Hayes v. State Property and Bldgs. Com'n, s. 86-SC-918-T

• Decision Date: 11 June 1987
• Docket Number: 86-SC-1041-T,Nos. 86-SC-918-T,86-SC-1042-TG,s. 86-SC-918-T
• Parties: Larry HAYES, State Budget Director, R. Scott Plain, Special Amicus Curiae, Charles Hoffmaster and Jerry Hammond, Appellants, v. The STATE PROPERTY AND BUILDINGS COMMISSION of Kentucky, Appellee.
• Court: United States State Supreme Court — District of Kentucky

Page 797

731 S.W.2d 797

Larry HAYES, State Budget Director, R. Scott Plain, Special

Amicus Curiae, Charles Hoffmaster and Jerry

Hammond, Appellants, v. The STATE PROPERTY AND BUILDINGS COMMISSION of Kentucky, Appellee.

Nos. 86-SC-918-TG, 86-SC-1041-TG, 86-SC-1042-TG

Supreme Court of Kentucky.

June 11, 1987.

William E. Scent, Scent and Scent, P.S.C., Paducah, for Larry Hayes.

Kyle T. Hubbard, William J. Nold, Nold, Miller, Mosley, Clare, Hubbard & Townes, Louisville, for Charles Hoffmaster and Jerry Hammond.

R. Scott Plain, Wilson, Wilson & Plain, Owensboro, special amicus curiae.

Spencer E. Harper, Jr., William W. Davis, Harper, Ferguson & Davis, Louisville, Charles Wickliffe, Gen. Counsel, Finance & Administration Cabinet, Patrick Abell, Gen. Counsel, Commerce Cabinet of Kentucky, David L. Armstrong, Atty. Gen., Frankfort, for appellee.

WINTERSHEIMER, Justice.

This appeal is from a judgment which determined that Senate Bill 361 adopted by the Kentucky General Assembly and the actions taken by the State Property and Buildings Commission pursuant thereto were constitutional insofar as they related to certain incentives granted to the Toyota Motor Corporation.

We are called upon to review the constitutionality of the financial arrangements undertaken by the Governor, General Assembly, Commerce Cabinet and State Property and Buildings Commission. Acting through the executive and legislative branches of government, Kentucky has agreed with Toyota to convey a 1600-acre project site in Scott County which the Commonwealth will acquire and develop for $35 million. Kentucky was involved in a fierce competition with many of the other states of this nation regarding the location of a major automotive manufacturing plant by Toyota in the United States. The project site is part of a total package of inducements to Toyota to build a plant capable of producing up to 200,000 cars annually and employing up to 3,000 people. The Toyota agreement promises a total package of inducements which could have a direct cost to the state estimated at between $125 million and $268 million as presented in the evidence to the circuit court. Other incentives include state financing of comprehensive worker training programs, highway improvements, assistance to Toyota in securing foreign trade zone status, assistance with rezoning and other related matters. These estimates do not consider the indirect cost to the State. The sum needed to acquire and develop the site will be generated by a revenue bond issue from the State Property and Buildings Commission. The funds needed to pay the debt service on the bonds, principal and interest, will be provided by appropriations from the General Funds of the Commonwealth on a biennial basis as an expense item of the Commerce Cabinet.

The declaratory judgment action asked the circuit court to decide if SB 361, the project and the financing thereof were consistent with Sections 3, 49, 50, 51, 59, 60, 171 and 177 of the Kentucky Constitution. These constitutional provisions relate to state action in general and the authority of the General Assembly in particular. The trial court approved the constitutionality of the financing arrangements and this appeal followed.

The parties of record are the State Budget Director and two private citizens who were permitted to intervene in order to challenge the constitutionality of the legislation a special amicus curiae appointed to represent the public pursuant to the rules of this Court in such cases and the State Property and Buildings Commission and other constitutional and cabinet officers. In a practical sense, the parties who have a real interest are the people of this Commonwealth who have a right to a determination of whether the executive and the legislature have acted within the limitations of their constitutional power, the executive and legislative branches of government who sponsored and enacted the legislation, and Toyota, the industry induced to come to this Commonwealth.

As a general principle of jurisprudence, it is well established that duly adopted legislation is entitled to a presumption of validity. All statutes shall be liberally construed with a view to promote their objects and carry out the intent of the legislature. KRS 446.080. Our constitution is a limitation on the broad exercise of power rather than a grant of specific power to the legislature. The General Assembly may enact laws which are not expressly or impliedly prohibited by the Constitution of Kentucky and the Constitution of the United States. In this instance, the legislature working in conjunction with the executive, determined that it was proper to attempt to alleviate unemployment and develop economic strength in the state through the financing of an industrial development project pursuant to the act which constitutes the effectuation of a proper public purpose.

Initially, we must observe that the law is well settled that the wisdom of legislative and executive action may not be reviewed by the courts. Whether any project is based on sound economic theories is not within the scope of judicial review. Such considerations are matters of legislative and executive judgment and do not necessarily affect the constitutionality of the conduct. See Dalton v. State Property and Buildings Com., Ky. 304 S.W.2d 342 (1957). Our role is not that of a super legislature. Our only function is in the interpretation of the acts of the other branches of government in the light of the Constitution, existing legal precedents and the legislation itself.

The circuit court did not commit reversible error in determining that SB 361 does not violate Section 177 of the Kentucky Constitution.

The specific language of Section 177 involved is that the credit of the Commonwealth shall not be given, pledged or loaned to any individual company or corporation, nor shall the Commonwealth make a donation to any company or corporation.

The act specifically provides by its terms that industrial development projects may be conveyed to industrial entities at the time of the issuance of revenue bonds by the Commission for the financing of such projects only if in addition to the fulfillment of other conditions precedent, the commission has made a written determination based on diligent investigation that the incremental taxes to be derived as a result of the development are reasonably expected to be at least equal to the principal amount of the proposed revenue bonds, and the industrial entity to which the project is conveyed undertakes and agrees that in the event of conveyance prior to the collection of the incremental taxes in an amount equal to the principal of the bond, the industrial entity will pay the Commonwealth the difference between the taxes collected to date and the principal amount of the bonds. No conveyance of publicly financed property without the receipt of fair market value compensation will occur in connection with the Toyota project. The Commission has made the necessary findings required by the statute. It would be economic madness for Toyota to expend up to $800 million for the plant and then fail to use it. Even standing idle, the development would generate additional property taxes.

Section 177 of the Constitution wisely prohibits the giving of the credit of the Commonwealth or the making of a donation to any private corporation or individual. However, as long as the expenditure of public money has as its purpose, the effectuation of a valid public purpose, Section 177 is not offended even in situations where the conveyance occurs without consideration. See Industrial Development Authority v. Eastern Regional Planning Com., Ky. 332 S.W.2d 274 (1960); Kentucky Livestock Breeders' Assn. v. Hagger, 120 Ky. 125, 85 S.W. 738 (1905).

The evidence in the record indicates that incremental taxes to be collected in order to constitute sufficient consideration for the conveyance of the property are estimated at $13 million per year.

Incremental taxes are those taxes which would never have existed but for the inducement of the facility to locate in Kentucky. See Grimm v. Maloney, Ky. 358 S.W.2d 496 (1962) and Watkins v. Fugazzi, 394 S.W.2d 594 (1965). The successful inducement of location of a revenue producing facility is an important element which provides a new source of tax revenue which did not previously exist. The overriding lesson of both Grimm and Watkins is that the inducement of the new facility provides new revenues which would not have existed but for the location of the plant.

Ultimately the state income tax is expected to benefit in relation to a payroll in excess of $75 million in new wages resulting from an employment of up to 3,000 new jobs. There is clearly a difference in the taxable value of the previously rural farm land which now will become an industrial complex and there are undoubtedly new corporate taxes which will be assessed. In addition there is a ripple effect in that other plants will also produce new wages and new property and corporate taxes. The fair market value of the real estate itself is also enhanced by the development of the plant. All of this produces new sources of revenue for the state.

We are persuaded by the reasoning set out in Almond v. Day, 197 Va. 782, 91 S.E.2d 660 (1956), when the Virginia Supreme Court in interpreting the use of certain funds of the Virginia Retirement System, noted that Section 185 of the Virginia Constitution is very similar in its import to Section 177 of the Kentucky Constitution. The Virginia court stated that when the underlying purpose of the transaction and the financial obligation incurred are for the benefit of the State, there is no lending of credit even though it may have expended its funds or incurred an obligation that benefits another. Merely because the state incurs an indebtedness for its benefit and others may incidentally profit does not bring the action within the letter or the spirit of...