McFarland v. Barron

164 N.W.2d 607, 83 S.D. 639, 1969 S.D. LEXIS 141

Opinions

ROBERTS, Judge.

The South Dakota Building Authority acting under the provisions of Ch. 276, Laws 1967, by resolution indicated its intention to issue bonds in a sum not to exceed $1,325,000 to provide funds for the construction and equipping of a classroom and auditorium building at Northern State College and a central kitchen and dining facility at the State Training School.

Plaintiff as a citizen and taxpayer-seeks in this court a writ of prohibition enjoining the issuance of the proposed bonds asserting that the bonds would constitute a debt or obligation of the State in excess of the amount of indebtedness authorized under the provisions of § 2, Art. XIII, of the Constitution of this State. Defendants, who are members of the Building Authority, moved to dismiss the application for the writ and the proceedings herein on the ground that the statute is valid and not subject to the constitutional objections asserted.

The Building Authority, which consists of seven members appointed by the Governor with consent of the Senate, i-s declared to be a "body corporate and politic". It is empowered to build or otherwise acquire (including the power of condemnation) any building or facility for the use of the State as the legislature by law declares to be in the public interest and to investigate and report and recommend to the legislature the building needs of the State and to obtain estimates of costs.

The legislature by the enactment of Chapters 217 and 218, Laws 1968, concurred in the report and recommendations of the Building Authority and authorized the construction, furnishing and equipping of the aforementioned buildings and the issuance of bonds, but expressly declared that no obligation incurred "shall be or become a lien, charge or liability against the State of South Dakota, nor against the property or funds of the State of South Dakota within the meaning of the Constitution or Statutes of South Dakota." The statute creating the Building Authority with reference to the issuance of bonds provides that they shall be payable only from (1) revenues to be derived from the operation of any facility acquired or constructed with proceeds of the bonds, (2) income to be derived from rental leases to state departments, boards or commissions or from leases to others and, (3) funds in the Educational Facilities Fund not otherwise appropriated or pledged. It is further provided that each bond shall state upon its face that it is payable solely from revenues derived from operation of the facility or from income to be derived from rental leases and that it does not constitute an obligation of the State within the meaning of its Constitution or statutes.

Section 2, Art. XIII, of the Constitution of this State provides that for the purpose of making public improvements, or to meet extraordinary expenses, or deficits or failure in revenue, the State may contract debts never to exceed with previous debts $100,000, and no greater indebtedness shall be incurred except for purposes which are not here relevant. In State College Development Ass'n v. Nissen, 66 S.D. 287, 281 N.W. 907, this court held that the issuance of bonds for the construction of two dormitories at a state college, payable out of net revenues of the buildings, did not create an indebtedness within the meaning of the constitutional debt limitation. This special fund doctrine was subsequently considered by this court in relation to the issuance of bonds by municipalities and was followed and applied. Mettet v. City of Yankton, 71 S.D. 435, 25 N.W.2d 460; Clem v. City of Yankton, 83 S.D. 386, 160 N.W.2d 125.

Plaintiff places much reliance on Boe v. Foss, 76 S.D. 295, 77 N.W.2d 1. In that case, the Board of Regents by resolution had indicated that it intended to exercise the authority vested in it by Ch. 49, Laws 1955, to construct three buildings at an educational institution under its control and to finance their construction by pledging the net revenue of the new buildings and in addition thereto the net revenues, in an amount of not less than $500,000, of the dormitories then in use at the college. Plaintiff sought a writ of prohibition to enjoin the board from taking action pursuant to the resolution. This court held that the transfer of net revenues of the existing dormitories to payment of the principal and interest of the bond's and the need of replacement with tax monies created a debt within the contemplation of § 2, Art. XIII of the Constitution. This test is not applicable in the present proceeding. There are statutory differences. Under the proposed contract in the instant proceeding it is expressly provided that the obligation of the State to pay rentals will be optional and for that reason no enforceable obligation results.

The principal question to be determined is whether the rental plan in the Building Authority Act in anywise violates the debt limitation provisions of the Constitution. The Building Authority is vested with power to lease buildings or facilities to participating agencies of the State. The leases must contain a provision that rents shall be payable solely from appropriations to be made by the legislature and any revenues derived from the operation of the leased premises. In the event of nonpayment of rents by the State, the building or facility may be leased to others for suitable purposes. A lease may be made for a term of one year from the time a building is completed and ready for occupancy, with an option to the lessee to extend the term for one year from the expiration of the original term and for one year from the expiration of each extended term until the original term of the lease has been extended for a total number of years to be agreed upon at a rental which, if paid for the original term and for each of the full number of years for which the term of the lease may be extended, will amortize the total cost of the erection of the building and appurtenances.

The proposed contract between the Building Authority and bondholders will necessarily embody the limitations and restrictions contained in the Building Authority Act and the 1968 statutes above cited. The source of payment of the bonds will be rents payable from appropriations made or to be made by the legislature. The proposed leases to be entered into be tween the Building Authority and the participating agencies of the State will provide for the payment of annual rentals from available appropriations and will be automatically renewed if an appropriation for such purpose is made. They would not have the effect of creating an immediate debt or liability in the aggregate amounts of the future rents. The general rule is that there is no obligation to pay until rent is due under the terms of a lease. 1 Tiffany, Landlord & Tenant, § 166; Gardiner v. William Butler & Co., 245 U.S. 603, 38 S.Ct. 214, 62 L.Ed. 505; Ambrozich v. City of Eveleth, 200 Minn. 473, 274 N.W. 635, 112 A.L.R. 269. This common law concept has been followed in cases dealing with debt limitation provisions. City of Walla Walla v. Walla Walla Water Co., 172 U.S. 1, 19 S.Ct. 77, 43 L.Ed. 341; State ex rel. LaFollette v. Reuter, 33 Wis.2d 384, 147 N.W.2d 304; Protsman v. Jefferson-Craig Consol. School Corp., 231 Ind. 527, 109 N.E.2d 889; Clayton v. Kervick, 52 N.J. 138, 244 A.2d 281; McArthur v. Smallwood, 225 Ark. 328, 281 S.W.2d 428; Walinske v. Detroit-Wayne Joint Bldg. Authority, 325 Mich. 562, 39 N.W.2d 73.

The statute under consideration meticulously provides that leases may be made subject to available appropriations and any revenues derived from the operation of leased property. An appropriation of money which is to be satisfied out of current revenues for the year does not create an indebtedness. This court in referring to an appropriation to pay current obligations in anticipation of uncollected revenues in an early opinion observed: "Critically considered, it may constitute the incurring of an indebtedness; but it is not an indebtedness repugnant to the constitution, because its payment is legally provided for by funds constructively in the treasury." In re State Warrants, 6 S.D. 518, 62 N.W. 101, 55 Am.St.Rep. 852; see also In re Rural Credits Law, 38 S.D. 635, 162 N.W. 536. Some suggestion is made that the State would have a moral obligation to discharge the bonded obligation. While the legislature in making appropriations may not be confined to legal obligations, but may recognize moral or equitable obligations (Payne v. Jones, 47 S.D. 488, 199 N.W. 472), there would exist under the proposed leases no binding legal obligation to authorize ex penditures for rent. The availability of appropriations, in other words, is within the exclusive' control of the legislature. In the event of nonpayment of rent or failure of the legislature to appropriate funds the Building Authority is empowered to lease the building or facility to others for suitable purposes to meet accruing payments.

In Berger v. Howlett, 25 Ill.2d 128, 182 N.E.2d 673, the action was for injunctive relief and for declaratory decree that the Building Authority Act of that state, after which the statute in this State is patterned, was unconstitutional and void. The court determining the act to be constitutional observed: "* * * that the fact that the General Assembly will appropriate money during its regular sessions to pay rent does not create a debt; and that the statutory provisions authorizing a pledge of the income and property of Authority, the sole sources to which the bondholders may look, does not create a debt against the State, * * * The charges, fees or rentals to be established by the Authority are limited to amounts sufficient at all times to pay the principal of and interest on the bonds and cost of maintenance. Here the act provides that leases to the State or its agencies shall provide that the rents shall be payable from appropriations made by the General Assembly at each session for such purpose, and, in case such rental is unpaid, it is entirely clear that no claim is preserved against the State inasmuch as the Authority is given the power to lease the building or facility to others for any suitable purposes."

It is argued that the lease plan is a subterfuge and device to circumvent the Constitution. The authorities are reviewed in 71 A.L.R. 1326 and the conclusion stated:

"If it be urged that a bona fide lease with option to purchase is a palpable scheme or device to evade the constitutional limitation of indebtedness, it must be answered that, while this arrangement is designed to avoid the effect of such a constitutional provision, it is intended to do so lawfully, by keeping out of prohibited territory altogether, rather than by attempting to cross this ter ritory in disquise; that this plan is not designed to accomplish indirectly that which could not be done directly, but rather to accomplish legally that which could not be done in an unlawful manner. For it must be kept in mind that the purpose of a debt limitation is not to prevent the municipality from acquiring buildings or public works, but to place a limitation on the extent to which it may pledge its credit and hence burden the taxpayers. And if it can acquire such property without becoming indebted therefor or exceeding the constitutional limitation, neither the spirit nor the letter of the provision has been violated. There is, in the typical case, an intention to acquire the leased property, but no obligation to do so."

In a supplemental annotation, 145 A.L.R. 1362, it is said:

"The recent cases on the point tend to confirm the general principle stated in the original annotation, that the leasing of property by a city, county, or other political subdivision, with an option to purchase the same, does not give rise to an indebtedness or liability of the public body for the stipulated optional purchase price or for the aggregate of all the rentals for the entire term, provided the instrument is in fact a lease, and not a contract of purchase on the instalment plan."

We recognize that courts throughout the country are not in harmony as to the validity of financing plans basically similar to that now before us. We think that the weight of authority and prior decisions of this court sustain validity. We must be mindful that the wisdom and expediency of a statute is for the legislature and not for this court. It is elementary that if a statute appears on its face to be constitutional and valid, we may not inquire into the motives of the legislature and that all doubts must be resolved in favor of its validity. We concur in the observation that "[i]t is never an illegal evasion to accomplish a desired result, lawful in itself, by discovering a legal way to do it." Tranter v. Allegheny County Authority, 316 Pa. 65, 173 A. 289.

Since the stipulation of the State to pay rents to the Building Authority will be subject to available appropriations and current revenues, the inhibition of the debt limitation provisions of the Constitution will not apply.

The motion to dismiss is therefore granted. A public question being involved, no costs will be taxed.

HANSON and HOMEYER, JJ„ concur. RENTTO, J„ and BIEGELMEIER, P. J„ dissent.