State ex rel. Kane v. Goldschmidt
| Decision Date | 11 January 1990 |
| Docket Number | No. SC,SC |
| Citation | 308 Or. 573,783 P.2d 988 |
| Parties | STATE ex rel. Henry KANE, Plaintiff-Relator, v. Neil GOLDSCHMIDT, Governor, State of Oregon; Tony Meeker, State Treasurer, State of Oregon; Dan Simmons, Director, Oregon Department of General Services, an agency of the State of Oregon, and Oregon Department of General Services, Defendants. S36443. |
| Court | Oregon Supreme Court |
Henry Kane, Beaverton, argued the cause and submitted the briefs pro se.
Michael D. Reynolds, Asst. Sol. Gen., Salem, argued the cause for defendants. With him on the briefs were Dave Frohnmayer, Atty. Gen., Virginia L. Linder, Sol. Gen., Robert W. Muir, William F. Nessly, Jr., and Linda Rodgers, Asst. Attys. Gen., Salem. PETERSON, Chief Justice.
This is an original proceeding in mandamus filed after the Legislative Assembly enacted Oregon Laws 1989, chapter 1032 (chapter 1032). The plaintiff seeks (1) to have the law declared unconstitutional and (2) to halt proposed government action thereunder. The plaintiff seeks a peremptory writ of mandamus directing the defendants to "halt actions and expenditures to implement" chapter 1032 and "not to execute" any contracts thereunder, and to "stop implementation of ORS 276.009, 276.429 and 276.218 to the extent that any proposed contract or agreement calls for the state * * * to make payments after expiration of the biennium in which the debt was incurred."
Many states, including Oregon, have constitutions and statutes that prohibit incurring debt. The Oregon constitutional provision at issue here, Article XI, section 7 (), prohibits the legislature from creating debt exceeding, in the aggregate, $50,000. Such constitutional limitations have led many state and local governments to create a variety of financing arrangements in an attempt to avoid the constitutional restrictions.
This case involves the constitutionality of a 1989 law that contains provisions for purchase contracts that include a nonappropriation clause. Our decision is:
1. The plaintiff has standing to bring this mandamus action.
2. Chapter 1032, as we interpret it in this opinion, does not violate Article XI, section 7.
3. Financing agreements made under chapter 1032 are constitutionally permissible, but security interests granted to the lender or trustee are subject to the limitation that, upon nonpayment, the trustee or lender can recover secured property only to the extent of the unpaid balance at the time of nonpayment.
We dismiss the alternative writ of mandamus.
Chapter 1032 authorizes the Director of the Department of General Services, upon the approval of the State Treasurer and the Executive Department, to enter into certain financing agreements. A financing agreement is defined in Section 1(4) as a "lease purchase agreement, an installment sale agreement, a loan agreement, or any other agreement to finance real or personal property which is or will be owned and operated by the state or any of its agencies, or to refinance previously executed financing agreements." These financing agreements may take the form of certificates of participation or other long-term financing. Section 3(1).
The statute requires that payments under the financing agreements be made solely from "available funds," defined as "funds appropriated or otherwise made available by the Legislative Assembly to pay amounts due under a financing agreement for the fiscal period in which the payments are due." (Section 2(1) and Section 1(1).) Section 2(1) provides that These include: (1) repossession of personal property in which the lender or trustee has a security interest by reason of the acquisition, improvement, or refinancing of property with the proceeds of a financing statement; (2) receiving monies that may be in the hands of a private trustee; 1 and (3) evict the state from the possession of real property for the term of a real property lease if the state fails to pay when due the amount scheduled to be paid under a financing agreement or otherwise defaults under a financing agreement (Section 3(5).) 2
Another law, Oregon Laws 1989, chapter 731, authorizes the making of financing agreements or certificates of participation under chapter 1032 totalling $172,000,000.
Article XI, section 7, of the Oregon Constitution provides in part:
"The Legislative Assembly shall not lend the credit of the state nor in any manner create any debt or liabilities which shall singly or in the aggregate with previous debts or liabilities exceed the sum of fifty thousand dollars * * *."
The plaintiff contends that chapter 1032 authorizes the creation of "debt" within the meaning of and in violation of Article XI, section 7, of the Oregon Constitution. He argues that the state does not currently hold unappropriated or surplus funds sufficient to pay the financing agreements and certificates of participation. Accordingly the plaintiff contends that the proposed actions pursuant to chapter 1032 violate the constitutional debt limit, because they place the general fund, and thus the taxpayer, at risk. He asserts that the provisions of the statute obligating the state to make payments only from the available funds appropriated by the legislature are a subterfuge and that the statute and implementing agreements create, in substance if not in name, "indebtedness" without first obtaining required voter approval.
The plaintiff also contends that the statute unconstitutionally "lends the credit of the state" in violation of Article XI, section 7. He argues that the state's promise to repay the loans from "available funds" in essence is a promise that the legislature will appropriate the necessary funds each biennium. This he claims is a constitutionally impermissible pledge of the state's credit.
The defendants respond that the financing arrangements authorized by the statute do not create "debts" prohibited by the constitution because the state is not legally obligated to repay the loans beyond the amount of the current appropriations, and because future legislatures are not obligated to appropriate or otherwise make available funds for payment. The defendants assert that the state's obligation to make payments arises only in the event and to the extent of future appropriations, and that there is no recourse against the state treasury for nonpayment because any financial agreement entered into by the General Services Director is not backed by the credit of the state.
The issues to be addressed include (1) whether chapter 1032 and the implementing agreements authorize or create a "debt or liability" within the meaning of Article XI, section 7, of the Oregon Constitution and (2) whether the state's promise to make debt service payments only from available funds appropriated by the legislature impermissibly lends the state's credit. 3
We must first consider whether the plaintiff has standing to initiate this proceeding.
The plaintiff is an Oregon citizen and taxpayer. He alleges that chapter 1032 "authorizes the Legislative Assembly, through the Oregon Department of General Services, to borrow unlimited amounts of money through third party lenders on the credit of the State of Oregon, with provisions for payment of principal and interest from the state's General Fund revenues commencing with the 1991-93 biennium." The plaintiff also alleges that "[t]he Legislative Assembly has appropriated funds only to repay principal and pay interest on said debt for the 1989-91 biennium," and that chapter 1032 "authorizes debt to be paid over a period of as long as 30 years in reliance on future sessions of the Legislative Assembly appropriating sufficient funds each biennium * * * to comply with the agreements made pursuant to [chapter 1032] and to avoid default and loss of the taxpayers' investments under the scheme." Moreover, "[c]ommencing with the 1991-93 biennium the Legislative Assembly will increase [plaintiff's] state taxes to repay the borrowed money and to pay the interest on the borrowed money, to be borrowed under the challenged statutory scheme." The plaintiff maintains that chapter 1032 authorizes government action in violation of the debt limitations imposed by Article XI, section 7, of the Oregon Constitution and that implementation of chapter 1032 will have a detrimental impact on his future tax obligations by forcing future legislatures to levy higher taxes or to divert state revenue in order to satisfy the state's loan obligations.
ORS 34.130 confers standing to bring a mandamus action on persons who are "beneficially interested." Standing exists if the plaintiff alleges facts that, if proved, show that his "tax burden will be augmented by the expenditure of public funds." Hanson v. Mosser, 247 Or. 1, 11, 427 P.2d 97 (1967) (overruled on other grounds, Smith v. Cooper, 256 Or. 485, 475 P.2d 78 (1970)). In Lipscomb v. State Bd. of Higher Ed., 305 Or. 472, 476, 753 P.2d 939 (1988), we said that "the adequacy of the present complaint rests on plaintiffs' allegation that * * * the challenged [state expenditures] had cost Oregon taxpayers 'in excess of the sum of $85,000 to date, exclusive of interest, * * * and said [state expenditures] are continuing.' " The defendants in Lipscomb, as here, expressly did not challenge plaintiffs' standing, but they stated that standing would have to "be judged by the fiscal impact on [the plaintiffs] alleged" in the complaint. 305 Or. at 475, 753 P.2d 939. I...
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