise in some  you know, in some way, shape or form. I  I did not understand that he had to trace the particular funds through as long as he could show that off-setting amounts were used in conjunction with the construction of the  of the project. At the time of trial there was no question but that Beirne as the final guarantor of the Peoples Bank loan to LOC had paid $1,244,055.67 in discharge of LOC's obligation. He was, to that extent at least, a legitimate creditor of LOC. We are therefore unable to conclude that LOC's transfer of the $312,500 to Beirne was an impermissible expenditure of section .010(j) funds. [7] Similarly, we find no violation of the public purpose clause of Article IX, Section 6 of the Alaska Constitution. [8] The parties do not question that state aid to private non-profit hospitals is a legitimate public purpose. It follows that such aid is constitutional so long as it is used for any legitimate expense related to the construction, operation, or maintenance of the hospital. Reimbursement of a guarantor who has had to pay a hospital construction loan plainly falls within these categories.