Opinion ID: 1360563
Heading Depth: 1
Heading Rank: 16

Heading: alaska precedent

Text: In a series of cases, the Alaska Supreme Court has interpreted the meaning of debt in relation to the Alaska Constitution. In DeArmond v. Alaska State Development Corp., 376 P.2d 717 (Alaska 1962), the newly created Alaska State Development Corporation (ASDC) sought to sell bonds in order to raise money to provide investment capital for Alaska businesses. The Alaska Supreme Court held that where the sale of bonds is backed only by the credit of ASDC, the debt incurred is not the State's. DeArmond, 376 P.2d at 722. The court noted that the legislation creating ASDC specifically provided that bonds sold by ASDC did not constitute a pledge of the State's credit. Id. In Walker v. Alaska State Mortgage Ass'n, 416 P.2d 245 (Alaska 1966), the appellant argued that funds raised through the sale of bonds by the Alaska State Mortgage Association created state debt in violation of article XI, section 8 of the Alaska Constitution. Walker, 416 P.2d at 253. The Walker court reaffirmed its position in DeArmond, holding that where the sale of bonds clearly specifies that bonds are backed only by the resources of the corporation, they do not create state debt. Id. As the State points out, in Walker, the Alaska Supreme Court cited Book v. State Office Bldg. Comm'n, [238 Ind. 120] 149 N.E.2d 273 (1958), in support of its holding. Walker, 416 P.2d at 253, n. 39. In Book, the Indiana Supreme Court reviewed the terms of a lease between the State Office Building Commission and state agencies which leased space in the building. Book, 149 N.E.2d at 286-87. The Book court held: In our opinion this language [in the lease agreement] neither requires the State departments and agencies to rent any space in the proposed building nor binds any future session of the Legislature to appropriate the funds with which to pay the rental due by reason of any use and occupancy agreement which may be consummated by any of the State departments and agencies and the commission. (Emphasis added.) Id. The Book court based its holding that the lease in question did not create debt in contravention of the Indiana Constitution, in part, on the inclusion of a non-appropriation clause in the lease agreement. In addition, in its brief, the State notes that the Book court cited State ex rel. Thomson v. Giessel, [271 Wis. 15] 72 N.W.2d 577 (1955), in which the Wisconsin Supreme Court held that the inclusion of non-appropriation clauses in lease-purchase agreements prevents a state debt obligation from arising. Giessel, 72 N.W.2d at 590 ([N]o state debt is created where payments are to be made solely at the state's option). The Giessel decision has been cited as a leading authority for courts which uphold lease-purchase agreements based, in part, on the inclusion of a non-appropriation clause. Reuven M. Bisk, State and Municipal Lease-Purchase Agreements: A Reassessment, 7 Harv.J.L. & Pub.Pol'y 522, 536-37, 545-46 (1984). In Norene v. Municipality of Anchorage, 704 P.2d 199 (Alaska 1985), the court considered whether an Anchorage Home Rule Charter provision which provided that any lease-purchase agreement which was in excess of $1 million required voter approval. The Norene court held that the Municipality had entered into a lease-purchase agreement, but upheld the Municipality's actions because the lease-purchase agreement did not involve a purchase of more than $1 million. The Norene court's decision to uphold a lease-purchase agreement supports the proposition that lease-purchase agreements are not offensive per se to the constitutional debt limitation in article IX, section 8. The Norene court upheld the lease purchase agreement on grounds that the amounts of the lease provisions did not individually exceed $1 million. Id. Further, the Norene court upheld the agreement even though the terms of the agreement provided that the municipality would lose its equity in leased land if it decided not to purchase the property at the end of the lease. Id. In order to uphold the lease-purchase agreement, the Norene court necessarily had to approve of lease-purchase agreements as a threshold matter. Finally, in Village of Chefornak v. Hooper Bay Constr., 758 P.2d 1266 (Alaska 1988), the court defined debt in the context of article IX of the Alaska Constitution. In Chefornak, the issue was whether a breach of contract claim settled by the municipality created a debt under article IX, section 9 of the Alaska Constitution. [3] The Chefornak court rejected an interpretation of debt in relation to article IX based on the commonly understood meaning of debt as every obligation to pay money. Chefornak 758 P.2d at 1269 (quoting Rochlin v. State, [112 Ariz. 171, 175] 540 P.2d 643, 647 (1975)). The Chefornak court adopted a less comprehensive definition of debt where it is used in the constitutional sense: This court has many times said what Article 8 means by the word debt. We think that it means borrowed money; it denotes an obligation created by the loan of money, usually evidenced by bonds but possibly created by the issuance of paper bearing a different label. Chefornak, 758 P.2d at 1270 (quoting State ex rel. Wittler v. Yelle, [65 Wash.2d 660] 399 P.2d 319, 324 (1965)). When taken together, this court finds that the foregoing Alaska cases and the cases cited by the Alaska Supreme Court define constitutional debt as a term of art used to describe an obligation involving borrowed money where there is a promise to pay sums such as rents accruing in the future whether funds are available or not. Bisk, supra, at 522, 537. [4] Where a lease-purchase agreement does not require a future legislature to appropriate funds, [5] the agreement is not a long-term binding obligation to repay borrowed money pursuant to article IX, section 8, and is not debt as defined by the Alaska Supreme Court. [6]