Opinion of the Justices, In re

• Decision Date: 20 August 1951
• Docket Number: No. 127,127
• Citation: 53 So.2d 840,256 Ala. 162
• Parties: In re OPINION OF THE JUSTICES.
• Court: Alabama Supreme Court

Page 840

53 So.2d 840

256 Ala. 162

In re OPINION OF THE JUSTICES.

No. 127.

Supreme Court of Alabama.

Aug. 20, 1951.

Senate Resolution No. 35.

Whereas, there is now pending in the Legislature of Alabama Senate Bill No. 436, conferring upon municipalities in this state certain powers similar to those heretofore conferred by other Southern states upon the municipalities therein, to the end that the municipalities in this state may compete with municipalities in other states for the location of industries; and

Whereas, a number of municipalities in this state contemplate exercising the powers conferred in the said Senate Bill for the purpose of inducing various manufacturing and industrial enterprises to locate in this state, thereby contributing to the achievement of a sound and proper balance of agriculture and industry in this state; and

Whereas, important constitutional questions are presented by said Senate Bill:

Now therefore, Be It Resolved by the Senate of Alabama that the Justices of the Supreme Court of Alabama are hereby respectfully requested to render their written opinion, as provided by Title 13, Section 34 of the Code of Alabama of 1940, on the following important constitutional questions:

1. Will bonds issued by a municipality, pursuant to authorization in the said Senate Bill, constitute indebtedness of the municipality within the meaning of Section 225 of the Alabama Constitution?

2. Will the enactment of the said Senate Bill constitute an authorization of municipalities to lend their credit or to grant public money or thing of value in aid of or to individuals, associations, or corporations, in volation of Section 94 of the Constitution?

The Senate of Alabama

State Capitol

Montgomery, Alabama

Gentlemen:

We are in receipt of Senate Resolution No. 35, propounding to the Justices of this court the following inquiries relative to Senate Bill No. 436, thereto attached:

'1. Will bonds issued by a municipality, pursuant to authorization in the said Senate Bill, constitute indebtedness of the municipality within the meaning of Section 225 of the Alabama Constitution?

'2. Will the enactment of the said Senate Bill constitute an authorization of municipalities to lend their credit or to grant public money or thing of value in aid of or to individuals, associations, or corporations, in violation of Section 94 of the Constitution?'

In answering question numbered 1, we beg to advise that in our opinion the bill attached to the inquiry does not constitute an indebtedness of the municipality within the meaning of Section 225 of the Alabama Constitution for the following reasons:

The purpose of the bill, as stated therein, is to authorize municipalities to acquire and lease self-liquidating projects for the purpose of promoting industry and trade by inducing manufacturing, industrial, and commercial enterprises to locate in the state, promoting the use of the agricultural products are natural resources of the state, and promoting a sound and proper balance in the state between agriculture and commerce and industry. The projects which municipalities are authorized to acquire and lease include properties suitable for use by any combination of two or more of the following: (a) any industry for the manufacturing, processing, or assembling of any agricultural or manufactured products, and (b) any commercial enterprise in storing, warehousing, distributing or selling products of agriculture, mining or industry. Each project is required by the terms of the bill to be self-liquidating; the municipality is prohibited from contributing property or funds to a project, and the entire cost of acquiring and equipping any project is required to be paid out of the proceeds from the sale of bonds issued under the act, except to such extent as any part of the project may be donated to the municipality.

A municipality is authorized to finance the acquisition of any project by the issuance of revenue bonds payable solely out of the revenues from the lease of the project. Before issuing any such bonds, the municipality is required to enter into a lease of that project for such rental and on such terms as shall assure sufficient revenues to pay the principal of and interest on the bonds, maintenance and insurance of the project, and the building up of any reserves deemed advisable in connection therewith. The bill expressly provides that the bonds, which must be made payable solely out of the revenues derived from such a lease, shall never constitute an indebtedness of the municipality within the meaning of any applicable constitutional provision and shall never constitute nor give rise to any pecuniary liability of the municipality or a charge against its general credit or taxing powers.

The bill specifically provides that a municipality shall not have the power to operate any project as a business or in any manner except as the lessor thereof.

This court has many times held that bonds of a municipality payable solely out of revenues from a new project to finance which the bonds are issued does not constitute an indebtedness of the municipality within the meaning of Section 225 of the Constitution. The pertinent rule is stated in Re Opinion of the Justices, 226 Ala. 570, 148 So. 111, 114: 'when the city purchases or constructs a system, no part of which has been owned theretofore by it, and no revenue theretofore created from it, the pledge of it and the income from it, with no other obligation of the city to pay the price in any respect does not divert funds or property of the city which could have been used for other purposes nor does it otherwise create a debt. Under such circumstances it would not be affected by section 225 of the Constitution.'

The rationale of the stated rule was given exhaustive analysis in the case of Oppenheim v. City of Florence, 229 Ala. 50, 155 So. 859, and in Bankhead v. Town of Sulligent, 229 Ala. 45, 155 So. 869, 96 A.L.R. 1381. The following subsequent cases have affirmed the rule above stated: State ex rel. Radcliff v. City of Mobile, 229 Ala. 93, 155 So. 872; Randall v. State ex rel. City of Tuskegee, 233 Ala. 446, 172 So. 277; Smith v. Town of Guin, 229 Ala. 61, 155 So. 865, and In re Opinion of the Justices, 226 Ala. 18, 145 So. 481.

The foregoing cases involve the construction of statutes providing for the financing of facilities of various kinds by the issuance of revenues securities payable solely out of the revenue to be derived from the facilities to acquire which the securities were issued. And the bonds authorized by Senate Bill No. 436 falls within the scope of the foregoing adjudications by this court. The only substantial feature of Senate Bill No. 436 respecting the bonds and the remedy of the bond holders which differs from the bonds and securities provisions contained in the statutes considered in the above cited cases, is the provision permitting revenue bonds issued under Senate Bill No. 436 to be secured by a mortgage that is subject to foreclosure. But that provision of the presently considered bill was based on In re Opinion of the Justices, 252 Ala. 583, 42 So.2d 348, 351, where it was said 'under our cases and decisions we do not think it is controlling that the mortgage is subject to foreclosure when set up as we have indicated.'

We therefore answer inquiry numbered 1 in the negative.

Your second inquiry is whether enactment of the bill will constitute an authorization of municipalities to lend credit or to grant public money or thing of value in aid of or to individuals, associations or corporations in violation of Section 94 of the Constitution of Alabama, 1901.

Section 94 of the Constitution provides: 'The legislature shall not have power to authorize any county, city, town, or other subdivision of this state to lend its credit, or to grant public money or thing of value in aid of, or to any individual, association or corporation whatsoever, or to become a stockholder in any such corporation, association, or company, by issuing bonds or otherwise.'

In Re Opinion of the Justices, 254 Ala. 506, 49 So.2d 175, 178, the Justices summed up their holdings respecting Section 94 as follows: 'The constitutional provision now appearing as § 94 of the Constitution of 1901 was originally adopted in substantially its present form as Article IV, Section 55 of the Constitution of 1875. This court has many times considered this constitutional provision and has fully discussed its purpose, the evils it was designed to prevent and the meaning of its language. Garland v. Board of Revenue of Montgomery County, 87 Ala. 223, 6 So. 402, 403. It has been pointed out that the evil to be remedied is the expenditure of public funds in aid of private individuals or corporations, regardless of the form which such expenditure may take, and that Section 94 prohibits, in the words of the decision in Garland v. Board of Revenue, supra, 'any aid * * * by which a pecuniary liability is incurred''. [Italics supplied.]

A review of all the cases in which the Courts of Alabama have held a statute or proposed action invalid because in violation of Section 94 of the 1901 Constitution (or its predecessor, Article IV, Section 55, of the 1875 Constitution) reveals that each of those cases has involved the incurring by a municipality or a county of a pecuniary liability. Those cases are the following: Garland v. Board of Revenue of Montgomery County, 87 Ala. 223, 6 So. 402; Southern Railway Co. v. Hartshorne, 162 Ala. 491, 50 So. 139; Rogers v. White, 14 Ala.App. 482, 70 So. 944; Swindle v. State ex rel. Pruitt, 225 Ala. 247, 143 So. 198; Griffin v. Jeffers, 221 Ala. 649, 130 So. 190; Stone v. State ex rel. Mobile Broadcasting Corporation, 223 Ala. 426, 136 So. 727.

An analysis of the bill reveals that although the municipality may acquire an industrial project and may finance its acquisition by the issuance of revenue bonds, yet the pecuniary relationship of the municipality...