NO. 87-557
IN THE SUPREME COURT OF THE STATE OF MONTANA
1988
ROBERT L. WHITE and BARBARA
M. WHITE,
Plaintiffs,
-vs-
THE STATE OF MONTANA; MONTANA
SCIENCE AND TECHNOLOGY DEVELOPMENT
BOARD, et al.,
Defendants.
ORIGINAL PROCEEDING:
COUNSEL OF RECORD:
For Plaintiffs:
Patrick F. Hooks argued; Hooks & Budewitz, Townsend,
Montana
For Defendants:
Hon. Mike Greely, Attorney General, Helena, Montana
Patricia Schaeffer, Asst. Atty. General, Helena
James H. Goetz argued, Bozeman, Montana
C. Brooke Dormire, New York, New York
Submitted: 171 1988
Decided: July 21, 1988
Clerk
Mr. Justice R. C. McDonough delivered the Opinion of the
Court.
The plaintiffs seek an invocation of this Court's origi-
nal jurisdiction for a declaratory judgment pursuant to 55
27-8-101, et seq, MCA. The plaintiffs are residents, citi-
zens, electors and taxpayers of Montana. The parties are
seeking to determine the validity of House Bill No. 700,
which was enacted by the Fiftieth Legislative Assembly and
signed into law by the Governor on April 13, 1987.
Plaintiffs present ten issues for consideration by this
Court :
1. Whether the Supreme Court has original jurisdiction.
2. Whether the plaintiffs have the requisite standing
to maintain this action.
3. Whether HB 700 violates Article V, Section 11,
paragraph (5) of the 1972 Constitution.
4. Whether HB 700 violates Article V, Section 11,
paragraph (3) of the 1972 Constitution.
5. Whether HB 700 violates Article VIII, Section 1 of
the 1972 Constitution.
6. Whether HB 700 unconstitutionally delegates legisla-
tive powers to the Montana Science and Technology Development
Board.
7. Whether HB 700 fails to provide strict accountabili-
ty required by Article VIII, Section 12 and thus also vio-
lates Article VIII, Section 13 of the 1972 Constitution.
8. Whether HB 700 violates Article IX, Section 5 of the
1972 Constitution.
9. Whether HB 700 contains a valid statutory
appropriation.
10. Whether Section 27 of HB 700, the severability
clause, can be applied.
We find and declare that House Bill 700, also referred
to as the "Science and Technology Development Board Seed
Capital Bond Act", is unconstitutional for the reasons set
forth below.
House Bill 700 was enacted by the legislature in 1987,
and has been codified in large part at S S 90-3-401 through
90-3-420, MCA. When discussing the sections of HB 700 at
issue here, we will also cite the appropriate sections of
Montana Code Annotated. Section 2 of HB 700 expresses the
Act's purpose:
The legislature finds and declares that:
(1) it is the policy of the state of Montana
to promote the health, safety, and general welfare
of all the people of the state;
(2) such policy will be furthered through
strengthening and diversifying the state's economy
by facilitating a public-private sector partnership
to encourage scientific and technological develop-
ment within the state in order to keep pace with a
changing economic structure and to create new jobs
and expand business opportunities; and
(3) such strengthening and diversification
will be fostered by assisting in the acceleration
of development of technology in the state through
the making of technology investments.
Section 90-3-402, MCA. House Bill 700 was enacted to expand
the powers of the Montana Science and Technology Development
Board (the Board), which was created by the legislature in
1985 "to strengthen and diversify Montana's economy by estab-
lishing a public-private sector partnership to encourage
scientific and technological development within the state in
order to keep pace with a transforming economic structure and
to create new jobs and expand small business opportunities."
Section 90-3-101, MCA. House Bill 700 provides the Board
with bonding authority to raise money for certain types of
"technology investments"; seed capital projects, start-up
capital projects and expansion capital projects. Section 15
of the Act provides that the Board shall make at least 20
percent of the "Technology Development Account", funded from
bond sales, available for investment in certified Montana
capital companies that make technology investments. Section
90-3-415, MCA.
The proceeds received by the Board as the return on its
technology investments are to be placed in the "Technology
Investment Program Debt Service Fund" to repay the bonds.
Section 90-3-404, MCA. Security for bond obligations is
provided by the Coal Severance Tax Permanent Trust Fund.
Section 90-3-416, MCA.
On November 19, 1987 the Board adopted a resolution that
bonds should be issued in accordance with the provisions of
HB 700. The Board has been advised that without a Supreme
Court ruling that the Act is constitutional, bond counsel
cannot render an unqualified opinion that the bonds would be
a valid and binding obligation upon the state, and without
such an opinion the bonds cannot be successfully marketed.
11.
The defendants concede issues 1 and 2. They concede
that plaintiffs, as taxpayers, have standing under the rule
articulated in Grossman v. State (Mont. 1984), 682 P.2d 1319,
41 St.Rep. 804. They also concede that this is an appropri-
ate case for the exercise of this Court's original jurisdic-
tion. The three major factors necessary for a valid exercise
of our original jurisdiction are: (1) where constitutional
issues of major statewide importance are involved, (2) where
the questions involved are purely legal questions of statuto-
ry or constitutional construction, and (3) where urgency and
emergency factors exist making the normal appeal process
inadequat-e. State ex rel. Greely v. Water Court (Mont,1984!,
691 P.2d 833, 41 St.Rep. 2373. We hold that all of these
factors have been established.
111.
The plaintiffs contend that H3 700 violates Article V,
I
Section 11, paragraph (5) of the Montana Constitution, which
provides :
No appropriation shall be made for religious,
charitable, industrial, educational or benevolent
reasons to any private individual, private associa-
tion or private corporation not under control of
the state.
Plaintiffs argue that this section invalidates the technology
investments provided for by HB 700 because those investments
ultimately benefit private individuals not under control of
the state. They rely primarily on Hollow v. State (Mont.
1986), 723 P.2d 227, 43 St-Rep. 1435; and Hill v. Rae (1916),
52 Mont. 378, 158 P. 826, as providing support for their
argument. Plaintiffs assert that none of the Montana capital
companies or the other various companies or individuals that
receive investments are under the control of the state.
Defendants maintain this Court has made it clear that as
long as appropriations go directly to a state agency, there
is no violation of Art. V, fj 11(5), even though the state
funds ultimately benefit private persons. Defendants cite
Grossman and Huber v. Groff (1976), 171 Mont. 442, 558 P.2d
1124, as their authority. Defendants argue that in this case
the appropriations are made to a public agency, the Montana
Science and Technology Development Board, which is under the
control of the state.
In order to gain perspective on this issue, we will
examine the authorities cited by both parties in chronologi-
cal order. While plaintiffs cite Hill as being dispositive,
it was d-ecided in 1916 and was therefore based on the 1889
constitution. Our consideration of this issue is guided
sufficiently by the cases decided post-1972.
Huber was decided in 1976, and concerned legislation
enabling the state Board of Housing to sell bonds to help
provide housing for low-income individuals and families. The
proceeds from bond sales were to be used in two programs: (1)
to loan money to private lenders on the condition that they
in turn lend it to low-income individuals or families, or (2)
to purchase mortgages on the condition that the money had
been loaned to low-income individuals or families. We held
that the Housing Board was a public corporation, deriving its
powers directly from the legislature and following duties
prescribed by the legislature. Article V, Section 11 (5) was
therefore held inapplicable.
Our 1984 decision in Grossman upheld legislation provid-
ing that proceeds from the sale of coal severance tax revenue
bonds would be loaned to local government entities to finance
water development projects. We cited our decision in Huber,
and held that appropriations to public entities were consti-
tutional even though the money might ultimately benefit
private individuals or businesses through its use by the
state agency. The state funds involved in Grossman ultimate-
ly benefitted private companies and cooperatives that leased
new or improved hydroelectric facilities.
However, we established a limit to this principle two
years later in Hollow. Hollow involved the use of bond
proceeds by the Montana Economic Development Board to fund
economic development projects. The Development Board was
authorized to establish a project guaranty program, under
which it could make commitments to guaranty payments on
loans, leases or other credit arrangements required for
funded projects in return for a fee. The Board further was
authorized to make loans from the Montana in-state investment
fund, made up in part of funds from coal severance taxes, to
its capital reserve account (securing the bonds issued) and
its guaranty fund (securing the loans and other credit ar-
rangements). We held that the use of state tax revenues to
secure the private obligations of project participants and
the bonds providing funds for the benefit of their businesses
violated Art. V, $ 11(5), as well as Art. VIII, 5 1 and Art.
VIII, $ 13 (1) of the Montana Constitution. We distinguished
Huber in that the legislation in Huber specifically did not
pledge the credit of the state to secure the bonds being
issued. The Hollow legislation in effect directly pledged
the credit of the state to secure the bonds and guaranties
being used to benefit private business ventures.
House Bill 700 establishes a program similar to that in
Hollow. The Science and Technology Development Board is
empowered to funnel bond proceeds into private business
ventures through technology investments. Defendants rightly
argue that the Board is a public corporation, as were the
boards in the above cases. Therefore, funds initially appro-
priated for the Board's use would not be appropriated to "any
private individual, private association, or private corpora-
tion not under control of the state" in violation of Art. V,
S 11 (5). However, the significance of this argument would
diminish greatly once bonds were issued.
Section 16 of H.B. 700 outlines the Board's financing
subsequent to its initial appropriation:
Transfer of portion of coal severance tax permanent
trust fund.
(1)(a) There must be deposited into the
technology investment program debt service fund
from the coal severance tax permanent trust fund
maintained pursuant to 17-6-203 such amounts, not
to exceed $38 million, as are necessary from time
to time, after application of all other money in
the technology investment program debt service
fund, to pay principle of and premium, if any, and
interest on obligations when due.
(b) The chairman of the board shall advise
the state treasurer prior to the date on which any
payment is due of the amount needed to be
transferred.
...
(3) The legislature shall provide for the con-
tinued assessment, levy, collection, and deposit
into the coal severance tax permanent trust fund so
there is sufficient money to make the deposits into
the technology investment program debt service fund
under this section.
Section 90-3-416, MCA. Section 16(3) thus ultimately re-
quires the legislature to make up the difference between the
return received by the Board on the investment of bond pro-
ceeds and the obligations arising from the bonds. By provid-
ing that the legislature shall deposit coal severance tax
funds into the Board's debt service fund and assess taxes in
order to continue such deposits as needed, 5 16 (3) in effect
pledges the credit of the state to secure the bonds issued by
the Board, the proceeds of which are to be used for the
benefit of private businesses. As we said in Hollow, "What
we do not and cannot condone is the direct use of tax monies
by legislative provision which in effect directly pledges the
credit of the state to secure the bonds involved in this
case." 723 P.2d at 232. We hold, therefore, that $ 16 (3) of
HB 700 violates Art. V, 5 11(5) of the Montana Constitution,
and is therefore void.
Plaintiffs assert that HB 700 unconstitutionally dele-
gates legislative power to the Board, violating Article V,
Section 1 of the Montana Constitution which provides:
The legislative power is vested in a legisla-
ture consisting of a senate and a house of repre-
sentatives. . .
The plaintiffs' position is that HB 700 grants the Board too
much discretion. They argue that the powers granted to the
Board are not circumscribed sufficiently; i.e., there are no
standards or rules from the legislature to guide the Board in
making technology investments. Plaintiffs cite Douglas v.
Judge (1977), 174 Mont. 32, 568 P.2d 530, as an example of a
similar act that was held unconstitutional. Douglas applied
the test articulated in Bacus v. Lake County (1960), 138
Mont. 69, 354 P.2d 1056:
The law-making power may not be granted to an
administrative body to be exercised under the guise
of administrative discretion. Accordingly, in
delegating powers to an administrative body with
respect to the administration of statutes, the
legislature must ordinarily prescribe a policy,
standard, or rule for their guidance and must not
vest them with an arbitrary and uncontrolled dis-
cretion with regard thereto, and a statute or
ordinance which is deficient in this respect is
invalid.
Douglas, 568 P.2d at 533-34.
The defendants assert that HB 700 delegates administra-
tive authority to the Board, not legislative power. Defen-
dants cite Huber for the standard that determines whether
legislation results in an unconstitutional delegation of
legislative power:
. . . Concerning adequate standards and guides in
delegation of legislative power, this court has
stated the rule as follows: If the legislature
fails to prescribe with reasonable clarity the
limits of power delegated to an administrative
agency, or if those limits are too broad, its
attempt to delegate is a nullity.
On the other hand a statute is complete and
validly delegates administrative authority when
nothing with respect to a determination of what is
the law is left to the administrative agency, and
its provisions are sufficiently clear, definite,
and certain to enable the agency to know its rights
and obligations.
Huber, 558 P.2d at 1132. Defendants claim that HB 700 meets
this standard. They point out that the legislation lays down
the policy for the Act and prescribes standards to be fol-
lowed such as the ten criteria set forth at S 90-3-413(1),
MCA. They distinguish Douglas, where the Board of Natural
Resources and Conservation was authorized to make loans to
farmers and ranchers "for any worthwhile project . . . ."
Douglas, 568 P.2d at 534. Defendants say HB 700 stands in
sharp contrast to the legislation in Douglas and does not
grant the same unguided discretion.
The constitutional tests applied in Douglas and Huber
were similar in their purpose of preventing the delegation of
unbridled authority to an administrative board. Defendants
are correct, however,in their assertion that the very lax
legislation in Douglas was quite different from that in
Huber. In Huber, the plaintiff asserted that the legislature
was too vague in defining "persons and families of lower
income" when granting the power to assist those persons in
obtaining housing. The contested definition read as follows:
"Persons and families of lower income" means
persons and families, with insufficient personal or
family income who require assistance under this
act, as determined by the board, taking into
consideration:
(a) the amount of the total personal and family
income available for housing needs;
(b) the size of the family;
(c) the eligibility of persons and families under
federal housing assistance of any type based on
lower income or a functional or physical
disability;
(d) the ability of persons and families to com-
pete successfully in the normal housing market and
to pay the amount at which private enterprise is
providing decent, safe, and sanitary housing;
(e) the availability and cost of housing in
particular areas; and
(f) needs of particular persons or families due
to age or physical handicaps.
Huber, 558 P.2d at 1132. This definition provided an objec-
tive standard for the Board to follow when exercising its
power. The size of the family, total income available for
housing, availability and cost of housing and ability to
enter the housing market at the "going rate" were all objec-
tive criteria requiring only observation and arithmetical
calculation.
The considerations to be used by the Science and Tech-
nology Development Board in making technology investments are
set forth in Section 13 of HB 700:
(1) Technology investments may be made from money
in the technology development account only upon a
favorable determination by the board of:
(a) the relevance of the proposed technology
development project to the purposes of this part;
(b) the prospects for collaboration on the pro-
ject between public and private sectors of the
state's economy in mineral technology, agricultural
technology, forestry technology, biotechnology,
microelectronics and computer sciences, energy
technology, information sciences, and materials
science;
(c) the prospects for achieving commercial suc-
cess in general and for creating significant num-
bers of new jobs in the state in particular;
(d) the quality of the specific product and
business development methodology proposed;
(e) the suitability of any proposed milestone for
evaluating progress of technology development
project results; and
(f) the availability of matching funds required
under 90-3-301 (2).
(2) In this evaluation process, the board shall
consider the investment's:
(a) job creation potential;
(b) potential benefit for existing industry;
(c) potential for creating new industry; and
(dl involvement of existing institutional re-
search strength or whether it involves a newly
targeted technology area with development
potential.
Section 90-3-413, MCA. These considerations do not rise to
the level of the objective criteria offered in Huber. They
are more akin to general policy considerations underlying the
entire technology investment program.
For example, "the prospects for achieving commercial
success in general and for creating significant numbers of
new jobs in the state in particular" are considerations at
the heart of the legislature's decision to empower the Board
to sell bonds. They are not objective criteria guiding the
investment of bond proceeds. In Huber, the legislation at
issue went beyond simply directing that individuals and
families of lower income should receive housing assistance.
The objective guidelines listed above were supplied to guide
the administration of that project. Likewise in Grossman,
the legislation directed that the feasibility of hydroelec-
tric projects should be considered, and then went on to list
objective standards (e.g., estimated costs of necessary im-
provements, debt servicing requirements and ability of cus-
tomers to lease improved facilities) by which to judge
feasibility. In the case at bar, HB 700 does not set forth
the law under which the Board would function. No legisla-
tively defined "policy, standard or rule" is effectively
given. Douglas, 568 P.2d at 533.
House Bill 700 also fails to "prescribe with reasonable
clarity the limits of power delegated" to the Board. Huber,
558 P.2d at 1132. The statement of purpose in Section 2
asserts that "strengthening and diversification" of Montana's
economy "will be fostered... through the making of technology
investments." Section 90-3-402, MCA. The linchpin of the
legislation is thus the grant of authority to the Board to
make technology investments. Yet the term "technology in-
vestment" is not well defined in HB 700. Section 90-3-102,
MCA, lists definitions to be used throughout Chapter 3 of
Title 90, which includes HB 700. Reference to that section,
however, is not illuminating. Technology investment is
defined only as "an award of funds for a technology develop-
ment project." On the basis of this definition, the form
that such an award might take is left almost entirely to the
imagination of the Board. As the plaintiffs point out, the
guidelines laid out by HB 700 do not prohibit the Board from
holding private corporate capital stock, an arrangement which
could violate Art. VIII, Section 13(1) of the Montana
Constitution.
Another area where definition is lacking is the terms on
which technology investments are to be made. When making an
"award of funds," the Board is required to negotiate a
"return-on-investment agreement." However, return on invest-
ment appears to be as murky a concept as technology invest-
ment. Section 23 of HB 700 states that the Board shall enter
into return-on-investment agreements requiring payment of "a
return that [the Board] considers commensurate with the risk
of its original investment." Section 90-3-302, MCA. As with
the criteria for investment discussed above, the Board is
left to define a policy that should have been contained in HB
700.
Defendants note that the Board has adopted rules that
provide controls over the technology investment program, and
assert that this Court recognized in Huber that such rules
are what defendants characterize as "important indications
that the legislation at issue will not be arbitrarily
implemented". Even so, our focus remains the authority
delegated by the legislature, and whether limits on that
authority are clearly prescribed. In Huber, we noted a rule
promulgated by the Housing Board showing its ability to place
a figure on the income limit for "persons and families of
lower income" pursuant to the objective criteria present in
that case. However, constitutional law does not allow for an
administrative board to legislate the limits of its own
power, which the Board in the present case has been required
to do in order to give some meaning to the vague terms of H3
E
700.
Sections 12, 13, 14, 15, and 22 of HB 7 0 0 delineate the
operations of the Board and the powers it may exercise.
Through vagueness or incorporation of inadequately defined
operative terms, all of these sections delegate legislative
authority to the Board. They violate Art. V, S 1 of the
Montana Constitution, and are therefore void.
v.
Plaintiffs assert that the title of the Act violates
Article V, Section 11(3) of the Montana Constitution, which
requires that
Celach bill, except general appropriation bills and
bills for the codification and general revision of
the laws, shall contain only one subject, clearly
expressed in its title. If any subject is embraced
in any act and is not expressed in the title, only
so much of the act not so expressed is void.
The plaintiffs argue the title to HB 7 0 0 is vague. They
assert it is not specific about the details concerning the
money committed from the coal severance tax permanent trust
fund and it does not mention the Montana capital companies.
The defendants state that the test for compliance with
this provision of the Montana Constitution is
simply whether the title is of such character as to
mislead the public [or members of the legislature]
as to the subject embraced.
Montana Automobile Association v. Greely (Mont. 1981), 632
P.2d 300, 311. They argue the title gives fair and accurate
notice of the subject of the Act to interested parties, and
the title need not provide details regarding every aspect of
the legislation in order to pass constitutional muster.
State v. Driscoll (1936), 101 Mont. 348, 54 P.2d 571.
The full title of HB 700 is as follows:
An Act providing authority to the Montana Science
and Technology Development Board to issue science
and technology development seed capital fund bonds
to finance technology investments; creating neces-
sary funds and accounts; making statutory appropri-
ations of certain money; authorizing transfer of a
portion of the coal severance tax permanent trust
fund; providing for audits of the board; amending
Sections 17-7-502, 90-3-203, 90-3-302, and
90-3-304, MCA; and providing an immediate effective
date.
At no point does this title mention the fact that Section
16 (3) of the Act pledges the credit of the State of Montana
to secure the bonds to be issued. This would be a subject of
importance to legislators preparing to vote on HB 700. As S
16(3) contains a subject of importance not embraced in the
title of HB 700, it violates Art. V, S ll(3) of the Montana
Constitution, and is therefore void.
Both parties note the presence of Section 27 in HB 700,
which provides for severability:
If a part of this act is invalid, all valid parts
that are severable from the invalid part remain in
effect. If a part of this act is invalid in one or
more of its applications, the part remains in
effect in all valid applications that are severable
from the invalid applications.
In Greely, we reviewed Montana case law dealing with
severability. The essential principle of severability is
that a statute is not entirely voided by inclusion of one or
more unconstitutional sections, unless those sections are
"necessary to the integrity of the statute or [were] the
inducement to its enactment." Greely, 632 P.2d at 310,
citing Hill. Our invalidation of Sections 12, 13, 14, 15,
16(3) and 22 of HB 700 removes the legislative grant of
authority to the Board for making technology investments.
Those portions of HB 700 remaining are thus rendered
meaningless. Accordingly, we declare House Bill 700 to be
void in its entirety, as it suffers from constitutional
defect in its core provisions. For this reason, it will be
unnecessary for us to proceed to the remaining issues posed
by the plaintiffs.
This opinion shall constitute a declaratory judgment in
favor of the Whites to the effect that:
1. House Bill 700 pledges the credit of the state to
secure bonds issued by the Montana Science and
Technology Development Board, the proceeds of which
would be used for the benefit of private businesses,
in violation of Article V, Section 11, paragraph ( 5 )
of the Montana Constitution.
2. House Bill 700 delegates legislative power to the
Montana Science and Technology Development Board in
violation of Article V, Section 1 of the Montana
Constitution.
3. The title of House Bill 700 fails to mention the
pledge of the credit of the state to secure bonds
issued by the Montana Science and Technology
Development Board found in Section 16 (3) of the Act,
in violation of Article V, Section 11, paragraph (3)
of the Montana Constitution.
4. As a result of these constitutional defects, House
Bill 700 is invalid --
in toto.
This opinion, without the filing of further instruments or
orders, shall constitute such a declaratory judgment.
Justice
Justices
Mr. Justice John C. Sheehy, concurring:
I concur wholly with the foregoing opinion. It may help
to demonstrate the unconstitutional use of state funds for
private purposes if we examine some of the investments that
are permitted by the law or committed by the Board.
The legislature in 1983 authorized the formation of
qualified "Montana Capital Companies" S 90-8-101 et seq.,
MCA. These companies are authorized to acquire capital from
investors, who in turn, if the Capital Company were certified
under the Act as qualified, are entitled to a credit upon
their state income taxes up to 50 percent of their
investment. Under the law, $ 90-2-415, MCA, the Board is
required to make at least 20 percent of the technology
development account available for investment in certified
Montana Capital Companies. At the time the proposed law was
pending before the legislature, the legislators were told
that there were three such qualified Capital Investment
Companies in Montana of which one is active. It was proposed
that each of these companies would receive approximately one
million dollars from the bond issue for capital investment.
Thus the investment made by the private investors in the way
of contributions to capital in the Capital Investment Company
would be leveraged by the sum of one million dollars from
money generated originally by coal taxes.
From another aspect, the program developed by the Board
four types of investment to which the bond issue funds may be
applied, ( 1) research capability development; (2) applied
technology research; (3) technical assistance and technology
transfer; (4) and seed capital investment. These programs,
except technical assistance and technology transfer, require
at least a dollar-for-dollar match with non-state
appropriated funds.
Among other commitments, the Board had committed for the
period between November 1, 1986 and December 1, 1987 th.e
following "investments" under technology transfer:
RECIPIENT LOCATION DESCRIPTION AMOUNT
Montana Proposal to $50,000
Ambassadors Helena, MT U.S. West
Montana Montana Venture $ 7,500
Ambassadors Helena, MT Capital Forum
Montana Transfer of $50,600
Wool Helena, MT Sheep Management
Growers Technology
Clearly, each of the foregoing commitments is the use of
state monies for private purposes, because there is no
provision for reimbursement nor a dollar for dollar match.
However well intended the objectives may have been, these
uses of state monies through private agencies clearly offend
the Montana Constitution.
Y&A?, 4.%
Justice