State School Bldg. Finance Committee v. Betts

• Decision Date: 28 May 1963
• Court: California Court of Appeals Court of Appeals
• Parties: STATE SCHOOL BUILDING FINANCE COMMITTEE, an agency of the State of California, Petitioner, v. Bert A. BETTS, as Treasurer of the State of California, Respondent. Civ. 10685.

Page 258

31 Cal.Rptr. 258

216 Cal.App.2d 685

STATE SCHOOL BUILDING FINANCE COMMITTEE, an agency of the State of California, Petitioner, v. Bert A. BETTS, as Treasurer of the State of California, Respondent.

Civ. 10685.

District Court of Appeal, Third District, California.

May 28, 1963.

Stanley Mosk, Atty. Gen., by E. G. Funk, Asst. Atty. Gen., and V. Barlow Goff, Deputy Atty. Gen., Sacramento, for appellant.

Orrick, Dahlquist, Herrington & Sutcliffe, San Francisco, for respondent.

FRIEDMAN, Justice.

Petitioner seeks a writ of mandate to compel respondent State Treasurer to prepare and sell $20,000,000 in bonds as directed by a resolution of the State School Building Finance Committee acting pursuant to the State School Building Aid Bond Law of 1952 (now Ed. Code secs. 19701-19715).

At its Second Extraordinary Session of 1952 the Legislature considered and acted upon a group of related enactments designed to raise and distribute funds for the building programs of local school districts. As adopted, these were:

First, an appropriation of $20,000,000 from the state General Fund for school building aid apportionments (Stats.2d Ex.Sess.1952, ch. 26). While effective as an urgency measure on September 4, 1952, it was to become operative only upon adoption of another statute, the State School Building Aid Law of 1952.

Second, Assembly Constitutional Amendment No. 3, which was later approved by the voters at the election of November 4, 1952, and became section 16.5 of article XVI of the state Constitution. It authorized a state bond issue of $185,000,000 for the general purpose of providing loans and grants to school districts and for the following subsidiary purpose:

'(c) To repay, as provided by law, the money appropriated from the General Fund at the 1952 Second Extraordinary Session for state school building aid.' ¹

Third, the State School Building Aid Law of 1952 (now Ed. C., secs. 19551-19689) governing capital aid apportionments to school districts. ² This enactment became effective as an urgency measure on November 12, 1952, thereby making the $20,000,000 appropriation operative.

Fourth, the State School Building Aid Bond Law of 1952, now Ed.C. secs. 19701-19715), providing for the issue and sale of the bonds authorized by article XVI, section 16.5 under direction of the State School Building Finance Committee (petitioner in the present action). This enactment too became effective as an urgency measure on November 12, 1952. One of its provisions was section 19710 of the Education Code, which directed progressive sale of bonds up to an aggregate of $165,000,000, for apportionment to school districts, and then declared: 'The remainder of the bonds, or so many thereof as may be necessary shall be issued and sold as provided in Section 19711.' The latter section is set forth below. ³

The $20,000,000 General Fund appropriation was apparently advanced to the school building aid program and duly distributed to school districts. An aggregate of $165,000,000 in bonds was sold under the authority of article XVI, section 16.5, the proceeds being used for apportionment to school districts. As regards the repayment of all or part of the General Fund advance pursuant to the formula in Education Code, section 19711 (footnote 3, supra), the State Director of Finance determined in 1956 that the 1953 General Fund surplus was not under $5,000,000; that indeed the Fund enjoyed at that time a surplus exceeding $88,000,000. Accordingly, no action was taken to sell the remaining bonds for the purpose of repaying the 1952 General Fund advance.

In 1958 the Legislature took occasion to re-examine the $20,000,000 General Fund advance authorized in 1952. Apparently believing that the future condition of the General Fund might warrant repayment, it adopted a new formula, now set forth in Education Code section 19712. On its face the new statute authorized sale of the remaining $20,000,000 in school building aid bonds authorized by article XVI, section 16.5 and use of the proceeds to reimburse the General Fund whenever the Director of Finance determined that 'in his opinion such action is necessary to meet the needs of the General Fund * * *.' ⁴

Almost five years later, on February 27, 1963, the Director of Finance made the determination of General Fund need specified in section 19712. He requested petitioner, the State School Building Finance Committee, to proceed with the sale of $20,000,000 in bonds for the purpose of repaying the General Fund. The committee then met and adopted a resolution prescribing the bond details and directing bond preparation and sale by respondent State Treasurer. The latter has refused to act. He has filed a general demurrer and supporting brief in response to the petition for writ of mandate.

A principal thesis advanced by respondent's counsel is the collective character of the constitutional and statutory arrangements adopted by the voters and the Legislature in 1952; these include subdivision (c) of article XVI, section 16.5, permitting $20,000,000 of bond money to be used for General Fund reimbursement only 'as provided by law,' that is, as provided by law in 1952; that the 'law' referred to was Education Code section 19711, which permitted sale of bonds for repayment of the General Fund only if the latter had a 1953 surplus under $5,000,000; that, since such a condition did not occur in 1953, the permission expired by force of its own limitation; that these 1952 provisions collectively constituted a contract between the state and the bondholders; that the state cannot constitutionally impair the obligations fo this contract (U.S.Const., art. I, sec. 10; Cal.Const., art. I, sec. 16); that, if implemented, the 1958 attempt (Ed.Code, sec. 19712) to set up a new condition for sale of the additional $20,000,000 in bonds will impair the obligations of the contract.

To know the obligations of a contract we look to the laws in force at its making. (W. B. Worthen Co. ex rel. Board of Com'rs of Street Imp. Dist. No. 513 of Little Rock, Ark. v. Kavanaugh, 295 U.S. 56, 60, 55 S.Ct. 555, 79 L.Ed. 1298; Islais Co., Inc. v. Matheson, 3 Cal.2d 657, 662, 45 P.2d 326.) The laws under which public bonds are issued become a part of the contract between the bondholders and the issuing authority, and no change in these laws may be permitted to impair the bond obligation. (Sutter Basin Corp. v. Brown, 40 Cal.2d 235, 241, 253 P.2d 649, cert. den. 346 U.S. 855, 74 S.Ct. 71, 98 L.Ed. 369; County of San Bernardino v. Way, 18 Cal.2d 647, 661, 117 P.2d 354; Golden Gate Bridge etc. District v. Filmer, 217 Cal. 754, 757, 21 P.2d 112, 91 A.L.R. 1; see May v. Board of Directors, 34 Cal.2d 125, 129, 208 P.2d 661; 12 Am.Jur., Constitutional Law, sec. 399; 43 Am.Jur., Public Securities and Obligations, sec. 9.) The bar against impairment does not calcify the bond law beyond all possibility of amendment. The contract obligation is not impaired unless the alteration in the law deprives the bondholders of a substantial right or remedy. If, despite a change in the law, the bondholders may enforce their rights no less effectually than before; if there has been no encroachment upon valuable contractual rights, then the obligations of the contract have not been impaired. (Von Hoffman v. City of Quincy, 4 Wall. (71 U.S.) 535, 553-554, 18 L.Ed. 403; County of San Bernardino v. Way, supra, 18 Cal.2d at 661-663, 117 P.2d at 363-364; see Metropolitan Water District of Southern California v. Toll, 1 Cal.2d 421, 35 P.2d 519; 12 Am.Jur., Constitutional Law, sec. 402.)

The bondholders whose contract is involved here are the purchasers of the $165,000,000 in school building aid bonds thus far sold under the 1952 authorization. Respondent does not specify just what injury they will suffer. Sale of the remaining $20,000,000 in bonds will neither affect their enforcement remedies, alter the time or method of payment, nor deprive them of security. (Compare, Sutter Basin Corp. v. Brown, 40 Cal.2d 235, 253 P.2d 649; Shouse v. Quinley, 3 Cal.2d 357, 45 P.2d 701; County of Los Angeles v. Rockhold, 3 Cal.2d 192, 44 P.2d 340, 100 A.L.R. 149; St. Louis Union Trust Co. v. Franklin American Trust Co., 8 Cir., 52 F.2d 431, 87 A.L.R. 386.) Value of their investment will be diminished by not so much as a peppercorn. They will suffer no more harm than that flowing from new and unrelated state bond issues, of which there have been a number in the past decade. Buyers of state general obligation bonds bank on the state's credit. The point at which the state's credit sags under fresh bond sales may be the subject of political and economic debate. It triggers no constitutional injury.

Respondent argues that the present bondholders 'relied' upon Education Code section 19710, which limited the bond sale to $165,000,000 for school aid purposes; that they 'knew' of the restrictions fixed by section 19711 upon sale of additional bonds to repay the General Fund. Fallacy of the argument becomes apparent when it is stated in reverse, i. e., that the state entered into a contract not to issue the additional $20,000,000 in bonds except as permitted by section 19711. One scans the group of 1952 enactments in vain for some such restriction or commitment. Article XVI, section 16.5, did not limit the bond issue to $165,000,000. It directed the sale of $185,000,000 in bonds, permitting use of the proceeds not only for the school aid program but also to repay the General Fund 'as provided by law.' In proposing the constitutional amendment, the 1952 Legislature doubtless 'had in mind' the conditions for General Fund repayment specified by the pending legislation which became Education Code section 19711. If it had any purpose to create a fixed contractual situation, effectually preventing future legislatures from altering the conditions of General Fund reimbursement, it employed no language suggestive of that intent. Instead, it used the phrase 'as provided by...