Loomis v. Callahan

• Decision Date: 06 July 1928
• Citation: 196 Wis. 518,220 N.W. 816
• Parties: LOOMIS v. CALLAHAN ET AL.
• Court: Wisconsin Supreme Court

196 Wis. 518

220 N.W. 816

LOOMIS

v.CALLAHAN ET AL.

Supreme Court of Wisconsin.

June 18, 1928.

Dissenting Opinion July 6, 1928.

Original action.

This action is brought by G. F. Loomis against John Callahan and others, in their capacity as members of, and constituting and comprising, the annuity board of the state retirement system, to enjoin them from loaning and paying out the trust funds of the state retirement system to the University Building Corporation for the purpose of equipping the Memorial Union Building and constructing a field house upon lands belonging to the University. A demurrer to the complaint is sustained, and the action dismissed.

Eschweiler, J., dissenting.William F. Hannan, of Milwaukee (Hannan, Johnson & Goldschmidt, of Milwaukee, of counsel), for plaintiff.

John W. Reynolds, Atty. Gen., Franklin E. Bump, Asst. Atty. Gen., and H. A. Minahan, Deputy Atty. Gen., for defendants.

OWEN, J.

The decision in this case sustaining the demurrer and dismissing the action was announced on the 29th of May, 1928. It will be the function of this opinion to state the reasons for the judgment ordered.

Section 36.06(6) of the Statutes authorizes and empowers the regents of the University to lease University lands to a nonprofit sharing corporation or corporations, upon condition that such corporation or corporations shall construct on such leased land such buildings, improvements, or equipment for dormitories, commons, field house, or addition to the Memorial Union building, as the regents shall designate or approve, and shall lease the same to the regents upon satisfactory terms as to the current rental, maintenance, and ultimate purchase by the regents. The purpose is declared to be the providing of dormitories and commons and a field house to be used for University purposes, and to enable the construction, maintenance, and ultimate acquisition thereof by the regents. Similar power is conferred upon the regents for the purpose of completing, equipping, and furnishing the Memorial Union building.

The act further provides that:

“Revenues derived from the operation by the regents of such dormitories, commons, memorial union, or field house shall be applied to the payment of such rentals, any surplus which from time to time may accrue to be applied toward the purchase price of the building, equipment, or improvements, or accumulated for subsequent application upon the purchase price.”

The regents are authorized and empowered to enter into such leases and contracts with such corporation or corporations for the above purposes as they shall deem for the best interests of the University, “provided, that nothing herein contained shall authorize the regents to incur any state debt for the construction of such buildings, equipment or improvements.” The leasehold interest in and the buildings erected on such lands are exempt from taxation.

The Wisconsin University Building Corporation is organized for the declared purpose of buying, selling, leasing, and otherwise acquiring and conveying real estate, and to construct, equip, and furnish buildings or other permanent improvements thereon for the exclusive uses, purposes, and benefit of the University of Wisconsin, and, generally, to carry out the purposes of subsections 6 and 7 of section 36.06, Statutes. “The corporation shall be nonstock and no dividends or pecuniary profit shall be declared to the members thereof.” “The person who now or may hereafter hold the positions of or perform the duties of the present secretary of the board of regents, business manager, and comptroller of the University of Wisconsin shall be the members; they and each of them shall be discharged from such membership on ceasing to hold such position or to perform such duties, and their and each of their successors shall thereupon become members.”

On August 31, 1927, the regents leased to said corporation certain University lands, upon which there was in construction what is commonly known as the Memorial Union building, for the term of 50 years, for the rent of $1 for the full term of said lease, and on the same day the building corporation leased to the board of regents the same property for an indefinite period at an annual rental of $37,245.52; it being provided therein that:

“Whenever any bonds, notes, or other obligations that may be issued by said party of the first part secured by mortgage or pledge of the above-mentioned Memorial Union building or other improvements shall have been satisfied except for any such bonds, notes, or other obligations that are owned by the party of the second part, said party of the second part may at its option take title to said Memorial Union building and Tripp commons or improvements by surrendering said bonds, notes, or other obligations.”

On the 27th day of August, 1927, the board of regents adopted a resolution purporting to authorize the Wisconsin University Building Corporation to contract for decoration, furniture, fixtures, and equipment for the Memorial Union building and Tripp commons in an amount not to exceed $400,000. The board also by resolution provided for the collection of a fee from each student to be known as a memorial union fee, “to be used for the operation and maintenance of University buildings devoted to men's and women's all-University social activities, chiefly the memorial union.”

In March, 1928, the regents leased to said building corporation certain University lands on the University campus for a term of 50 years, for the consideration of $1, upon condition that the building corporation erect a field house thereon and equip the same for use by the regents of the University. The building corporation then leased to the regents of the University the field house proposed to be constructed upon terms similar to those contained in the lease of the Memorial Union building.

Pursuant to application made by the building corporation the defendants, constituting the annuity board of the state retirement system, have resolved to loan to the building corporation the sum of $400,000 at 4 1/2 per cent., ammortized over a period of 15 years, upon the leasehold security which the building corporation has in the Memorial Union building, and likewise said annuity board has resolved to extend to the building corporation a loan of $326,000 at 4 1/2 per cent. on a 30 years' ammortized plan, upon the leasehold interest of the building corporation in the field house.

This action is brought to restrain the annuity board from completing said loans, by the plaintiff, who is a real estate owner, taxpayer, and teacher in the public schools of the state, and who is, and has been for some time past, a contributing member of the state retirement system.

The original plan outlined by the statute and followed by the board of regents to make available for use by the University certain buildings and equipment necessary for the prosecution of University functions may be briefly summarized as follows: The University owns certain lands comprising what is popularly termed the University campus. These lands have been acquired by the University with a view of constructing thereon necessary University buildings and otherwise devoting them to University purposes. The growth of that institution continuously reveals increasing necessities, calling for construction of additional buildings and the expenditure of moneys, which the Legislature is reluctant to appropriate because of the attendant increasing tax burdens. In this situation the Legislature has applied to public necessities some of the financial genius which we find continually displayed in private business, with the thought of financing necessary undertakings by the pledging of future earnings arising from the operation of such enterprises. Accordingly the Legislature has authorized the board of regents of the University to lease certain portions of its campus to a private corporation upon condition that such private corporation will erect upon such leased land desired buildings and lease such buildings when so erected to the regents, who will operate and manage the buildings and, eventually, pay for the same out of the profits derived from such operation. Numerous constitutional objections have been raised to this plan, some of which are serious, and some trivial. Those deemed worthy of consideration will be treated.

At the outset it is claimed that the leasing of campus lands to the building corporation is invalid because it gives state property to a private corporation for private purposes without compensation. This contention is based upon a very narrow conception of the transaction and overlooks the general situation and the compensating benefits accruing to the University by virtue of the transaction. The University owns the lands and needs the buildings. The money with which to construct the buildings is not available, but by leasing the land to a third party such third party will finance the erection of the building, and make it available for the University upon terms which will enable the University in time to pay for the building out of the earnings accruing from its operation and management. This certainly furnishes a consideration which supports the lease and renders the transaction immune from the charge that public property is being given to private persons for private use without compensation.

[2] These considerations also demonstrate that by this transaction the credit of the state is not being loaned in aid of any individual, association, or corporation, as is also contended on the part of the plaintiff.

[3] It is further contended that the transaction results in an indebtedness on the part of the state. This is perhaps the most serious contention made. The North Dakota court, in Wilder v. Murphy, 218 N. W. 156, held that a similar transaction created a state indebtedness, while it was held in McClain v. Regents (Or.) 265 P. 412, that no state indebtedness was incurred....