State ex rel. Shkurti v. Withrow

• Decision Date: 21 September 1987
• Docket Number: No. 87-1314,87-1314
• Citation: 513 N.E.2d 1332,32 Ohio St.3d 424
• Parties: The STATE, ex rel. SHKURTI, Director, Office of Budget and Management, v. WITHROW, Treasurer.
• Court: Ohio Supreme Court

Page 424

32 Ohio St.3d 424

513 N.E.2d 1332

The STATE, ex rel. SHKURTI, Director, Office of Budget and Management, v. WITHROW, Treasurer.

No. 87-1314.

Supreme Court of Ohio.

Sept. 21, 1987.

Under the Federal Unemployment Tax Act, Section 3301 et seq., Title 26, U.S.Code, the federal government levies an excise tax on the payroll of employers for unemployment compensation. However, employers who pay into an approved state program are granted credits of up to ninety percent of the federal tax. Ohio operates such an approved program under R.C. Chapter 4141, in support of which Ohio employers pay "contributions."

Federal law, Section 1321 et seq., Title 42, U.S.Code, also provides for advances of federal funds to state programs. Generally, these advances are repayable with interest. Section 1322(b), Title 42, U.S.Code. When advances are not repaid within a certain time, the credits available under the federal tax are reduced and, accordingly, the employers in a state with outstanding advances pay a higher effective federal tax rate. Section 3302(c)(2), Title 26, U.S.Code.

Ohio has had outstanding advances since 1980. Because of these outstanding advances, the effective federal tax rate on Ohio employers had increased each year, beginning in 1982, due to reduction in the state credits to offset the tax. Moreover, the state has paid interest on the advances, from the General Fund each year, beginning in 1982.

As part of Am.Sub.H.B. No. 171, effective July 1, 1987, the General Assembly enacted R.C. 4141.251 and 4141.48. R.C. 4141.48 directs the Treasurer of the state of Ohio to issue bonds on and after October 1, 1987, to repay outstanding advances made by the federal government to the Ohio unemployment compensation program, to pay interest on advances, and to reimburse the General Fund for interest paid since July 1, 1987. The bonds are to be issued upon the determination of the Director of Budget and Management that they would be "cost-effective." (R.C. 4141.48[B].) The bonds are not to constitute a pledge of the faith and credit of the state, and the statute declares that bondholders would have no right to have money raised by taxation obligated or pledged to support them, only a right to have bond service charges paid from a "surcharge," enacted under R.C. 4141.251, on employer "contributions," R.C. 4141.48(C). Section 126 of Am.Sub.H.B. No. 171 provides that if no bonds are issued by November 9, 1987, or the issuance of the bonds has been declared unconstitutional or otherwise prohibited by a court, then a surcharge shall be levied on employer contributions for payment of outstanding and future interest.

Relator, the Director of Budget

and Management, has made a determination that the issuance of such bonds in the principal amount of $315,400,000 would be cost-effective, but respondent, the Treasurer of the state of Ohio, has refused to issue the bonds, citing provisions of Article VIII of the Ohio Constitution and prior decisions of this court prohibiting the incurrence of indebtedness.

Relator, thus, brings this action in mandamus to compel the issuance of the bonds under R.C. 4141.48.

Bricker & Eckler, Gerald L. Draper and Diane M. Signoracci, Columbus, for relator.

Anthony J. Celebrezze, Jr., Atty. Gen., Kathleen McManus and Cherry Lynne Poteet, Columbus, for respondent.

Porter, Wright, Morris & Arthur, Ronald W. Gabriel and Kathleen Seward Northern, Columbus, urging support of the respondent's position for amicus curiae, Ohio Chamber of Commerce.

PER CURIAM.

Sections 1, 2, and 3 of Article VIII of the Ohio Constitution provide:

"The state may contract debts to supply casual deficits or failures in revenues, or to meet expenses not otherwise provided for; but the aggregate amount of such debts, direct and contingent, whether contracted by virtue of one or more acts of the general assembly, or at different periods of time, shall never exceed seven hundred and fifty thousand dollars; and the money, arising from the creation of such debts, shall be applied to the purpose for which it was obtained, or to repay the debts so contracted, and to no other purpose whatever." (Section 1.)

"In addition to the above limited power, the state may contract debts to repel invasion, suppress insurrection, defend the state in war, or to redeem the present outstanding indebtedness of the state; but the money, arising from the contracting of such debts, shall be applied to the purpose for which it was raised, or to repay such debts, and to no other purpose whatever; and all debts, incurred to redeem the present outstanding indebtedness of the state, shall be so contracted as to be payable by the sinking fund, hereinafter provided for, as the same shall accumulate." (Section 2.)

"Except the debts above specified in sections one and two of this article, no debt whatever shall hereafter be created by or on behalf of the state." (Section 3.)

It then follows that if the proposed bond issuance creates a debt of the state exceeding $750,000, it is prohibited by Sections 1 and 3 of Article VIII unless it is an exception to the prohibitions of these sections.

Relator argues that the proposed bond issuance is authorized under the express exception stated in Section 2 of Article VIII for "the present outstanding indebtedness of the state," or alternatively, the "special fund" exception created by prior decision of this court. ¹ We reject both of these contentions and find that the proposed bond issuance would violate Sections 1 and 3 of Article VIII of the Ohio Constitution. Accordingly, we decline to issue the writ.

Taking first the express exception of Section 2 of Article VIII, we find, as respondent argues, that this exception to the debt prohibitions of Sections 1 and 3 was intended to apply only to the outstanding debt in 1851, at the framing of the Constitution. First, the precise modification of "outstanding indebtedness" by the definite article "the," and the adjective "present," virtually compels this conclusion. Second, examination of the relevant constitutional debates ² convinces us that the then outstanding debt concerned the framers. They debated the wisdom of the sinking fund procedure for the retirement of that debt, the equity and practicality of relatively early retirement of the debt versus more extended retirement periods and, consequently, the amount that should be committed annually to the sinking fund to retire the principal and interest on the debt. The debates do not indicate any broader purpose for this exception.

Relator argues that constitutions should not be given lifeless or static interpretations, citing our decision in State, ex rel. Columbus, v. Ketterer (1934), 127 Ohio St. 483, 189 N.E. 252. However, that decision also states that:

" * * * They [constitutions] should be given a flexible interpretation such as will meet new conditions and circumstances as they arise, and which necessity may demand without doing violence to plain language employed or transgressing the clear bounds of reason * * *." (Emphasis added.) Id. at 494, 189 N.E. at 256.

The interpretation of Section 2 of Article VIII urged by relator would both do violence to plain language and transgress the bounds of reason. Moreover, the principle of constitutional construction stated in Ketterer does not supplant that stated in paragraph one of the syllabus of Castleberry v. Evatt (1946), 147 Ohio St. 30, 33 O.O. 197, 67 N.E.2d 861:

"In the interpretation of an amendment to the Constitution the object of the people in adopting it should be given effect; the polestar in the construction of constitutional, as well as legislative, provisions is the intention of the makers and adopters thereof." See, also, State, ex rel. Swetland, v. Kinney (1982), 69 Ohio St.2d 567, 570, 23 O.O.3d 479, 481, 433 N.E.2d 217, 220.

So finding, we find it unnecessary to discuss alternative theories argued by the parties on this issue.

Relator also argues that the proposed bond issuance is authorized by the judicially created "special fund" exception to the debt prohibition of Article VIII. Although not the earliest case, this exception was best stated in the first paragraph of the syllabus in State, ex rel. Pub. Institutional Bldg. Auth., v. Griffith (1939), 135 Ohio St. 604, 14 O.O. 533, 22 N.E.2d 200:

"The debt limitation prescribed by Sections 1 and 3 of Article VIII of the Ohio Constitution does not apply to an indebtedness incurred in the procurement of property or erection of buildings or structures for the use of the state, to be paid for wholly out of revenues or income arising from the use or operation of the particular property for the procurement or construction of which the indebtedness is incurred. (Kasch v. Miller, Supt. of Public Works, 104 Ohio St., 281, 135 N.E. 813, approved and followed.)"

We first note that in Griffith and Kasch and the subsequent cases approving the special fund exception, ³ the bonds to be issued were to finance construction of a tangible, income-producing property whose income was then pledged to retire the bonds. In the instant case, no such property is constructed or acquired. Rather, an outstanding liability is refunded. Since no property is constructed or acquired, there is no income from the property to pay debt service. Instead, a "surcharge" on current employer contributions is created (R.C. 4141.251) and pledged (R.C. 4141.48[C] and [Q] ) to retire the bonds. While this proposed transaction parallels the special fund exception previously sanctioned by this court, it does not fall within the limits of that exception; rather, it is a significant extension of that exception.

Relator cites cases in other jurisdictions that have approved similar extensions of the special fund exception. We decline to follow them on the basis of our previous decisions in State, ex rel. Pub. Institutional Bldg. Auth., v. Griffith, supra, and State, ex rel. Pub. Institutional Bldg. Auth., v. Neffner (1940), ...