Opinion ID: 2570818
Heading Depth: 1
Heading Rank: 5

Heading: Lending of the state's credit under Article 8, Section 9 of the Nevada Constitution

Text: EICON argues that the lease-purchase agreement does not result in a lending of the state's credit in violation of the Nevada Constitution Article 8, Section 9, and therefore, the decision by the Board not to review the agreement was an abuse of discretion. The Board argues, in accord with the Attorney General's opinion, that the agreement creates a financing scheme in which the state is arguably placing its credit behind EICON's ability to obtain financing. In addition, respondent argues that if the court considers the substance of the transaction over its form, the agreement cannot withstand constitutional scrutiny. We conclude that because the state is not legally liable for the debts owed by EICON, the agreement does not run afoul of the Nevada Constitution. Article 8, Section 9 of the Nevada Constitution provides: The state shall not donate or loan money, or its credit, subscribe to or be, interested in the Stock of any company, association or corporation, except corporations formed for education or charitable purposes. The state loans its credit in violation of this section only if the state acts as a surety or guarantor for the debts of a company, corporation or association. [27] Under the terms of the agreement, the state is not liable for any debts owed by EICON. The state is liable under the terms of the lease only for lease payments for which the legislature has made appropriations. If the legislature, in subsequent years, fails to appropriate sufficient money for the lease payments, the state has no further liability to EICON. Additionally, limitation on the state's liability under the agreement remains in spite of the assignment of lease payments to the third-party trustee; the state would not be liable to the holder of such certificates of participation, who would stand in no better position than EICON. [28] Moreover, constitutional debt limitations do not arbitrarily telescope multiyear agreements into a single year, and [t]he determinative inquiry for purposes of the Constitution is not the extent to which the agreement resembles an installment purchase contract, but whether the payments in future years are contingent. [29] Here, payments in future years are wholly contingent on future legislatures making the necessary appropriations. Thus, the agreement is constitutional. Finally, an extension of credit under these circumstances still would not violate the Constitution's prohibitions because the expenditure would be for a valid public purpose providing office space for a state agency. [30]