State Capitol Com'n v. State Bd. of Finance

• Decision Date: 07 June 1913
• Citation: 74 Wash. 15,132 P. 861
• Parties: STATE CAPITOL COMMISSION v. STATE BOARD OF FINANCE et al.
• Court: Washington Supreme Court

132 P. 861

74 Wash. 15

STATE CAPITOL COMMISSION v. STATE BOARD OF FINANCE et al.

Supreme Court of Washington, En Banc.

June 7, 1913

Original application by the State Capitol Commission for mandamus against the State Board of Finance and others. Mandamus denied.

Frank C. Owings, of Olympia, for petitioner.

W. V Tanner and R. E. Campbell, both of Olympia, for respondents.

PARKER J.

This is an original application in this court wherein the State Capitol Commission seeks a writ of mandate requiring the State Board of Finance to comply with its contract entered into with the State Capitol Commission for the purchase, with funds of the permanent school fund of the state, bonds of the face value of $500,000 to be issued against the capitol building fund, in pursuance of chapter 59, p. 319, Laws 1911, as amended by chapter 50, p. 31, Laws 1913. The State Board of Finance resists the petition of the Capitol Commission by demurrer and motion to quash upon the ground that the petition does not state facts constituting legal ground for the relief prayed for.

The controlling facts alleged in the petition may be briefly stated as follows: On April 29, 1913, the State Capitol Commission adopted a resolution providing for the immediate execution and sale of negotiable bonds against the capitol building fund in the total sum of $4,000,000, payable in 20 years, with interest not exceeding 5 per cent. per annum, and with right reserved in the state to pay or refund the same at the end of any five-year period during the 20 years, and also providing that its secretary advertise for and obtain bids for the purchase of such bonds and for portions thereof less than the whole. Thereafter the State Board of Finance adopted a resolution that there should be invested in the proposed issue of capitol building fund bonds $500,000 of the permanent school fund of the state. This resolution was in substance and effect an offer of the State Board of Finance to purchase that amount of the bonds at par, to bear interest at 4 per cent. per annum. Thereafter the State Capitol Commission adopted a resolution accepting the offer of the State Board of Finance. Thereafter the State Board of Finance rescinded its resolution offering to purchase the bonds and declined to complete the purchase thereof upon the sole ground that it had been advised by the Attorney General that such issuance of the bonds would be in violation of the limitation imposed upon the legal indebtedness of the state by article 8 of the state Constitution. Prior to the adoption of the resolution of April 29, 1913, by the State Capitol Commission providing for the issuance of the bonds, that Commission had caused the capitol lands, from the sale of which the capitol building fund is to be derived, to be appraised and the total value of those lands to be determined as provided by chapter 59, Laws 1911, which total value so determined is $5,265,519.47.

The State Board or Finance is authorized by section 5056, Rem. &amp Bal. Code, to invest the permanent school fund of the state in national, state, county, municipal, or school district bonds bearing interest at a rate of not less than 3 3/4 per cent. per annum. Section 5 of article 16 of the state Constitution, as amended in November, 1894, provides 'None of the permanent school fund of this state shall ever be loaned to private persons or corporations, but it may be invested in national, state, county, municipal, or school district bonds.' This constitutional provision has been held by this court to prohibit the investment of the permanent school fund in any securities other than those enumerated therein, to wit, 'national, state, county municipal, or school district bonds.' State ex rel. Hellar v. Young, 21 Wash. 391, 58 P. 220; State ex rel. Port Townsend v. Clausen, 40 Wash. 95, 82 P. 187. In the last-cited case there was involved the question of the investment of the permanent school fund in certain bonds to be issued by the city of Port Townsend, payable only out of a special fund to be derived from the revenues of the city waterworks system. The city did not pledge its credit for such payment. In holding that these bonds were not such bonds as the permanent school fund could be lawfully invested in, the court said (40 Wash. at page 108, 82 P. at page 192): 'That municipality neither could nor did pledge its credit for their payment, and, as we have shown, without such pledge they cannot be 'municipal bonds,' within the meaning of that term as used in the Constitution.' It appears from the language of the opinion that the city could not pledge its general credit to the payment of those bonds because the amount thereof would exceed its constitutional debt limit. This facts accounts for the language of the court in so far as it has reference to the power of the city to pledge its general credit for the payment of the bonds. Upon the principle of the holding of the court in the Port Townsend Case, it would seem plain that the bonds here involved will not be legally issued general state bonds unless the credit of the state is lawfully pledged to their payment.

By chapter 59, Laws 1911, as amended by chapter 50, Laws 1913, the Legislature authorized the State Capitol Commission to proceed with the construction of permanent capitol buildings and to obtain funds therefor by the issuance and sale of bonds against the capitol building fund to be derived from the sale of the capitol lands.

Section 2 of that act as amended, among other things, provides: 'The said Captiol Commission may proceed at once to issue negotiable annual interest bearing bonds in an amount not exceeding four million dollars against the capitol building fund and to sell the same. * * * Such bonds shall bear a rate of interest not to exceed five per cent. per annum. * * * The proceeds of the bonds herein authorized to be issued shall be used: 1st, in the payment of all outstanding warrants and interest thereon against the capitol building fund; 2d, in repaying to the general fund the advancements made therefrom to the capitol building fund; 3d, for the carrying out of the other purposes mentioned in section one of this act. * * * The state of Washington hereby guarantees the payment of the principal and the interest on all bonds issued under the provisions of this act.'

Section 5 of that act, among other things, provides: 'Sec. 5. Whenever the Capitol Commission shall offer any bonds for sale, and there shall be in the permanent school fund, or other permanent or investment fund, sufficient uninvested funds to cover the purchase of such issue of bonds or any part thereof, the board, officer or officers, authorized to invest any such fund may invest the same in any of said bonds: Provided, however, * * *: And provided further, that any and all bonds purchased by any of the permanent funds as in this section provided, shall, for the purposes of such investment, be deemed in all respects state general bonds and shall be guaranteed both principal and interest by the general fund of the state.'

It thus becomes plainly manifest that the Legislature sought to pledge the credit of the state to the payment of these bonds to the end that the permanent school fund could be lawfully invested therein, evidently having in mind the limitations upon such investment prescribed by section 16, art. 5, of the state Constitution, above quoted, and the decisions of this court construing the same, which we have noticed.

The problem now confronting us is, Will these bonds, when issued, be such securities as the permanent school fund of the state may be lawfully invested in? This problem must, of course, find its solution in the correct answer to the question, Will these bonds, when issued and acquired by the permanent school fund as an investment, be legally ' in all respects state general bonds,' as declared by the language of section 5 above quoted? If they cannot be lawfully issued as such (that is, if the general credit of the state cannot be lawfully pledged for their payment), it must follow that they will not be such securities as the permanent school fund may be lawfully invested in. The debt-creating power of the state has its limitations as defined by article 8 of the state Constitution, reading as follows:

'Section 1. The state may, to meet casual deficits or failure in revenues or for expenses not provided for, contract debts, but such debts, direct and contingent, singly or in the aggregate, shall not at any time exceed four hundred thousand dollars ($400,000), and the moneys arising from the loans creating such debts shall be applied to the purpose for which they were obtained, or to repay the debts so contracted, and to no other purpose whatever.

'Sec. 2. In addition to the above limited power to contract debts, the state may contract debts to repel invasion, suppress insurrection, or to defend the state in war, but the money arising from the contracting of such debts shall be applied to the purpose for which it was raised, and to no other purpose whatever.

'Sec. 3. Except the debt specified in sections one and two of this article, no debts shall hereafter be contracted by or on behalf of this state, unless such debt shall be authorized by law for some single work or object to be distinctly specified therein, which law shall provide ways and means, exclusive of loans, for the payment of the interest on such debt as it falls due, and also to pay and discharge the principal of such debt within twenty years from the time of the contracting thereof. No such law shall take effect, until it shall, at a general election, have been submitted to the people and have received a majority of all the votes cast for and against it at such election, and all moneys raised by authority of

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