Terry v. Mazur

STEPHENSON, J.,

delivered the opinion of the Court.

*445Invoking our original jurisdiction, the Attorney General of Virginia instituted this mandamus proceeding pursuant to Code § 8.01-653.1 (1987 Cum. Supp.) to establish the constitutionality of various provisions of Chapter 13 of the Acts of Assembly, 1986 Special Session (the Act). The Act made substantial changes to the State Revenue Bond Act, Code §§ 33.1-267 through -295 (the Bond Act), and to legislation providing sources of revenue for the repayment of revenue bonds to be issued to fund highway-related capital improvements.

The Comptroller of Virginia challenges the constitutionality of the Act. He has advised the Attorney General that he will make no payments pursuant to the Bond Act until we decide the following questions:

(1) Whether the provisions of the Act empowering the Commonwealth Transportation Board (the Board) to issue revenue bonds secured by highway user revenues, as defined in the Act, for the purpose of financing capital improvements to highways in the Commonwealth, violate the provisions of Article X, § 9 of the Constitution of Virginia concerning the creation of debt to which the full faith and credit of the Commonwealth is pledged or committed.

(2) Whether a pledge of highway user revenues from certain excise taxes authorized under the Act constitutes an appropriation in excess of the two-and-one-half-year limitation on appropriations contained in Article X, § 7 of the Constitution.

(3) Whether the provisions of the Act (a) permitting the pledge of highway user revenues to secure bonds, or (b) authorizing the Board, with the approval of the General Assembly, to contract with bondholders to maintain highway user revenues at agreed-upon minimum levels, contravene Article IV, § 15 of the Constitution, which provides that “[a]ny general law shall be subject to amendment or repeal.”

Generally, the Act establishes a new approach to financing the Commonwealth’s transportation needs. The gist of the new approach is the extension of the revenue bond concept from bonds secured only by a pledge of project-derived tolls and user fees to bonds secured by a pledge of highway user revenues, including *446excise taxes on gasoline and other fuels, and other taxes and fees related to motor vehicles.1

The Act creates a new, special nonreverting fund in the Department of the Treasury called the Transportation Trust Fund (the Fund). Code § 33.1-23.03:1 (1987 Cum. Supp.). The Fund consists, in part, of the additional revenues authorized by the General Assembly in its 1986 Special Session, Code § 33.1-23.03:1(3) (1987 Cum. Supp.), including “highway user revenues.” “Highway user revenues” are defined as:

any motor fuel tax, special fuel tax, sales or use tax related to the ownership or operation of a motor vehicle, license fee or tax related to the ownership or operation of a motor vehicle, the motor fuel tax levied in § 58.1-2105, except such tax levied on aviation fuel, the special fuel tax levied in § 58.1-2116, except such tax levied on aviation fuel, the motor vehicle sales and use tax levied in § 58.1-2402 and the road tax levied in § 58.1-2701.

Code § 33.1-268(8) (1987 Cum. Supp.). The Fund, less a total of 15% set aside for seaports, airports, and mass transit, “shall be expended for capital improvements including construction, reconstruction, maintenance, and improvements of highways ... or to secure bonds issued for such purposes, as provided by the Board and the General Assembly.” Code § 33.1-23.03:2 (1987 Cum. Supp.).

The Act establishes the Board as the successor to the State Highway and Transportation Board, formerly known as the State Highway and Transportation Commission. Code § 9-6.25:2 (1987 Cum. Supp.). The Board is authorized to issue highway user revenue bonds, “payable from earnings and from any other available sources of funds,” to finance the cost of highway projects. Code § 33.1-269(2a) (1987 Cum. Supp.). These “earnings” and “other available sources of funds” consist of highway user revenues.2 See Code § 33.1-268(9) (1987 Cum. Supp.) (definition of “reve*447nues”); Code § 33.1-268(2)(p) (1987 Cum. Supp.) (definition of “projects”); Code § 33.1-277 (1987 Cum. Supp.) (1986 amendment to pledge provision).

“Project,” which formerly meant a distinct, specifically identified road, bridge, or tunnel system, has been redefined as:

Any other highway, road or street (including all bridges, tunnels, overpasses, underpasses, interchanges, entrance plazas, approaches, service buildings, and administration, storage and other buildings and facilities), which the Board may deem necessary for the operation of such project, together with all property, rights, easements and interests which may be acquired by the Board for the construction or the operation of such projects, constructed under the provisions of this article by the Board, the financing for which is to be paid from highway user revenues, subject to the limitations and approvals in § 33.1-279.1.

Code § 33.1-268(2)(p) (1987 Cum. Supp.).

Code § 33.1-277 (1987 Cum. Supp.) provides that revenue bonds issued under the Bond Act “shall not be deemed to constitute a debt of the Commonwealth ... or a pledge of the faith and credit of the Commonwealth.” The Commonwealth, however, is obligated to impose and pledge highway user taxes and to appropriate these revenues for the payment of the bonds. Id. The Act further permits the Board to contract with bondholders of highway user revenue bonds that the pledged highway user revenues “will not be reduced below limits agreed to by the Board and authorized or approved by the General Assembly.” Code § 33.1-285 (1987 Cum. Supp.).

The Act imposes two prerequisites to the issuance of highway user revenue bonds. First, the amount of the debt secured in whole or part by highway user revenues must be “authorized or approved by the General Assembly.” Code § 33.1-279.1 (A)(i) (1987 Cum. Supp.). Second, the debt secured by highway user revenues, less amounts in sinking funds to pay such debts, cannot exceed 1.15 times the average annual revenues generated by highway user taxes during the three fiscal years immediately preceding the year the debt is incurred. Code § 33.1-279.1 (A)(ii) (1987 Cum. Supp.). In addition, the Act imposes a $1 billion cap on the total *448principal amount of outstanding bonds secured by highway user revenues (less amounts set aside in.sinking funds). Id.

We first consider whether highway user revenue bonds constitute debts proscribed by Article X, § 9 of the Constitution. The purpose and intent of Article X, § 9 is to provide a controlled limitation on the amount of debt for which the full faith and credit of the Commonwealth can be pledged. The section provides that “[n]o debt shall be contracted by or in behalf of the Commonwealth,” except as provided therein. The exceptions are clearly defined and circumscribed in subsections (a), (b), and (c) of § 9.

Subsection (a) permits the contracting of debts “to meet emergencies and redeem previous debt obligations.” The types of debts contemplated by § 9(a) are those (1) “to suppress insurrection, repel invasion, or defend the Commonwealth in time of war,” (2) “to meet casual deficits in the revenue or in anticipation of the collection of revenues ... for the then current fiscal year,” and (3) “to redeem a previous debt obligation of the Commonwealth.” Debts contracted under § 9(a) must be secured by the pledge of the full faith and credit of the Commonwealth.

Subsection (b) of § 9 authorizes debt for capital projects that are “distinctly specified” in the enabling legislation. These debts, for which the full faith and credit of the Commonwealth shall be pledged, must be affirmed by the people at a general election. Total § 9(b) debt over a three-year period shall not exceed 25 percent of 1.15 times the average annual revenues from income and retail sales taxes for the three fiscal years immediately preceding the authorization.

Subsection (c) of § 9 permits the creation of debt for “certain revenue-producing capital projects.” This subsection authorizes the issuance of revenue bonds secured by a pledge of net revenues of a project and the full faith and credit of the Commonwealth, provided that (1) the Governor certifies in writing both before the General Assembly authorizes the debt and again before the debt is incurred that the anticipated net revenues from the capital project will be sufficient to carry the debt, (2) two-thirds of both houses of the General Assembly vote to authorize the debt, and (3) the total authorized § 9(c) debt does not exceed 1.15 times the average annual revenues from income and retail sales taxes for the immediately preceding three fiscal years.

*449The Attorney General does not contend that the proposed highway user revenue bonds would be permissible under § 9(a), (b), or (c), but relies upon § 9(d) for the bonds’ validity. Section 9(d) provides as follows:

Obligations to which section not applicable.
The restrictions of this section shall not apply to any obligation incurred by the Commonwealth or any institution, agency, or authority thereof if the full faith and credit of the Commonwealth is not pledged or committed to the payment of such obligation.

The Attorney General argues that subsection (d) “makes it clear that the only debt proscribed by Art. X, § 9 is debt to which the full faith and credit of the Commonwealth is pledged or committed.” She asserts, therefore, that the Article X, § 9 debt proscription is “not relevant” because payment of the proposed bonds is secured by the pledge of a “special fund and in no way involves the Commonwealth’s full faith and credit.”

The Comptroller, on the other hand, asserts that the Attorney General asks us “to find, for the first time, that a purported special fund which calls for the mandatory, irrevocable inclusion of current and future tax revenues in the special fund qualifies as a § 9(d) exception.” He contends that “[s]uch a financing scheme cannot be approved under the guise of the special fund doctrine . . . without doing severe damage to the spirit and purpose of the Constitution.”

At the outset, we recognize that the General Assembly functions under no specific grant of power, and its powers are broad and plenary. It may enact any law not prohibited by the Federal or Virginia Constitutions. Trucking Corporation v. Commonwealth, 207 Va. 23, 29, 147 S.E.2d 747, 751-52 (1966); Harrison v. Day, 200 Va. 764, 770, 107 S.E.2d 594, 598 (1959). Moreover, an act of the General Assembly is presumed to be constitutional, and every reasonable doubt must be resolved in favor of the act’s constitutionality. Almond v. Gilmer, 188 Va. 822, 834, 51 S.E.2d 272, 276 (1949).

The Constitution, however, is the supreme and fundamental law of the Commonwealth; “[i]t is the charter by which our people have consented to be governed.” Coleman v. Pross, 219 Va. 143, 152, 246 S.E.2d 613, 618 (1978). An Act passed by the Gen*450eral Assembly inconsistent with or repugnant to the Constitution is invalid, and it is our duty to declare such an act unconstitutional. Commonwealth v. Nat. Fire Ins. Co., 161 Va. 737, 750, 172 S.E. 448, 453 (1934).

We initially enunciated the Special Fund Doctrine in Gilmer, a case involving the constitutionality of the first State Revenue Bond Act (the 1940 Act). The bonds in Gilmer were to be payable solely from tolls and charges collected from certain highway projects designated in the 1940 Act. The 1940 Act prohibited the Commonwealth from incurring any obligation “to levy or to pledge any form of taxation whatever,” for the payment of the bonds. Acts 1940, c. 399. Thus, the bonds could be issued only to finance self-sustaining, specifically designated projects.

We concluded that adopting the Special Fund Doctrine was appropriate because the 1940 Act imposed “no indirect or contingent obligation . . . upon the State to levy any tax or make any appropriation toward the enterprise.” Gilmer, 188 Va. at 840, 51 S.E.2d at 279 (emphasis added). Indeed, we stated that “[t]he source and only source from which the [bondholders] may force payment is fixed, designated and limited. It is that special fund created by those who pay the tolls and charges for the use of the facilities . . . and none other.” Id. at 842, 51 S.E.2d at 280.

We next considered the application of the Special Fund Doctrine in Farquhar v. Board of Supervisors, 196 Va. 54, 82 S.E.2d 577 (1954). In Farquhar, we upheld the constitutionality of the Virginia Water and Sewer Authorities Act — legislation that permitted the issuance of bonds secured solely by revenues derived from user fees paid to a county. We relied upon our holding in Gilmer and distinguished it from American-LaFrance v. Arlington County, 164 Va. 1, 178 S.E. 783 (1935), explaining that the debt held unconstitutional in American-LaFrance was “one running over a period of years and payable from the general tax funds.” Farquhar, 196 Va. at 61, 82 S.E.2d at 582. We further explained that “[t]he special fund doctrine is not applicable unless the creditor must look for payment to the special fund alone; if the political entity is made generally liable, then an indebtedness is created within the debt limitations of the Constitution.” Id.

Harrison v. Day, 202 Va. 967, 121 S.E.2d 615 (1961), required our consideration of the Special Fund Doctrine’s applicability to revenue bonds payable solely from revenues derived from newly constructed port facilities. In Harrison, the Virginia State Ports *451Authority contracted with a railway company to lease properties for the purpose of providing port facilities. The revenue bonds issued to underwrite the project expressly negated any obligation of the Commonwealth to pledge its full faith and credit. In the contract, however, the Virginia State Ports Authority agreed that it would “urgently request” the General Assembly to make annual appropriations for a percentage of the cost of the project. Relying on Gilmer, we held that this “moral obligation” on the part of the Commonwealth was not a constitutionally prohibited debt because the state was in no way obligated to make the “urgently requested]” appropriations. Harrison, 202 Va. at 975-77, 121 S.E.2d at 620-21.

We again considered the Special Fund Doctrine in Button v. Day, 204 Va. 270, 130 S.E.2d 459 (1963) (Button I). In Button I, we addressed the constitutionality of an amendment to the Virginia College Building Authority Act, now Code §§ 23-30.23 through -30.38. The original act authorized certain colleges to issue bonds to finance the construction of various projects. The bonds were to be secured by a pledge of, and payable solely from, the revenues derived from the projects. The amendment considered in Button I permitted certain educational institutions to issue bonds secured partly from the increases in revenues from other existing projects. We upheld the constitutionality of that amendment. In so doing, we approved an expansion of the Special Fund Doctrine because the bonds were “payable solely from a special fund[,] ... the general credit of the State” was not pledged for their payment, and the bondholders could not “look to the State’s general revenues for payment.” Button I, 204 Va. at 273, 130 S.E.2d at 462.

Button I was followed by Button v. Day, 205 Va. 739, 139 S.E.2d 838 (1965) {Button II). In Button II, we considered a further amendment to the Virginia College Building Authority Act that made all revenues from other existing facilities available for pledge to or payment of bonds. We also approved this amendment because the legislation provided that the bonds “are payable only from the specified revenue sources and the [bondholders] may not look to the State’s general revenue for payment.” Id. at 743, 139 S.E.2d at 840.

Most recently, we considered the Special Fund Doctrine in Baliles v. Mazur, 224 Va. 462, 297 S.E.2d 695 (1982), where we addressed specifically the application of Article X, § 9(d) of the *452Constitution. Baliles dealt with the Virginia Public Building Authority, a governmental entity created for the purpose of financing the acquisition, construction, maintenance, and operation of the Commonwealth’s public buildings. The revenue bonds authorized for this purpose were payable solely from the buildings’ operating revenues, which were pledged to secure the bonds. These revenues were to be generated by leasing the buildings to the Commonwealth. The leases, however, could be terminated early in the event funds for rental payments became unavailable through failure of the General Assembly to appropriate the money. The enabling legislation provided that the bonds state on their face that they “shall not constitute a debt of the Commonwealth.” Id. at 466, 297 S.E.2d at 697.

Although the special fund from which the bonds in Baliles were payable was to consist of payments from the Commonwealth’s general fund, we held that the Special Fund Doctrine applied because the legislation imposed no legal obligation upon the General Assembly to appropriate the funding. Baliles, 224 Va. at 471, 297 S.E.2d at 699-700. In holding that the bonds would not constitute a debt of the Commonwealth, we said that “[t]he overriding consideration ... is whether the legislative body is obligated to appropriate the funds, not the source or composition of the special fund.” Id. at 471, 297 S.E.2d at 700 (emphasis added).

In the present case, the Comptroller supports his contention that the proposed highway user revenue bonds would constitute a debt of the Commonwealth rather than come within the ambit of the Special Fund Doctrine by focusing upon the amendments to Code § 33.1-277. Although both the former and the present Code § 33.1-277 provide that the bonds “shall not be deemed to constitute a debt of the Commonwealth . . . or a pledge of the faith and credit of the Commonwealth,” the 1986 amendment has effectively rendered that provision inapplicable to highway user revenue bonds.

Prior to the 1986 amendment, Code § 33.1-277 contained the following provision:

The issuance of revenue bonds under the provisions of this article shall not directly or indirectly or contingently obligate the Commonwealth to levy or to pledge any form of taxation whatever therefor or to make any appropriation for their, payment, other than to appropriate available funds derived *453as revenues from tolls and charges collected under this article or derived from bond proceeds or earnings thereon and from any other available sources of funds.

In contrast, however, amended Code § 33.1-277 reads as follows:

The issuance of revenue bonds under the provisions of this article shall not directly or indirectly or contingently obligate the Commonwealth to levy or to pledge any form of taxation whatever therefor or to make any appropriation for their payment, other than to impose highway user revenues, tolls and appropriate available funds derived as revenues under this article or derived from bond proceeds or earnings thereon and from any other available sources of funds.

(Emphasis added.)

As previously noted, highway user revenues by definition include revenues generated by (1) the increases in motor vehicle fuel taxes, (2) the increase in motor vehicle registration and license plate fees, and (3) the increase in motor vehicle sales and use taxes. Thus, the bonds would be payable in part from and secured in part by the Commonwealth’s revenues derived from taxes that the General Assembly is legally obligated to impose and appropriate to the special fund.

The Attorney General nevertheless contends that the pledge of highway user revenues to secure payment of the bonds is constitutional because, historically, such tax revenues have been set aside by statute for highway purposes. She asserts, therefore, that the General Assembly will not be pledging or committing the general credit of the Commonwealth or reducing the Commonwealth’s general fund because highway-related taxes were never treated as part of the general fund.

Although we recognize that the General Assembly has historically allocated these revenues for highway purposes, we also recognize that these funds are nonetheless tax revenues that a future session of the General Assembly, in its discretion, could allocate for other purposes or even repeal entirely. Moreover, the General Assembly has never pledged or required the appropriation of highway user revenues to secure long-term debts or obliga*454tions.3 Simply because previous sessions of the General Assembly have treated or labeled these revenues as a “special fund” does not qualify them under the Special Fund Doctrine for the Article X, § 9(d) exception to the constitutional debt limitations. The issue presented is not controlled by how the General Assembly historically has exercised its discretion, but rather by the limitations placed upon the General Assembly by the people through their Constitution.

The Constitution recognizes the element of legislative discretion inherent in highway user taxes. The Constitution provides that if a debt incurred under § 9(b) is “for public road purposes, [the payment of such debt] shall be first made from revenues segregated by law for the construction and maintenance of State highways.” However, the Constitution does not define the phrase “revenues segregated by law for the construction and maintenance of State highways,” nor does it mandate the segregation of any such revenues. Clearly, the framers intended to leave the determination of which, if any, revenues should be segregated for such purposes to the discretion of each session of the General Assembly, thereby allowing future legislatures the flexibility to meet the Commonwealth’s changing needs.

In Miller, Att. Gen. v. Watts, Treas., 215 Va. 836, 841, 214 S.E.2d 165, 169 (1975), we summarized the constitutional meaning of the Special Fund Doctrine as follows:

Under the [Special Fund] Doctrine, no constitutionally prohibited indebtedness is created when bonds issued to finance a particular State capital project are to be paid solely from a special fund derived from the revenues of that project; when the legislature is not obligated to appropriate funds for payment of the indebtedness; and, when the indebtedness is not *455secured by the general faith, credit and taxing power of the State.

(Emphasis added.)

We have approved special funds comprised of project-derived revenues in Gilmer, Farquhar, Button I, and Button II. We also have approved special funds consisting in part of payments from the general fund that the General Assembly is morally obligated to make, e.g., Baliles, and Harrison v. Day, 202 Va. 967, 121 S.E.2d 615 (1961). However, we have never approved a scheme, such as the Act contemplates, in which a special fund for the payment and security of bonds would consist of tax revenues that the General Assembly is legally obligated to pledge, impose, and appropriate. The Constitution does not permit such an extension of the Special Fund Doctrine, and consequently we hold that the Act’s financing scheme would create a debt of the Commonwealth in contravention of the proscription of Article X, § 9 of the Constitution.

The second question submitted by the Comptroller is whether the pledge of highway user revenues authorized under the Act constitutes an appropriation in excess of the limitation contained in Article X, § 7 of the Constitution. Article X, § 7, in pertinent part, provides as follows:

All taxes, licenses, and other revenues of the Commonwealth shall be collected by its proper officers and paid into the State treasury. No money shall be paid out of the State treasury except in pursuance of appropriations made by law; and no such appropriation shall be made which is payable more than two years and six months after the end of the session of the General Assembly at which the law is enacted authorizing the same.

(Emphasis added.)

The Attorney General contends that the provisions of the Act mandating a pledge of highway user revenues does not constitute an appropriation. She asserts that Code § 33.1-277 imposes “an obligation, a legal duty, to appropriate those revenues . . . but such an obligation is not an appropriation of them.”

If we examined Code § 33.1-277 in a vacuum, we possibly could accept the Attorney General’s assertion. As the Comptroller points out, however, the Act must be read and construed in con*456junction with other amendments passed during the 1986 Special Session as part of the transportation legislation. In this regard, the amendments to Code § 58.1-2425 are most significant. Amended Code § 58.1-2425 provides in pertinent part as follows:

A. All funds collected hereunder by the Commissioner [of the Department of Motor Vehicles] shall be forthwith paid into the state treasury. The revenue so derived ... is hereby allocated for the construction, reconstruction and maintenance of highways and the regulation of traffic thereon and for no other purpose. However, . . . (iii) effective January 1, 1987, an amount equivalent to the net additional revenues generated by enactments of the 1986 Special Session of the Virginia General Assembly which amended §§ 46.1-149, 46.1-154, 58.1-2401, 58.1-2402 and this section shall be distributed to and paid into the Transportation Trust Fund, and are hereby appropriated to the Commonwealth Transportation Board for transportation needs ....

Code § 58.1-2425(A) (1987 Cum. Supp.) (emphasis added).

Clearly, Code § 58.1-2425(A) appropriates revenues. The statute is self-executing — no further legislation is needed to effect the will of the General Assembly.

The Attorney General concedes that the length of the proposed bonds would exceed two and one-half years. Thus, we hold that the appropriation of the pledged revenues provided by Code § 58.1-2425(A) exceeds the limitation set forth in Article X, § 7.

The third question the Comptroller presents is whether the Act violates the mandate of Article IV, § 15 of the Constitution that “[a]ny general law shall be subject to amendment or repeal” by the General Assembly. As previously noted, the Act permits the pledge of highway user revenues to secure the bonds, Code § 33.1-277 (1987 Cum. Supp.), and authorizes the Board to contract with bondholders to maintain highway user revenues at agreed-upon minimum levels, subject to approval by the General Assembly, Code § 33.1-285 (1987 Cum. Supp.).

The Constitution vests in the General Assembly the power to repeal or amend legislation. This means that legislation enacted in one session of the General Assembly may be repealed or amended at a subsequent session of the General Assembly. Any legislation that infringes upon the right of subsequent General As*457semblies to repeal or amend legislation is repugnant to Article IV, § 15.

Clearly, this is the effect of the Act. Under the Act, the pledge of taxes to secure the bonds would be irrevocable during the life of the bonds. As previously noted, the Act authorizes the Board to contract with bondholders that pledged highway user revenues “will not be reduced” below agreed levels. Code § 33.1-285 (1987 Cum. Supp.). Such a contractual provision would override any attempt by a future session of the General Assembly to reduce or repeal the taxes because provisions in both the Federal and Virginia Constitutions prohibit legislation that impairs the obligation of contracts. U.S. Const, art. I, § 10; Va. Const, art. I, § 11. Thus, no subsequent session of the General Assembly could repeal or lower the pledged taxes.

For the foregoing reasons, we hold that the 1986 amendments to the Bond Act violate Article X, §§ 7 and 9, and Article IV, § 15 of the Constitution. Accordingly, the petition for a writ of mandamus will be denied.

Writ denied.

The Act did not alter the Board’s authority to use toll revenues to secure toll revenue bonds issued pursuant to the Bond Act.

The parties have stipulated that the Act does not permit a pledge of revenues from taxes imposed by the Virginia Retail Sales and Use Tax Act, Code § 58.1-600 et seq. or any other taxes, except those included in the definition of the terms “highway user revenue” or “highway user revenues.”

For example, former Code § 58.1-2146 (1984 Repl. Vol.) allocated the fuel taxes imposed by Code §§ 58.1-2701, -2105, and -2116 to “the construction, reconstruction or maintenance of . . . state highways . . . including the retirement of revenue bonds,” merely permitting fuel taxes to be used for bond payments. Former Code § 58.1-2425 allocated the motor vehicle sales and use taxes imposed by Code § 58.1-2402 “for the construction, reconstruction and maintenance of highways and the regulation of traffic thereon and for no other purpose,” excluding by implication the use of these taxes for bond purposes. Former Code § 46.1-167 (1986 Repl. Vol.) allocated the registration and license plate fees imposed by Code §§ 46.1-149 and -154 for many different, specifically identified purposes related to highway construction, maintenance and operation, but payment of revenue bonds was not included in the designated expenditures.