Dearmond v. Alaska State Development Corp.
| Decision Date | 07 December 1962 |
| Docket Number | No. 285,285 |
| Parties | R. N. DeARMOND, on behalf of himself and all other taxpayers of the State of Alaska, Appellant, v. ALASKA STATE DEVELOPMENT CORPORATION, Robert A. Baker, Maurice Kelliher, John T. Kelsey, Lawrence Meath, M. E. Monagle, William G. Moran, A. H. Romick, and the State of Alaska, Appellee. |
| Court | Alaska Supreme Court |
Robert A. Boochever, of Faulkner, Banfield, Boochever & Doogan, Juneau, for appellant.
Edward Starin, of Preston, Thorgrimson, Horowitz, Starin & Ellis, Seattle, Wash., George N. Hayes, Atty. Gen., State of Alaska, John E. Havelock, Deputy Atty. Gen., Juneau, for appellees.
Before NESBETT, C. J., and DIMOND and AREND, JJ.
The constitutionality of certain functions proposed to be performed by the Alaska State Development Corporation is questioned in this appeal. Before discussing the legal questions raised we shall outline generally the purpose, powers and duties of the corporation.
The corporation came into being through an act of the state legislature. 1 It has for its purpose the creation of 'an instrumentality of the state to develop, stimulate, and advance the business prosperity and economic welfare of Alaska and its citizens'. These objectives according to the act are to 'be accomplished by providing critically needed development loans * * to all types of business activity' for the purpose of strengthening the economy of the state, enlarging 'the employment opportunities' and enhancing the 'standard of living and general welfare' of its citizens. 2
The corporation is to be a public one, an instrumentality of the state within the Department of Commerce, but with a legal existence independent of and separate from the state. 3 The act specifically provides that the corporation
'may not pledged the credit or the taxing power of the state or its political subdivisions.
The state and its political subdivisions are not liable for the debts of the corporation'. 4
and that:
'Appropriations and loans from the state general fund necessary for the initial operation of the corporation are authorized.' 5
The corporation can not commence its loan activities until it has received at least $1,500,000 from the sale of class A and B certificates and until this sum has been received, all funds from the sale of class A and B certificates are to be held in trust. 6
It is authorized to sell a maximum of $15,000,000 in class A certificates and $3,000,000 in class B certificates. The maximum interest allowable on class A certificates is five percent a year; on class B certificates six percent a year. Each borrower is required to accept class C certificates in the amount of five percent of his development loan; these certificates to draw interest at a rate to be determined by the board of directors. 7 The funds represented by class C certificates are a reserve for loan losses. 8 The corporation is exempt from all taxes and assessments in the state. The certificates, their transfer, and their income are exempt from taxes and assessments. 9
An appropriation of $15,000 from the general fund was made to the corporation as a loan, to be reimbursed to the general fund when the surplus of the corporation makes this possible. The surplus existing in a previous loan made to the State Development Bank was transferred to the corporation as an additional loan to be reimbursed to the general fund when corporate surplus permits. 10
Plaintiff commenced this action on behalf of himself and all other taxpayers of the State of Alaska, naming as defendants the corporation, the individual members of the board of directors and the state. A declaratory judgment was requested declaring that the acts creating the corporation and appropriating funds to be loaned to it were in violation of various provisions of the Alaska Constitution. The defendants answered and cross-petitioned for declaratory judgment. Both sides filed trial briefs or memoranda in support of their legal positions. At the trial the plaintiff offered no evidence and moved for summary judgment or in the alternative for judgment on the pleadings. Seven witnesses testified on behalf of the defendants and documentary evidence was introduced. The trial court denied plaintiff's motions for summary judgment, judgment on the pleadings and for injunctive relief and dismissed his complaint. Judgmet was entered for the defendants on their cross-petition declaring that the acts of the legislature were constitutional and valid; that the corporation was validly organized and existing and possessed the powers conferred upon it by the legislature; that the revenue bonds proposed to be issued will constitute valid obligations of the corporation when issued and sold; that the issuance and sale of the bonds will be in the public interest; that the funds realized from the sale of the bonds will be used for a public purpose; that in enacting chapter 135, S.L.A.1961 and chapter 52, S.L.A.1962 the legislature was exercising and acting pursuant to the power vested in it by article VII, section 5 and article VIII, sections 1, 2, 4 and 5 of the Alaska Constitution; that chapter 147, S.L.A.1961 and chapter 161, S.L.A.1962 were valid and constitutional and that the money appropriated thereunder constitutes a loan from the general fund of the state to the corporation and will be used for a public purpose; that the corporation was not a principal department of the state within the meaning of article III, section 22 of the constitution, but a temporary agency within the provisions of said article and section; that chapter 135, S.L.A.1961 and chapter 52, S.L.A.1962 provide adequate standards and guides to the corporation for making development loans and that the exemption of the corporation from taxes and assessments and exempting its obligations, their transfer and the income therefrom from taxes and assessments are valid, constitutional provisions of the acts. Appellant has appealed claiming that error was committed as to all of the trial court's findings that support the judgment.
The uncontradicted testimony of witnesses holding high positions in the Alaska state government and in the banking industry of the state established that of the total working force in Alaska, between fifty and sixty percent were engaged in government occupations (including military) as compared with a ratio of fifteen percent generally in the United States; that less than one percent of the working force was engaged in agriculture as compared to eight to ten percent in the United States as a whole; that employment generally is highly seasonal and that of a total working force of 70,000 the unemployed during 1960 averaged 7,900; that as a result of the seasonal nature of employment in Alaska the state's indebtedness to the Unemployment Compensation Fund is $8,765,000 and overdue. The uncontradicted testimony further established that agriculture, the meat products, food processing, grazing and fattening, dairying, fur farming, fish by-products, base metals and the tourist industries offer many opportunities for development; that, if these industries and resources were developed, Alaska's unique employment problems would be alleviated to an extent; that the banking industry in Alaska, because of limited funds, has generally restricted loans to short term revolving commercial credit; that banking funds available for development loans or long term loans are very limited; and that the corporation could assist measurably in stimulating and developing the economy by providing long term development loans.
Public Purpose.
Appellant's first point is that the appropriation of funds for the corporation and the issuance of debenture certificates by the corporation constitutes the transfer of public funds and the use of public credit for other than a public purpose, in violation of article IX, section 6 of the Alaska Constitution which states:
'No tax shall be levied, or appropriation of public money made, or public property transferred, nor shall the public credit be used, except for a public purpose.'
At the outset we observe that the phrase 'public purpose' represents a concept which is not capable of precise definition. We believe that it would be a disservice to future generations for this court to attempt to define it. It is a concept which will change as changing conditions create changing public needs. Whether a public purpose is being served must be decided as each case arises and in the light of the particular facts and circumstances of each case. 11
In determining the question presented this court adopts for its guidance the general rule, supported by the great weight of authority, that where the legislature has found that a public purpose will be served by the expenditure or transfer of public funds or the use of the public credit, this court will not set aside the finding of the legislature unless it clearly appears that such finding is arbitrary and without any reasonable basis in fact. 12
Encouraging and assisting the wholesome development of new business and industry in Alaska and rehabilitating and expanding existing business and industry are legitimate legislative purposes. The testimony of witnesses thoroughly informed in their respective fields shows that beyond doubt many areas of the economy of Alaska could be expanded and others developed if sufficient capital were available to finance long term development loans. The testimony also establishes that the result of such development would be a reduction in the cost of living and an alleviation of the peculiar seasonal unemployment problems, to the benefit of all Alaskans. We are of the view that the announced purpose of the act has a sound basis in fact and that the dominant purpose is a public one.
In view of the foregoing we find no merit in appellant's argument that the appropriation of $150,000 to the corporation constitutes an appropriation or transfer of public funds to other...
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