Utah Technology Finance Corp. v. Wilkinson

Citation723 P.2d 406
Decision Date31 July 1986
Docket NumberI-,D,No. 860097,860097
PartiesUTAH TECHNOLOGY FINANCE CORPORATION, Plaintiff and Respondent, v. David L. WILKINSON, Attorney General of Utah, Defendant and Appellant. David L. WILKINSON, Attorney General for the State of Utah, and Edward T. Alter, State Treasurer for the State of Utah, Plaintiffs and Appellants, v. UTAH TECHNOLOGY FINANCE CORPORATION, and its Board of Trustees, namely Sydney J. Green, Eugene Overfelt, Willard H. Gardiner, James S. Jardine, Warren E. Pugh, Robert H. Garff, and Karl N. Snow, Jr., and John Doesefendants and Respondents.
CourtSupreme Court of Utah

David L. Wilkinson, Atty. Gen., Ralph L. Finlayson, Stephen J. Sorenson, Salt Lake City, for defendant and appellant.

Alan L. Sullivan, Patrick J. O'Hara, Salt Lake City, for plaintiff and respondent.

HOWE, Justice:

The Attorney General and the State Treasurer, and Utah Technology Finance Corporation filed suits against each other in district court to determine the constitutionality of the Utah Technology and Innovation Act (the Act) U.C.A., 1953, §§ 63-60-1, et seq. The district court consolidated the cases and, on cross-motions for summary judgment, held that the Act did not violate article VI, section 29 of the Utah Constitution and that Utah Technology Finance Corp. (UTFC), created by the Act, was not prohibited from hiring private counsel. 1 The Attorney General brings this appeal.

The Act was passed by the legislature in 1983 and bestowed upon UTFC the power "to take all action necessary or desirable to encourage and assist in the research, development, promotion and growth of emerging and developing technological and innovative small businesses throughout Utah." The Act specifically authorized UTFC to provide capital for equity investment or to make direct loans to assist and encourage emerging and developing small businesses.

In 1985, section 63-60-3 of the Act was amended to include the following legislative findings: The development of high technology was necessary to insure progress. Small emerging businesses have a substantially greater rate of innovation and development in high technology and create new employment at a greater rate than mature businesses. Fostering the development of high technology in this state "is necessary to assure the welfare of its citizens, the growth of its economy, adequate employment for its citizens and progress." This was to be accomplished by UTFC through "assisting and participating in the organization, capital formation, management, growth, development, and disposition of small and emerging businesses...."

UTFC, in endeavoring to aid developing small high-tech businesses, agreed to commit $1 million of public funds appropriated to it to secure a limited partnership interest in Venture Fund I, a private, for-profit limited partnership. Venture Fund I proposes to use that amount, as well as private capital, to subscribe to stock providing selected small high-tech businesses with startup capital. Questions of the constitutionality of the use of public funds to aid private businesses spawned the litigation that has brought the parties before this Court.

I.

The first issue is whether the Act violates the provisions of article VI, section 29 of the Utah Constitution, 2 which provides:

The Legislature shall not authorize the State, or any county, city, town, township, district or other political subdivision of the State to lend its credit or subscribe to stock or bonds in aid of any railroad, telegraph or other private individual or corporate enterprise or undertaking.

The district court in its memorandum decision stated that the purpose of section 29 was to "insure that public funds are spent for public purposes." The court then found that the "public purposes" of the Act as stated by the legislature had a "rational basis," and therefore the Act was constitutional.

Section 29 contains two interdictions on the power of the legislature to authorize aid to private enterprise: the lending of credit and the subscription to stock or bonds. Since the legislature has every power which has not been granted to the federal government or prohibited by the state constitution, State v. Mason, 94 Utah 501, 78 P.2d 920, 117 A.L.R. 330 (1938), the legislature is not restrained from authorizing assistance in other ways. We shall discuss the two prohibitions separately.

A. Lending of Credit

In the ninety years which have passed since the adoption of the Utah Constitution, thirteen cases have been appealed to this Court in which it was contended that section 29 had been violated. In all of them, the specific assertion was made that there was a lending of credit in aid of private enterprise. In the first seven cases decided, this Court, with little or no mention of what actually constitutes the lending of credit, concluded that there was no direct aid to private enterprise; instead, a public purpose was served, and hence there was no unconstitutional lending of credit. Bailey v. Van Dyke, 66 Utah 184, 240 P. 454 (1925) (agricultural extension work); Lehi City v. Meiling, 87 Utah 237, 48 P.2d 530 (1935) (creation of metropolitan water districts); Wallberg v. Utah Public Welfare Commission, 115 Utah 242, 203 P.2d 935 (1949) (payment of old age assistance in exchange of a pledge by the recipient of his real property as a guarantee for reimbursement); Barlow v. Clearfield City Corp., 1 Utah 2d 419, 268 P.2d 682 (1954) (contract to purchase culinary water for city); Bair v. Layton City Corp., 6 Utah 2d 138, 307 P.2d 895 (1957) (contract for the disposal and treatment of city's sewage); State Road Commission of Utah v. Utah Power & Light Co., 10 Utah 2d 333, 353 P.2d 171 (1960) (relocation of underground utility lines in public highways); Utah State Land Board v. Utah State Finance Commission, 12 Utah 2d 265, 365 P.2d 213 (1961) (purchase by state agency of well-established corporate securities in the investment of public funds).

Only in the last six cases did we hold that there was no actual lending of credit. Allen v. Tooele County, 21 Utah 2d 383, 445 P.2d 994 (1968) (issuance of industrial development revenue bonds by a county); Wagner v. Salt Lake City, 29 Utah 2d 42, 504 P.2d 1007 (1972) (issuance of revenue bonds by a municipal improvement district for the purpose of removing overhead electrical and telephone wires and replacing them with underground facilities); Tribe v. Salt Lake City Corp., 540 P.2d 499 (Utah 1975) (issuance of revenue bonds by redevelopment agency); Utah Housing Finance Agency v. Smart, 561 P.2d 1052 (Utah 1977) (issuance by state agency of revenue bonds to provide mortgage money to low--and moderate--income persons); Salt Lake County v. Murray City Redevelopment, 598 P.2d 1339 (Utah 1979) (issuance of revenue bonds by a redevelopment agency); Municipal Building Authority of Iron County v. Lowder, 711 P.2d 273 (Utah 1985) (issuance of revenue bonds by a county building authority). These cases all involved the issuance of revenue bonds, and we reasoned that because they were payable only out of the revenues of the project and the bonds were not an indebtedness of the state or one of its subdivisions, there was in fact no lending of its credit. In the first of these six cases, Allen v. Tooele County, supra, we, for the first time, made a partial definitive statement of what constitutes the lending of credit. There, we said that Tooele County could be deemed to "lend its credit" to the private enterprise only if "the county might in some eventuality be required to pay the obligation [of the private enterprise]." This definition was based on statements made by two delegates to our State Constitutional Convention. The first statement was made by delegate David Evans and is found in the Proceedings of the Constitutional Convention, volume 1, page 953. He said:

What is loaning the credit of a State or county or municipality? In short, it means that any corporation or enterprise, desiring to start a business, and for the purpose of aiding it, the State endorses or rather guarantees the bond or paper of such individual or corporation....

The second statement relied upon was made by delegate Samuel R. Thurman, found at page 979 of the same volume. There, he said: "It is not a question of the State being permitted to make a donation or give bonuses from time to time ..., but it is a question of mortgaging the State, not for the payment of its own debt but for the payment of the debt of another."

Many other state constitutions contain a prohibition against the lending of credit. Some also interdict the "giving" of credit and various other means of assistance. An in-depth analysis of what constitutes the lending of credit was made by the Court of Appeals of Maryland in Johns Hopkins University v. Williams, 199 Md. 382, 86 A.2d 892 (1952). Since 1851, the Constitution of Maryland has provided that "the credit of the state shall not in any manner be given, or loaned to, or in aid of any individual, association or corporation." The court in its opinion observed that that provision was exactly the same as a clause inserted in the Constitution of the State of New York in 1846. The court quoted the following statement made by a Mr. Albord, a member of the constitutional convention of New York of 1867. He said:

The past history of this state previous to the constitution of 1846 was this: if a railroad or some enterprise of that kind was started in any portion of the State, and was unable as it seemed to get along without some State aid the State came in as an indorser or security for the road, loaning to the road or to the corporation its bonds, payable at a future period of time, with an agreement on the part of the corporation to take care of the interest as it became due and ultimately to redeem the principal. The result was in very many instances the State lost the entire amount of the investment.

Governor Wright of New York in 1845 reported that more than...

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