Opinion ID: 1360563
Heading Depth: 1
Heading Rank: 15

Heading: constitutional debt restriction

Text: 1. Whether the lease purchase agreement between DNR and ACS violates the debt restriction provision of article IX, section 8 of the Alaska Constitution. Article IX, section 8 of the Alaska Constitution provides: No state debt shall be contracted unless authorized by law for capital improvements or unless authorized by law for housing loans for veterans, and ratified by a majority of the qualified voters of the State who vote on the question. The State may, as provided by law without ratification, contract debt for the purpose of repelling invasion, suppressing insurrection, defending the State in war, meeting natural disasters, or redeeming indebtedness outstanding at the time this constitution becomes effective. CG argues that the lease-purchase agreement between ACS and DNR creates state debt without proper authorization under article IX, section 8. CG maintains that the COPs, the deed of trust and the terms of the lease-purchase agreement itself obligate the State to pay the full amount of the principal due under the certificates. Thus, CG asserts that the State has taken on a debt to pay $6.153 million plus interest over a ten-year period rather than pay rent for one year's term. CG argues that the State has taken on an unconditional payment obligation under the deed of trust, and the fact that the lease provides that bi-annual rental payments are subject to legislative non-appropriation is immaterial. Further, CG argues that once the lease is in effect, the free exercise of future Legislatures will be discouraged when faced with the prospect of non-appropriation and the resulting loss of ACS's facilities. CG argues that the ACS/DNR lease-purchase agreement is nothing more than a conditional sales contract in substance, and should be viewed as an unauthorized state debt. CG rejects precedent in other jurisdictions which hold that where a lease-purchase agreement is subject to annual appropriation, constitutional debt restrictions are not offended. CG argues that the court should give a broad interpretation to the meaning of debt when interpreting the constitutional debt restriction of article IX, section 8 of the Alaska Constitution. The State responds, arguing where bi-annual lease payments under the ACS/DNR lease are subject to annual appropriation by the legislature, that the State does not incur the kind of long term debt prohibited by article IX, section 8. The State argues that the legislature is free to non-appropriate funds for the lease during any legislative session. The State points to a survey of other jurisdictions which hold that inclusion of a non-appropriation clause in a lease-purchase agreement does not create the type of debt which is offensive to constitutional debt limitation provisions. The State asserts that legislative non-appropriation does not constitute default under the lease. If non-appropriation were to occur, the State argues it would not forfeit its equity; instead, it would be entitled under the lease to receive the surplus proceeds of the sale or reletting of the property after paying the outstanding principal owed under the lease.