MUNICIPAL SUBSIDIES TO PRIVATELY-OWNED CITY TRANSIT COMPANY

MUNICIPAL SUBSIDIES TO PRIVATELY-OWNED CITY TRANSIT COMPANY

A city does not have the authority to subsidize a privately-owned city transit company in order to assure its continued operations.

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                                                                November 7, 1951

Washington Public Service Commission
Insurance Building
Olympia, Washington                                                                                                              Cite as:  AGO 51-53 No. 166

Gentlemen:

            We have your request for an opinion on the following question:

            May a city subsidize a privately-owned local transit company providing passenger service in said city?

            Our conclusion may be summarized as follows:

            The city does not have such authority.

                                                                     ANALYSIS

            Your letter of recent date states in full as follows:

            "Will you kindly advise this Commission whether or not cities or towns of any class in the State of Washington have, or may have, power to subsidize a privately-owned local transit company providing passenger service in said town?"

            You have informed us orally that because of financial difficulty the owner of a city transit company can no longer maintain his operations under present conditions.  The city proposes to subsidize these operations by any legal means available in order to continue to enjoy the company's services, the company to remain in full control of its operations.

             [[Orig. Op. Page 2]]

            We are unable to understand how the city's proposal could be effected in view of Article VIII, Section 7, of the Washington Constitution, which provides as follows:

            "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."

            This section has been interpreted in State ex rel. Washington Navigation Company v. Pierce County, 184 Wash. 414, 51 P. (2d) 407.  The facts of that case disclose that until 1926 Pierce County owned and operated a system of ferries.  In that year the county sold the ferries to the assignor of Washington Navigation Company, retaining the right to control the rates and tolls to be charged.  Subsequently, to assure continued service, the county contracted with the Washington Navigation Company to pay a monthly subsidy to the company and to exempt the company from paying its franchise license fee.  The terms of the various agreements are not specifically set out in the opinion, but the company agreed to transport county personnel and property without compensation in consideration of the county's commitments.  The court, although recognizing that the reasonable value of the company's services should be recovered, held that the contracts were void as in violation of Article VIII, Section 7.  The court citedJohns v. Wadsworth, 80 Wash. 352, 141 Pac. 892, in support of its proposition that the constitutional inhibition forbade counties from giving money or loaning credit, even in support of a public purpose.

            The court in the Pierce County case examined the issue involved in the matter at hand and its disposition thereof should control.  In that case, the county retained no measure of ownership or control save as to public tolls and free services to the county.  In the instant situation, ownership and control of the bus operations are to be retained by the present owner.  The majority of the court concluded that subsidies to the company were within the constitutional prohibition, that is, that they constituted a gift by the county to the company.

            The dissent in the principal case and on its rehearing was grounded on the fact that the change of ownership amounted substantially only to a change in the method of operation and that the benefit to the public and services rendered  [[Orig. Op. Page 3]] by the company to Pierce County were adequate consideration to support the contractual obligation. The pivotal point would thus appear to be whether the money given or credit loaned is for the general benefit of the public or whether it amounts to payment for services rendered.  If the first instance obtains, the arrangement is void.

            Accordingly, if a city undertakes to subsidize the operations of a privately-owned transit company in order to guarantee its continued operation, such an undertaking is unconstitutional under Article VIII, Section 7, and the cases cited above.

Very truly yours,

SMITH TROY
Attorney General

LAWRENCE K. McDONEL
Assistant Attorney General