State ex rel. Beck v. City of York, 34156

• Decision Date: 05 April 1957
• Docket Number: No. 34156,34156
• Citation: 164 Neb. 223,82 N.W.2d 269
• Parties: STATE of Nebraska, ex rel. Clarence S. BECK, Attorney General, Plaintiff, v. CITY OF YORK, Lloyd O. Livingston, et al., Defendants.
• Court: Nebraska Supreme Court

Page 269

82 N.W.2d 269

164 Neb. 223

STATE of Nebraska, ex rel. Clarence S. BECK, Attorney General, Plaintiff, v. CITY OF YORK, Lloyd O. Livingston, et al., Defendants.

No. 34156.

Supreme Court of Nebraska.

April 5, 1957.

Syllabus by the Court.

1. The prohibition contained in Article XIII, section 3, Constitution of Nebraska, relating to the giving or loaning of credit in aid of any individual, association, or corporation, applies to the State and all political subdivisions thereof.

2. Municipal revenue bonds are obligations of a city even though they are not general obligations and not subject to payment through the exercise of the taxing power.

3. Money derived from the sale of municipal revenue bonds is public money.

4. Public money may not be expended for a private purpose whatever its source may be.

5. The purchase of land by a municipality and the erection of an industrial plant thereon for lease to a private corporation for private gain and profit, by issuing revenue bonds to be paid solely from rentals, is not for a public purpose.

6. The building and leasing of industrial plants, and their leasing to private concerns for use for private profit or gain, financed by municipal revenue bonds payable solely from rentals, as authorized by sections 18-1601 to 18-1613, R.R.S.1943, violates Article XIII, section 3, of the Constitution, prohibiting giving or loaning credit in aid of an individual, association, or corporation.

C. S. Beck, Atty. Gen., Clarence A. H. Meyer, Deputy Atty. Gen., for plaintiff.

Cline, Williams, Wright & Johnson, Wallace W. Angle, York, for defendants.

Heard before SIMMONS, C. J., and CARTER, MESSMORE, YEAGER, CHAPPELL, WENKE and BOSLAUGH, JJ.

CARTER, Justice.

This is an original action brought by the State of Nebraska on the relation of the Attorney General, at the direction of the Governor pursuant to section 84-205(9), R.R.S.1943, to enjoin the defendants from proceeding under sections 18-1601 to section 18-1613, R.R.S.1943, because of its constitutional invalidity. The defendants filed a general demurrer to the petition. The sole question before the court is whether or not the petition states a cause of action.

The defendants are the city of York and its mayor and city councilmen. The petition alleges that the city, acting through the members of the city council, entered into an agreement with the York Cold Storage Company and the York Packing Company, that upon the completion of certain industrial buildings to be constructed by the York Cold Storage Company, the city would purchase the same by issuing revenue bonds pursuant to the authority contained in section 18-1601 to section 18-1613, R.R.S.1943, hereinafter called the Act. The petition also alleges that upon the purchase of the industrial buildings, the city proposes to lease them to the York Packing Company as a packing plant for the slaughtering of hogs.

Plaintiff asserts that the Act is violative of Article XIII, section 3, of the Constitution of this State, which provides: 'The credit of the state shall never be given or loaned in aid of any individual, association, or corporation.'

It is here contended that the prohibition contained in the foregoing constitutional provision applies only to the State as an entity and has no application to political subdivisions thereof. We do not concur in this view. Political subdivisions of the State exist at the will of the State exercised through the Legislature. For us to say that the State may not loan its credit to an individual, association, or corporation, but that it might create a political subdivision and authorize it to do that which the State itself is prohibited from doing would be, to say the least, a very anomalous situation. It would permit the State to do by indirection the very thing it could not directly do, a theory which has been consistently condemned by this court. Steinacher v. Swanson, 131 Neb. 439, 268 N.W. 317; Peterson v. Hancock, 155 Neb. 801, 54 N.W.2d 85. It is clear that the framers of our Constitution had in mind a prohibition against giving or loaning the credit of the State or any subdivision thereof for a purely private purpose. This supports the fundamental principle that public moneys may not be used for private purposes. To impose such a prohibition as a matter of constitutional policy on the State, only to have its beneficent purpose thwarted by a refinement of definition not contemplated by its framers, would be to avoid the very purpose for which it was intended. It is not the function of courts to thus rewrite constitutional provisions to avoid their plain effect. It is the plain intention of this provision that state government, including political subdivisions thereof, shall not extend credit in aid of private persons and private enterprises. It is a prohibition, also, to protect the State and its political subdivisions against reckless financial involvement in private enterprises supposed to serve the public good but which are in fact dominated by private interest. We conclude that the prohibition contained in Article XIII, section 3, Constitution of Nebraska, applies to the State and all political subdivisions thereof.

It is contended, also, that the provision has no application in the present case for the reason that the credit of the city was not given or loaned. It is argued that the revenue bonds were not general obligations of the city and that they would not become a charge against its general credit or taxing powers. It cannot be questioned that the revenue bonds are payable solely out of revenues derived from the leasing of the project to be financed by the bonds so issued. This court has so limited the liability of a city on this type of bond. Kirby v. Omaha Bridge Commission, 127 Neb. 382, 255 N.W. 776. Is the issuence of revenue bonds in the manner prescribed by the Act an extension of the credit of the city?

It is true that the revenue bonds are not a general liability of the city and they are not subject to payment through the exercise of the taxing power. But they do cast burdens upon the city with reference to their issuance and payment. The city and its officers are charged with the duty of fixing and collecting the rentals from which the revenue bonds are to be paid. This necessitates the execution of leases, the fixing of rentals, the taking of chattel mortgages on equipment to secure the payment of rent, the providing of insurance coverage, and the determination of payments to be made in lieu of taxes. It imposes duties and responsibilities upon the city and its officers on matters which are private rather than public in character. The issuance of the bonds in the name of the city for the payment of the cost of the project evidences the fact that the credit of the city has been extended. The city is the payer of the bonds and it is primarily liable for their payment. The bonds become the obligations of the city. The fact that the means of payment is limited does not make it any less so. A failure of payment is a default by the city. The constitutional prohibition does not infer that the credit of the State or its political subdivisions may be given or loaned except when a general liability exists. The prohibition clearly provides that the credit of the State may not be given or loaned to an individual, association, or corporation under any circumstances. When the State or a political subdivision thereof becomes a payer of a revenue bond or any other evidence of indebtedness which is to be used in the accomplishment of a private as distinguished from a public purpose, the credit of the State has been given or loaned contrary to Article XIII, section 3, of the Constitution. If evidences of indebtedness by interested private...