State v. Florida State Improvement Commission

34 So. 2d 443, 160 Fla. 230, 1948 Fla. LEXIS 650

Opinions

SEBRING, J.:

This is an appeal from a final decree validating certain Florida State Improvement Commission revenue bonds and approving the plan by which the bonds are to be liquidated. The bonds in question are to be issued to finance the construction of a road connecting State highways, to be built in Highlands County at the request of the Board of County Commissioners of the County. They are dated October 1, 1947, bear interest “at the lowest rate obtainable when the same are sold at par or better,” and are to be completely paid off and discharged by October 1, 1954.

As a means of procuring revenues to pay the principal and interest on the bonds, and to defray the costs incurred in con nection with their issuance, the State Improvement Commission has entered into an agreement with the State Road Department whereby the latter has agreed to lease and purchase the road for a sum of money sufficient to meet all bond requirements, the money to be paid from surplus gas taxes accruing to the credit of Highlands County under section 16, Article IX of the Constitution.

All of these negotiations have been conducted pursuant to chapter 23758, Laws of Florida, enacted by the 1947 session of the legislature. This statute empowers the Florida State Improvement Commission, upon the application of any county evidenced by resolution of its Board of County Commissioners, to acquire or to construct within the county any road or bridge connecting State highways within such county, and to finance the acquisition or construction of such project through the issuance and sale of revenue certificates and bonds, in accordance with the provisions and requirements of Section 420.06 Florida Statutes 1941, as amended by Chapter 22821, Laws of Florida, 1945. It also empowers the Improvement Commission to lease or sell the road or bridge so acquired or constructed to the State Road Department, upon such terms and conditions, and for such sum of money, as will assure to the Improvement Commission sufficient revenues to pay all costs incurred in connection with the acquisition or construction of the road or bridge and as will represent the fair market value of the improvement for leasehold and purchase purposes. By the terms of the statute the State Road Department is authorized to pay the rental or purchase price of the road or bridge “from the surplus gasoline taxes which may in the future accrue to the credit of the county or counties in which the road or bridge is located, under the provisions of Section 16 of Article IX of the Constitution of Florida, or from other State Road funds.”

The lease-purchase agreement entered into between the Improvement Commission and the State Road Department, pursuant to Chapter 23758, supra, contains the following pertinent provisions:

“ . . . That for and in consideration of the sum of one ($1.00) Dollar this day paid by each party hereto to the other, the receipt whereof is hereby acknowledged, and in further consideration of the mutual and dependent covenants of the parties hereto and other good and valuable considerations as hereinafter set forth, the said Lessor does by these presents lease to the said Department, its successors and assigns:

“ ‘That certain road in Highlands County known as State Road No. 59 from State Road No. 8 in DeSoto City to a point at or near Sunnyland School, a distance of approximately twelve (12) miles, all to be constructed by or under the direction of the Department,’ — said lease to take effect from the date of the completion of the construction of said road and to extend for a period of twenty-five (25) years or until all of said bonds hereinafter described, or any refunding issues thereof, have been paid in full.

“The said Lessor further agrees that it will, at the earliest possible date, after having complied with all legal requirements, offer for sale and sell to the highest and best bidder $525,000 FLORIDA STATE IMPROVEMENT COMMISSION SERIES 3 HIGHLANDS COUNTY ROAD REVENUE BONDS, and that, immediately upon receipt of the funds from the successful purchaser and after payment of all necessary expenses in connection with the preparation, issuance and sale of the bonds, including the fee of its fiscal agent, it will turn over the remainder of all monies received to the Department, said funds to be used by said Department exclusively in the construction of said State Road No. 59 as hereinbefore described, and for the purpose of paying principal and/or interest charges on said bonds accruing prior to the date of completion of said road.

“The Department, on its part, agrees to accept said funds from the Lessor and to immediately proceed with the construction of said State Road No. 59 together with necessary bridges, in accordance with its standard state road specifications, and guarantees to complete said road as quickly as is reasonably possible. The Department further agrees that in the event any principal and/or interest of any Florida State Improvement Commission Highlands County Road Revenue Bonds shall become due and payable prior to the completion of said road, the Department will pay such principal and/or interest.out of these funds or from the proceeds of the 80% surplus gasoline tax accruing to Highlands County, to the State Board of Administration, not less than twenty (20) days prior to the dates upon which such principal and/or interest shall be come due and payable.

“The Department further declares that the necessary surveys for the construction of the road has been made by said Road Department and that the amount to be derived from the sale of the revenue bonds in the sum of $525,000 is sufficient to cover the estimated cost of the construction of said road. In the event that there is a deficiency between the amount of funds • available from the revenue bonds and the amount necessary to complete the project, the State Road Department agrees that it will pay from its own funds any such deficiency and that the road will be completed in accordance with the standard plans and specifications of the Department.

“In consideration of this lease, the Department does hereby promise and agree to and with said Lessor as follows:

“The Department will pay as rentals on said lease, not less than twenty (20) days prior to the dates on which any of the principal and/or interest of Florida State Improvement Commission Highlands County Road Revenue Bonds shall become due and payable, such sum or sums of money as shall be equal and sufficient to pay the said principal and interest upon said bonds as they severally became due, so long as any of such bonds or interest thereon (or refunding issues thereof) shall be outstanding and unpaid. Such rentals agreed to be paid by the Department shall be paid by the Department from Highlands County surplus gasoline tax fund as and when such surplus gasoline tax funds accrue, pursuant to the authority of Chapter 20555, Laws of Florida, Acts of 1941, and Section 16(c) Article IX of the State Constitution. Said rentals shall be paid by the Department directly to the State Board of Administration for administration and disposition in accordance with the provisions of Chapter 21853, Laws of Florida, Acts of 1943. The Department agrees that its covenants herein to pay said rentals shall be construed as a first charge or prior commitment or lien upon and against said surplus gasoline tax funds which shall have priority over all other or subsequent charges, claims or commitments upon or against said funds.

“In addition to the payments outlined herein-above, the Department will, upon completion of the construction of said road, pay to the State Board of Administration any funds which it may have on hand, either in the construction fund or in the 80% surplus gasoline tax funds credited to Highlands County, and it shall from time to time pay to the State Board of Administration any and all funds which it may receive from surplus gasoline tax funds to be credited to Highlands County. These payments shall be made to the State Board of Administration as soon as received, and the payments shall continue until there shall be in the hands of the State Board of Administration a sum of money equal to the total amount of the principal and interest which shall fall due in the current fiscal year plus the total amount of the principal and interest which shall fall due in the two ensuing years, and after such an amount has been paid to the State Board of Administration the Department will thereafter .pay as rentals on said lease, not less than twenty (20) days prior to the dates on which any of the principal and/or interest on Florida State Improvement Commission Highlands County Road Revenue Bonds shall become due and payable, such monies required to pay such principal and/or interest, and will at the same time these payments are made pay any additional amount which may be necessary, so that there will be at all times in the hands of the State Board of Administration sufficent funds to pay current principal and interest plus a sum equal to the total bond principal and interest requirements for the two ensuing years.

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“It is mutually agreed that said rentals covenanted to be paid and the other considerations agreed to be performed by the Department represent the fair rental and market value of said road.

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“The Department will, solely at its sxpense out of state road funds, at all times during the continuance of this agreement maintain said road in good repair and in sound operating condition and will make all necessary repairs, renewals, reconstruction and replacements.

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“When the Department shall have performed all the covenants hereunder and shall have paid the rental herein provided for, for the full term of the lease, and all the indebtedness, including interest, represented by said $525,000 Florida State Improvement Commission Highlands County Road Revenue Bonds has been paid and satisfied, then the title and absolute ownership to all the property included in the lease shall thereupon immediately be vested in the State of Florida in fee simple; and the Lessor covenants and agrees to, and will thereupon deliver to, the Department such deeds and conveyances as may be necessary or convenient to vest full title and ownership of all said property in the State of Florida.”

With respect to the security pledged by the State Improvement Commission for the payment of the bonds, each bond recites on its face:

“This bond ... is payable and redeemable only from revenue accruing to the State Improvement Commission under and by virtue of its contract of lease-purchase with the State Road Department, together with all other bonds of the issue of which this bond is one, is secured by a first, exclusive and closed lien on the income and revenue derived from said lease-purchase agreement, all as in said Resolution provided.

“This instrument is an obligation of the Florida State Improvement Commission in its corporate and representative capacity and is secured only by such revenue as shall be pledged as security for its payment and it is not an obligation of the State of Florida, nor of any County of the State of Florida and will not and cannot be paid, redeemed, satisfied nor liquidated with tax funds of the said State of Florida nor of any County of the State of Florida, except that the foregoing limitations shall not apply to any tax funds or other funds paid or agreed to be paid by the State Road Depart ment to the Florida State Improvement Commission pursuant to authority of law as rentals, charges on purchase payments which tax funds or other funds so paid or payable have been set forth in the face of this bond.”

The authorizing, resolution enacted by the Improvement Commission, which, by reference, is made a part of each bond recites:

“ . . . The Revenue Bonds hereby authorized shall be legal obligations of the Commission but secured only, however, by the pledge of the revenue accruing to said Commission under said lease-purchase contract with the State Road Department. They shall not be obligations of the State of Florida nor of Highlands County and will not and cannot be paid, redeemed, satisfied or liquidated with tax funds of the State or of Highlands County; nor shall the State of Florida, or Highlands County, be obligated to levy a tax or make any appropriation for the payment of said bonds except as herein provided.

“SECTION 11. The rentals or payments that will accrue to the Commission and that will be paid to it under and by virtue of its lease-purchase contract with the State Road Department shall be paid by that Department out of eighty (80%) percent surplus two-cent gasoline tax appropriated to it by Section 16, Article IX of the Constitution of Florida, for the construction of roads in Highlands County and shall be paid directly to the State Board of Administration in accordance with the provisions of Chapter 21853, Laws of Florida, 1943, said Board shall hold all monies received by it as aforesaid as a sinking fund in trust solely for the payment of principal and interest maturing on the Revenue Bonds herein authorized, for the account of the Commission in order to secure the payment of the contract obligations of the Board evidenced by said Revenue Bonds herein authorized and any bonds that may be issued by the Commission to refund the same or any part thereof. Any sums at any time in the hands of the State Board of Administration in excess of the amounts required to pay currently maturing principal and interest shall be held in trust by it solely for the benefit of the holders of outstanding and unpaid revenue bonds of this issue but may be invested by it as authorized by law. Any investment so made shall also be held in trust and the same, or proceeds thereof, used solely for the payment of the bonds herein authorized.- All deposits of said funds shall be continuously secured as required by the law of Florida and shall not be withdrawn or used for any purpose other than those herein designated.”

The ultimate question upon the appeal is whether or not Chapter 23758, Laws of Florida, 1947, which authorizes the State Road Department to lease-purchase the road involved with surplus gas taxes accruing in the future for road and bridge construction in Highlands County, and which empowers the State Improvement Commission to pledge the “rentals” received to pay bonds to be issued to finance construction, is violative of sections 6 and 16 of Article IX of the Constitution. A secondary question is whether, assuming the statute to be constitutionally valid, the road which is the subject matter of the lease-purchase agreement is the type or kind of project for which surplus gas tax proceeds accruing under Section 16, Article IX of the Constitution may be validly expended by the State Road Repartment.

At the outset we think it must be recognized that though the written agreement between the State Improvement Commission and the State Road Department is, in form, a contract for the long term lease of a public highway with title to vest in the State at the end of the term, it is, in fact, a- contract by the State Road Department for the construction of a state road within Highlands County to be paid for out of present and future surplus gasoline tax proceeds to be remitted by the State Board of Administration of the State Road Department for the purpose of constructing roads and bridges in Highlands County. We think, also, that even though the bonds to finance the project are to be issued as the sole obligations of the Improvement Commission “in its corporate and representative capacity and secured only by such revenues as shall be pledged as security for the payment thereof,” the State Road Department has in reality agreed to pay the bonds — at least indirectly — to the extent of the fund it will receive from surplus gas tax proceeds accruing to the benefit of Highlands County under Section 16, Article IX of the Constitution; because the “rentals” which are to be paid to the State Improvement Commission until the bond obligations are paid in full, constitute the only source of revenue pledged, or which may be pledged as security for the retirement of the bonds. Frank recognition of these facts, however, does not necessarily mean that by reason of their existence, the legislative scheme or devise for acquisition of the road must be declared null and void.

It is well-settled by previous decisions of this court that, revenue bonds issued by the State Improvement Commission under authority of Chapter 22821, Laws of Florida, 1945, to finance public projects which the Commission is authorized to acquire, construct, maintain or operate, are not state bonds within the contemplation of section 6, Article IX of the Constitution, where the security for the payment of the bonds is confined exclusively to rents, tolls, or fees realized from the use of such projects, and are not derived from state tax levies or paid from state tax funds. Hopkins v. Baldwin, 123 Fla. 649, 167 So. 677; Brash v. Tuberculosis Board, 124 Fla. 652, 167 So. 827, 169 So. 218; State v. Florida State Improvement Commission, (Fla.), 30 So. (2nd) 97. As was pointed out in State v. Caldwell, 156 Fla. 618, 23 So. (2nd) 855:

“The Act . . . provides in terms that the obligations and securities undertaken shall not under any theory bind the State of Florida and ‘shall be solely and only the obligations of the Florida State Improvement Commission in its corporate and representative capacity and shall be secured only by such revenues as shall be pledged as security for the payment thereof.’ ... It would hardly be possible to express the non-liability of the State more conclusively.

“ . . . The law is settled in this state that evidences of debt secured solely from rents and facilities of the Commission are not bonds that must be approved by the freeholders as required by Section 6, Article 9 of the Constitution ...”

See also State v. Florida State Improvement Commission, (Fla.) 31 So. (2nd) 548.

We hold, therefore, that the bonds proposed to be issued in the present cases cannot be State bonds; unless it be that by the indirect method proposed for their payment, state tax money constitutionally usable only for strictly State purposes is in fact to be used to liquidate and discharge them.

That such cannot be the fact has been definitly settled, we believe, at least in principle; by the decision of this court in State v. State Board of Administration, 157 Fla. 360, 25 So. (2nd) 880. In the cited cases there was involved the financing and construction of certain toll bridges and highways by Overseas Road and Toll Bridge district in Monroe County. The original bonds issued to finance the project had provided for their payment exclusively “from the tolls and other revenues of any nature whatsoever received from the operation of the toll bridges and toll highways, and any other property of the district.”

The bonds were sought to be refunded under a plan whereby the toll roads and bridges were to be sold to the State Road Department. As consideration for the purchase, the Road Department agreed to pay as the purchase price “all amounts received for tolls from said toll bridges and toll highways and all funds from the eighty per cent gasoline surplus available to Monroe County, pursuant to Section 16(c) Article IX of the Constitution.” The bonds were refunded on this basis; the refunding bonds pledging not only the tolls and revenues to be received from the operation of the facilities, but also the “funds from the eighty per cent surplus gas tax proceeds available to Monroe County,” agreed to be paid by the State Road Department as part of the purchase price in the acquisition of the toll roads and bridges.

On appeal it was held that the scheme or plan divested for paying off the refunding bonds was perfectly lawful and proper; and that no new or additional source of revenue was being pledged by the district as security for the payment of the refunding bonds, inasmuch as surplus gas tax proceeds to be credited to the account of Monroe County were usable for no purpose other than road and bridge acquisition and construction within the County and hence so closely partook of the nature of property belonging to Monroe County as to authorize their inclusion in the bond pledge, as “other property of the district.”

This holding of the Court to the effect that future surplus gas tax proceeds, accruable under Section 16 Article IX of the Constitution, could be thus pledged to service bonds payable in the future, necessarily excluded any conclusion that such gas tax proceeds were “state funds” within the purview of section 6 Article IX of the Constitution and therefore expendable only when in hand, for current expenses of state government or for bonds to repel invasion or suppress insurrection. See Advisory Opinion to Governor, 94 Fla. 967, 114 So. 850, which points out the manner in which strictly state funds must be expended.

The conclusion reached by the Court in State v. State Board of Administration, supra, is entirely consonant with the purposes for which section 16 Article IX was adopted as a part of our Constitution. Section 16, Article IX converted the statutory Board of Administration then in existence under Chapter 14486, Laws of Florida, 1929 into a constitutional body, specifically incorporated in the Constitution provisions for a two-cent gas tax levy for a period of fifty years, appropriated the proceeds of that tax to the credit of the counties for the retirement of their road and bridge obligations, and made available a continuing surplus for road construction within each of the counties. The section expressly authorizes the Board thereby created to pledge a county’s share of the gasoline tax levied by it to secure payment of bonds issued. Subsection (c) mandator ily requires the Board to pay the bonds described therein as they mature, to create a fund to meet subsequent maturities in years where it is estimated receipts will not be sufficient, and to divide any balance remaining; 80 per cent of the State Road Department and 20 per cent to the County Commissioners. It orders that the 80% appropriated to the State Road Department be used solely for “the construction of state roads and bridges” and for the “lease or purchase of bridges connecting state roads.” The tax is levied for a period of fifty years and the legislature is expressly prohibited from reducing the rate, or from changing the method of distribution or the purposes for which the proceeds may be used. All of these requirements were designed to stabilize the credit of the counties, to assure a means of liquidating the road and bridge obligations of the counties, and to provide to the counties an appropriate and secure means to enable them, through the State Road Department, to extend the state system of roads and bridges within their territorial boundaries. Under this Constitutional plan the surplus gas tax proceeds which will be remitted to the State Road Department, in trust for the use of each of the counties, are fixed definite and certain — at least to the extent that the funds will be or become available for road and bridge construction or acquisition for a period of fifty years from the adoption of the amendment, cannot be withdrawn from the purpose, and cannot be transferred or shifted by the Legislature to any other state purpose.

It has been suggested that even though the surplus gas tax proceeds are held in trust for the counties, still no authority exists within the Constitution provision for anticipating future tax funds for building present projects, even though such a program might be presently beneficial. The argument is that because the Constitutional amendment is entirely silent as to the manner or method by which the State Road Department is to discharge the responsibility imposed on it by the Constitution of carrying on needed road construction within the counties with funds which are, in effect, trust funds of the counties, only two courses of action are open to the State Road Department: (1) to build only such portions of public roads as can be constructed from year to year with funds accruing to each of the counties during each fiscal year throughout the life of the amendment, or (2) to wait until such time in the future as there shall be sufficient funds on hand to build such projects in toto.

Manifestly the pursuit of the first course suggested would result in piecemeal construction of public highways — a course which can hardly be said to be economically sound; while the pursuit of the second might well result in the loss of a link in the state highway system that may be sorely needed at the present for the proper economic expansion of the county affected. Neither course, in our view, would be productive of the results designed to be accomplished by the constitutional amendment, in extending the facilities of the State highway system.

The funds accruing from the eighty per centum surplus gas tax proceeds being fixed, definite and certain as to availability and, therefore, being, in a sense, in esse; and the same not being State tax funds within the contemplation of Section 6 Article IX of the Constitution; and Section 16, Article IX containing no express or implied provisions as to the plan or method by which they shall be expended; we think it entirely competent for the legislature to prescribe, by statute, the plan or method by which they may be utilized by the State Road Department for the benefit of the counties in procuring either present or future additions or extensions to the State Highway system.

Any statute enacted, however, if it is to be constitutional, must neither divert the eighty per cent gas tax surpluses to purpose other than a state purpose, nor to a purpose or project not particularly authorized by section 16(c) Article IX of the Constitution. It must not attempt to specify the use that shall be made of tax funds in the hands of the State Road Department, other than the eighty per cent gas tax surpluses accruing to the use of the counties. It must not obligate the taxing power of the State or any of its political subdivisions or agencies, except as to the eighty per cent surplus gas tax proceeds, or authorize the incurring of obligations except as shall be payable only and exclusively from such proceeds.

Chapter 23758, Laws of Florida, 1947 appears to comply with all these requirements; except as to that provision of the statute which attempts to authorize the State Road Department to pay to the State Improvement Commission, as rentals under the lease-purchase agreement, not only surplus gasoline taxes to the credit of the counties, but also "other State Road Funds.” As to funds other than the eighty per cent gas tax surpluses, we are of the view that the legislature was without power to authorize the State Road Department to obligate them for this purpose.

The only other questions raised by the appellant on this appeal are with reference to whether or not, assuming the statute to be constitutionally value, the road which is the subject matter of the lease-purchase agreement is the type or kind of project for which surplus gas tax proceeds accruing under section 16 Article IX of the Constitution may be lawfully expended by the State Road Department.

It is pointed out by the appellant that while section 16(c) Article IX authorizes the expenditure of surplus gas taxes for “the construction or reconstruction of State roads and bridges within the county” it does not authorize the expenditure of such funds for the lease or purchase of roads, and hence that the statute authorizing the State Road Department to “rent” the road and pay the rentals with gas tax surpluses, is an invalid attempt to divert the tax surpluses to a use not contemplated by the Constitution. It is also pointed out that though the Constitution specifically directs that the gas tax surpluses are to be used only “for the construction or reconstruction of State roads and bridges within the county or for the lease or purchase of bridges connecting State highways within the County” the statute authorizing the lease-purchase agreement between the parties provides that part of the “rentals” are to be used by the Improvement Commission to pay interest on its revenue bonds; and that this is an unauthorized attempt to divert the proceeds. '

We think that under the view we have taken of the real nature of the lease-purchase agreement between the parties, as being essentially a contract for the construction of a needed State highway connecting with other State highways, neither contention is tenable. Under the contract the State Road Department is to do the planning, surveying and actual construction of the highway with money raised by the sale of the bonds issued by the Improvement Commission. It is to maintain and repair the road throughout the course of the contract. The construction of the road has been found, by authorization resolution, to be necessary as an extension of the State highway system. There has also been a finding that the sums of money to be used as rentals represent the fair market value of the road for leasehold and for purchase pur poses. Under these conditions it cannot be said that the State Road Department is not lawfully “constructing” the road within the contemplation of the Constitution. This being the situation, it is our view that the payment of interest on the bond proceeds is merely a legal and necessary incident to that venture.

The extent to which interest may be paid on bonds issued by the Improvement Commission is fixed by Section 420.08 Forida Statutes, 1941, as amended by Chapter 22821, Laws of 1945. That statute authorizes the State Improvement Commission to borrow money and issue bonds for their repáyment, but with the provision that “In no case shall any such bonds, notes or certificates mature later than thirty years from date of issue, or bear interest at a rate greater than six per cent per annum, or be sold at such price that the net interest cost to the commission shall exceed six per cent to the respective maturities thereof.” It may be well to call attention to the fact that in the present case the bonds recite that they are to bear interest “at the lowest rate obtainable when the same are sold at par or better.” It must be understood, therefore, that if “the lowest interest rate obtainable” on the bonds exceeds the statutory provision for interest, the bonds to that extent will be unenforceable.

From the conclusions we have reached with respect to the nature of the lease-purchase agreement, the purposes for which the eighty per cent surplus gas tax proceeds may be used, and of the power of the Legislature with respect thereto, it follows that the decree appealed from must be, and the same is hereby, affirmed.

It is so ordered.

THOMAS, C. J., TERRELL and CHAPMAN, JJ., concur. ADAMS and BARNS, JJ., dissent.