Burkhardt v. City of Enid

Decision Date21 March 1989
Docket NumberNo. 70197,70197
Citation771 P.2d 608,1989 OK 45
Parties52 Ed. Law Rep. 1270, 1989 OK 45 Ted BURKHARDT, Cathy Burkhardt, and Richard Poindexter, Appellants, v. The CITY OF ENID, Appellee, and Phillips University, Inc., Intervenor-Appellee.
CourtOklahoma Supreme Court

Appeal from the District Court of Garfield County; Richard Pickens, judge.

James A. Williamson, Tulsa, for appellants.

Bryce S. Kennedy, City Atty. and Carol Hambrick, Enid, for appellee.

Jones, Bryant & Nigh by Stephen Jones and Craig Bryant, Enid, for intervenor-appellee.

Diane Pedicord and Sue Ann Nicely, Oklahoma City, for amicus curiae, Oklahoma Municipal League.

Michael R. Vanderburg, City Atty., Broken Arrow, for amicus curiae, City of Broken Arrow.

HODGES, Justice.

This appeal challenges an ordinance establishing a voter-approved sales tax to fund the City of Enid's purchase of the Phillips University campus. Five issues are presented: (1) Is the ordinance an expenditure of public funds for a private purpose in violation of article 10, section 14 of the Oklahoma Constitution? (2) Does the ordinance violate article 10, section 17, of the Oklahoma Constitution which prohibits government lending of credit to a private entity? (3) Does the ordinance aid a sectarian institution in violation of article 2, section 5 of the Oklahoma Constitution? (4) Is the ordinance unconstitutionally vague? (5) Are the provisions of the ordinance severable? Because we answer the first four issues in the negative and uphold the ordinance, the fifth issue need not be addressed.

Phillips University (Phillips) is a private, non-profit corporation historically associated with the Disciples of Christ Christian Church (church). Phillips was founded in Enid in 1906.

The City of Enid (city) has suffered a severe economic decline over the past several years. This decline has been marked by massive foreclosures, bank failures, a The potential loss of Enid's only institution of higher learning led the City to develop a plan for economic recovery which included the purchase of Phillips' campus. The city would then lease the property back to Phillips. The plan was financed by a three-quarters of one percent sales tax which was narrowly approved by Enid voters on June 2, 1987. 1

dramatic decline in property values and a significant increase in unemployment. By 1987, it was anticipated that Phillips would fail within a short time.

To implement the plan, the city created the Enid Economic Development Authority (EEDA), a public trust, to purchase Phillips' property for $14.35 million. Of that amount, $1 million established an operating fund and $1.35 million was utilized to satisfy existing mortages on campus buildings. The remaining $12 million is held by the Foundation for Enid Education and Economic Development (FEEED), a non-profit corporation established to receive, control and administer these funds. The FEEED is jointly controlled by Phillips and the EEDA. Income from the $12 million is to be used to provide scholarships for Enid students who attend Phillips, establish a University Center and provide operating capital for four years.

Under the plan, Phillips retains an option to repurchase the campus during the twenty-five year lease period. The repurchase must be at market value unless property values have dropped below the original purchase price of $14.35 million. In that event, Phillips must pay $14.35 million plus the costs of bonds and other financing.

The appellants, Enid taxpayers, brought an action to invalidate the ordinance based essentially on the same issues raised in this appeal. The city, as defendant, and Phillips, as intervenor, argued the constitutionality of the ordinance. After some court-ordered modifications of the plan, the trial court issued an order on December 15, 1987, upholding the sales tax and the intended use of the proceeds. Appellants perfected this appeal. Amicus briefs were filed by the City of Broken Arrow and the Oklahoma Municipal League urging this Court to uphold the constitutionality of the challenged ordinance.

I.

Article 10, section 14, of the Oklahoma Constitution 2 restricts the use of public funds to expenditures for a public purpose. The challenged sales tax was levied to provide for economic development including the purchase of the Phillips campus. Appellants argue the plan unconstitutionally subsidizes a private institution rather than furthering a public purpose.

The term "public purpose" in article 10, section 14, should not be construed "in a narrow or restrictive sense." Helm v. Childers, 181 Okl. 535, 536, 75 P.2d 398, 399 (1938). For taxation purposes, public use "requires that the work shall be essentially public and for the general good of all the inhabitants of the taxing body." Board of Commissioners v. Shaw, 199 Economic development is a legitimate public purpose for which public funds may be expended. 3 A city has the authority to purchase property for economic development and the purchase does not lose its public purpose merely because it involves a private actor. See, e.g., Sublett v. City of Tulsa, 405 P.2d 185 (Okla.1965).

Okl. 66, 74, 182 P.2d 507, 515 (1947). A public purpose "affect[s] the inhabitants of the state or taxing district as a community, and not merely as individuals." Id.

The benefits of a university to the public have long been recognized. 4 The citizens of Enid will receive many benefits directly and indirectly from the City's purchase of Phillips University. The plan will directly benefit Enid's economy by the preservation of hundreds of jobs at the university and by the continued presence of students who spend in Enid. The scholarship fund will enable more area students, including many who cannot afford to live away from home, to attend a local university. Enid residents will enjoy free use of most of the campus while the facilities are leased to Phillips. The presence of a university will undoubtedly have a significant effect upon the city's ability to attract new industry and new jobs. Finally, Enid will continue to enjoy the social, educational and cultural benefits that flow from near access to higher educational opportunities. The overwhelming benefits to the community of Enid bring the plan within the definition of public purpose.

II.

These public benefits also constitute consideration to the city and refute any argument that the plan is a gift or extension of credit to a private institution in violation of article 10, section 17, of the Oklahoma Constitution. 5 The city, through a public trust, purchased the Phillips campus and leased it back to the university. Appellants urge that because the lease is below the market rate for commercial property in Enid, there was inadequate consideration and the transaction should be viewed as a gift or a loan. This argument, however, ignores the public benefits to the community of Enid and the obligations Phillips assumed in the transaction.

Consideration may be measured by benefit to one party or by forbearance, detriment, loss or responsibility assumed by the other party. Sharp, 49 Okl. at 228-29, 152 P. at 408. The lease payments are only one obligation assumed by Phillips in the lease-back arrangement. Phillips sold its assets to the city at less than market value and agreed to limitations on the use and control of the sale proceeds. 6 Phillips may repurchase Appellants cite Veterans of Foreign Wars v. Childers, 197 Okl. 331, 171 P.2d 618 (1946), as the landmark case on this issue. Childers, however, involved a legislative appropriation directly to the Veterans of Foreign Wars, a private agency assisting war veterans and their families, free of any control or management by any officer or agency of the state. The same cannot be said of the instant facts in which Phillips' sale of its assets to the city was subject to stringent restrictions on the use of the sale proceeds. The plan cannot be accurately described as a gift or a loan to Phillips.

the campus, but only at fair market value if the property appreciates and at the sales price plus costs of bonds and other financing if the property depreciates. These obligations provide adequate consideration to demonstrate the plan is not a gift or loan to Phillips, but rather a legitimate plan to further economic development by attracting industry to a city that provides higher education opportunities.

III.

Appellants also argue the plan benefits a sectarian institution in violation of article 2, section 5, of the Oklahoma Constitution. 7 Although Phillips has always been associated with and received support from the church, the plan does not violate this provision for two reasons: (1) sufficient consideration was received by the city so that the plan may not be viewed merely as a benefit to Phillips; and (2) Phillips, as presently organized, is not a sectarian institution.

In Sharp, 49 Okl. 213, 152 P. 403, the City of Guthrie conveyed property to be used for a university to a sectarian institution. The value of a university to the city and the obligations and responsibilities assumed by the institution were sufficient consideration to uphold the conveyance. This Court noted:

The city having the right to sell the property, and the consideration being adequate, it would make no difference whether the grantee be a sectarian institution or not, for a sale upon a sufficient consideration would not be within the prohibition of section 5, art. 2, of the Constitution.

Id. at 230, 152 P. at 408. Similarly, the public benefits to the City of Enid and the obligations assumed by Phillips provide sufficient consideration to validate the instant transaction.

The plan may also be upheld under article 2, section 5, because Phillips is not a sectarian institution. The term "sectarian institution" includes "a school or institution of learning which is owned and controlled by a church and which is avowedly maintained and conducted so that the children of parents of that particular faith...

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