Court Opinion

ID: 9790115
Source: CourtListenerOpinion
Date Created: 2023-08-31 01:46:19.043019+00
Date Added: 2024-06-11T07:37:26.292109
License: Public Domain

Rosellini, J.
(dissenting) — I read the majority opinion as providing that the Washington State Constitution does not prohibit lending of the State's credit when it supports a statutory objective to benefit a deserving class of the public. I disagree.
Both article 8, section 5 and article 12, section 9 of the Washington State Constitution provide that the credit of the State shall not, in any manner, be given or loaned to, or in aid of any private individual, association or corporation.
It is clear that the State or a municipality lends its credit whenever it allows its unique governmental status or authority to be utilized for the purpose of enabling a private corporation or individual to obtain property or money which it could not otherwise acquire for the same price.
The Washington State Housing Finance Commission would be doing just that by passing on to private, nonindi-gent home buyers or tenants the substantial benefit of its unique ability (as a State instrumentality) under the Internal Revenue Code to issue bonds at tax exempt rates of interest.
That the loan of credit serves a laudable public purpose does not validate an otherwise unconstitutional loan or gift *501of state or municipal credit. In Lassila v. Wenatchee, 89 Wn.2d 804, 576 P.2d 54 (1978), this court held that Const, art. 8, § 7 absolutely prohibits a municipality from acting as a conduit for private enterprise. In response to the argument that the loan of credit served a laudable public purpose, the Lassila court states, at pages 811-12:
An expected future public benefit also does not negative an otherwise unconstitutional loan. We have repeatedly held that a loan of money or credit by a municipality to a private party violates Const, art. 8, § 7 regardless of whether it may serve a laudable public purpose. Japan Line, Ltd. v. McCaffree, 88 Wn.2d 93, 98, 558 P.2d 211 (1977); Port of Longview v. Taxpayers, 85 Wn.2d 216, 231, 533 P.2d 128 (1974); State ex rel. O'Connell v. Port of Seattle, [65 Wn.2d 801, 399 P.2d 623 (1965)] at 805-06. As we said in Johns v. Wadsworth, 80 Wash. 352, 354, 141 P. 892 (1914):
The section of the constitution last quoted, in most express terms, prohibits a county from giving any money, property or credit to, or in aid of, any corporation, except for the necessary support of the poor and infirm. If the framers of the constitution had intended only to prohibit counties from giving money or loaning credit for other than corporate or public purposes, they would doubtless have said so in direct words. That agricultural fairs serve a good purpose is not questioned, but the constitution makes no distinction between purposes, but directly and unequivocally prohibits all gifts of money, property, or credit to, or in aid of, any corporation, subject to the exception noted.
See also Port of Longview v. Taxpayers, supra at 231. Unquestionably, the City's desire for a multipurpose theater adjacent to its contemplated community center is a commendable purpose. But, a salutary purpose does not validate an unconstitutional loan.
The City contends we should liberally construe Const, art. 8, § 7 so that an expected future benefit will validate the loan. But, as we said in State ex rel. O'Connell v. Port of Seattle, supra at 806:
If Article 8, § 7 is too restrictive in its terms, that is a matter for the citizens of this state to correct through the amendatory process. It is not for this court to engraft an exception where none is expressed in the *502constitutional provision, no matter how desirable or expedient such an exception might seem.
Accordingly, the expected receipt of future public benefits cannot serve to validate an otherwise unconstitutional loan of credit.
(Italics mine.)
A decision of similar import is Port of Longview v. Taxpayers of Port of Longview, 85 Wn.2d 216, 533 P.2d 128 (1974). In response to an addition to the Internal Revenue Code, which generally provided that for federal income tax purposes gross income does not include interest on the obligations of a state or political subdivision of a state issued to provide for air or water pollution control facilities, our State Legislature enacted legislation which sought to allow port districts to make available pollution control facilities to nonpublic entities. The act allowed this to be done by lease, lease purchase agreement, or other agreement binding such user to pay for the use of said facilities for the full term of the revenue bonds issued by the port for the acquisition of said facilities.
This court held this form of financing constitutes the loaning of money or credit by a municipality to any private party in violation of article 8, section 7. In Port of Longview this court approvingly adopted the following language of the Nebraska Supreme Court:
It seems clear to us that the revenue bonds are issued by the city in its own name to give them a marketability and value which they would otherwise not possess. If their issuance by the city is an inducement to industry, some benefits must be conferred, or it would be no inducement at all. Such benefits, whatever form they may take, necessarily must be based on the credit of the city. The loan of its name by a city to bring about a benefit to a private project, even though general liability does not exist, is nothing short of a loan of its credit. . . .
... It is not material what such undertakings may be called, or what forms are devised to conceal their main purpose, or how worthwhile they may appear to *503be, when the question of constitutionality is presented, their substance will be examined. The financing of private enterprises with public funds is foreign to the fundamental concepts of our constitutional system. To permit such encroachments upon the prohibitions of the Constitution would bring about, as experience and history have demonstrated, the ultimate destruction of the private enterprise system.
Port of Longview, at 227 (quoting State ex rel. Beck v. York, 164 Neb. 223, 227, 229-30, 82 N.W.2d 269 (1957)).
The Nebraska Constitution was subsequently amended to specifically permit the kinds of financial arrangements found by the court in Beck to be violative of the ban against loan of credit. The Washington Constitution has also been amended to permit nonrecourse revenue bonds and obligations to be used to finance industrial development projects. See Const, art. 32, § 1 (amend. 73).
Although article 8, section 7 is differently worded than article 8, section 5, both provisions have been repeatedly held to have the same general effect. See, e.g., Anderson v. O'Brien, 84 Wn.2d 64, 524 P.2d 390 (1974); State Hwy. Comm'n v. Pacific Northwest Bell Tel. Co., 59 Wn.2d 216, 367 P.2d 605 (1961); State v. Guaranty Trust Co., 20 Wn.2d 588, 148 P.2d 323 (1944); Morgan v. Department of Social Sec., 14 Wn.2d 156, 127 P.2d 686 (1942).
The next point of reference is to Washington Health Care Facilities Auth. v. Ray, 93 Wn.2d 108, 605 P.2d 1260 (1980). Ray involved the constitutionality under Const, art. 8, § 5 of the issuance of nonrecourse revenue bonds by the Washington Health Care Facilities Authority to provide capital financing for privately owned and operated hospitals or health care facilities. Ultimately, the bonds in Ray were sustained. But in the process two separate opinions were written. The lead opinion was a fully reasoned ruling signed by four Justices with another Justice concurring in the result. The second opinion was a short concurring opinion signed by four Justices. The 4-member concurring opinion desired that this court distinguish or overrule all prior cases that held this type of financing contrary to the *504prohibition against a lending of credit. The lead opinion, in following prior precedent, states at pages 113-15:
Our holding in Port of Longview that the bonding schemes violated article 8, section 7, follows the minority view that nonrecourse development bonding schemes, unless otherwise exempted, constitute loans of credit. See, e.g., State ex rel. Beck v. York, 164 Neb. 223, 82 N.W.2d 269 (1957); State ex rel. Saxbe v. Brand, 176 Ohio St. 44, 197 N.E.2d 328 (1964). The majority of other jurisdictions have held that nonrecourse revenue bonding schemes are not loans of credit. For a discussion of the majority position, see, Recent Developments, State Constitution — Debt Limitations — Municipality's Issuance of Revenue Bonds to Finance Private Pollution Control Facilities Violates State Constitution, 50 Wash. L. Rev. 440, 447-49 (1975). We believe that some of the decisions from jurisdictions following the majority approach can be distinguished from the present case on the basis of differences in the constitutional provisions involved. We disagree, however, with the reasoning by which the conclusion is reached in others, that there is no lending of credit without the incurring of new and actual financial liability.
The underlying rationale of the minority view and that of this court is that a state or municipal corporation lends its credit whenever it allows its unique governmental status or authority to be utilized for the purpose of enabling a private corporation or individual to obtain property or money that it could not otherwise acquire for the same price. A state or municipality can "lend its credit" without incurring any actual indebtedness.
Here, the credit that would be loaned would stem from the unique ability of a public agency, under the Internal Revenue Code, to borrow money at a lower rate of interest than would otherwise have to be paid by a private party. The Authority's challenged actions involve loans of credit inasmuch as the Authority's issuance of the bonds would enable privately owned health care facilities to obtain benefits which they could not otherwise obtain.
This strict interpretation of the lending of credit provision is consistent with our earlier holdings. The people of this state have not amended the constitution to disclaim our broad interpretation of the lending of credit *505prohibitions. Rather, they have chosen to carve out only two constitutional exceptions. Amendment 45 (article 8, section 8) was adopted in 1966 in response to State ex rel. O'Connell v. Port of Seattle, 65 Wn.2d 801, 399 P.2d 623 (1965). More recently, voters ratified amendment 70 (article 8, section 10), in apparent anticipation of an unfavorable holding if an action were brought challenging public utility loans for energy conservation purposes as unconstitutional loans of credit. As we stated in Port of Seattle, at page 806:
If Article 8, § 7, is too restrictive in its terms, that is a matter for the citizens of this state to correct through the amendatory process. It is not for this court to engraft an exception where none is expressed in the constitutional provision, no matter how desirable or expedient such an exception might seem.
(Footnote omitted.)
The lead opinion then went on to uphold the validity of the bonding program under the constitutionally recognized exception to the prohibition of Const, art. 8, § 5 that the State may provide necessary aid to the poor and infirm. Ray, at 115-16.
It has, however, been stipulated in the instant case that
The Commission [in exercise of its statutory authority] intends to issue tax-exempt nonrecourse revenue bonds for the purpose of assisting in the financing of single family homes for persons who may not qualify under Art. VII, §§ 5 and 7 of the Washington Constitution as either poor or infirm, and for assisting in the financing of multi-family residential rental units the occupants of which may be neither poor nor infirm within the meaning of those sections of the Constitution.
Agreed Statement of Facts, at 10. Thus, the rationale which sustained the bonding program in Ray is simply not available to the petitioner in the instant case.
The majority opinion cites our recent decision in In re Marriage of Johnson, 96 Wn.2d 255, 634 P.2d 877 (1981) as an indication that we have returned to a "risk of loss" approach in lending of credit cases. I disagree. Initially it should be pointed out that the lead opinion in Johnson was signed by only three Justices, with three others.concurring *506in the result only, one dissenting, and two dissenting in part and concurring in part by separate opinion.
The basic subject matter in Johnson was entirely different from the instant circumstances. At issue in that case was the constitutionality of so much of RCW 74.20.040 as authorized the Department of Social and Health Services to collect past due child support for children not receiving public assistance. The constitutional question in Johnson could have been clearly obviated by the language of the statute itself which provides for the imposition of a fee to compensate the Department for services rendered in establishment of or enforcement of support obligations. More importantly, the statute in Johnson undoubtedly falls within the well established principle that the constitution permits the expenditure of state funds for the performance of recognized governmental services as law enforcement, fire protection or consumer protection. See State v. Ralph Williams' N.W. Chrysler Plymouth, Inc., 82 Wn.2d 265, 510 P.2d 233, 59 A.L.R.3d 1209 (1973).
Likewise, Public Empl. Relations Comm'n v. Kennewick, 99 Wn.2d 832, 664 P.2d 1240 (1983) merely upheld the Commission's statutorily imposed duty to prevent and remedy unfair labor practices. By enforcing that duty, albeit to the benefit of a private association, the Commission exercises an important public function. Private parties may indeed benefit incidentally as a result of the exercise of that important function; however, as long as the private benefit is incidental to the public purpose served, the legislation is not unconstitutional. Kennewick, at 838.
The critical distinction between these two latter cases and those finding a violation of the lending of credit prohibition is that of performing a governmental service, on one hand, and a transfer to private parties of a governmental power or prerogative, on the other. Here, instead of providing a recognized governmental service to the people, the State would be directly (and not merely incidentally) subsidizing private home buyers by acting to pass on to them its own unique ability under the Internal Revenue Code to *507issue tax exempt bonds and, thereby, to borrow money at lower interest rates than would otherwise be available to those home buyers in the private sector.
The Legislature, in enacting the housing financing act, could have avoided the constitutional prohibition by limiting eligibility for assistance to those persons with such low incomes and limited assets as to be undeniably poor or needy. Or it could have dealt with the matter as it did with industrial development financing — by proposing to the voters a further constitutional amendment.
Instead, however, it did neither. Rather, without an accompanying constitutional amendment, the Legislature left it to the Housing Finance Commission to set eligibility standards, with income to be only one of the factors to be considered by the Commission in doing so.
I would remain with our well reasoned, established precedent and hold that the authority granted by the Legislature to the Washington State Housing Finance Commission violates the prohibition against lending of State credit.
Stafford, Brachtenbach, and Dore, JJ., concur with Rosellini, J.