FUNDS‑-STATE EMPLOYEES' AND WASHINGTON STATE TEACHERS' RETIREMENT

FUNDS‑-STATE EMPLOYEES' AND WASHINGTON STATE TEACHERS' RETIREMENT.

Funds of the state employees' retirement system and the Washington state teachers' retirement system may be utilized to purchase obligations insured by the federal government under the Bankhead-Jones Farm Tenant Act.

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                                                                February 13, 1959

Honorable Earl Coe, Director
Department of Conservation
335 General Administration Building
Olympia, Washington                                                                                                   Cite as:  AGO 59-60 No. 9

                                                                                                                                      Overruling AGO 57-58 No. 71

Dear Sir:

            In your letter of December 18, 1958, you requested our advice on a question we paraphrase as follows:

            May the funds of the State Employees' Retirement System and the Washington State Teachers' Retirement System be utilized to purchase obligations insured by the federal government under the Bankhead-Jones Farm Tenant Act?

            We answer your question in the affirmative.

                                                                     ANALYSIS

            The Bankhead-Jones Farm Tenant Act, 7 U.S.C.A. 1000, et seq., was passed by congress in order to aid farmers to secure loans.  All loans made pursuant thereto are insured as to principal and interest by the United States of America, and each note carries an insurance endorsement signed by the United States of America, Farmers Home Administration.  The program contemplated would be for the retirement systems to purchase secured notes from persons or organizations who have  [[Orig. Op. Page 2]] made the loans and secured the guarantee of the federal government.

            It has been held by the office of the solicitor of the United States Department of Agriculture, in Memorandum Opinion No. 117, dated April 15, 1952, that the insurance endorsement on such notes constitutes a binding obligation of the United States of America and is supported by the full faith and credit of the United States.  We have analyzed the United States Code provisions, supra, and are satisfied that such notes are unconditionally guaranteed as to principal and interest by the United States of America.

            RCW 41.40.070 is applicable to the investment of the state employees' retirement funds and reads in part as follows:

            "(1) The members of the retirement board shall be the trustees of the several funds created by this chapter and the retirement board shall have full power to authorize the finance committee to invest same in bonds or other obligations issued directly by or fully guaranteed by the federal government or any agency thereof, . . ."

            RCW 41.32.200 is applicable to the investment of teachers' retirement funds and reads in part as follows:

            "The board of trustees shall be the trustees of the several funds created by this chapter and shall authorize the state finance committee to invest and reinvest such funds in bonds or other obligations issued directly by or fully guaranteed by the federal government or any agency thereof, . . ."

            It is clear that the above quoted statutes authorize the employees' retirement system and teachers' retirement system to invest funds in securities insured under the Bankhead-Jones Farm Tenant Act.  Since we have already written an opinion on the investment of public funds in securities insured under the federal act, it is necessary to discuss the following constitutional provision which served as a basis for our conclusion in the prior opinion.

            Article VIII, § 5 of the Washington Constitution provides:

            "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."

             [[Orig. Op. Page 3]]

            In an opinion to the State Finance Committee dated May 8, 1957 (AGO 57-58 No. 71), we held in effect that Article VIII, § 5, prohibited the investment ofpublic funds in farm loans insured by the federal government under authority of the Bankhead-Jones Farm Tenant Act.

            However, since that opinion was issued, we have had occasion to reconsider the meaning and effect of Article VIII, § 5.  In an opinion to the Honorable R. R. Grieve, State Senator of the 34th District, dated October 31, 1958 (AGO 57-58 No. 226), we concluded that:

            "We think it now settled, by the Gruen case [Gruen v. State Tax Commission, 35 Wn. (2d) 1, 211 P. (2d) 651 (1940)], that Article VIII, § 5, of the Washington constitution only withdraws from the state the power of suretyship and that such does not prohibit the state from granting funds to a private individual in the execution of a public purpose."

            We re‑affirm our holding in the above quoted opinion and hereby expressly overrule our opinion to the State Finance Committee, dated May 28, 1957 (AGO 57-58 No. 71).

            The conclusion reached in the overruled opinion was based in part on the case ofAberdeen v. National Surety Co., 151 Wash. 55, 275 Pac. 62, which construed Article VIII, § 7 of the state constitution which provides:

            "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."

            Article VIII, § 5, is as follows:

            "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."

            As we pointed out in our opinion to Senator Grieve, supra, at page 13, § 5 merely prohibits the state from giving or loaning itscredit, while § 7  [[Orig. Op. Page 4]] prohibits a municipal corporation from giving or loaning its money, property or credit.  Therefore, the Aberdeen case, supra, which interprets § 7, is not authority for the conclusion that Article VIII, § 5, prohibits the loaning of state money or property to private entities.

            It is our opinion that Article VIII, § 5, merely prohibits the state from becoming surety or secondarily liable.

            However, a mandate arising from other provisions of the constitution is that public funds may be used and expended for public purposes only.  This principle of constitutional law is often referred to as the "public purpose doctrine."  Its application to public funds is universal and absolute.  This limitation on the use of public funds for public purposes only is expressed and implied from provisions in both the state and federal constitutions.  Washington Constitution, Article VII, § 1, as amended by Amendment Fourteen; Washington Constitution, Article I, § 3; United States Constitution, Amendment Fourteen;State ex rel Reclamation Board v. Clausen, 110 Wash. 525, 188 Pac. 538, 14 A.L.R. 1133 (1920); State ex rel Collier v. Yelle, 9 Wn. (2d) 317, 115 P. (2d) 373 (1941);Green v. Fraser, 253 U.S. 233, 40 S.Ct. 499, 64 L.Ed. 878, 16 A.L.R. 887 (1920).

            In this jurisdiction, it is now settled that agriculture is an industry upon which the public welfare ultimately depends and that its promotion and stimulation are a sovereign function of government, a public purpose.  State ex rel Reclamation Board v. Clausen, supra; 2 Am.Jur., Agriculture, 408, § 15; 1 R.C.L. 787; 14 A.L.R. 1133; 92 A.L.R. 770.  The act upheld in the case last cited involved much more than the mere lending of money under a program unconditionally guaranteeing said loans; it provided for the actual expenditure of public funds.

            Thereby we conclude that the investment of the two retirement funds in securities issued under the Bankhead-Jones Farm Tenant Act is a valid public purpose and is authorized by statute.

            We trust that the foregoing will be of assistance to you.

Very truly yours,

JOHN J. O'CONNELL
Attorney General

CHARLES I. McCLURE
Assistant Attorney General