Port Authority of City of St. Paul v. Fisher

• Decision Date: 07 October 1966
• Docket Number: No. 40268,40268
• Parties: PORT AUTHORITY OF CITY OF SAINT PAUL et al., Respondents, American Hoist & Derrick Company, Respondent, v. Fred W. FISHER, as Commissioner and as President of Port Authority of City of Saint Paul, Appellant.
• Court: Minnesota Supreme Court

Page 560

145 N.W.2d 560

275 Minn. 157

PORT AUTHORITY OF CITY OF SAINT PAUL et al., Respondents American Hoist & Derrick Company, Respondent, v. Fred W. FISHER, as Commissioner and as President of Port Authority of City of Saint Paul, Appellant.

No. 40268.

Supreme Court of Minnesota.

Oct. 7, 1966.

Syllabus by the Court

1. Where it is established by sufficient proof that private financing is unavailable for the construction of an industrial building and that public financing is necessary and proper in the public interest in order to complete development of 'marginal lands' as defined by Minn.St. 458.191, subd. 4, a Minnesota port authority, under the provisions of c. 458, is empowered to finance the construction of such building by the issuance of revenue bonds and lease the same to a private corporation upon terms which will reimburse the port authority for all costs of acquisition and redevelopment.

2. The expenditure of the proceeds of such bonds for such purpose under the facts and circumstances of this case is merely incidental to the governmental funtion of completing the reclamation and redevelopment of marginal lands and serves to benefit the community as a body. Such expenditure is therefore an authorized and a constitutional expenditure of public money for a public rather than a private purpose.

Dorsey, Owen, Marquart, Windhorst & West, and Wm. J. Hempel, Minneapolis, for appellant.

Stephen L. Maxwell, Corp. Counsel, Richard J. Battis and Jerome J. Segal, Assts. Corp. Counsel, St. Paul, for Port Authority.

Norman E. Biorn, St. Paul, for Am. Hoist & Derrick.

OPINION

ROGOSHESKE, Justice.

Plaintiffs by this action for declaratory judgment seek prior judicial approval of a proposed industrial development project by the Port Authority of the City of St. Paul, a municipal subdivision established pursuant to Minn.St. c. 458.

The proposed project includes public financing of the construction of an industrial building to be leased for 30 years to American Hoist & Derrick Company, a private manufacturing corporation. The building is to be erected upon a 1 2/3-acre tract of land which is part of Reverview Industrial Park, previously acquired and cleared by the Authority as 'marginal' lands for industrial use under powers granted by the legislature.

The question plaintiffs seek to have answered is whether in reclaiming and developing 'marginal lands' it is constitutionally permissible under the public purpose doctrine to finance such construction through the issuance of revenue bonds and to lease the premises to the corporation in order to complete development of the land and recoup tax money expended for its acquisition and reclamation.

This is the second appeal brought by defendant, president of the Authority, who refused to sign the proposed lease to American Hoist, taking the position that financing construction was neither constitutional nor valid under c. 458. Defendant's first appeal, Port Authority of City of St. Paul v. Fisher, 269 Minn. 276, 132 N.W.2d 183, resulted in reversal of a summary judgment granted plaintiffs. That judgment was based upon a determination of the District Court of Ramsey County that the proposed use of revenue-bond proceeds was an authorized and constitutional expenditure of public money for a public rather than a private purpose. Our previous opinion fully sets forth the procedural history and alleged statutory basis for the Authority's proposal. Therein we determined that the lands constituting Riverview Industrial Park, acquired and made suitable for industrial use with the proceeds of general obligation bonds and tax money, were blighted or 'marginal' lands as defined by c. 458, that the acquisition was authorized and served a public purpose, and that the proceeds of revenue bonds constituted public money--all of which appears to be conceded by the parties upon this appeal. ¹ However, our reversal, accompanied by a remand for the taking of testimony, was compelled because the record did not contain sufficient facts to establish the specific purpose the Authority intends to accomplish and--of critical importance--the necessity of public rather than private financing of the proposed construction. We held that these facts were essential to a determination of whether public financing of the construction served a public rather than a private purpose.

Upon remand, plaintiffs presented testimony and a large number of exhibits. Defendant called no witnesses. The district court, on the basis of comprehensive findings, again upheld the validity of the proposed use of the revenue-bond proceeds upon the ground that such expenditure was both authorized by c. 458 and constitutionally permissible. Defendant appeals from the judgment entered. Upon the record now before us, the question which we were unable to reach in our prior opinion and which now confronts us is whether the Authority's financing of the construction of a building for American Hoist, from the proceeds of revenue bonds, for the purpose of achieving productive industrial use of the land is an authorized expenditure of public funds--in short, whether all statutory and constitutional requirements of such proposed expenditure have been met.

The evidence submitted on remand is uncontroverted. This includes significant opinion testimony supporting plaintiffs' claim that completing reclamation of the marginal lands by putting them to productive use can be accomplished only by public financing of improvements upon the land. Defendant's dispute concerns the conclusion drawn from the testimony. As we understand, defendant contends solely that it is not necessary for the Authority to finance the construction of an industrial building to achieve productive use of the land and that to do so results in an expenditure of public funds to serve primarily a private rather than a public purpose.

The testimony reveals that pursuant to legislative authority granted by c. 458, the Port Authority, from the proceeds of general obligation bonds issued with consent of the city, acquired by eminent domain a large area of 'marginal land.' The area acquired is located in St. Paul's 'West Side,' adjacent to the Mississippi River. Part of it (approximately 270 acres) is now designated as Area I of Reverview Industrial Park. The specific purpose of acquisition was to reclaim lands unquestionably 'marginal' ² within statutory definitions. The lands were cleared and replatted, and streets and utilities were reconstructed to take advantage of their location and suitability for light, nonoffensive industrial use. It is clearly established that prior to this acquisition private enterprise attempted, but was unable alone, to accomplish this reclamation and redevelopment. As disclosed by the testimony, the dominant purpose of acquisition was neither reasonably necessary to the successful operation of the port nor to induce industrial development to alleviate unemployment or economic distress. The dominant purpose was, and remains, the reclamation and redevelopment of 'marginal lands,' one of three purposes for which a Minnesota Port Authority was expressly empowered to create and develop industrial districts. ³

Riverview Industrial Park, containing the tract proposed to be leased to American Hoist, is now prepared and ready for industrial use. Cost of acquisition, which includes damages paid prior owners, demolition, site improvement, and flood control, averages $1.50 per square foot. Its present market value, according to opinion testimony based upon comparable industrial property in the Twin City area, is between 40 and 60 cents per square foot. Although the Authority would prefer to sell the land to private interests, such sales cannot be accomplished with private financing at prices which will restore acquisition costs. No purchaser has been found willing to buy any part of the property at $1.50 per square foot. Opinion testimony also establishes that, because of lending restrictions imposed by governing agencies, no commercial mortgage lender would be willing or able to provide adequate financing to purchase the property at its acquisition cost. ⁴ Only 5 parcels of Riverview Industrial Park have been sold, 2 at 80 cents, 1 at 85 cents, and 2 small parcels at 90 cents and $1.05 per square foot. This disparity between the cost of acquiring and preparing the property for productive use and its market value is not unusual in the reclamation and redevelopment of blighted areas. Statutes relating to metropolitan housing and redevelopment authorities specifically recognize this and provide that the property may be sold at its reasonable market value. ⁵ As a matter of policy and based upon an administrative construction of § 458.197, the Authority has determined that redevelopment costs must be recaptured from the sale or lease of these marginal lands. Sales of those parcels which have been sold for less are justified on the theory that the price of every sale need not equal the average cost, provided the total cost be recouped when redevelopment is completed.

Acquisition costs approximate $12 million. If all available lands were sold at present market value, approximately $8 million of the proceeds of the general obligation bonds would not be recovered and the taxpayers of the city would bear this loss. The proposal to finance construction of the building is designed to recoup the full cost of reclamation and redevelopment of the land to be leased to American Hoist. Because of the 30-year term of the proposed lease, the lower interest rates on revenuebond financing, and the nonprofit, tax-exempt character of the Authority, recoupment of both acquisition and construction costs can be realized. Opinion testimony indicates that a business enterprise can lease the improved property at a substantially lower monthly cost than it would pay if it acquired property elsewhere at a lower price and financed it on a commercial basis. For some...