Painter v. West

• Decision Date: 25 September 1973
• Docket Number: No. 19699,19699
• Citation: 199 S.E.2d 538,261 S.C. 277
• Court: South Carolina Supreme Court
• Parties: Mary E. PAINTER et al., Appellants, v. John C. WEST et al., Respondents.

Page 538

199 S.E.2d 538

261 S.C. 277

Mary E. PAINTER et al., Appellants, v. John C. WEST et al., Respondents.

No. 19699.

Supreme Court of South Carolina.

Sept. 25, 1973.

Harry M. Lightsey, Jr., Columbia, for appellants.

Atty. Gen., Daniel R. McLeod, Asst. Atty. Gen., Randall T. Bell, Columbia, and Sinkler, Gibbs, Simons & Guerard, Charleston, for respondents.

PER CURIAM:

The issues to be decided concern the constititonality of Act No. 1077 of the 1972 Acts of the General Assembly (57 Stat. 2237), wherein the issuance by the State, initially, of $5,000,000.00 in bonds is authorized for the purpose of obtaining funds out of which loans will be made by the State to municipalities and special purpose districts, in order to enable such local units to obtain maximum financial benefit from Federal programs relating to the construction of sewage collection, treatment, and disposal systems.

The Act authorizes the Budget and Control Board to issue so-called revenue bonds in order to raise funds for the foregoing purpose. At the present time, it appears that the anticipated aggregate outlay to be made by way of State aid under the Act will amount to at least twenty-five million dollars, and that the program will extend over a period of five or more years.

The aid granted to the local units, while designated State grants, is in effect a loan by the State to the recipients to be repaid by them over a long term. The Act states that the full faith and credit of the State is not pledged to repay the bonds, but the State does pledge to collect from the local units, as hereafter outlined, amounts sufficient to repay the bonds and also appropriates, initially, from general tax funds the sum of $750,000.00, as a bond reserve fund, to serve as a secondary source for their retirement in case the payments from local units, the primary source, proves inadequate.

When a local unit receives a grant or loan, an Assistance agreement must be entered into between it and the State Budget and Control Board. This agreement must prescribe the method by which revenues are to be obtained by the local unit to repay the State grant. The Budget and Control Board is authorized to prescribe the method of raising these funds by requiring either the imposition of (1) an ad valorem property tax on all taxable property within the local unit; (2) a service charge to be collected by the local unit from all users of sewer services therein; and (3) any combination of a property tax and a service charge sufficient to meet the loan repayments. The Act specifies that, when the property tax is agreed to as a means of repayment, it shall be levied by the Comptroller General and shall be deemed a tax imposed by the General Assembly for the benefit of the health and welfare of such local unit.

The foregoing requirements are to assure the repayment of the grants to the local units and these repayments are to be used, in turn, by the State to pay the interest and principal on the bonds as they mature. Under the Act, the State all covenant with the purchasers of the bonds to take remedial action against any defaulting local unit by applying any state aid payments to which the local units would otherwise be entitled until the delinquency has been paid. In the event the local unit is a special purpose district and receives no such state aid, the Comptroller General may levy, and require the applicable County Treasurer to collect and remit to the State, the special tax required under the grant or loan agreement.

If repayments from the local units should prove inadequate, the bond reserve fund will be used to meet the delinquency. The principal amount of State bonds which may be outstanding at any time is limited by the size of the bond reserve fund. This fund must always equal at least 15% Of the principal amount of the outstanding bonds. Therefore, the initial appropriation of $750,000.00 by the State to the reserve fund permits the issuance of bonds in the amount of five million dollars to begin the program. The Act states the intention of the General Assembly to make appropriations in the future to increase the amount of the reserve fund, which will automatically increase the amount of bonds which may be issued.

The plaintiffs (appellants) attacked the constitutionality of the Act upon several grounds, among them being the contention that the Act authorizes the State to incur further debt without an election, in violation of Article 10, Section 11, of the South Carolina Constitution. Since the Act violates this constitutional provision, we find it unnecessary to consider the other grounds urged.

Article 10, Section 11, of the South Carolina Constitution provides:

'To the end that the public debt of South Carolina may not hereafter be increased without the due consideration and free consent of the people of the State, the General Assembly is hereby forbidden to create any further debt or obligation, either by the loan of the credit of the State, by guaranty, endorsement or otherwise, except for the ordinary and current business of the State, without first submitting the question as to the creation of such new debt, guaranty, endorsement or loan of its credit to the qualified electors of this State at a general State election; . . .'

The lower court sustained the position of the defendants (respondents) that the bonds to be issued pursuant to the Act do not constitute a debt of the State, within the meaning of Article 10, Section 11, because of the application of the so-called special fund doctrine. This doctrine is stated in Arthur v. Byrnes, 224 S.C. 51, 77 S.E.2d 311 (quoted in Mims v. McNair, 252 S.C. 64, 165 S.E.2d 355), as follows:

'It is now well settled that the General Assembly may authorize the issuance of general obligations of the State without submitting the question as to the creation of such debt to the qualified electors as required by Section 11, Article 10, where such obligations are secured by the pledge of a fund established or set aside which is reasonably sufficient to pay such obligations without resorting to the levy of a property tax. In other words, an obligation of such character does not constitute a debt within the contemplation of Section 11, Article 10.'

This section of the Constitution has been construed as applying only to 'indebtedness which should have to be paid from the proceeds of annual tax levies upon property.' State ex rel. Roddey v. Byrnes, 219 S.C. 485, 66 S.E.2d 33. Similarly, the Briggs v. Greenville County, 137 S.C. 288, 135 S.E. 153, the Court held that 'the underlying purpose of the constitutional provisions concerning the creation of state debt was that they should serve as a limit of taxation--as a protection to taxpayers, and especially those whose property might be subjected to taxation.' Our prior decisions make it clear that the 'debt or obligation' which must be approved by a vote of the people is the type debt which is to be repaid from the proceeds of a property tax. It is true that the Court has at times, an in Arthur v. Byrnes, supra, 224 S.C. 51, 77 S.E.2d 311, stated...