Myers v. Alaska Housing Finance Corp.

• Citation: 68 P.3d 386
• Decision Date: 18 April 2003
• Docket Number: No. S-9941.,S-9941.
• Parties: Eric F. MYERS, a taxpayer and resident of the State of Alaska, both individually and as a representative of other Alaska residents and taxpayers, Appellant, v. ALASKA HOUSING FINANCE CORPORATION; and Northern Tobacco Securitization Corporation, Appellees.
• Court: Supreme Court of Alaska (US)

68 P.3d 386

Eric F. MYERS, a taxpayer and resident of the State of Alaska, both individually and as a representative of other Alaska residents and taxpayers, Appellant, v. ALASKA HOUSING FINANCE CORPORATION; and Northern Tobacco Securitization Corporation, Appellees.

No. S-9941.

Supreme Court of Alaska.

April 18, 2003.

Peter J. Maassen, Ingaldson Maassen, P.C., Anchorage, and Peter Gruenstein, Gruenstein & Hickey, Anchorage, for Appellants.

Douglas D. Gardner, Assistant Attorney General, Juneau, Joseph H. McKinnon, Assistant Attorney General, Anchorage, Bruce M. Botelho, Attorney General, Juneau, and Robert M. Johnson, Wohlforth, Vassar, Johnson & Brecht, Anchorage, for Appellees.

Before: FABE, Chief Justice, MATTHEWS, EASTAUGH, BRYNER, and CARPENETI, Justices.

OPINION

CARPENETI, Justice.

I. INTRODUCTION

Alaska Constitution article IX, section 7 prohibits the legislature from dedicating future revenues directly to any special purpose. But can the legislature sell the state's right to a future revenue stream that is based on a settlement of a lawsuit and then immediately appropriate the proceeds? We conclude that selling the right to receive future revenue from the tobacco lawsuit settlement involved in the present case is constitutional for three reasons: (1) the legislative appropriation power includes the power to sell state assets, (2) lawsuit settlements are not traditional sources of public revenue, and (3) the legislature has the responsibility to manage the state's risk.

II. FACTS AND PROCEEDINGS

In 1998 Alaska, along with numerous other states and territories, settled its past and present smoking-related claims, and provided a continuing release of future smoking-related claims, against the four largest tobacco manufacturers. The Master Settlement Agreement provided that the tobacco manufacturers would make annual payments to a fund from which the state would receive a portion in perpetuity. The state is projected to receive between $16 million and $36 million annually through 2031.

Eric Myers, a director of the Alaska Division of the American Cancer Society and proponent of tobacco-control programs, lobbied the legislature to spend a significant portion of the tobacco settlement on anti-tobacco initiatives. The legislature appropriated only $1.4 million from the state's general fund to such initiatives, substantially less than the $8.2 million requested. Funding for rural school upgrades and construction was a competing priority, in part because a superior court had recently concluded that the then-existing education funding scheme violated the state constitution and the federal Civil Rights Act of 1964.¹

To fund the extensive school improvements, the legislature could have appropriated funds from the state's general fund or could have proposed a bond measure that would have required voter approval. Instead, the legislature, viewing the state's right to future payments from the tobacco settlement as an asset, sought to sell it for a lump sum representing the present value of the future revenue stream from the settlement. The proceeds from the sale could then immediately be appropriated to finance the rural school improvements.

The legislature devised chapter 130, SLA 2000 to accomplish this objective without offending constitutional principles. Chapter 130, SLA 2000 authorized the commissioner of revenue to sell the right to receive forty percent of the annual revenue from the settlement to the Alaska Housing Finance Corporation (AHFC), "anticipated to be at least $93,000,000."² The legislature also authorized AHFC to create a subsidiary corporation and issue revenue bonds secured by the right to receive forty percent of the tobacco settlement.³ The legislature then appropriated $164,876,000 from the anticipated proceeds of the bonds for school, university, port, and harbor construction, renovation, and improvement.⁴

AHFC created a subsidiary corporation, the Northern Tobacco Securitization Corporation (NTSC). The NTSC held public hearings to discuss the proposed sale of the tobacco settlement revenue stream. In early October 2000 the NTSC board of directors authorized the issuance of the bonds. At nearly the same time, Myers filed this suit seeking a declaratory judgment that chapter 130, SLA 2000 violated the prohibition on the dedication of funds found in article IX, section 7 of the Alaska Constitution. Myers later amended his complaint to request that the superior court enjoin the NTSC bond sale.

Following oral argument on Myers's request for declaratory judgment, Superior Court Judge Dan A. Hensley ruled that chapter 130, SLA 2000 was constitutional. Although he noted that the anti-dedication clause applied to all state revenue, which included money from lawsuit settlements, Judge Hensley concluded that reducing the settlement to present value and selling it for a lump sum did not violate the anti-dedication clause. He reasoned that the settlement was an asset unlike traditional types of revenue used for annual state government funding; that the form of the settlement as periodic payments instead of a lump sum was a mere fortuity; that settlements providing for periodic payments were fungible with lump sum settlements; and that because the continued payment of the settlement was not guaranteed, the legislature must be able to manage the state's assets to avoid risk. Because of the slippery slope argument that the legislature could reduce any asset consisting of a future revenue stream to present value, sell it, and appropriate the proceeds immediately, Judge Hensley emphasized that his ruling was limited to lawsuit settlements as a particular type of revenue. Myers appeals this decision.

After Judge Hensley's decision, the NTSC issued $116 million of revenue bonds secured by the right to receive forty percent of the future revenues from the tobacco settlement. The NTSC received $93 million and the remainder was used to pay the costs of issuance. The $93 million is now apparently being used for school and harbor construction projects as appropriated by chapter 131, SLA 2000.

III. STANDARD OF REVIEW

This case requires us to decide if the enactment of chapter 130, SLA 2000 violates article IX, section 7 of the Alaska Constitution. We use our independent judgment to decide constitutional issues.⁵

IV. DISCUSSION

The sole issue presented in this appeal is whether the sale of the future revenue stream from the tobacco settlement violates the constitutional prohibition against dedicating a source of state revenue to any special purpose. We first discuss the anti-dedication clause and its interpretation, then determine that directly dedicating the tobacco settlement revenues would be unconstitutional, and finally conclude that the sale of the tobacco settlement revenue stream reduced to present value is constitutional.

A. The Anti-Dedication Clause and Its Interpretation

Section 7 of article IX provides in relevant part that "[t]he proceeds of any state tax or license shall not be dedicated to any special purpose."⁶ The drafters of the anti-dedication clause adopted it to preserve control of and responsibility for state spending in the legislature and the governor. "`[T]he more special funds [that] are set up the more difficult it becomes to deny other requests until the point is reached where neither the governor nor the legislature has any real control over the finances of the state.'"⁷ The anti-dedication clause helps preserve the state's annual appropriation model and ensures that governmental departments will not be restricted in requesting funds from all sources.⁸

We have twice considered whether an appropriation violated the anti-dedication clause, but neither case presented a question similar to the one presented here. In State v. Alex, we decided that an act purporting to dedicate a "special assessment," rather than a tax or license, violated the anti-dedication clause because the clause applied to any source of public revenue.⁹ In Sonneman v. Hickel, we held that an act violated the anti-dedication clause because it limited the ability of one state agency to request funding from revenues produced by the Marine Highway System.¹⁰ In both cases, the unconstitutional acts dealt clearly with future allocation of future revenues; neither case involved a reduction to present value and outright sale of a future revenue stream. Accordingly, neither Alex nor Sonneman directly resolves the more complex question in the present case.

The Alaska anti-dedication clause is almost unique among state constitutions. Only Georgia has a similar provision, which indirectly was the source of the Alaska provision.¹¹ The relevant portion of the Georgia anti-dedication clause provides: "[N]o appropriation shall allocate to any object the proceeds of any particular tax or fund or a part or percentage thereof."¹²

The Georgia Supreme Court has interpreted its anti-dedication provision only once. In State Ports Authority v. Arnall, the Georgia legislature passed a bill appropriating all of the rentals received from a lease of the Western & Atlantic Railroad to the State Ports Authority for the purpose of paying bond debt.¹³ The Georgia Supreme Court held that the appropriation was unconstitutional for two independent reasons: because it violated the provision concerning the creation of state debt and because it violated the provision prohibiting the dedication of funds.¹⁴

Arnall, however, is of limited use in resolving the present case. Like our earlier cases, Arnall dealt with the appropriation of future revenues and did not decide whether the sale of a future income stream reduced to present value violated the anti-dedication clause.

The state argues that Arnall "favorably" cited Wright v. Hardwick¹⁵ and that this supports the constitutionality of the sale of a stream of revenue. In Wright, the Georgia legislature made an "outright sale of rentals to be received from the lease of the...