Methodist Hosp. of Sacramento v. Saylor

Citation488 P.2d 161,5 Cal.3d 685,97 Cal.Rptr. 1
CourtUnited States State Supreme Court (California)
Decision Date13 September 1971
Parties, 488 P.2d 161 METHODIST HOSPITAL OF SACRAMENTO et al., Petitioners, v. Louis F. SAYLOR, as Director, etc., Respondent. Sac. 7869. In Bank

Musick, Peeler & Garrett, Charles F. Forbes, Jr., Robert D. Girard, Bruce E. Clark, John R. Browning, Los Angeles, and Hermann E. Lorenz, Jr., Sacramento, for petitioners.

Thomas C. Lynch and Evelle J. Younger, Attys. Gen., and Walter J. Wiesner, Deputy Atty. Gen., for respondent.

George Herrington and Orrick, Herrington, Rowley & Sutcliffe, San Francisco, amici curiae for respondent.

MOSK, Justice.

This proceeding for writ of mandate is brought to test the constitutionality of the 1969 Health Facility Construction Loan Insurance Law. (Health & Saf.Code, ch. 4, pt. 1, div. 1.) As will appear, we conclude the law is constitutional and therefore the writ should issue.

Since 1879, article XVI, section 1, of the California Constitution has prohibited the Legislature from creating any 'debt' or 'liability' of the state in excess of $300,000 except by means of a bond law specifying the use of the funds passed by two-thirds of each house and approved by a majority of the voters.

At the November 1968 general election, however, the voters amended the Constitution by adding thereto section 21.5 of article XIII. Section 21.5 declares that 'The Legislature shall have the power to insure or guarantee loans made by private or public lenders to nonprofit corporations and public agencies, the proceeds of which are to be used for the construction, expansion, enlargement, improvement, renovation or repair of any public or nonprofit hospital, hospital facility, or extended care facility, facility for the treatment of mental illness, or all of them, including any outpatient facility and any other facility useful and convenient in the operation of the hospital and any original equipment for any such hospital or facility, or both.'

The section further declares that 'No provision of this Constitution, including but not limited to, Section 1 of Article XVI (i.e., the above-mentioned limitation on state debt) and Section 18 of Article XI (i.e., the similar limitation on municipal debt, now found in § 40 of art. XIII), shall be construed as a limitation upon the authority granted to the Legislature by this section.'

In its next session the Legislature enacted and the Governor signed the Health Facility Construction Loan Insurance Law (hereinafter called Loan Insurance Law), an elaborate statutory scheme designed to implement this constitutional provision. (Stats.1969, ch. 970, now Health & Saf. Code, ch. 4, pt. 1, div. 1.) Health and Safety Code section 436.1 1 recites the legislative intent: 'The purpose of this chapter is to provide, without cost to the state, an insurance program for health facility construction loans in order to stimulate the flow of private capital into health facilities construction and in order to rationally meet the need for new, expanded and modernized public and nonprofit health facilities necessary to protect the health of all the people of this state. The provisions of this chapter are to be liberally construed to achieve this purpose.' The scope of the statute is commensurate with the above-quoted language of the constitutional amendment. 2

The program is administered by the State Department of Public Health (hereinafter called the Department), which is directed to make all necessary rules and regulations to implement its provisions (§§ 436.3, 436.5) 'so that, in conjunction with all other existing facilities, the necessary physical facilities for furnishing adequate health facility services will be available to all the people of the state' (§ 436.4). In particular, the Department is mandated to inventory all existing health facilities, survey the need for additional such establishments, and develop a 'state plan' for the construction of health facilities 'on the basis of the relative need of different sections of the population and of different areas' (Ibid.; see also § 432 et seq.). The Department shall furnish insurance on loans for health facility construction only 'when need is clearly demonstrated, in the order or relative need so determined' (§ 436.4), but no such insurance shall be provided until the loan 'has been finally approved through the statewide system of health facility planning' (§ 436.45).

Strict requirements must be met before a loan will be eligible for insurance. Inter alia, the loan must be secured by an approved mortgage and covered by title insurance with the Department as beneficiary, contain complete amortization provisions requiring periodic repayment, have a maturity date not to exceed 30 years, and be in an amount of not more than 90 percent of the construction cost. (§ 436.8.) 3 Formal procedures are set up for applications, hearings, and decisions on requests for such loans. (§§ 436.9--436.12.)

The statute further creates in the State Treasury a Health Facility Construction Loan Insurance Fund (hereinafter called Loan Insurance Fund), to be used by the Department as a revolving fund for carrying out the provisions of the program. (§ 436.26.) The Legislature may appropriate monies to this fund; 4 and into the fund will be deposited, inter alia, an annual premium charge levied on all borrowers (§ 436.7; see also fn. 9, Post). If a borrower becomes delinquent in paying the premium charge, the insurance will automatically terminate. (§ 436.23.)

If a borrower defaults on repayment of a loan insured under the program, a number of remedies are provided. After the Department 'determines that the lender and borrower have exhausted all reasonable means of curing (the) default,' it may, 'when such is in the best interests of the state,' cure the default itself by paying the amount in arrears in cash to the lender, using for this purpose money from the Loan Insurance Fund; the lender's security will be Pro tanto assigned to the Department, and the borrower will become liable for repayment of the amount directly to the Department. (§ 436.17.) Secondly, to avoid foreclosure the Department may, by assignment, 'acquire the loan' and appurteant security agreements, thus allowing the borrower to continue to operate the property; in such cases, the lender will be reimbursed by the issuance of 'debentures' in the amount of the unpaid balance of the loan plus interests and costs. (§ 436.16.) Thirdly, in cases in which the lender does foreclose the mortgage and takes possession of the property, he may then convey the property to the Department, 5 assign his claim to the Department, and receive in exchange the same debentures in the amount of the outstanding value of the loan. (§ 436.13.) The Department may either operate or sell any property received by such conveyance, and all income or proceeds therefrom will be added to the Loan Insurance Fund. (§ 436.21.) In addition, the Department may 'pursue to final collection' all claims against borrowers assigned to it under the program. (Ibid.)

Any debentures issued for the foregoing purposes will be in multiples of $1,000, executed in the name of the Loan Insurance Fund as obligor, signed by the State Treasurer, negotiable, interest-bearing, tax exempt, and maturing at the same date as the loan they replace. (§§ 436.19, 436.20.) The statute further provides that such debentures 'shall be, pursuant to Article XIII, Section 21.5 of the California Constitution, fully and unconditionally guaranteed as to principal and interest by the State of California. * * *' When due, their principal or interest will be paid out of the Loan Insurance Fund, 'which shall be primarily liable therefor.' In the event the Loan Insurance Fund is unable to pay such principal or interest, 'the State Treasurer shall pay to the holders the amount thereof which is authorized to be appropriated, out of any money in the Treasury not otherwise appropriated. * * *' To the extent of any amount thus paid the State Treasurer will succeed to the rights of the debenture holders, and the Loan Insurance Fund will be liable to repay that amount to the Treasury. (§ 436.20.)

Finally, the Department's authorization to insure health facility construction loans is limited to a total of $750 million spread over the first five years of the program. The ceiling will expire on July 1, 1974, but the Department is directed to report to the Legislature on the operation and fiscal condition of the program at the beginning of the 1974 session. (§ 436.28.)

The present petitioners are two nonprofit California hospitals. They applied in writing for state insurance on private construction loans to finance the building of certain approved health facilities. The Director of the Department of Public Health declined to entertain the applications on the ground that independent bond counsel had raised 'substantial questions' as to the power of the Legislature to authorize the issuance of debentures under this program. Petitioners then filed this proceeding for writ of mandate to compel respondent director to adopt the necessary rules and regulations and to entertain their applications. The case is before us on an alternative writ issued by the Court of Appeal.

We are guided in our inquiry by well settled rules of constitutional construction. Unlike the federal Constitution, which is a grant of power to Congress, the California Constitution is a limitation or restriction on the powers of the Legislature. (Los Angeles Met. Transit Authority v. Public Util. Com. (1963) 59 Cal.2d 863, 868, 31 Cal.Rptr. 463, 382 P.2d 583; People v. Coleman (1854) 4 Cal. 46, 49, overruled on other grounds in People v. McCreery (1868) 34 Cal. 432, 458.) Two important consequences flow from this fact. First, the entire law-making authority of the state, except the people's right of initiative and referendum, is vested in the Legislature, and that body may exercise any and all legislative...

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