BONDS, CONSTITUTIONALITY, STATE INSTITUTIONS, RENTAL HOUSING, EMPLOYEES

BONDS, CONSTITUTIONALITY, STATE INSTITUTIONS, RENTAL HOUSING, EMPLOYEES

(a) A legislative act permitting private corporations to construct, own, and rent housing on grounds of state institutions to employees thereof probably would be constitutional.

(b) Legislation permitting rental housing for employees of state institutions such housing to be constructed from the proceeds of a bond issue, the bonds being retired from the rentals, would be constitutional.

(c) Legislation pledging rentals from existing housing, for employees of state institutions, in aid of the retirement of a bond issue for new housing for the same purpose, would be constitutional.

(d) Legislation providing for one bond issue for all rental housing to be constructed for employees of state institutions would be valid if the overall financing plan is constitutional.

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                                                                 January 13, 1956

Legislative Budget Committee
Legislative Building
Olympia, Washington                                                                                                              Cite as:  AGO 55-57 No. 183

Attention:  !ttMr. Paul W. Ellis

            Legislative Auditor

Gentlemen:

            By letter previously acknowledged you have requested our opinion as to whether "it would be constitutional for the legislature to enact a law providing for construction of housing for state employees on the grounds of the various state institutions, for rent to the staff of such institutions, under the following conditions:

             [[Orig. Op. Page 2]]

            "(a) if the buildings in question were built, owned, and rented by private individuals or corporations; or

            "(b) if the buildings were built from the proceeds of a bond issue to be retired from the rentals of the buildings; and

            "(c) if the answer to (b) is yes, would it be similarly constitutional to rent present employee housing facilities at the institutions to employees and pledge these rentals as security for the repayment of the bonds?

            "(d) if such bonding practice is constitutional, may one bond issue be provided for all the housing that may be constructed at the institutions, or would there be any legal reason for making separate bonding provisions for each institution at which any employee housing might be constructed?"

            Our answer to your questions is in the affirmative providing certain conditions are met.  It should be kept in mind that it is difficult if not impossible to determine the constitutionality of proposed legislation without detailed examination of its provisions.

                                                                     ANALYSIS

            At the outset it should be noted that any act of the legislature must not violate Article VIII, § 1, of the Washington state constitution if it is to withstand constitutional challenge.  This section reads:

            "The state may to meet casual deficits or failure in revenues, or for expenses not provided for, contract debts, but such debts, direct and contingent, singly or in the aggregate, shall not at any time exceed four hundred thousand dollars ($400,000), and the moneys arising from the loans creating such debts shall be applied to the purpose for which they are obtained or to repay the debts so contracted, and to no other purpose whatever."

            (a) At present we do not find any constitutional objection to the plan proposed in category "a".  We again emphasize that inasmuch as we do not have the entire act before us, it is extremely difficult to rule on the validity of such a plan.

             [[Orig. Op. Page 3]]

            The leasing of public property to private concerns, they in turn renting space to others, has been upheld in the case of the Union Square Garage Corporation in San Francisco.  SeeCity and County of San Francisco v. Linares, 16 Cal. (2d) 441, 106 P. (2d) 369 (1940).  See furtherLowell v. City of Boston, 322 Mass. 709, 79 N.E. (2d) 713 (1948) where a similar plan was sustained, the leasing again being to a private corporation which in turn leased or rented part of the area to others.

            A plan which is of interest is that upheld by the supreme court of Pennsylvania inBelovsky v. Redevelopment Authority, 357 Pa. 329, 54 A. (2d) 277, 172 A.L.R. 953.  Here the Redevelopment Authority, an agency which owed its existence to the legislature, in order to effect slum clearance and develop low cost housing, condemned property under its power of eminent domain, and in turn permitted an insurance company to furnish the funds for construction of the homes and collect the rentals therefrom.

            A possible objection to the plan proposed in category "a" is that it might conflict with § 5, Article VIII, of the Washington state constitution, which reads:

            "The credit of the state shall not, in any manner be given or loaned to, or in aid of, any individual, association, company or corporation."

            We do not believe that this objection could properly be raised.  Though the leasing corporation would be private in character, the proposed lease is to be undertaken in aid of the operation of state instrumentalities.  In this regard, the situation is parallel to that presented in Paine v. Port of Seattle, 70 Wash. 297.  There port districts were authorized to lease terminal property to private corporations, and the court said of the constitutionality of this plan:

            "* * * Perhaps if the sole purpose of acquiring the property was to lease it to an individual or corporation for private use, its acquisition and lease would be in violation of the constitutional provision cited.  But when the purpose is to establish public wharves or docks, and the lease is for a limited time, with power reserved to regulate wharfage charges, as it is in this instance, it cannot be said to be the  [[Orig. Op. Page 4]] acquisition of the property for a private purpose nor the giving of money or property or the loaning of the credit of the municipality to an individual or corporation or within the meaning of this section of the constitution.  In re Mayor etc., 135 N.Y. 253, 31 N.E. 1043, 31 Am. St. 825."

            This case was discussed at length in an annotation at 161 A.L.R. 518, 526, and further in AGO 53-55 No. 339, attached hereto.

            Here it would seem that proper housing for the employees of state institutions may well be essential to their efficient functioning.  At all events, it is within the province of the legislature to so declare.  In 1 Cooley, Constitutional Limitations (8th ed.) 624, the following statement is made:

            "* * * what is for the public good, and what are public purposes, * * * are questions which the legislature must decide upon its own judgment, and in respect to which it is vested with a large discretion which cannot be controlled by the courts, except, perhaps, where its action is clearly evasive, and where, under pretense of a lawful authority, it has assumed to exercise one that is unlawful.  Where the power which is exercised is legislative in its character, the courts can enforce only those limitations which the constitution imposes; not those implied restrictions which, resting in theory only, the people have been satisfied to leave to the judgment, patriotism, and sense of justice of their representatives."

            Of possible interest in this general connection is 46 OAG 631 [[to Cliff Yelle, State Auditor on February 26, 1946]], attached hereto, which deals with a related, though essentially different, problem.

            The leasing of public property to private enterprise has not been found objectionable in other states, providing some valid public purpose can be  [[Orig. Op. Page 5]]found.  See Annotations 63 A.L.R. 614, 630; 144 A.L.R. 486, 499, 500; 8 A.L.R. (2d) 373; and 85 Pa. L. Rev. 239, 252-254.  In addition we wish to call attention to the Wherry Housing Projects on military reservations which involve a similar arrangement carried on by the Federal government.  See 63 Stat. 570, chapter 403, August 8, 1949.

            (b) If the act were drawn so the housing facilities in question are built from the proceeds of a bond issue to be retired from the rentals thereof, it probably would withstand constitutional challenge, providing the bonds are revenue bonds and are not retired out of the general appropriations.  Thus, a special fund would have to be created and the plan confined to a strict leasing or rental arrangement between the landlord (the particular institution involved) and the tenant (the employee of the institution in question).

            The supreme court of Washington has recently set forth the rule on the doctrine of special funds with clarity and particularity in State ex rel. Washington State Building Financing Authority v. Yelle, 147 Wash. Dec. 632, 641, 289 P. (2d) 355, wherein it is stated:

            "'* * * before a special fund scheme may prevail it is necessary that the sources for payment of the financial obligation be set out in thecreation of the obligation in order to clearly disclose that no part of the obligation is to be paid or satisfied from general taxation.  * * *' * * * a particular scheme of financing will be held to be valid only where it is clearly demonstrable from the specific terms of the financing proposal itself that no tax burden or pecuniary liability of the state to appropriate or pay for the indebtedness about to be incurred will ever arise, or be looked to as security, in whole or in part, for repayment of the borrowed moneys."'"

            If the act were drawn in accord with the foregoing, the plan proposed in category "b" probably would not be objectionable.

            (c) Legislation pledging the rentals from existing housing facilities to retire the bonds issued for new facilities probably would be valid.  This situation is best answered by reference to State ex rel. Dunbar v. Board of  [[Orig. Op. Page 6]] Trustees, 148 Wash. 126, 268 Pac. 862, wherein it was sought to erect a new building on the campus of the normal school at Cheney and to finance the construction by pledging the revenues of three dormitory buildings already constructed, two of which were fully paid for and one of which was partially paid for.  The supreme court heldunder the statute there in question only the revenues of the building being constructed could be pledged for its financing.  However, the court's thinking on the plan proposed in category (c) is indicated by the following dicta from the Dunbar case.

            "At the threshold it is necessary to construe this act, as to whether the legislature intended to authorize the different boards to include in the special fund from which payments should be made anything more than the net income from the building or buildings acquired under the contract or contracts.  Had such been the purpose and intention of the legislature, it could easily have said that payments should be made out of the net income derived from the new building or buildings and from other dormitory and dining room buildings now on the campus or used in connection with the school."  (Emphasis supplied)

            This suggests that category "c" of the proposed legislation would be sustained.

            (d) The question presented in category "d" appears to involve a matter of mechanics.  If the overall scheme is constitutional a single bond issue should withstand attack.  A guiding suggestion is given inSpokane Grain and Fuel Co. v. Lyttaker, 59 Wash. 76, 109 Pac. 316, which is quoted in Naccarato v. Sullivan, 146 WAsh. Dec. 60 [[46 Wn.2d 67]], 278 P. (2d) 641.  Here our supreme court stated:

            "The legislature may embody all legislation relating to a given subject in a single act, or it may cover the subject by a succession of acts.  This is entirely a  [[Orig. Op. Page 7]] matter of legislative discretion over which we can assume no control."

            We hope the above will prove helpful.

Very truly yours,

DON EASTVOLD
Attorney General

JAMES J. CAPLINGER
Assistant Attorney General