Byrd v. County of Florence

Littlejohn, Justice:

Plaintiffs-Appellants, Byrd, Hanna, and Langston, challenge the constitutionality of Florence County Ordinance No. 14-82-83, which authorizes the issuance of *404general obligation bonds for the acquisition and development of an industrial park. The trial court upheld the constitutionality of this ordinance. We disagree and reverse.

By the passage of this ordinance, County Council seeks to borrow $5,500,000 by way of general obligation bonds to be repaid over a period of years from proceeds derived from ad valorem taxes imposed on Florence County property owners. The proceeds would be used to acquire approximately five hundred acres of land located on the western edge of the county, to improve it, and offer it for sale or lease to private parties for industrial use. The proceeds of the sales and/or leases within the proposed industrial park might be reinvested for expansion, etc.

Under Article X Section 14(4) of the Constitution of this State, “... general obligation debt may be incurred only for a purpose which is a public purpose and which is a corporate purpose of the applicable political subdivision.”

The basic question which this Court must determine is whether there is involved a public or corporate purpose within the meaning of the constitution. Public purpose is not easily defined. It is oftentimes stated that 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. In Anderson v. Baehr, 256 S. C. 153, 217 S. E. (2d) 43 (1975), we said:

The courts have, as a rule, been reluctant to attempt to define public purpose as contrasted with a private purpose, but have generally left each case to be determined on its own peculiar circumstances.

This Court has generally approved whát we refer to as “individual revenue bonds”, which involve not taxing power of the issuing authority, but repayment of the debt solely from revenues to be derived from the project created by use of the monies borrowed. Elliott v. McNair, 250 S. C. 75, 156 S. E. (2d) 421 (1967); Harper v. Schooler, 258 S. C. 486, 189 S. E. (2d) 284 (1972); Bauer v. S. C. State Housing Authority, 271 S. C. 219, 246 S. E. (2d) 869 (1978).

No case has come to our attention wherein this Court approved levy of ad valorem tax to repay a debt created for the purpose of industrial development. All bonds, whether gen*405eral obligation or revenue, must meet the demands of the constitution that a public purpose be served. All legislation must serve a public purpose. In the dissenting opinion of Justice Harwell, in the case of State, ex. rel. McLeod v. Riley, 276 S. C. 323, 278 S. E. (2d) 612, 617 (1981), it was pointed out that a distinction may be made (in determining public purpose) between the issuance of general obligation bonds and revenue bonds. If this Court in its reluctance to define public purpose is to consider the “peculiar circumstances” is indicated in Anderson, one of the relevant and logical considerations is the source of repayment. A distinction is justified. In revenue bonds, taxpayers can not lose. In general obligation bonds, taxpayers may lose much.

In order to sanction the ordinance under attack, the trial court liberally construed Article X Section 14 of our Constitution and Section 4-9-30 of the Code of Laws of South Carolina (1976), and Section 11-27-40 (Cum. Supp. 1982). The power of county council is not plenary. It is constitutionally limited to borrowing money for a clearly demonstrated nonspeculative public purpose.

It is inescapable that the primary beneficiaries of the proposed development would be private parties. The industrial park is not clearly defined. No purchaser or tenant has been identified. County Council hopes that the industrial park will attract purchasers and tenants; it hope's that they will employ county residents; it surmises that the public will benefit. In holding that no approximate public purpose would be served by the issuance of bonds in a somewhat similar situation, this Court stated in State, ex. rel. McLeod v. Riley, supra, the following:

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 *406Council 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.”

A somewhat similar speculative project was involved in the case of Anderson v. Baehr, supra. The Court determined that no proper public purpose was involved. The City of Spartan-burg proposed to acquire land in a slum or blighted area. It hoped to procure a developer interested in improving the property, who would covenant to erect, operate and maintain their own buildings or other facilities or improvements. The City would lease the land to the developer and provide the necessary capital for the buildings through the issuance of revenue bonds. This Court held that no public purpose was involved, even though the taxing power of the City was not pledged or involved.

The observations of Chief Justice Moss in that case are equally applicable here:

Slum clearance by condemnation is, of course, permitted, but the question of public purpose must be considered in the light of not only the authority of the city to condemn slum and blighted areas, but in the light of the use the city would make of the property. In McNulty v. Owens, 188 S. C. 377, 199 S. E. 425 (1938), the public purpose approved was the elimination of slums and the provision of improved living conditions for many displaced people. The profit motif was merely incidental and resulted from the fact that obviously free enterprise would build the houses. Here, the situation is grossly different. The Act undertakes to permit the city to effectually promote business undertakings to compete in free enterprise with other businesses which do not have the advantage which the Act would give. We think it a fair conclusion to say that benefit to the developer or *407entrepreneur, would be substantial, and the benefit to the public would be negligible and speculative.

Elliott v. McNair, supra, relied on by respondent, is of interest but not controlling. There are many bond issues which clearly involve a public purpose; there are many proposed bond issues which clearly do not involve a public purpose; there are many borderline cases. Elliott was barely above the border; the case now before us is barely, if not greatly, below the border. In Elliott, much weight was given to the presumption of constitutionality and to the fact that the taxing power of the governmental entity was not involved. In Elliott, there was no taxpayer liability. In the case now before us, there is total liability.

The Court should first determine the ultimate goal or benefit to the public intended by the project. Second, the Court should analyze whether public or private parties will be the-primary beneficiaries. Third, the speculative nature of the project must be considered. Fourth, the Court must analyze and balance the probability that the public interest will be ultimately served and to what degree.

The parties to this action have stipulated that, “[t]o date, the industries to be located in the park are unknown and indefinite, and no commitments or contracts by any industry to locate within the park have been made.” Thus, the speculative nature of the project must be rated as high.

The primary beneficiaries, if any, of this project would be private businesses. They would be spared analysis cost, costs of roads, sewer, water and electricity facilities. Their benefits are great and certain. The benefits to the taxpayers are highly speculative at best.

We hold that Florence County Ordinance Number 14-82-83 is unconstitutional in that it is violative of Article X Section 14 in failing to meet the test for a valid public purpose. It follows that judgment shall be entered in favor of Plaintiffs-Appellants.

Reversed.

Lewis, C. J., and Joseph R. Moss, Acting Associate Justice, concur.