Industrial Development Authority of Pinal County v. Nelson

• Citation: 509 P.2d 705,109 Ariz. 368
• Decision Date: 07 May 1973
• Docket Number: No. 11059,11059
• Parties: The INDUSTRIAL DEVELOPMENT AUTHORITY OF the COUNTY OF PINAL, Petitioner, v. The Honorable Gary K. NELSON, Attorney General for the State of Arizona, Respondent.
• Court: Supreme Court of Arizona

Page 705

509 P.2d 705

109 Ariz. 368

The INDUSTRIAL DEVELOPMENT AUTHORITY OF the COUNTY OF PINAL, Petitioner, v. The Honorable Gary K. NELSON, Attorney General for the State of Arizona, Respondent.

No. 11059.

Supreme Court of Arizona, In Banc.

May 7, 1973.

Rehearing Denied June 5, 1973.

Rawlins, Ellis, Burrus & Kiewit by R. J. Ellis, O'Connor, Cavanagh, Anderson, Westover, Killingsworth & Beshears, by Harry J. Cavanagh, Phoenix, for petitioner.

Gary K. Nelson, Atty. Gen., by Charles S. Pierson and Richard L. Sallquist, Asst. Attys. Gen., Phoenix, for respondent.

Evans, Kitchel & Jenckes, by Leslie T. Jones, Jr., Phoenix, for amicus curiae Phelps Dodge Corp.

Robertson, Molloy, Fickett & Jones, by John F. Molloy and Michael J. Meehan, Tucson, for amicus curiae Johns-Manville Products Corp.

HOLOHAN, Justice.

Petitioner, The Industrial Development Authroity of the County of Pinal, is a corporation organized and existing under the provisions of A.R.S. § 9--1151 et seq. For the sake of brevity petitioner will be referred to in this opinion as IDA.

IDA brought a petition for special action in this Court against the Attorney General, seeking an order from this Court directing the Attorney General to issue an opinion that certain bond issues of IDA are in conformity with the applicable provisions of law. We accepted jurisdiction pursuant to Article VI, Section 5, of the Arizona Constitution, 1 A.R.S.

The relevant facts are that in August 1972 the Board of Directors of IDA authorized pursuant to Title 9, Chapter 11, Arizona Revised Statutes, the issuance of certain revenue bonds for a project known as the 'Magma Copper Company Project.' Two separate bond issues were authorized. One issue was for 30 million dollars with the proceeds to be loaned to the Magma Copper Company for the purchase and installation of air pollution control facilities in its smelter at San Manuel, Arizona. Repayment of the bonds would come from the proceeds of the repayment of the interest and loan by the company to IDA. The second issue for 5 million dollars was for the acquisition by IDA of real property and construction on it of air pollution control facilities and machinery. The real property and improvements were to be subject to a mortgage as security for the bond holders. The real property and improvements were to be leased to the Magma Copper Company whose rental payments on the lease would be used by IDA to repay the bonds. Pinal County and its taxpayers would have no obligation or liability for the repayment of any of the bonds in either issue.

Prior to issuing the bonds IDA, pursuant to A.R.S. § 9--1171, subsec. F, notified the Attorney General of Arizona, respondent, of its intent to issue the bonds.

The Attorney General advised IDA by letter that he had reviewed the documents submitted in support of the proposals to issue bonds, and that:

'I would have been able to issue an opinion that the issuance of the bonds by the Authority pursuant to the Revolving Credit and Term Loan Agreement is in conformity with the Act were it not for the matters or questions listed below, . . ..'

The 'questions listed below' was a series of questions concerning either the constitutionality or the validity of the statute under which IDA was acting. Despite the letter of the Attorney General, in October 1972 IDA caused the Loan Agreement bonds to be issued and advised the Attorney General of its action. On October 10, 1972, the Attorney General advised IDA that the bond issue was void.

The Attorney General contends that the legislation under which IDA seeks to act is unconstitutional in that it is in violation of at least three sections of the Arizona Constitution, namely, Section 7, Article IX; Section 13, Part 2, Article IV; and Section 7, Article XIII. The Attorney General further questions whether a project under the act may be financed for a company already doing business in Arizona, whether air pollution control facilites are a project within the definitions set forth in A.R.S. § 9--1151, and finally whether a corporation organized under the provisions of A.R.S. § 9--1151 et sea. can validly undertake financing of pollution control facilities as provided in A.R.S. § 9--1221 et seq.

Whenever the constitutionality of a legislative enactment is assailed, the party questioning the validity of the statute must overcome the presumption in favor of the constitutionality of legislative enactments. State v. Krug, 96 Ariz. 225, 393 P.2d 916 (1964). The Court will uphold the legislation if there is any legal basis for its validity. Hernandez v. Frohmiller, 68 Ariz. 242, 204 P.2d 854 (1949).

This Court is not concerned with the wisdom, necessity, propriety or expediency of the legislation in question. These latter elements are matters exclusively within the province of the legislature.

In March 1968 the legislature added Arizona to the list of some 42 other states authorizing some form of governmental financing to encourage local industrial development. The act, Chapter, 11, Title 9, Arizona Revised Statutes, § 9--1151 et seq., authorized corporations to be formed in cities and counties, subject to the approval of the governing body of the city or county, for the purpose of issuing bonds to finance acquisition quisition of land and equipment for lease to others. The rental payments would be used to pay the principal and interest of the bonds. A corporation organized under the act would be styled an 'industrial development authority,' but the bonds, debts, obligations, and agreements of such corporations would not be the responsibility, obligation, or liability of a city or county.

The act was amended in April 1972 to provide that corporations organized under the act would be political subdivisions of the state. A.R.S. § 9--1152. The amendment also provided that the corporations were authorized to finance acquisition and construction of pollution control facilities.

Additionally, the legislature enacted Chapter 12, Title 9, Arizona Revised Statutes (§ 9--1221 et seq.) authorizing the formation of corporations to finance the acquisition and construction of pollution control facilities under terms and conditions substantially the same as were provided for corporations under the 1968 act.

The purpose of the 1972 act was to '. . . finance the acquisition and installation of, or the construction and leasing of, properties, machinery and equipment intended to prevent or limit air, water and other forms of pollution for the purpose of protecting the health and welfare of the citizens of this state and to facilitate compliance with existing or future air, water and other quality standards designed to improve the environment, . . ..'

Pursuant to A.R.S. § 9--1230, subsec. B, corporations organized pursuant to A.R.S. § 9--1151 et seq. were authorized to act with the same powers as corporations created by the 1972 act.

The Attorney General questions the constitutionality of the statutes involved, on three separate bases. First, the Attorney General contends that the statutes are in violation of Article IX, Section 7:

'Neither the State, nor any county, city, town, municipality, or other subdivision of the State shall ever give or loan its credit in the aid of, or make any donation or grant, by subsidy or otherwise, to any individual, association, or corporation, or become a subscriber to, or a shareholder in, any company or corporation, or become a joint owner with any person, company, or corporation, except as to such ownerships as may accrue to the State by operation or provision of law.'

Constitutional provisions similar to the above are found in many of the constitutions of the states. These provisions were designed to prevent the economic losses of the 19th century suffered by municipal corporations which gave money, credit or other valuable advantages to railroads, canal companies, etc. When the private corporations failed in their obligations, the municipalities were required to pay the obligations from public treasuries. State v. Northwestern Mutual Insurance Company, 86 Ariz. 50, 340 P.2d 200 (1959). The lessons of the 19th century resulted in restrictive constitutional provisions in the organic acts of many states, and, even without constitutional provisions, the courts of some states enforced similar restrictions by requiring that public money be used only for public purposes.

In the late 1920's a method of financing projects by government through revenue gonds gained popularity. The revenue bond became the common method of fimancing projects such as housing authorities, municipally-owned utilities, toll roads and bridges, public marketing buildings, college dormitories, etc. These revenue bonds were usually held not to violate the above constitutional provision because there was a public purpose involved which was financed by a special fund, and the obligation created was not a general liability of the municipality.

This Court, in Humphrey v. City of Phoenix, 55 Ariz. 374, 102 P.2d 82 (1940), upheld the constitutionality of the municipal housing act which was enacted to enable cities to take part in so-called 'slum clearance' and providing low-cost housing. The statute was attacked, among other reasons, on the basis that the providing of housing for low-income persons violated Section 7, Article IX, of the Arizona Constitution. The Court stated:

'If it be borne in mind that slum clearance projects are means adopted by society for self protection against crime and disease, and that money spent to prevent or eradicate these enemies is for the public good and general welfare, even though the effect is felt by a given class more than by the community at large, it will be realized the sums spent are not a gift or loan to anyone but an expenditure in the interest of the general public.' 55 Ariz. at 387, 102 P.2d at 87.

Within the last two decades most of the states have authorized the use of the revenue bond device by political subdivi...