State ex rel. Brown v. City of Warr Acres
| Decision Date | 29 March 1990 |
| Citation | 946 P.2d 1140,1997 OK 117 |
| Parties | The STATE of Oklahoma ex rel. William Daniel BROWN; Alvin P. Spears; Lucille N. Spears; Vince P. Sharpe; Donna K. Sharpe; Joseph A. Barter; Debra S. Barter; Patrick H. Woolley; Joan D. Woolley; and John R. Barter, Appellants, v. The CITY OF WARR ACRES, an Oklahoma municipal corporation; Jessie Simmons; Dan Maxey; John Webster; John Baker; Gary Stevens; Gene Hodges; Leonard Johnson; Richard Phillips; Kevin Kent; Jesus Morales; Paul Hartmann; Fletcher Williams; Roy Brooks; Tommy Horsley; Gene Warr and John R. Repass, Trustees of the Security Trust Revocable Trust dated |
| Court | Oklahoma Supreme Court |
William F. Comstock, James R. Moore, Horning Johnson Grove Moore Hulett & Thompson; James M. Levine, Oklahoma City, for appellants.
Michael W. Brewer, Donya H. Dunn, Hiltgen & Brewer, P.C., Oklahoma City, for Wal-Mart Stores, Inc., appellee.
Margaret McMorrow-Love, Oklahoma City, for Jessie Simmons, John Webster, Dan Maxey, Gary Stevens, Gene Hodges, Leonard Johnson, Richard Phillips, Kevin Kent Jesus Morales, Paul Hartmann, Fletcher Williams, Tommy Horsley and City of Warr Acres, appellees.
Joe Rolston, III, Clay P. Booth, Woodard & Rolston, Oklahoma City, for Community Bank & Trust Co., appellee.
A.P. Murrah, Jr., Melvin R, McVay, Jr., Thomas G. Wolfe, Phillips McFall McCaffrey McVay & Murrah, Oklahoma City, for Gene Warr & John Repass, Trustees of the Security Trust Revocable Trust Dated March 29, 1990, appellees.
¶1 This qui tam 1 action requires this Court to revisit "public purpose" in the context of sections 14, 17, and 26 of article X of the Oklahoma Constitution. This Court holds that the expenditure of public funds challenged in this action meets the public purpose requirement of sections 14 and 17. In addition, the expenditure did not violate section 26 of article X.
¶2 The City of Warr Acres (City) is a relatively small community surrounded by Oklahoma City. Wal-Mart Stores, Inc. (Wal-Mart) wished to relocate and expand an 80,000 square feet store located at Northwest Highway and Rockwell in Oklahoma City. In 1990, Wal-Mart approached Security Trust Revocable Trust (Security Trust) 2 which owned a tract of land located in Warr Acres about one mile from Wal-Mart's existing Northwest Highway store. The tract was large enough to accommodate the 125,000 square feet store it wished to build.
¶3 Security Trust was unwilling to sell the property to Wal-Mart. Nor would it enter a long-term lease of the property for the amount Wal-Mart was offering to pay. City officials met with Wal-Mart and Security Trust to structure a plan by which the City would induce Security Trust to enter a long-term ground lease with Wal-Mart. The inducement was to be a United States Treasury Strip Security, a zero coupon bond, which the City purchased on April 12, 1991, in the face amount of $499,858.03, along with the interest the investment was to earn over a fifty-year period. On January 9, 1992, the Warr Acres City Council adopted Resolution 214 authorizing the Mayor and other appropriate officials to approve and execute an "economic development" contract with Security Trust. This authorization followed a feasibility report which projected sales tax revenues to be approximately $400,000.00 per year from the Wal-Mart store. It also followed a legal opinion which assured the City Council that the plan was a constitutionally permissible form of economic development.
¶4 Three agreements implemented the plan: an Economic Development Contract between the City of Warr Acres and Security Trust; an Escrow Agreement among the City, Security Trust, and Community Bank and Trust Co.; and a Ground Lease Agreement between Security Trust and Wal-Mart. Wal-Mart leased the land for a primary term of twenty years. During the primary term, Wal-Mart will receive no inducement from the City and it will pay Security Trust $23,500.00 monthly ($285,000.00 annually) to lease the land. Beginning in the year 2012, Wal-Mart or a successor entity acceptable to the City may extend the lease through six, five-year options. Security Trust will receive no inducement from the City throughout the primary term.
¶5 The investment and its accumulated interest will remain in escrow and grow to a value of $2,557,000.00 by 2011. Then, if Wal-Mart or its successor exercises an option to extend the ground lease, the following schedule of payments will go into effect:
Years Annual City Inducement
1"20 $ 0.00
21"25 $112,000.00
26"30 $161,000.00
31"35 $216,125.00
36"40 $278,140.63
41"45 $347,908.20
46"50 $426,396.73
The total of all payments scheduled to be made by the City to Security Trust is $7,707,852.80.
¶6 If the lease is terminated at any point during the fifty-year period, any funds remaining in escrow are to be transferred to the City. The plan is structured in such a way that the City's inducement payments come only from the escrow account.
¶7 Wal-Mart built the new 125,000 square feet store. Sales tax revenues from the store have averaged approximately $650,000.00 per year.
¶8 On July 29, 1994, ten resident taxpayers made demand on the officers of the City, pursuant to title 62, section 373, of the Oklahoma Statutes, to recover the Treasury Strip Security. The taxpayers filed this action on August 3, 1994, against the City, its council members, Community Bank, and Wal-Mart to recover all expenditures made by the City in furtherance of the economic development plan. On May 15, 1995, the taxpayers amended their Petition to include Security Trust and its trustees as defendants.
¶9 Except for Community Bank, all parties filed motions and/or cross motions for summary judgment. Taxpayers asserted two causes of action in their second amended petition. However, only taxpayers' first cause of action was before the District Court in these motions and consequently it is the only claim involved in this appeal.
¶10 Taxpayers' motion argued that all expenditures by the City in furtherance of the Economic Development Contract and the Escrow Agreement violated sections 14, 17, and 26 of article X of the Oklahoma Constitution and were thus illegal. Defendants argued that the City's expenditures were proper. The District Court of Oklahoma County sustained defendants' motions for summary judgment and overruled taxpayers' motion for summary judgment. The order was filed as a final judgment pursuant to section 994 of title 12 of the Oklahoma Statutes. Taxpayers now appeal.
¶11 Both sections 14 and 17 of article X of the Oklahoma Constitution embrace a "public purpose" requirement. Section 14 restricts the use of public funds to expenditures for a public purpose. 3 That provision's correlative limitation, section 17, 4 was "adopted for the purpose of preventing the investment of public funds in private enterprises." Lawrence v. Schellstede, 348 P.2d 1078, 1082 (Okla.1960).
¶12 Economic development was recognized as a legitimate public purpose in Burkhardt v. City of Enid, 771 P.2d at 611. Proponents of the challenged expenditures argue that it is constitutionally permitted and compare it to the economic development plan approved in Burkhardt.
¶13 In Burkhardt, voters approved a plan by which a public trust provided economic development by purchasing a privately owned college campus and leasing it back to the former owners. Upholding the plan under sections 14 and 17 of article X, this Court held that "[e]conomic development is a legitimate public purpose for which public funds may be expended." Id. Further, the plan did not "lose its public purpose merely because it involve[d] a private actor." Id.
¶14 The plan in Burkhardt met the public purpose requirement. The city maintained control jointly with the university over operating capital and scholarship funds. The plan was not a gift or loan to a private enterprise because there was adequate consideration from the private actor in the form of direct economic benefits from the university's presence and the obligations it assumed under the plan. Id.
¶15 The economic development plan approved by the Warr Acres City Council was structured upon the legal guideposts set out in Burkhardt. The City received adequate consideration under the plan by which Warr Acre's best commercial tract was developed by the country's largest retailer. Sales tax collections from the store have greatly exceeded the projected $400,000.00 per year. Additional jobs were provided and the tax base for the public school system was greatly expanded.
¶16 The City also obtained accountability from Security Trust. In the event that Wal-Mart or a successor retail business does not exercise an option to lease the land beyond the primary term, all public money reverts to the City. In addition, Security Trust agreed that "so long as this contract with the CITY is in full force and effect, that it will not take any action nor consent to any amendment to said Ground Lease Agreement that will in any manner materially impair or adversely affect the rights of the CITY...." Security Trust cannot increase the rent regardless of changing economic conditions or changes in the cost or value of money from 1992 through the year 2011.
¶17 The City Council is the legislative body of a city. As such, it is its function to determine what expenditures are designed to promote the public good and welfare of the city and its inhabitants. It has no limitations as to expenditures, "save and except those which are expressly placed on its exercise by the Constitution of the State." Dixon v....
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