State ex rel. Ohio Funds Management Bd. v. Walker
| Decision Date | 24 October 1990 |
| Docket Number | No. 88-2209,88-2209 |
| Citation | 55 Ohio St.3d 1,561 N.E.2d 927 |
| Parties | The STATE, ex rel. OHIO FUNDS MANAGEMENT BOARD, v. WALKER, Director of Budget and Management. |
| Court | Ohio Supreme Court |
Syllabus by the Court
R.C. 113.31 et seq., which created the Ohio Funds Management Board, are unconstitutional in that they authorize state debt contrary to Sections 1 and 3 of Article VIII of the Ohio Constitution.
This is an original action in mandamus brought to test the constitutionality of R.C. 113.31 et seq. (Am.Sub.H.B. No. 449, 142 Ohio Laws, Part II, 3789, Mar. 29, 1988), which created the Ohio Funds Management Board. The newly created board brought this original action as relator, against the respondent, L. Lee Walker, the Director of Budget and Management of the state of Ohio, seeking a writ of mandamus ordering her to take certain ministerial actions required by R.C. 113.34. A brief review of this legislation and the background of the constitutional issues presented are as follows.
The major source of funds to meet the costs of the general operations of the state of Ohio is the General Revenue Fund. The General Revenue Fund is funded from a number of sources including sales taxes, personal income taxes, corporate franchise taxes, public utility taxes, excise taxes, federal grants, investment earnings and license fees. Disbursements from the General Revenue Fund include the state's payroll; welfare subsidies; payments for primary and secondary education, transportation, corrections and mental health and retardation; and distributions to local government.
Cash flow deficiencies in the General Revenue Fund occasionally occur because of periodic fluctuations in current tax revenues in relation to expenses. These fluctuations may vary from month to month; however, the nature of the sources of this revenue is such that their cyclical fluctuations are generally understood and predictable. The major disbursements from the General Revenue Fund are also predictable.
There have been a number of mechanisms utilized by the General Assembly and state fiscal officers to manage temporary deficiencies in the General Revenue Fund cash flow. For example, R.C. 126.09 provides that "[I]n order to comply with Sections 1 and 3 of Article VIII, Ohio Constitution, the director of budget and management may determine the monthly distribution schedule of any subsidies appropriated by the general assembly * * *." Another statutory mechanism for accommodating temporary cash flow deficiencies is the use of a portion of the "Total Operating Fund" as authorized by R.C. 126.06. The Total Operating Fund consists of all funds in the state treasury except bond and bond retirement funds and other specified funds. The Director of Budget and Management is authorized to draw upon the Total Operating Fund to pay claims chargeable to the General Revenue Fund. However, the maximum that may be drawn upon at any time is seven percent of the General Revenue Fund revenues of the preceding fiscal year. 1
The third statutory cash management mechanism is the Budget Stabilization Fund created by R.C. 131.43. This fund is within the Total Operating Fund. The primary purpose of this fund is to serve as a reserve when the General Revenue Fund experiences a revenue shortfall.
The General Assembly established another expansive method of managing cash flow, which includes the transfers of appropriate funds within and between departments, through the creation of the Controlling Board provided for in R.C. 127.12 through 127.18. The Director of Budget and Management or his designee is the President of the Controlling Board.
The General Assembly determined that yet another fiscal management process was needed to meet cash flow deficiencies. R.C. 113.31 through 113.46 created the Ohio Funds Management Board and authorized the Treasurer of State, at the recommendation of the board, to issue revenue anticipation notes of the board when it determines that a cash flow deficiency is expected during the fiscal year in the General Revenue Fund. 2 R.C. 113.34(B).
In addition, R.C. 113.32 created the relator Ohio Funds Management Board, which is composed of the respondent Director of Budget and Management, or her designee, the Treasurer of State, or her designee, two members of the Ohio House of Representatives, and two members of the Ohio Senate. R.C. 113.34(A) requires the respondent to furnish to the board and Treasurer a monthly estimate of the current balance of the General Revenue Fund, as of the last day of the preceding month, and an estimate of the anticipated revenues and expenditures, by month, for the rest of the fiscal year. If the relator believes, based on an estimate, that a cash flow deficiency will occur within the current fiscal year that should be alleviated through issuing notes, it may recommend that the Treasurer issue notes to meet the deficiency. However, such a recommendation does not obligate the Treasurer to issue any notes. R.C. 113.34(B).
If the Treasurer does decide to issue notes, she determines the timing and method of their sale. R.C. 113.37(A)(1). Proceeds from the sale of notes must be deposited in the General Revenue Fund, R.C. 113.40. However, revenues for the payment of principal and interest must be deposited in the Note Service Fund, a trust fund in the custody of the Treasurer, but not part of the state treasury. R.C. 113.37(A)(3). "Revenues" are defined as "taxes, excises, fees, grants, or other moneys credited to or anticipated to be credited to the general revenue fund." R.C. 113.31(L).
The Treasurer must covenant in the documents necessary to the issuance of the notes "to cause deposits or revenues to be made to the note service fund sufficient in time and amount to pay note service charges [principal, interest and premium, if any, R.C. 113.31(I) ] as they become due and payable." R.C. 113.37(A)(3). The law requires that these notes be payable solely from revenues in the Note Service Fund pledged to their payment. R.C. 113.37(C).
In addition, these notes must mature not later than the last business day of the fiscal year in which they are issued and are not renewable beyond their maturity dates. R.C. 113.37(D). Notes are declared in the statute not to be debt or bonded indebtedness of the state and must themselves so declare. R.C. 113.37(C).
On September 7, 1988, the chairman of the Ohio Funds Management Board asked respondent to perform the duties required by R.C. 113.34(A), but the respondent refused in writing. She stated that those duties were prohibited by Sections 1 and 3, Article VIII of the Ohio Constitution, in that they would be a prerequisite to the issuance of revenue anticipation notes which would constitute a debt of the state prohibited by the Ohio Constitution.
Relator then filed this original action seeking a writ of mandamus.
Peck, Shaffer & Williams, John M. Anderson and John Weld Peck, Cincinnati, for relator.
Anthony J. Celebrezze, Jr., Atty. Gen., Loren L. Braverman and Cherry Lynne Poteet, Columbus, for respondent.
Porter, Wright, Morris & Arthur, Ronald W. Gabriel and Kathy S. Northern, Columbus, urging denial of the writ for amicus curiae Ohio Chamber of Commerce.
The sections of the Ohio Constitution involved here are Sections 1 and 3 of Article VIII. 3
Section 1 of Article VIII provides:
"The state may contract debts, to supply casual deficits or failures in revenues, or to meet expenses not otherwise provided for; but the aggregate amount of such debts, direct and contingent, whether contracted by virtue of one or more acts of the general assembly, or at different periods of time, shall never exceed seven hundred and fifty thousand dollars; and the money, arising from the creation of such debts, shall be applied to the purpose for which it was obtained, or to repay the debts so contracted, and to no other purpose whatever."
Section 3 of Article VIII provides:
"Except the debts above specified in sections one and two of this article, no debt whatever shall hereafter be created by, or on behalf of the state."
The relator claims that the obligations to be issued under R.C. 113.37 would constitute neither debts nor bonded indebtedness of the state which would conflict with Sections 1 and 3, Article VIII of the Ohio Constitution. In support of this position, the relator argues that the notes would be specifically designated as not constituting a debt of the state, that they would not be guaranteed by the faith and credit of the state, that they would be paid only from a special repayment fund created by this new law, that the holders could not anticipate taxes being levied for the payment of the notes, and that taxes would already have been levied, and monies already appropriated for the payment of the notes within the same fiscal year that the notes would be issued. Relator concludes that these factors demonstrate that such notes should not be considered state debt that is prohibited by Article VIII of the Ohio Constitution.
In State v. Medbery (1857), 7 Ohio St. 522, cited by the relator, a board of public works was legislatively authorized to enter into a five-year contract for the repair of the Ohio canal system. Although the contract extended over a five-year period, no appropriations were made to fund the contract. As a result, the court, in an opinion by Judge Swan, held that present obligations to pay money at a future time, without revenue and appropriations provided therefor, are debts of the state in contravention of Sections 1 and 3 of Article VIII of the Ohio Constitution.
In reaching this conclusion, Judge Swan analyzed Section 4, Article XII of the Ohio Constitution, which provides for raising sufficient revenue to defray the expenses of the state for each year, and Section 22, Article II, which prohibits withdrawing money from the treasury except pursuant to a specific appropriation made by law, and limits...
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