Miles v. Gordon

• Court: Arkansas Supreme Court
• Writing for the Court: HARRIS; McFADDIN
• Citation: Miles v. Gordon, 353 S.W.2d 157, 234 Ark. 525 (Ark. 1962)
• Decision Date: 29 January 1962
• Docket Number: No. 5-2651,5-2651
• Parties: Maxine MILES, Appellant, v. Nathan GORDON, Frank Holt and Nancy Hall, Members of the State Reserve Fund Commission, Appellees, Board of Trustees of University of Arkansas et al., Interveners.

Page 157

353 S.W.2d 157

234 Ark. 525

Maxine MILES, Appellant, v. Nathan GORDON, Frank Holt and Nancy Hall, Members of the State Reserve Fund Commission, Appellees Board of Trustees of University of Arkansas et al., Interveners.

No. 5-2651.

Supreme Court of Arkansas.

Jan. 29, 1962.

Nance & Nance, West Memphis, for appellant.

J. Frank Holt, Atty. Gen., and Mehaffy, Smith & Williams, by W. J. Smith, Herschel H. Friday, J., and James E. Westbrook, Little Rock, for appellees.

HARRIS, Chief Justice.

Maxine Miles, appellant herein, is a citizen, resident, and taxpayer of the city of West Memphis, and owns real and personal property therein. Appellees are the qualified and acting members of the State Reserve Fund Commission. The interveners are the Boards of Trustees of the University and state supported colleges. Appellant, proceeding as a taxpayer, instituted suit in the Chancery Court of Pulaski County, seeking a declaratory decree holding Act 65 of 1961 unconstitutional, and further asking an injunction to prohibit appellees from complying with, or in any manner carrying out, the provisions of said act. The court sustained a demurrer to the complaint and, after appellant declined to plead further, entered a decree dismissing the complaint. From such decree, comes this appeal.

The First Extraordinary Session of the 1961 General Assembly passed Act 65 as a means of financing construction at the various state institutions heretofore mentioned. This legislation was occasioned by the fact that several million dollars are being held in the permanent operating reserve fund (a part of the revenue stabilization reserve fund), and the legislature desired that such fund should be used for the construction. The money in this fund has been used to implement a policy of preserving an even flow ¹ of moneys to the various state agencies. Act 65 was passed as a means to use the money, and at the same time, maintain the advantages of the even flow. The act establishes the State Reserve Fund Commission and authorizes that Commission to borrow money and issue Certificates of Indebtedness to evidence its debt. The money is to be borrowed from the State, acting through the State Board of Finance, which has been investing the daily balances of the State since the approval of this practice by this Court in 1939. The borrowed money will be repaid with the interest received from the investment of state funds by the State Board of Finance. This interest will be placed into a special fund and pledged to the payment of the certificates, and is to be the sole source from which payment may be made. The money obtained by the issuance of the certificates will be turned over to the chief fiscal officer of the State for use in preserving an even flow of money to the various recipients of state funds.

Appellant contends that Act 65 is unconstitutional, and in seeking a reversal of the Chancery decree, asserts four points, which we proceed to discuss in the order listed in appellant's brief.

'I.

'Act 65 of 1961 Provides for the Withdrawal of Funds from the State Treasury in the Absence of Specific Appropriations and Thus is Contrary to Article 5, Section 29 and Article 16, Section 12 of the Arkansas Constitution.'

Article 5, Section 29, of our State Constitution provides, inter alia, that no money shall be drawn from the Treasury except in pursuance of specific appropriation made by law, and no appropriation shall be for a longer period than two years. Article 16, Section 12, has substantially the same requirement. Under the provisions of Section 8 of Act 65, the interest derived from the investment of daily balances of state funds is pledged to the payment of certificates of indebtedness to be issued by the Reserve Fund Commission, and the certificates are to mature fifteen years from the date of the first certificate issued. Appellant points out that this interest is pledged rather than appropriated and is pledged for a period of fifteen years, thirteen years, according to her contention, in excess of the maximum period for which an appropriation may be made. Appellant recognizes that this Court has previously held that all public money does not have to be paid into the State Treasury. In Gipson v. Ingram, 215 Ark. 812, 223 S.W.2d 595, we held, 'There is no language in our present Constitution which requires that all of the public money shall be paid into the state treasury. Such a provision exists in the Constitutions of some States, but not in our present Constitution.' One of the questions in that case was whether the Constitution required that 'cash funds' be deposited in the State Treasury. This Court defined 'cash funds' as 'those received by the state agencies and institutions from sources other than taxes, as the term 'taxes' is ordinarily used', and declared that the Legislature was emplowered to determine whether the State Treasurer should be required to receive all state funds. But, says appellant, the interest here in question is not embraced within the term 'cash funds'; rather, since it is interest on tax money, the interest itself falls within the category of tax money. The case of Pomona City School District v. Payne, 9 Cal. 510, 50 P.2d 822, wherein it was held that the County of Los Angeles could not keep the interest obtained through the investment of school district funds on deposit in the county treasury, is cited. The Court there stated that interest is an accretion or increment to the principal fund earning it, and becomes a part thereof. In that very case, however, the California Court limited this generally recognized concept of law by stating that interest is an accretion to the principal fund earning it, and becomes a part thereof 'unless lawfully separated therefrom.' ² The Court said, 'In fact, the rule of law would control that the right of depositors to their interest increments could not be taken away without direct statutory authority to that effect.' ³ We concur with that statement of the law. Here, we think it immaterial how the interest may be designated, be it 'cash funds', or by some other name. The pertinent questions are whether the General Assembly had the authority to determine whether certain funds shall be paid into the State Treasury; whether the Legislature likewise had the authority to lawfully separate the interest in question from the invested tax funds that produced it, and whether the interest must be classified as 'taxes.'

It is apparent from a study of the decision rendered in Gipson v. Ingram, supra, that the Court's conclusions were based on the holding that the Legislature had the authority to determine whether certain designated funds should be paid into the State Treasury. We are likewise of the opinion that the Legislature is not prohibited by our Constitution from separating the interest from the principal and pledging it, as in Act 65. For that matter, taxes and interest are not the same. Taxes are enforced contributions exacted pursuant to statutory authority, while interest is the price paid by a borrower for the use of what he borrows, generally a percentage on the principal amount. We hold that interest, when separated from the principal by legislative enactment, is not 'taxes', as the term is ordinarily used, and there is no requirement that this interest be deposited in the State Treasury; this being true, there is no necessity for the biennial appropriation.

Appellant devotes several paragraphs to possible abuses that might arise where independent state commissions are entrusted with public moneys, and over which the Legislature exercises no control with regard to the expenditure of the funds. However, in determining constitutionality of acts, we are not permitted to pass upon the wisdom of the legislation. This is the prerogative of the Legislature. As was stated in Atkin v. Kansas, 191 U.S. 207, 24 S.Ct. 124, 48 L.Ed. 148:

'So, also, if it be said that a statute like the one before us is mischievous in its tendencies, the answer is that the responsibility therefor rests upon legislators, not upon the courts. No evils arising from such legislation could be more far-reaching than those that might come to our system of government if the judiciary, abandoning the sphere assigned to it by the fundamental law, should enter the domain of legislation, and, upon grounds merely of justice or reason or wisdom, annul statutes that had received the sanction of the people's representatives.'

'II.

'Act 65 Provides for the Issuance of Certificates of Indebtedness to Which Revenues of the State are Pledged Without Approval by the Electors of the State and is Therefore Contrary to Article 16, Section 1 as Amended by Amendment No. 13, and Amendment 20 to the Arkansas Constitution.'

Article 16, Section 1, of the Arkansas Constitution provides, inter alia, that the state shall not lend its credit for any purpose whatever. The answer to that argument is simply that Act 65 does not call for the State to lend its credit. The obligation arising under Act 65 is solely that of the Reserve Fund Commission. In Brown v. Arkansas Centennial Commission, 194 Ark. 479, 107 S.W.2d 537, the same contention was made in an attack upon Act 180 of 1935. This Court, after citing language of the Act to the effect that no bond, note, or other evidence of indebtedness issued under the Act or created by the Commission should be held or construed as an obligation of the State of Arkansas, stated:

'It is plainly manifest from this language that the bonds to be issued are not obligations of the state, but 'shall be solely and exclusively the obligations of the Commission in its corporate and representative capacity.' This language is too plain to be misunderstood and is not open to construction. So the state is not lending its credit and it is not issuing any interest bearing treasury warrants or scrip, and the provisions of said section of the Constitution are not invaded.'

Amendment No. 20 to the...