Opinion ID: 1578403
Heading Depth: 1
Heading Rank: 18

Heading: The Expenditure Of Public Funds For Acquisition Of New, Or Improvement Of Existing, Personal Or Real Property Constitutes An Expenditure For A Public Purpose.

Text: A significant purpose of the Act is to promote the welfare and prosperity of the State by maintaining and increasing the career and job opportunities of its citizens and protecting and enhancing the tax base on which state and local governments depend upon for the financing of local governments. Minn.Stat. § 116J.88, subd. 7 (Supp.1983). As discussed above, a legislative determination of public purpose, will only be overruled if it is manifestly arbitrary or unreasonable. R.E. Short Co. v. City of Minneapolis, 269 N.W.2d at 337. Defendant has failed to meet his burden of establishing that the legislative determination that the expenditures of public funds for the business development projects in question should be overruled. It is clear that the community as a whole will benefit from the expenditures of public funds in connection with the business development projects of Big Stone and Northland Glass, both of which are small businesses. This is amply demonstrated by a review of the anticipated benefits of these projects which are documented in the affidavits submitted by plaintiff. The business development program projects for Big Stone and Northland Glass will fulfill the stated legislative purpose of job creation and improving the local tax base. Defendant has not disputed this evidence. The specific community benefits from the Big Stone and Northland Glass business development projects, as set forth in the Findings of Fact, demonstrate that the community at large will benefit. Creation of new jobs is of vital importance to the State of Minnesota, particularly in times of recession. The Minnesota Supreme Court has long recognized the expenditure of public funds to provide jobs is a public purpose. In Moses v. Olson, 192 Minn. 173, 255 N.W. 617 (1934), the Court upheld a depression-era work relief program as unquestionably serving a public purpose. In Chun King Sales, Inc. v. County of St. Louis, 256 Minn. 375, 98 N.W.2d 194 (1959), the Court found the purchase by the State of a building and equipment to lease to a private company served the public purpose of alleviating unemployment in St. Louis County. In addition to the business development and job creation programs at issue in this case, the 1983 Minnesota Legislature also passed other legislation aimed at providing jobs for Minnesotans, including the Minnesota Emergency Employment Act, Minn.Laws 1983, ch. 312, art. 7, and the Minnesota Job Skills Partnership Act, Minn.Stat. ch. 116L (Supp.1983). As set forth in the Findings of Fact, business development projects result in the creation of new jobs. During the period from 1969 through 1976, small businesses generated 86.7% of all new private sector jobs. During the same time period, the nation's largest 1,000 corporations contributed only ½ of one percent of the new jobs created. Several studies have demonstrated the important role of small businesses in creating jobs and stimulating economic growth. The number of jobs created by business development projects is further demonstrated by the experience of plaintiff's predecessor agency, the Small Business Finance Agency, in creating jobs by financing business development projects through the issuance standard conduit-type of revenue bonds. That the issuance of revenue bonds to finance business expansion creates jobs at a reasonable cost is also demonstrated by the experience of municipalities in Minnesota which have financed business development projects through the issuance of revenue bonds. It is, thus, amply demonstrated that providing financing to small businesses creates jobs. It is also undisputed that small businesses, for the very reason that they are small, experience difficulty in obtaining financing. The benefits from the Big Stone and Northland Glass projects are very much like the community benefits which resulted from the municipal industrial development financing project approved by the Minnesota Supreme Court in City of Pipestone v. Madsen . As the Court stated in that case: Providing gainful employment for our people will increase their purchasing power, improve their living conditions, and relieve the demand for unemployment and welfare assistance. New or modernized buildings will add properties to the tax lists and increase the tax base. There is little doubt that the establishment of new and improved industry will measurably increase the resources of the community, promote the economy of the state, and thereby contribute to the welfare of its people. These benefits are clearly public in nature. 287 Minn. at 372, 178 N.W.2d at 603. Just as the benefits in Pipestone were clearly public in nature, so too are the benefits which will result from the business development financing challenged in the instant case. While it is undisputed that both Big Stone and Northland Glass will receive a large benefit from this program, that fact alone does not invalidate the program. Visina v. Freeman, 252 Minn. at 184-85, 89 N.W.2d at 649. In Pipestone, the court upheld the Municipal Industrial Revenue Bond Act against a challenge that the particular private corporation which was to be the beneficiary of the revenue bonds would receive a large benefit. In so holding, the Court applied the following analysis: Since the legislative enactment and the proposed project pursuant thereto are reasonably designed to combat a problem within the competence of the legislature, and since the public will benefit from the project, the project is sufficiently public in nature to withstand constitutional challenge. Id. at 287 Minn. 373, 178 N.W.2d at 603-04. It is well settled that economic development financing is a proper function of government. In Pipestone, the Court noted that, as of the date of its opinion, the highest appellate courts of 22 jurisdictions had upheld the validity of legislation authorizing government industrial development bonds or other types of financial assistance; thirteen states had provided for such financing by constitutional provisions; and only four states had determined that economic development financing did not serve a governmental function. It is well established that Minnesota and the great majority of other jurisdictions hold that government financing for economic development serves a public purpose. Defendant seeks to distinguish this case from prior Minnesota cases which have recognized that economic development financing serves a public purpose on the ground that the type of financial assistance is different. As previously noted, the Minnesota Supreme Court has stated that the mode of financing is not relevant to a determination of whether a public purpose exists. Lifteau v. Metropolitan Sports Facilities Commission, 270 N.W.2d at 754, n. 6; R.E. Short Co. v. City of Minneapolis, 269 N.W.2d at 339, n. 6. The majority of Minnesota cases approving business development financing have involved conduit revenue financing where the state or municipal authority issues the bonds, purchases the property and enters into an extended lease with the private corporation. [3] In conduit financing, the revenue bonds are to be repaid solely out of the proceeds from the leases. See generally Minnesota Housing Finance Agency v. Hatfield, 297 Minn. 155, 210 N.W.2d 298; Higher Education Facilities Authority v. Hawk, 305 Minn. 97, 232 N.W.2d 106; City of Pipestone v. Madsen, 287 Minn. 357, 178 N.W.2d 594; Port Authority of City of St. Paul and Others v. Fisher (Port Authority I), 269 Minn. 276, 132 N.W.2d 183; Port Authority of City of St. Paul and Others v. Fisher (Port Authority II), 275 Minn. 157, 145 N.W.2d 560. Financing through general obligation bonds or tax appropriations has usually been limited to circumstances where the state or municipality will develop a government owned and operated facility. [4] However, the Court upheld the constitutionality of expenditures of appropriated funds for loans to nonprofit corporations as seed money for the development of new low income housing in Minnesota Housing Finance Agency v. Hatfield, 305 Minn. 155, 210 N.W.2d 298. The Court has also implicitly permitted the direct expenditure of appropriated funds by the payment of costs of condemnation. E.g., City of Minneapolis v. Wurtele, 291 N.W.2d 386 (Minn.1980); Housing and Redevelopment Authority of Minneapolis v. Froney, 305 Minn. 450, 234 N.W.2d 894 (1975); Housing and Redevelopment Authority v. Greenman, 255 Minn. 396, 96 N.W.2d 673 (1959). The expenditure of public funds permitted through the redevelopment statutes is analogous to the expenditures of appropriated funds for costs of issuance and insurance reserve accounts which are permitted by the Act in question. For the reasons discussed above, the expenditures questioned in the instant case for business development projects are constitutionally permissible expenditures for a public purpose.