EXPENDING MUNICIPAL MONIES

CITIES AND TOWNS ‑- INDUSTRIAL DEVELOPMENT ‑- EXPENDING MUNICIPAL MONIES

Consideration of the constitutionality of expending municipal funds for the acquisition and development of industrial sites to be leased to private industries.

                                                                   - - - - - - - - - - - - -

                                                                  January 5, 1973

Honorable Francis E. Holman
State Senator, 1st District
12th Floor, Denny Building
Seattle, Washington 98121                                                                                                                 Cite as:  AGLO 1973 No. 3

Dear Sir:
 
            By letter previously acknowledged, you have requested an opinion of this office upon a question which we paraphrase as follows:
 
            Does a city operating under the Optional Municipal Code (Title 35A, RCW) have the legal ability to expend its funds, in conjunction with federal monies granted under the Public Works and Economic Development Act of 1965 (79 Stat. 552; 42 U.S.C. sec. 3121 et seq.), as amended, to acquire and develop an industrial park and to lease the facilities of such industrial park to private businesses under a long-term (twenty-five or more years) lease?
 
            We answer this question in the manner set forth in our analysis.
 
                                                                     ANALYSIS
 
            Because your question involves a city which is operating under the optional municipal code (Title 35A RCW) we may, at the outset, quickly dispose of the threshold question of whether such a city has the necessary statutory authority to engage in the activity described.  Although it is a general rule that municipal corporations have only such powers as have been expressly granted to them by the legislature, or as are to be found by necessary implication from such expressly granted powers,1/ we have previously determined that this rule has no application to cities which are governed by the optional municipal code.   [[Orig. Op. Page 2]] See, AGO 1972 No. 24 [[to Municipal Research Council on October 25, 1972]], copy enclosed, in which we analyzed this code with particular emphasis on the three sections thereof now designated as RCW 35A.01.010, RCW 35A.11.020 and RCW 35A.21.160, and then said:
 
            "The critical point to be drawn from these statutes is that by electing to come under the optional municipal code a city ceases to be governed by the traditional rules of delegated powers.  See, e.g., Lauterbach v. Centralia, 49 Wn.2d 550, 554-555, 304 P.2d 656 (1956); Town of Othello v. Harder, 46 Wn.2d 747, 752, 284 P.2d 1099 (1955); and authorities cited therein for the proposition that cities and towns to which these rules apply have only such powers as have been expressly granted to them by the legislature or as are to be necessarily implied from such granted powers.  Instead, a city so opting thereby becomes possessed of all powers which either have been specifically granted by the legislature to any class of city (RCW 35A.21.160, supra) or which could be granted by the legislature (RCW 35A.01.010 and 35A.11.020, supra), subject only to such restrictions or limitations as are contained in the statutes themselves or within the state constitution; which is but another way of saying that the optional municipal code entitles cities operating thereunder to the equivalent of the home rule powers otherwise available only to first class charter cities.  Those powers are expressed in the now-classic 'Winkenwerder rule,' as follows:
 
            "'. . . the only limitation on the power of cities of the first class is that their action cannot contravene any constitutional provision or any legislative enactment.  . . . a city of the first class has as broad legislative powers as the state, except  [[Orig. Op. Page 3]] when restricted by enactments of the state legislature.  Winkenwerder v. Yakima, 52 Wn.2d 617, 622, 328 P.2d 873 (1958).'"
 
            With the analytical approach suggested by this rule in mind, we have looked for, but have not found, any statutory restrictions which would bar a code city from involving itself in such an industrial development program as is posed by your request.  This leaves us, then, only with the question of whether a program such as you have outlined must be said to be prohibited by some provision of our state Constitution.
 
            If the only funds which were to be utilized by the subject city for this industrial park were federally-granted monies specifically "earmarked" by the federal legislation under which they were granted for expenditure upon the program in question, it would, arguably, be possible to apply here the rationale of an earlier opinion of this office, AGO 1970 No. 24 [[to David G. Sprague and George Fleming, State Representatives on November 5, 1970]](copy enclosed).  There we concluded that where a municipal corporation receives and disburses federally-granted funds pursuant to federal legislation under the terms of which the funds may be spent only for specific purposes set forth therein, the municipal corporation is acting merely as a conduit for the disbursement of those funds and is not, in so acting, inhibited by any of the limitations in our state Constitution upon the manner in which a municipal corporation may spend its own funds.  Here, however, the federal legislation involved requires that the municipality "match" the federally-granted funds with its own locally-generated revenues,2/ which locally-generated revenues are, of course, subject to the limitations imposed by the Constitution upon the expenditure of municipal funds.  Thus, the ultimate issue posed by your request cannot here be avoided: that issue, as we see it, is whether locally-generated municipal funds may, within present state constitutional  [[Orig. Op. Page 4]] limitations, be expended for the purpose of developing and leasing industrial sites to private businesses.
 
            Under Article VII, § 1 (Amendment 14) of our state Constitution it is provided that:
 
            ". . .  All taxes . . . shall be levied and collected for public purposes only.  . . ."  (Emphasis supplied)
 
            Additionally, Article VIII, § 7, provides that:
 
            "No county, city, town or other municipal corporation shall hereafter give any money, or property, or loan its money, or credit to or in aid of any individual, association, company or corporation, except for the necessary support of the poor and infirm, or become directly or indirectly the owner of any stock in or bonds of any association, company or corporation."
 
            Under these constitutional provisions, it is fundamental that municipal funds cannot be expended for private purposes.  State ex rel. Collier v. Yelle, 9 Wn.2d 317, 115 P.2d 373 (1941).  Furthermore, regardless of whether the purpose of the expenditure is public or private, Article VIII, § 7, supra, prohibits all grants of municipal money or credit to, or in aid of, any private individual or corporation.  See, Rands v. Clarke County, 79 Wash. 152, 139 Pac. 1090 (1914), which holds that Article VIII, § 7, applies to private recipients but not to other governmental agencies.  Based upon these constitutional restrictions, our state supreme court held some fourteen years ago in Hogue v. Port of Seattle, 54 Wn.2d 799, 341 P.2d 171 (1959) that the public funds of a port district could not be used to pay for the acquisition and development of industrial sites and facilities to be then leased to private businesses.
 
            Although the Constitution has since been amended to take care of this problem in the case of  [[Orig. Op. Page 5]] port districts,3/ the principals enunciated in the Hogue case continue to cast at least a cloud4/ over similar industrial development activities by other governmental entities ‑ including all classes or categories of cities.  On the other hand, there is evidence in other jurisdictions of a somewhat more liberal trend by other courts insofar as the constitutionality of publicly funded industrial development is concerned.  See cases cited in The "Public Purpose" of Municipal Financing for Industrial Development, 70 Yale L.J. 789 (1961); also, Pinsky, State Constitional Limitations on Public Industrial Financing: An Historical and Economic Approach, 111 U. Penn. L.R. 265 (1963), and in City of Pipestone v. Madsen, 178 N.W.2d 594-600 (1970).  These sources indicate that the highest appellate courts of some twenty-two jurisdictions (other than Washington) have without constitutional amendments unheld the validity of legislation authorizing governmental industrial aid bonds or other types of financial assistance to private industry.
 
             [[Orig. Op. Page 6]]
            In view of these cases it is, perhaps, possible that our own court might also now uphold an expenditure of municipal (or state) funds for an industrial development project without a constitutional amendment ‑ particularly if no aspect of eminent domain is involved ‑ and if the city here in question desires to proceed on this basis and take its chances with the court if challenged, it may do so.  Conversely, if it desires to hold off on this project and seek an appropriate constitutional amendment, we would be most happy to assist you or any member of the forthcoming 43rd legislature in the preparation of such an amendment.  We are enclosing herewith one possible approach for your immediate consideration.
 
            We trust that the foregoing will be of some assistance to you.

Very truly yours,

SLADE GORTON
Attorney General

PHILIP H. AUSTIN
Deputy Attorney General

DONALD FOSS, JR.
Assistant Attorney General

                                                         ***   FOOTNOTES   ***
 
1/See, e.g., Pacific First Federal Savings and Loan v. Pierce County, 27 Wn.2d 347, 178 P.2d 351 (1947).
 
2/Under 42 U.S.C. sec. 3131 (b) and (c), the municipal corporation is required to contribute not less than 50 percent of the total project cost, and under certain very limited circumstances not less than 20 percent of the total project cost.
 
3/See Article VIII, § 8 (Amendment 45), adopted in 1966, which provides that:
 
            "The use of public funds by port districts in such manner as may be prescribed by the legislature for industrial development or trade promotion and promotional hosting shall be deemed a public use for a public purpose, and shall not be deemed a gift within the provisions of section 7 of this Article."
 
4/Because the site acquisition involved in the Hogue case was a result of condemnation by the port under Article I, § 16 (Amendment 9) of the Constitution and the court devoted most of its attention to that aspect of the case, some have argued that the decision should be limited to that particular factual situation.
 
            ADDENDUM
 
            TEXT OF PROPOSED AMENDMENT
 
            BE IT RESOLVED, BY THE SENATE AND HOUSE OF REPRESENTATIVES OF THE STATE OF WASHINGTON, IN LEGISLATIVE SESSION ASSEMBLED: THAT, At the next general election to be held in this state there shall be submitted to the qualified voters of the state for their approval and ratification, or rejection, an amendment to Article VIII of the Constitution of the state of Washington by adding a new section to read as follows:
 
            NEW SECTION.  Article VIII, section 9.  The use of public funds by the state of Washington or its political subdivisions and municipal corporations, in such manner as may be prescribed by the legislature for industrial development shall be deemed a public use for a public purpose, and shall not be deemed a gift or loan within the provisions of sections 5 or 7 of this Article.
 
            BE IT FURTHER RESOLVED, That the secretary of state shall cause notice of the foregoing constitutional amendment to be published at least four times during the four weeks next preceding the election in every legal newspaper in the state.