State Ex Rel. McLeod v. Riley

Per Curiam:

These actions are brought in the original jurisdiction of this Court under the Uniform Declaratory Judgments Act, Sections 15-53-10 et seq., Code of Laws of South Carolina (1976) by the State of South Carolina on the relation of the Attorney General in order to determine the constitutionality of certain bond authorizations.

The first action challenges Section 6 of Act 518 of 1980, to the extent that it authorizes the issuance of State capital improvement bonds, the proceeds of which will be used to promote an alcohol fuel development program. This provision is alleged to be in violation of Article X, Sections 11 and 13(3) and Article I, Section 8 of the South Carolina Constitution. The second action challenges Section 10 of Act 518 of 1980, to the extent that it authorizes the issuance of industrial revenue bonds, the proceeds of which will *327be used to provide for computer and office facilities for entities which are not industrial or manufacturing enterprises and to provide for commercial shopping centers. This provision is alleged to be in violation of Article I, Section 3 of the South Carolina Constitution. In addition, the actions seek to enjoin further implementations of the legislation. Named as defendants are the various ex officio members of the State Budget and Control Board.1

In resolving these issues we are mindful of several principles of law which are fundamental to proper adjudication of constitutional challenges to statutory enactments. As restated by Bauer v. South Carolina State Housing Authority, 271 S. C. 219, 226, 246 S. E. (2d) 869 (1978).

“ ‘Our Constitution is not a grant of power, but a limitation on what, absent limitations therein, would be a plenary power in the people or their elected representatives. Accordingly, it is not sufficient for us to find that an act is offensive to what may be prevailing notions of the proper sphere for state governments. It is necessary, in order for us to strike down an act of the General Assembly to find that it offends specific provisions óf the state constitution which have limited and circumscribed legslative action in that area.’ Elliott v. McNair, 250 S. C. 75, 84, 156 S. E. (2d) 421, 426 (1967); accord Anderson v. Baehr, 265 S. C. 153, 217 S. E. (2d) 43 (1975), and Duke Power Co. v. Bell, 156 S. C. 299, 152 S. E. 865 (1930). ‘This Court has repeatedly held that all reasonable doubt must be resolved in favor of the constitutionality of the act. If a constitutional construction of a statute is possible, that construction should be followed in lieu of an unconstitutional construction.’ Casey v. S. C. State Housing Authority, supra, 264 S. C. at 312-3, 215 S. E. (2d) at 187.”

*328We note, too, that all legislative action must serve a public rather than a private purpose. Whether an act does indeed serve a public purpose is primarily a question for the legislature to determine and this Court will not interfere unless the legislative determination is clearly wrong. Elliott v. McNair, 250 S. C. 75, 156 S. E. (2d) 421 (1967); Bauer v. South Carolina State Housing Authority, supra.

I

Section 6 of Act 518 of 1980 authorizes the issuance of general obligation bonds in the amount of $5,000,000 in order to finance an “alcohol fuel development loan program”.2

The Budget and Control Board is given authority to’ use $3,000,000 of the funds to purchase up to ninety percent of loans made by banking institutions to any individual or corporation for the purpose of producing fuel components or constructing facilities to produce fuel grade alcohol.

The plaintiff argues that this provision violates Section 11 and 13(3) of the State Constitution. Section 11 provides in part that: “The credit of neither the State nor any of its political subdivisions shall be pledged or loaned for the benefit of any individual, company, association, corporation . . .” Section 13(3) provides, inter alia, that: “General obligation debt may not be incurred except for a public purpose . . .”

The plaintiff contends that any benefit to the public arising out of the private loan program of Act 518, Section 6 is indirect and speculative at best. The primary beneficiary of the legislation is the private developer who will profit if the program succeeds. The plaintiff also points out that if the loan program fails, the State must ultimately pay for the venture since the public credit is pledged.

*329The defendants maintain that Section 6 serves a public purpose by supporting an alternative energy source. The General Assembly found that the enactment, “will subserve a public purpose by promoting the planting of grain crops and the development of a substitute for gasoline.” The defendants take the position that the “public purpose” as so found is sufficient to weather the constitutional challenge.

While we would agree that the provision envisions some benefit to the public, we do not agree that the indirect and speculative nature of the proposed benefit is sufficient to pass constitutional muster. Section 11 of Article X now proscribes the pledging or loaning of public credit to benefit private enterprises without regard to incidental public benefit but this Court has long held the view in construing related provisions that general obligation bonds may not be issued for the primary benefit of private parties. Thus, Jacobs v. McClain, 262 S. C. 425, 429, 205 S. E. (2d) 172 (1974), quotes Feldman & Co. v. City Council of Charleston, 23 S. C. 57 (1884) for the proposition that:

“However certain and great the resulting good to the general public, it does not, by reason of its comparative importance, cease to be incidental. The incidental advantage to the public, or to the State, which results from the promotion of private interests, and the prosperity of private enterprises or business, does not justify their aid by the use of public money raised by taxation, or for which taxation may become necessary.”

The private loan guarantee portion of Act 518, Section 6 clearly runs afoul of Sections 11 and 13(3) of Article X of the State Constitution.

Act 518, Section 6 also states:

“Provided, that not less than two million dollars authorized above for the Alcohol Fuel Development Loan Program shall be available for the development of *330alcohol fuel production facilities by South Carolina municipalities and counties and by agencies and institutions of the South Carolina state government.”

While we are not prepared to state that a properly tailored legislative enactment seeking to promote the development of fuel alcohol by government entities never serves a public purpose, we nonetheless conclude that this provision must fall since it is not severable from the remainder of the section. The language in the provision holds forth the possibility that the governmental entity might apply these monies to private ventures, a condtion violative of Article X, Section 11.

Even if the paragraph were allowed to stand alone, it would violate the constitutional provision for separation of legislative, executive and judicial powers at Article I, Section 8. The attempted delegation of legislative power to the Budget and Control Board here reposes an undefined discretion in the Board to set the direction and scope of the governmental loan program. Standing alone, the language in this portion of the act fails to state those primary standards necessary to accomplishing the stated purpose of the section. South Carolina State Highway Department v. Harbin, 226 S. C. 585, 86 S. E. (2d) 466 (1955).

II

Section 10 of Act 518 of 1980 revises the Industrial Revenue Bond Act [Codified at Sec. 4-29-10, et seq., Code of Laws of South Carolina (1976)]. Among the amendments enacted, two are challenged in the second action. The first amendment challenged would allow the issuance of industrial revenue bonds to finance computer and office facilities for entities which are not industrial or manufacturing enterprises if at least one hundred full-time employees are employed within one year of completion of the project. The second amendment which is challenged would allow the issuance of industrial revenue bonds to finance commercial shopping centers which would be leased by the developer *331to at least two merchants employing at least sixty full-time employees upon completion of the project.

Indebtedness payable only from a revenue-producing project or from a special source is specifically provided for in the South Carolina Constitution at Article X, Sec. 14, Subsection (10) which states in part: “Indebtedness payable solely from a revenue-producing project or from a special source, which does not involve revenues from any tax or license, may be issued upon such terms and conditions as the General Assembly may prescribe by general law. . . .”

Section 10 of Act 518 does not pledge the public credit or in any manner create future debt liability for the political subdivisions involved. The revenue bond is repaid by revenues from the project financed. The purpose in using the political entity is not security, as would be the case if general obligation bonds were attempted to be used, but is mainly to realize tax savings which result from properly authorized local bond issues. See, Section 103 of the U. S. Internal Revenue Code of 1975 (26 U. S. C. Sec. 103).

However, Article I, Section 3 of the State Constitution has been interpreted to require that all legislation, including that authorizing the issuance of revenue bonds, serve a public as opposed to a private purpose. Elliott v. McNair, supra; Bauer v. S. C. State Housing Authority, supra. Public purpose is defined in Anderson v. Baehr, 265 S. C. 153, 162, 217 S. E. (2d) 43 (1975) :

“As a general rule, a public purpose has for its objective the promotion of the public health, safety, morals, general welfare, security, prosperity, and contentment of all the inhabitants or residents, or at least a substantial part thereof. Legislation does not have to benefit all of the people in order to serve a public purpose merely because some individual makes a profit as a result of the enactment.”

To fulfill a public purpose, the undertaking must bring about more than a remote or indirect public benefit. Id., at *332163. Lienee, projects which would primarily benefit the developer with no assurance of more than negligible advantage to the general public do not serve a public purpose within the meaning of the Constitution. Id.

The public purpose has been held to be served by legislation authorizing the issuance of revenue bonds for acquisition, ownership, leasing and disposition of properties to be used for the attraction of industry to tire State, Elliott v. McNair, supra; financing pollution control facilities to be used by industry, Harper v. Schooler, 258 S. C. 486, 189 S. E. (2d) 284 (1972); and providing various programs to alleviate the shortage of sanitary, safe and affordable housing. Bauer v. S. C. State Housing Authority, supra. The public purpose was held not to be served by legislation authorizing the use of revenue bonds to provide funds allowing a city to join with a private developer in clearing slum property and replacing it with private businesses. Anderson v. Baehr, supra.

Unlike, Elliott, Harper and Bauer, supra, where the funds for revenue bonds were used to alleviate the pervasive problems of lack of industry and unemployment, pollution, and inadequate housing, the funds here would solve no problems confronted by substantial numbers of the public. The number of jobs provided will be miniscule in comparison to the massive industrialization envisioned in Blliott, supra. Although some new services may be offered, construction of shopping centers and offices often means relocation of already existing businesses or importation of national chains to provide services already provided locally.

As rejected in Anderson v. Baehr, supra, 265 S. C. at 163, the Act undertakes to permit local governments “to effectually promote undertakings to compete in free enterprise with other businesses which do not have the advantage which the Act would give.” While the benefits to the developer of a shopping center or a business seeking office space would be substantial, the benefit to the public would be negligible *333and speculative. Id. Such remote and indirect public benefit does not bring .the undertakings authorized by the Act within the ambit of “public purpose.”

We are mindful of the rule, “that courts cannot interfere with what the General Assembly has declared to be a public purpose and thus a function of government unless -the judicial mind conceives that the legislative determination is without reasonable relation to the public interest or welfare and is beyond the scope of legitimate government.” Elliott v. McNair, supra, 250 S. C. at 88, 156 S. E. (2d) 421. We are further cognizant of the findings of the General Assembly that Section 10 of Act 518 serves public purposes. While these findings are entitled to great weight, they have no magical quality to make valid that which is invalid. Bauer v. S. C. State Housing Authority, supra, 271 S. C. at 229, 246 S. E. (2d) 869.

Therefore, we hold Section 6 and Section 10 of Act 518 of 1980 in the challenged particulars unconstitutional.

Harwell, J., concurs and dissents.

By order of this Court dated October 22, 1980, the actions were allowed to be heard together in all particulars since they involve questions that pertain to the issuance of general obligation bonds or revenue bonds by the State or its political subdivisions.

The Budget and Control Board approved a resolution making provisions for the implementation of the Alcohol Fuel Development Loan Program on October 14, 1980.