State ex rel. West Virginia Resource Recovery-Solid Waste Disposal Authority v. Gill

• Decision Date: 05 December 1984
• Docket Number: No. 16304,RECOVERY--SOLID,16304
• Citation: 174 W.Va. 109,323 S.E.2d 590
• Court: West Virginia Supreme Court
• Parties: STATE ex rel. WEST VIRGINIA RESOURCEWASTE DISPOSAL AUTHORITY, etc. v. Betty E. GILL, as Secretary of the West Virginia Resource Recovery--Solid Waste Disposal Authority, etc.

Page 590

323 S.E.2d 590

174 W.Va. 109

STATE ex rel. WEST VIRGINIA RESOURCE RECOVERY--SOLID WASTE DISPOSAL AUTHORITY, etc. v. Betty E. GILL, as Secretary of the West Virginia Resource Recovery--Solid Waste Disposal Authority, etc.

No. 16304.

Supreme Court of Appeals of West Virginia.

Dec. 5, 1984.

Syllabus by the Court

1. Bonds of a state or political subdivision payable solely out of revenue derived from a utility of a public nature acquired by the money derived from the bonds do not create debts within the constitutional inhibition against the contraction of public debt.

2. State ex rel. Hall v. Taylor, 154 W.Va. 659, 178 S.E.2d 48 (1970), is hereby overruled insofar as it finds any agreement whereby bonds of a state agency are to be discharged from a fund created in whole or in part by legislative appropriations of the general revenue funds of the State to be unconstitutional.

3. The ultimate issue in determining whether bond financing creates a state debt in violation of Article X, Section 4 is not whether the bonds may be paid from future legislative appropriations, but whether successive legislatures are obligated to make such appropriations.

James K. Brown, Lee O. Hill, Sarah G. Sullivan, Jackson, Kelly, Holt & O'Farrell, Charleston, for relator.

S. Clark Woodroe, Asst. Atty. Gen., Charleston, for respondent.

HARSHBARGER, Justice:

The West Virginia Resource Recovery--Solid Waste Disposal Authority asks us to compel its secretary, Betty E. Gill, to execute an agreement for it to sell steam to be generated by a proposed solid waste disposal plant, to the West Virginia Board of Regents. The principal question is whether the agreement unconstitutionally creates an indebtedness or pledges the State's credit.

I.

The authority was created by the legislature as "a governmental instrumentality of the State and a body corporate ...." W.Va.Code, 16-26-4 (1984 Cum.Supp.). Its purpose is

"to provide for the necessary, dependable, effective and efficient collection, disposal and recycling of solid waste and to assist and cooperate with governmental agencies and the private sector in achieving all the purposes of this article, and to encourage the recycling or extraction of recoverable resources from such solid waste." W.Va.Code, 16-26-2 (1979 Replacement Vol.).

It can sue, be sued, acquire or construct solid waste disposal projects, issue revenue bonds to pay for them, charge, alter and collect rentals, fees and charges, and make contracts to further performance of its functions. W.Va.Code, 16-26-6 (1984 Cum.Supp.).

The board of regents is a state agency and public corporation that also can contract and sue and be sued in its own name. W.Va.Code, 18-26-3 (1984 Replacement Vol.). Among its designated duties is operating West Virginia University located at Morgantown, Monongalia County. See generally, W.Va.Code, 18-11-1, et seq.; 18-26-1, et seq. (1984 Cum.Supp.). It can contract and pay for programs, services and facilities of the university. W.Va.Code, 18-26-10a.

While developing a solid waste disposal project to serve Monongalia County, the authority became aware of the university's critical need to renovate or replace its existing central energy plants to comply with federal air pollution control standards, and negotiated with the board for a project that would also provide energy to the university.

Thereafter, the authority and board agreed that a steam generation plant powered by a combination of solid waste and fossil fuels be built, financed solely by revenue bonds sold by the authority. The board would buy steam for the university, and revenues received from those steam sales would retire the bonds and pay plant operation and maintenance costs.

A "steam purchase agreement" was subsequently drafted. It requires that the board provide a site for the plant on university property and furnish a line for transporting steam from a connection point into the school's steam distribution system. The authority is required to build the plant and piping necessary to get steam to the connection point.

The board must purchase all steam generated by the authority's facility for twenty years, but no less than 600,000,000 pounds annually. The purchase price for this "minimum annual purchase requirement" (MAPR) is to be computed annually based on the authority's projected costs of operation during the ensuing fiscal year. This base price is to be paid in twelve equal monthly installments due on the first of each month prospectively. Each payment is to include one twelfth of the authority's annual debt service. For every 1,000 pounds of steam the university uses in any month exceeding the MAPR, the board must pay, before the 15th of the following month, for fossil fuel costs and for operating and maintenance expenses needed to produce that extra steam, not included in the base price.

Every six months, the board must pay any deficiency between projected costs and base price and is allowed credit in the computation of the next fiscal year's base price for any amount by which the projected base price in a prior fiscal year exceeds the actual costs in that prior year.

The agreement has a force majeure clause permitting either party to suspend performance of the contract without liability for damages for any cause not within its control. Neither party can assign its rights under the agreement without the prior consent by the other, and the board may not resell steam delivered to it without express prior written consent by the authority.

On January 10, 1984, the authority approved the agreement and directed Ms. Gill, in her capacity as its secretary, to affix its official seal and attest to the agreement and send it to the board. However, she refused, asserting that it violated several constitutional and statutory provisions.

Ms. Gill's main concern is that the agreement contemplates retiring the bonds from proceeds of sale of steam to the board over a period of twenty years with funds from the board's annual appropriation by the legislature. ¹ She contends that the authority's bonds create a debt of the State violating Article X, Section 4 of the West Virginia Constitution, ² and pledges the State's credit in violation of Article X, Section 6 of the Constitution. ³ She also contends that the agreement creates an unconstitutional state debt because it requires the board to incur a liability that cannot be paid from current appropriations in violation of W.Va.Code, 12-3-17 (1984 Cum.Supp.). ⁴

II.

The clear purpose of these provisions is to protect the fiscal integrity of the State by prohibiting creation of any present indebtedness that would obligate subsequent legislatures to make appropriations. See State ex rel. Hall v. Taylor, 154 W.Va. 659, 178 S.E.2d 48 (1970); State ex rel. Point Towing Co. v. McDonough, 150 W.Va. 724, 149 S.E.2d 302 (1966). It is well-established that "bonds of a state or political subdivision payable solely out of revenue derived from a utility of a public nature acquired by the money derived from the bonds do not create debts within the constitutional inhibition against the contraction of public debt, but partake of the nature of purchase-money mortgages." Brewer v. City of Point Pleasant, 114 W.Va. 572, 172 S.E. 717, 720 (1934), quoting Bates v. State Bridge Commission, 109 W.Va. 186, 188-189, 153 S.E. 305, 307 (1930).

This "special fund doctrine" has been applied to bonds of a state agency payable wholly from a special fund created and maintained by revenues derived from a self-liquidating project. See, e.g., State ex rel. County Court v. Demus, 148 W.Va. 398, 135 S.E.2d 352 (1964); State ex rel. Board of Governors v. O'Brien, 142 W.Va. 88, 94 S.E.2d 446 (1956); State ex rel. State Road Commission v. O'Brien, 140 W.Va. 114, 82 S.E.2d 903 (1954). ⁵

In State ex rel. Hall v. Taylor, 154 W.Va. 659, 178 S.E.2d 48 (1970), however, the special fund doctrine was held not applicable to a statute authorizing the State Building Commission to finance office building construction by issuing bonds payable from revenues generated by leasing office space to various state agencies. The majority in Hall reasoned that because the fund was maintained by rentals derived from annual legislative appropriations from general revenues to the respective state agencies, the scheme created an illegal State debt.

The Court wrote that the special fund doctrine

is applied uniformly in relation to projects or facilities which are self-liquidating, such as the toll bridge cases. Some courts hold that the doctrine applies in any case of a fund created by a special excise tax as distinguished from property taxes. Other courts hold that the doctrine cannot be lawfully applied to a fund created by a special excise tax. It seems to be uniformly held, however, that the doctrine cannot be applied to a fund which is created and maintained, in whole or in part, by general tax revenues, for the reason that such would clearly violate the purpose and intent of constitutional provisions such as that involved in this case. (Emphasis supplied.) 154 W.Va. at 672, 178 S.E.2d at 56.

We held that characterizing the bonds as "revenue" bonds could not save the statute.

This Court has never held valid any act of the legislature authorizing the issuance and sale of bonds, whether they be termed "revenue" bonds or otherwise, where the principal and the interest of such bonds are to be paid from year to year from the general revenue funds of the State. It is the view of this Court that the legislature has no such authority .... Although the bonds in question are designated as "revenue" bonds, the term "revenue" bonds means that, over a period of twenty or more years, the principal and interest of the bonds are paid from sources other than the taxes of the people of this State which go into the general revenue fund. 154 W.Va. at 676, 178 S.E.2d at 58.

The Court concluded that those "revenue" bonds were in fact unconstitutional...