Steup v. Indiana Housing Finance Authority

Decision Date02 April 1980
Docket NumberNo. 1179S309,1179S309
Citation402 N.E.2d 1215,273 Ind. 72
PartiesRoger A. STEUP; American Federal Savings and Loan Association of Fort Wayne, Appellants (Plaintiffs below), v. INDIANA HOUSING FINANCE AUTHORITY; Robert D. Orr, John C. Hart, Jack New, James E. Faris, Carl Raymond Carlson, Louis H. Boink, and Frank P. Flynn as members of the Indiana Housing Finance Authority; and Theodore L. Sendak, as Attorney General of Indiana, Appellees (Defendants below).
CourtIndiana Supreme Court

Lewis C. Bose and Kendall C. Crook, Bose & Evans, Indianapolis, for appellants.

Phillip E. Gutman and Richard H. Blaich, Rothberg, Gallmeyer, Fruechtenicht & Logan, Ft. Wayne, Harry T. Ice and James A. Shanahan, Ice, Miller, Donadio & Ryan, Indianapolis, for Indiana Housing et al.

Theodore L. Sendak, Atty. Gen., Jane M. Gootee, Deputy Atty. Gen., Indianapolis, amicus curiae.

HUNTER, Justice.

Appellants Steup and the American Federal Savings and Loan Association of Fort Wayne brought suit against the Indiana Housing Finance Authority (hereinafter referred to as "the Authority"), its individual members and the Attorney General of Indiana for a declaratory judgment and injunction holding unconstitutional the Indiana Housing Finance Authority Act, Ind.Code § 5-20-1-1, et seq., (Burns Supp.1979), (hereinafter referred to as "the Act"). The Hancock Circuit Court held that the Act was a valid and constitutional enactment of the Indiana General Assembly. This Court granted a joint petition to transfer this cause from the Court of Appeals, pursuant to Ind.R.App.P. 4(A)(10).

Appellants' constitutional challenge raises the following issues for review:

(1) Whether the Act violates Ind.Const. Art. 10 § 5 by creating a state debt;

(2) Whether the Act (a) authorizes a pledge of the state's credit and (b) makes the state a stockholder in a corporation in violation of Ind.Const. Art. 11, § 12;

(3) Whether the Act authorizes the Authority to expend public funds for private benefit without a valid public purpose in violation of U.S.Const. amend. XIV and Ind.Const. Art. 1, §§ 1 and 21;

(4) Whether the Act grants some citizens privileges not granted others similarly situated in violation of U.S.Const. amend. XIV and Ind.Const. Art. 1, § 23;

(5) Whether the Act is arbitrary and in violation of equal protection guarantees, U.S.Const. amend. XIV and Ind.Const. Art. 1, § 23, by creating local employment and contracting privileges;

(6) Whether the Act creates tax exemptions contravening U.S.Const. amend. XIV and Ind.Const. Art. 1, § 23 and Art. 10, § 1;

(7) Whether the Act constitutes an improper delegation of legislative authority to a state agency in violation of U.S.Const. amend. XIV and Ind.Const. Art. 4, § 1 and Art. 1, § 23;

(8) Whether the Act denies due process to certain creditors of the Authority in violation of U.S.Const. amend. XIV and Ind.Const. Art. 1, §§ 1 and 21; and

(9) Whether the trial court's conclusions of law are contrary to law in that they are not supported by sufficient evidence and are contrary to the evidence.

A statute is clothed with a presumption of constitutionality. Every doubt raised must be resolved in favor of the statute's validity. Furthermore, a heavy burden is borne by the challenger. Sidle v. Majors, (1976) 264 Ind. 206, 341 N.E.2d 763.

I.

Appellants first claim that the statute should fail because it authorizes the creation of state debt for purposes other than those permitted by Art. 10, § 5 of the Indiana Constitution which is as follows:

"No law shall authorize any debt to be contracted, on behalf of the State, except in the following cases: To meet casual deficits in the revenue; to pay the interest on the State Debt; to repel invasion, suppress insurrection, or, if hostilities be threatened, provide for the public defense."

The Authority is similar in nature to the commissions created for the construction of the Indiana Toll Road, Ennis v. State Highway Commission, (1952) 231 Ind. 311, 108 N.E.2d 687; the Indiana Toll Bridge, Indiana State Toll Bridge Commission v. Minor, (1957) 236 Ind. 193, 139 N.E.2d 445; the State Office Building, Book v. State Office Bldg. Commission et al., (1957) 238 Ind. 120, 149 N.E.2d 273; and an Indiana port, Orbison v. Welsh, Governor et al., (1961) 242 Ind. 385, 179 N.E.2d 727. The Authority is neither a state agency nor a private corporation.

"(I)t is a separate corporate entity which is an instrumentality or agency of the state although it is not the state in its sovereign corporate capacity." Orbison v. Welsh, Governor, supra, 242 Ind. at 399, 179 N.E.2d at 734.

Ind.Code § 5-20-1-16(a) (Burns Supp.1979) provides that the Authority may create and establish one or more capital reserve funds to secure notes or bonds referred to and defined by Ind.Code § 5-20-1-2(10) (Burns Supp.1979) as "obligations." Ind.Code § 5-20-1-16(a) (Burns Supp.1979) states:

"The authority may (create) created and establish one (1) or more special funds, herein referred to as capital reserve funds, to secure the notes and bonds. The authority shall pay into each such capital reserve fund: (1) any moneys appropriated and made available by the state for the purposes of such fund; (2) any proceeds of sale of notes or bonds, to the extent provided in the resolution of the authority authorizing the issuance thereof; and (3) any other moneys which may be made available to the authority for the purpose of such fund from any other source or sources."

Ind.Code § 5-20-1-16(b) (Burns Supp.1979) limits the usage of the funds, as follows:

"All moneys held in any capital reserve fund, except as otherwise specifically provided, shall be used, as required, solely: (1) for the payment of the principal of bonds of the authority secured in whole or in part by such fund; (2) for payment of the sinking fund payments mentioned in this section with respect to such bonds; (3) for the purchase or redemption of such bonds; (4) for the payment of interest on such bonds; or (5) for the payment of any redemption premium required to be paid when such bonds are redeemed prior to maturity. However, if moneys in such fund at any time are less than the capital reserve fund requirement established for such fund as provided in this section, the authority shall not use such moneys for any optional purchase or optional redemption of such bonds. Any income or interest earned by, or increment to, any capital reserve fund due to the investment thereof may be transferred by the authority to other funds or accounts of the authority to the extent such transfer does not reduce the amount of such capital reserve fund below the capital reserve fund requirement for such fund."

Appellants argue that appropriations made by the legislature and paid into the capital reserve fund would create a state indebtedness because those moneys could be applied directly and unconditionally to the satisfaction of the Authority's obligations. They further argue that the result would be identical if the state agreed directly to assume all or a portion of the obligations under the bonds or notes as they become due, which would be a violation of Art. 10, § 5 of the Indiana Constitution. Although the result may be identical "It is never an illegal evasion of a constitutional provision or prohibition to accomplish a desired result, which is lawful in itself, by discovering or following a legal way to do it." Book v. State Office Bldg. Commission et al., supra, 238 Ind. at 149, 149 N.E.2d at 288.

We have previously held that appropriations advanced to commissions for public purposes and projects did not create an indebtedness of the state. In prior cases, bonds authorized to be issued by the statute were not issued in the name of the state and, we held, were not its obligation. Ennis v. State Highway Commission, supra; Indiana State Toll Bridge Commission v. Minor, supra; Orbison v. Welsh, Governor, supra; Book v. State Office Bldg. Commission, supra. The Acts in Ennis and Book provided specifically that the bonds were payable solely from the revenues derived from the commissions. Both Acts contained a section stating that the obligations of the commissions were not the obligations of the state.

Similarly, Ind.Code § 5-20-1-8(a) (Burns Supp.1979) states in relevant part:

"The authority is hereby, authorized to issue bonds or notes, or a combination thereof, to carry out and effectuate its purposes and powers. The principal of, and the interest on, such bonds or notes shall be payable solely from the funds provided for such payment in this chapter."

Ind.Code § 5-20-1-7(a) (Burns Supp.1979) expressly states that the Authority's obligations do not constitute a debt, liability or obligation of the state:

"Obligations issued under the provisions of this chapter do not constitute a debt, liability or obligation of the state of Indiana or a pledge of the faith and credit of the state of Indiana, but shall be payable solely from the revenues or assets of the authority. Under any circumstances, general fund revenues of the state of Indiana may not be used to pay all or part of the obligations of the authority, and there is no moral obligation of the state of Indiana to pay all or part of the obligations of the authority. Each obligation issued under this chapter shall contain on the face thereof a statement to the effect that the authority shall not be obligated to pay the same nor the interest thereon except from the revenues or assets pledged therefor and that neither the faith and credit nor the taxing power of the state of Indiana is pledged to the payment of the principal of or the interest on such obligation."

The above provision leaves no recourse against the state and the general fund cannot be reached to pay the Authority's obligations.

Furthermore, the legislature may appropriate funds to the capital reserve fund. However, no funds can flow into the reserve fund unless and until there is an appropriation by the legislature. The Act...

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