LEGALITY OF CONSTRUCTION OF PUBLIC AIRPORT ON LEASEHOLD PROPERTY

AIRPORTS ‑- LEASES ‑- LEGALITY OF CONSTRUCTION OF PUBLIC AIRPORT ON LEASEHOLD PROPERTY

It would be illegal for the state to expend funds for capital improvements on real property in which it merely holds a leasehold interest unless it is entitled to (and physically able to) remove the improvements from the property upon the termination of the lease, or, alternatively, unless the value of the improvements as they will pass to the lessor are fully amortized in the computation of the rental obligations of the lessee.

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                                                                    April 1, 1975

Honorable Duane Berentson
State Representative, 40th District
Legislative Building
Olympia, Washington 98504

Honorable Donald G. Hansey
State Representative, 40th District
Legislative Building
Olympia, Washington 98504                                                                                                               Cite as:  AGLO 1975 No. 37

Gentlemen:

            By letter previously acknowledged, you have asked for our opinion on two questions which we paraphrase as follows:

            (1) May the state lease property for airport purposes and construct improvements thereon of a permanent nature, with the knowledge that the property will eventually revert to private ownership?

            (2) May the state construct and/or finance improvements for airport purposes on private property without holding a leasehold or other interest in such property?

            We answer question (1) in the manner set forth in our analysis and question (2) in the negative.

                                                                     ANALYSIS

            Article VIII, § 5 of the State Constitution provides 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."

             [[Orig. Op. Page 2]]   Article VII, § 1 (Amendment 14) of the Constitution provides, in material part, that

            ". . .  All taxes . . . shall be levied and collected for public purposes only. . . ."

            What these two constitutional provisions mean, read together, is that in order to be constitutional under either section an expenditure of public funds must neither be a gift or extension of credit nor for a non-public purpose.  SeeWashington State Highway Commission v. Pacific Northwest Bell Telephone Company, 59 Wn.2d 216, 367 P.2d 605 (1961);State ex rel. O'Connell v. Port of Seattle, 65 Wn.2d 801, 399 P.2d 623 (1965);Johns v. Wadsworth, 80 Wash. 352, 141 Pac. 892 (1914);Rands v. Clarke County, 79 Wash. 152, 139 Pac. 1090 (1914).

            By reason of these constitutional prohibitions, it would be illegal for the state to expend its funds for capital improvements on real property in which it merely holds a leasehold interest unless it is entitled to (and physically able to) remove the improvements from the property upon the termination of the lease,or, alternatively, unless the value of the improvements as they will pass to the lessor are fully amortized in the computation of the rental obligations of the lessee.  In other words, in the event that the state is not able, either legally or physically, to remove the improvements from the leasehold property, the value of the improvements constructed must be able to be amortized to a basis of zero prior to the termination of the state's leasehold interest.  Accord, our letter dated December 3, 1974 to Senator Jim Matson, copy enclosed.

            From our analysis of your first question it can thus be seen that two requirements must be met before the state may expend funds on airport or other improvements, the first of which is that the state must have some legally recognized interest in the property, either leasehold or otherwise.  We thus answer your second question in the negative.

            We trust the foregoing will be of some assistance.

Yours very truly,

SLADE GORTON
Attorney General

MALACHY R. MURPHY
Deputy Attorney General