Board of County Com'rs of Twin Falls County v. Idaho Health Facilities Authority

• Decision Date: 31 December 1974
• Docket Number: No. 11564,11564
• Citation: Board of County Com'rs of Twin Falls County v. Idaho Health Facilities Authority, 531 P.2d 588, 96 Idaho 498 (Idaho 1974)
• Parties: BOARD OF COUNTY COMMISSIONERS OF TWIN FALLS COUNTY, Idaho, et al., Plaintiff-Appellants, v. IDAHO HEALTH FACILITIES AUTHORITY, Defendant-Respondent.
• Court: Idaho Supreme Court

Page 588

531 P.2d 588

96 Idaho 498

BOARD OF COUNTY COMMISSIONERS OF TWIN FALLS COUNTY, Idaho, et al., Plaintiff-Appellants, v. IDAHO HEALTH FACILITIES AUTHORITY, Defendant-Respondent.

No. 11564.

Supreme Court of Idaho.

Dec. 31, 1974.

As Amended Jan. 14, 1975.

Eugene C. Thomas and John R. Rowe of Moffatt, Thomas, Barrett & Blanton, Dwight V. Board, Boise, Janice C. Griffith of Hawkins, Delafield & Wood, New York City, for a plaintiff-appellants.

Edward L. Benoit of Benoit, Benoit & Alexander, Twin Falls, for defendant-respondent.

W. Anthony Park, Atty. Gen., James G. Reid, Sp. Atty. Gen., Boise, amicus curiae.

BAKES, Justice.

This action arises from the refusal of the defendant-respondent Idaho Health Facilities Authority, hereinafter referred to as the Authority, to honor agreements it had entered into with the governing bodies of three Idaho hospital and with the Idaho First National Bank, plaintiff-appellants herein. The agreements with the hospitals provided for the Authority to issue bond anticipation notes to obtain financing for said hospitals, to be repaid by the hospitals pursuant to agreements entered into between them and the Ahthority. The Sacred Heart Community Hospital of Idaho Falls was to use the proceeds to refinance its existing outstanding debt. Twin Falls County, which owns and operates Magic Valley Memorial Hospital, was to use the proceeds to cover the cost of structural alterations and improvements to the existing facility. St. Benedict's Hospital in Jerome was to use the proceeds to cover the cost of architect's fees incurred in connection with reconstruction, remodeling and equipping the existing building. The Idaho First National Bank, hereinafter referred to as the Bank, had agreed to purchase the bond anticipation notes from the Authority.

Before issuance and sale of the notes, the Authority was advised by its conunsel that there were a number of serious questions regarding the constitutionality of the action taken by the Authority. When the Authority refused to abide by the agreements on the advice of its counsel that the agreements were not binding because they violated constitutional provisions, the hospitals and the Bank brought this action for declaratory judgment to determine whether or not the Authority had exceeded constitutional limitations.

The trial court, rendering judgment on the pleadings and the exhibits attached to them, found that the Authority had acted in contravention of numerous provisions of the Constitution of the State of Idaho and the Constitution of the United States. Appeal is taken from these findings of unconstitutionality.

Eight specific assignments of error have been made by the hospitals and the Bank, the plaintiff-appellants to this action. We will examine these assignments of error individually. Implicit in our analysis of each will be the strong presumption of constitutionality to which every legislative enactment is entitled. Leonardson v. Moon, 92 Idaho 796, 451 P.2d 542 (1969).

I

The first assignment of error alleges that the trial court was incorrect in ruling that the action taken by the Authority for the purpose of financing construction, remodeling of health facilities and refinancing outstanding debt of participating health organizations was not a public purpose and therefore violated Article 3 of the Constitution of Idaho and the Fourteenth Amendment to the Constitution of the United States.

The Authority was acting under the terms of the Idaho Health Facilities Authority Act, I.C. § 39-1441 et seq. This Act was passed in 1972 by the legislature in an attempt to create a public entity that could make tax-exempt revenue bond financing available to public and private non-profit hospitals within the state. The appellant contends that this method was adopted in part to compensate for the loss of federal funds which previously had been available for hospital construction and remodeling under the Hill-Burton Act. This tax exempt financing was to be accomplished by the Authority entering into agreements with the governing body of the hospitals in which the Authority would obtain a pledge of revenues of the hospital and such other security as provided in the individual agreement with the hospitals in return for money to be advanced to the hospital by the Authority. The Authority would obtain the money it advanced to the hospitals by selling bond anticipation notes which would be repaid from gross receipts from the hospitals. Interest income paid from the bond anticipation notes to the holders, such as the Bank, is supposedly tax-exempt under both Idaho and federal law. Under the statutory scheme and the agreements, no state tax money would be given to the Authority to loan or give to participating hospitals.

I.C. § 39-1442 contains the declaration of necessity and purpose of the Act:

'39-1442. Declaration of necessity and purpose.-Liberal construction.-It is hereby determined and declared that for the benefit of the people of the state of Idaho and the improvement of their health, welfare and living conditions, it is essential that the people of this state have adequate medical care and health facilities; this it is essential that health institutions within the state be provided with appropriate additional means to assist in the development and maintenance of public health, health care, hospitals and related facilities; that it is the purpose of this act to provide a measure of assistance and alternative methods to enable health institutions in the state to refund or refinance outstanding indebtedness incurred for health facilities and to provide additional facilities and structures which are sorely needed to accomplish the purposes of this act, all to the public benefit and good as more fully provided herein; . . .' (Emphasis added).

That section further provides that to achieve this purpose the Authority is authorized to:

'. . . lend money to health institutions and . . . acquire, construct, reconstruct, repair, alter, improve, extend, own, lease and dispose of properties to the end that the authority may be able to promote the health and welfare of the people of this state . . . (but) it is not intended by this act that the authority shall itself be authorized to operate any such health facility.'

The purposes of the Act were for the betterment of the public health of the residents of the state by making available the means to improve hospital facilities or to allow hospitals to reduce their current debt-related expenses and channel more of their resources into health-related expenditures. This legislative declaration of public purose is entitled to the utmost consideration, but it is not binding and conclusive upon the question of public purpose. Village of Moyie Springs, Idaho v. Aurora Manufacturing Co., 82 Idaho 337, 353 P.2d 767 (1960).

Article 3 of the Constitution of Idaho does not specifically mention a requirement of a public purpose for legislation authorizing a state-created public entity to expend funds. However, in the case of Village of Moyie Springs, Idaho v. Aurora Manufacturing Co., supra, this Court declared that 'municipal corporations . . . are limited to functions and purposes which are . . . public in character as distinguished from those which are private in character and engaged in for private profit' (at p. 346, 353 P.2d at p. 773). Although that case dealt with the rights and powers of a municipal government to create a tax exempt entity (a municipally owned industrial park), the Idaho Constitution has no provision explicitly constraining municipal corporations to exercise their powers for a public purpose, nor does a like provision appear in the law regulating state created entities. If this rule is a restriction upon the cities' powers, it must be so because it is also a restriction upon the state's power, for the cities are not singled out for unique treatment in this regard by statute or constitutional provision. Therefore, this restriction must be inherent throughout state government and must be a fundamental limitation upon the power of state government under the Idaho Constitution, even though not expressly stated in it. Thus, no entity created by the state can engage in activities that do not have primarily a public, rather than a private purpose, nor can it finance or aid any such activity. Article 8, § 2, Idaho Constitution. Village of Moyie Springs, Idaho v. Aurora Manufacturing Co., supra.

We conclude that the use of these funds to better the existing health facilities throughout the state, when operated by either public or private non-profit entities, is for a public purpose within the rule announced in the Moyie Springs case. No profit-making private person or corporation is deriving an economic advantage from health facilities authorized under the Act. The primary purpose of the monies expended under the Act is to improve the caliber of health care available to the public; any incidental benefits to profit-making enterprises, such as a bank or other financing institution which buys the notes issued by the Authority, will not invalidate the program. Only if private interests are primarily benefited must such programs with public goals be invalidated. Boise Redevelopment Agency v. Yick Kong Corp., 94 Idaho 876, 499 P.2d 575 (1972). The actions of the Authority in entering into the contracts involved did not violate Article 3 of the Constitution of Idaho under he Moyie Springs interpretation of that article.

The due process clause of the Fourteenth Amendment to the Constitution of the United States, in a long line of cases beginning shortly after its adoption, has been interpreted to mean that 'there can be no lawful tax which is not laid for a public purpose.' Loan Association v. Topeka, 87 U.S. (20 Wall.) 655, at 664, 22 L.Ed. 455, at 461 (1874). The Authority has not run afoul of the strictures of that amendment, first, because the monies it expends are not tax monies, and...