John R. Grubb, Inc. v. Iowa Housing Finance Authority

• Decision Date: 25 May 1977
• Docket Number: No. 2-60119,2-60119
• Citation: 255 N.W.2d 89
• Parties: JOHN R. GRUBB, INC., Clarke Interests, Inc., and Darwin T. Lynner, Inc., Appellants, v. IOWA HOUSING FINANCE AUTHORITY, Appellee.
• Court: Iowa Supreme Court

Page 89

255 N.W.2d 89

JOHN R. GRUBB, INC., Clarke Interests, Inc., and Darwin T. Lynner, Inc., Appellants, v. IOWA HOUSING FINANCE AUTHORITY, Appellee.

No. 2-60119.

Supreme Court of Iowa.

May 25, 1977.

Charles F. Wasker and Louis R. Hockenberg, Wasker, Sullivan, Wheatcraft & Ward, Des Moines, for appellants.

Herschel G. Langdon, David W. Belin, Robert H. Helmick, and Curt L. Sytsma, Herrick, Langdon, Belin, Harris, Langdon & Helmick, Des Moines, and Robert A. Fippinger, Hawkins, Delafield & Wood, New York City, for appellee.

En banc.

REYNOLDSON, Justice.

Plaintiffs brought an equity action for declaratory decree holding the Iowa Housing Finance Authority Act (Ch. 220, The Code, 1977) to be in violation of the Iowa Constitution. They now appeal from trial court's decree finding the enactment to be constitutional. We affirm.

The essential facts are not disputed. Plaintiffs John R. Grubb, Inc., Clarke Interests, Inc., and Darwin T. Lynner, Inc., Iowa corporations having their principal places of business in Polk County, Iowa, are all engaged in the business of owning, leasing, investing in, and constructing housing for Iowa residents. Each plaintiff is an Iowa taxpayer who will be adversely affected and irreparably injured by any unconstitutional expenditure of state funds.

Defendant Iowa Housing Finance Authority ("Authority") is a public instrumentality and agency of the state created by 66th G.A., Ch. 138 (1975). See Ch. 220, The Code, 1977. It was established to "undertake programs which assist in attainment of adequate housing for low or moderate income families, elderly families, families which include one or more persons who are handicapped or disabled, and the Iowa homesteading program." The Authority's powers are exercised by a nine-member board drawn from stated segments of society by governor's appointment subject to approval of two-thirds of the senate membership. § 220.2, The Code. Provision is made for appointment, powers and duties of an executive director. § 220.6, The Code.

Among its numerous powers, the Authority may make mortgage loans to housing sponsors to provide long-term financing for the purchase or rehabilitation of adequate housing for those families and persons above indicated, where necessary financing cannot be obtained from other sources, upon terms and conditions the sponsor could reasonably be expected to fulfill. The Act provides the Authority "shall make and execute contracts with mortgage lenders for the servicing of mortgage loans made under this section." § 220.12, The Code.

This enactment additionally permits the Authority, through financing programs, to encourage and assist transfers of housing to the above families and persons through lease-purchase agreements. § 220.13, The Code. The "Iowa homesteading program" for the rehabilitation of dilapidated and deteriorating housing is a part of the Act, § 220.14, The Code, as well as a grant of authority to participate in federal housing act programs, § 220.15, The Code.

For these and other purposes, the Authority is authorized to issue "housing assistance fund notes," § 220.19, The Code; make loans to mortgage lenders, § 220.20, The Code; purchase mortgage loans, § 220.21, The Code; and issue negotiable bonds, § 220.26, The Code.

April 15, 1976, the Authority adopted its Loan to Lenders Home Loan Bond Resolution, which provides for the issuance and marketing of bonds by the Authority. Bond proceeds will be loaned by the Authority to "Mortgage Lenders." They will in turn make mortgage loans for housing purposes at lower-than-market interest rates to persons who qualify as "low or moderate income families" under the Act.

May 11, 1976, plaintiffs brought this equity action. Their petition alleged the Iowa Housing Finance Authority Act was "unconstitutional, any and all resolutions adopted by the Defendant are illegal, and any and all bonds issued or to be issued by the Defendant are void." Plaintiffs prayed for a declaratory judgment decreeing the Act unconstitutional, all resolutions illegal, and all bonds void. They further sought a permanent injunction restraining defendant from issuing bonds, pledging its or the state's assets, making loans, and acquiring interests in real estate.

Defendant's answer admitted the factual allegations of the petition, but denied allegations of unconstitutionality. Defendants prayed for a declaratory judgment decreeing the Act to be constitutional and the bonds issued thereunder to be valid.

November 16, 1976, trial court entered its decree. It rejected all the constitutional challenges and decreed "that any and all bonds issued or to be issued pursuant thereto by the defendant Iowa Housing Finance Authority are valid and binding according to their terms."

Plaintiffs, appealing, raise seven issues which are discussed in divisions II through VIII, infra.

I. We first briefly examine the general principles which guide us in considering this type of appeal.

Our review of this equity case is de novo. Rule 334, Rules of Civil Procedure; Elkader Production Credit Ass'n v. Eulberg, 251 N.W.2d 234, 236 (Iowa 1977); Dilley v. City of Des Moines, 247 N.W.2d 187, 190 (Iowa 1976). We give weight to trial court's findings of fact, but are not bound by them. Rule 344(f)(7), R.C.P.; Tamm, Inc. v. Pildis, 249 N.W.2d 823, 828 (Iowa 1976).

Our rules which apply when a statute is under constitutional attack were most recently summarized in City of Waterloo v. Selden, 251 N.W.2d 506, 508 (Iowa 1977):

"All presumptions are in favor of the constitutionality of the statute and it will not be held invalid unless it is clear, plain and palpable that such decision is required. The legislature may pass any kind of legislation it sees fit so long as it does not infringe the state or federal constitutions. Courts do not pass on the policy, wisdom, advisability or justice of a statute. The remedy for those who contend legislation which is within constitutional bounds is unwise or oppressive is with the legislature. * * * Plaintiffs have the burden to demonstrate beyond a reasonable doubt the act violates the constitutional provision invoked and to point out with particularity the details of the alleged invalidity. To sustain this burden plaintiffs must negative every reasonable basis which may support the statute. (citation) Every reasonable doubt is resolved in favor of constitutionality. (citation)"

With these principles in mind, we turn to the specific constitutional issues raised in this appeal.

II. Plaintiffs contend the Act violates article III, section 31, Iowa Constitution, because it permits the use of public money for private purposes.

In pertinent part, article III, section 31, provides:

"(N)o public money or property shall be appropriated for local, or private purposes, unless such appropriation, compensation, or claim, be allowed by two-thirds of the members elected to each branch of the General Assembly."

Plaintiffs correctly point out there is no record of a two-thirds vote on this enactment. Thus we necessarily must resolve the issue whether the actual purposes of the Act are public or private.

Section 220.3, The Code, 1977, sets out specific "legislative findings." These include, inter alia, findings of a shortage of safe and sanitary housing available to low or moderate income families; the shortage is conducive to disease, crime, environmental decline and poverty, depreciated values, impaired investments, reduced capacity to pay taxes, population maladjustments adding costs to communities to provide basic services elsewhere; a recurrent shortage of private funds; failure of private enterprise to correct the conditions; and the necessity of a stable supply of adequate funds "to encourage new housing and the rehabilitation of existing housing in an orderly and sustained manner and to reduce the problems described in this section." At § 220.3(1) and (11) the legislature specifically declared the establishment of the Authority and the purposes of the Act were public purposes "for the benefit of the people of the State of Iowa."

Although we are not required to treat a legislative declaration of purpose as final, binding or conclusive, Simpson v. Low-Rent Housing Agency of Mount Ayr, 224 N.W.2d 624, 627 (Iowa 1974), we will not find absence of public purpose except where such absence is so clear "as to be perceptible by every mind at first blush." Dickinson v. Porter, 240 Iowa 393, 417, 35 N.W.2d 66, 80 (1948).

An examination of Dickinson, supra, and decisions from other jurisdictions discloses a plain judicial intent to permit the concept of "public purpose" to have that flexibility and expansive scope required to meet the challenges of increasingly complex social, economic, and technological conditions. See, e. g., DeArmond v. Alaska State Development Corporation,376 P.2d 717, 721 (Alas.1962); Minnesota Housing Finance Agency v. Hatfield, 297 Minn. 155, 168, 210 N.W.2d 298, 306 (1973); Johnson v. Pennsylvania Housing Finance Agency, 453 Pa. 329, 337, 309 A.2d 528, 533 (1973); Opinion to the Governor, 112 R.I. 151, 154, 308 A.2d 809, 811 (1973).

In asserting the Act contemplates expenditure of funds for private and not public purposes, plaintiffs raise three principal points.

Plaintiffs contend § 220.23 violates the above constitutional provision because it empowers the Authority, without substantial guidelines or supervision, to "forgive or forbear all or parts of a mortgage loan or a loan to a mortgage lender * * * ." This power, they assert, allows the Authority to make gifts to individuals, clearly a private purpose.

We do not agree because we perceive the power to forgive all or a portion of a loan as a necessary adjunct of the power to make loans, along with the authority to renegotiate loans, waive defaults or consent to a modification of terms. Such power may be of benefit to the Authority just as it sometimes benefits a private lender. For example, the Authority may...