Number 5 August 2, 1973

Number 5 August 2, 1973 Honorable Wallace C. Mills, Clerk House of Representatives State House Boston, Massachusetts 02133 Dear Mr. Mills: The House of Representatives has requested my opinion (House No. 6799) on the question: "Would House Bill 5233, entitled 'An Act to stimulate the economy through business and industrial financial assis- tance' if passed, violate any provisions of the Constitution of the Com- monwealth or of the United States?" House Bill 5233 provides for the creation of a "Board of Business As- sistance Approval" (hereafter "the Board") within the Department of Commerce and Development consisting often members, five of whom are public officials specified by the bill and five appointed by the Gover- nor to serve at his pleasure (subsections 14 and 15 of section 7). The declared purpose of the bill is "to protect the public welfare by reducing the high level of unemployment, lessening the number of people on wel- fare rolls and increasing income tax revenues for the Commonwealth by encouraging lending institutions to extend credit to those industries and businesses which may preserve or create jobs for the people of the commonwealth." To this end, the bill provides for the establishment of a "mortgage guarantee fund" (subsection 19 of section 8), a "business loan guarantee fund" (subsection 25 of section 9), and a "capital partici- pation loan fund" (subsection 29 of section 10). Additionally, the Board is authorized to borrow money by issuing revenue bonds for the purpose of financing industrial projects within the Commonwealth of Massachu- setts (subsection 33 of section 1 1). I. Public Purpose House Bill 5233 appropriates public money for the mortgage guarantee fund (section 13), the business loan guarantee fund (section 14) and the capital participation loan fund (section 15). Public money is money raised by Taxation. Opinion of the Justices, 354 Mass. 779, 784 (1968). P.D. 12 51 Since it is a long-established principle of constitutional law that public money can be used only for a public purpose and not for the advantage of private individuals. Opinion of the Justices, 337 Mass. 800 (1958); Eisenstcult v. County of Suffolk, 331 Mass. 570 (1954); Opinion of the Justices, 261 Mass. 523 (1927); Duffy v. Treasurer and Receiver General, 234 Mass. 42 (1919); Lowell \'. Boston, 111 Mass. 454 (1873), House Bill 5233 raises the question whether the expenditure of public funds is hereby authorized for other than a public purpose. Such a determination depends upon the circumstances of each particu- lar case. Opinion of the Justices to the Senate and House of Representatives, 341 Mass. 738 (1960), with the paramount test being whether the expenditure confers direct public benefit of a reasonably general character to a significant part of the public, as distinguished from a remote and theoretical benefit. Opinion of the Justices, 349 Mass. 794 (1965); Opinion of the Justices, 347 Mass. 797 (1964); Opinion of the Justices, 337 Mass. 777 (1958). Thus, where the Commonwealth pro- vides assistance to or utilizes a private individual or enterprise in aid of a valid public objective, such a scheme is not rendered unconstitutional simply because that private person or institution receives some incidental advantage or benefit which is secondary to the accomplish- ment of the predominant public purpose of the plan. Opinion of the Justices, 356 Mass. 814 (1971); Opinion of the Justices, 354 Mass. 779 (1968); Massachusetts Bay Transportation Authority v. Boston Safe Deposit and Trust Co., 348 Mass. 538 (1965); Allydonn Realty Corp. v. Holyoke Housing Authority, 304 Mass. 288, 292-293 (1939). And it has been declared that weight should be given to legislative findings of fact as to existing conditions material in such a determination. Opinion of the Justices, 349 Mass. 794 (1965); McLean v. City of Boston, 327 Mass. 1 18 (1951) (legislative finding of public emergency not met by way of or- dinary private action); Opinion of the Justices, 320 Mass. 773 (1946). It is my opinion, in light of the stated purpose of the bill and the reci- tation of legislative findings of fact as to the high unemployment rate in the Commonwealth, that the passage of this bill would not entail an un- constitutional expenditure of public funds, and would benefit a signifi- cant part of the public. The Justices of the Supreme Judicial Court, in Opinion of the Justices, 356 Mass. 814 (1971), have held that a statute authorizing the Commonwealth to borrow money and to lend such money to private businesses for construction of water pollution waste treatment facilities did not involve the expenditure of public funds for other than a public purpose where the purpose of the statute was the abatement of industrial water pollution. The Justices relied upon findings by the Legislature that such pollution constituted an obvious danger to public health, safety and welfare, and determined that any benefits received by recipients of loans would be incidental to the accomplishment of the primary purpose of the act. It is my opinion that the instant bill encouraging lending institutions to extend credit to certain private industries and businesses which may preserve or create jobs for the people of the Commonwealth involves a 52 P.D. 12 scheme comparable to the water pollution waste treatment plan, and a similar determination as to public purpose is warranted. Moreover, Art. 88 of the Articles of Amendment to the Constitution of the Commonwealth provides that "The industrial development of cities and towns is a public function and the cities and towns therein may provide for the same in such manner as the general court may de- termine." See, Opinion of the Justices. 356 Mass. 814 (1971) (abatement of industrial water pollution without impairment of local industrial de- velopment involves an important public purpose). Finally, the bill contains language designed to insure that the public interest prevails over the private. Subsection 24 of section 9 requires that the Board may enter into a business loan guarantee agreement only if "the borrower can establish to the satisfaction of the Board that jobs will be created or preserved through the availability of financial assis- tance." An identical provision is included in subsection 28 of section 10 pertaining to capital participation loan agreements. As to the Board's au- thority to issue revenue bonds under section 1 1 , although it is my opin- ion that this is not an expenditure of public funds or an extension of pub- lic credit, still subsection 36 includes language which further indicates the intention of the Legislature that the bill be primarily for the benefit of the public. The only provision that appears constitutionally questionable on a public purpose ground is that regarding mortgage guarantee agreements, since this section does not include any of the language to which I have referred. It is possible that a court would interpret this omission as sig- nifying a different intention on the part of the Legislature and thus de- clare it constitutionally invalid. IL Credit of the Commonwealth Article 62, §1 of the Articles of Amendment to the Constitution of Massachusetts (as amended by Art. 84 of the Amendments) provides that: "The commonwealth may give, loan or pledge its credit only by a vote taken by the yeas and nays, of two-thirds of each house of the General Court present and voting thereon. The credit of the common- wealth shall not in any manner be given or loaned to or in aid of any individual, or of any private association, or of any corporation which is privately owned and managed." (Emphasis supplied.) House Bill 5233 involves the guaranty of loans made by lending institutions to industries and businessess in the Commonwealth which are unable to secure such loans without state assistance through the mortgage guarantee fund, the business loan guarantee fund, and the capital participation loan fund. In addition, the Board is authorized to borrow money. Since it has been decided that a guaranty by the Commonwealth is a loan of the credit of the Commonwealth, Opinion of the Justices, 337 Mass. 800 (1958). as is borrowing and lending of money. Opinion of the Justices, 356 Mass. 814 (1971), House Bill 5233 raises a question con- cerning potential violation of Art. 62, § 1 of the Articles of Amendment to the Constitution of Massachusetts. P.D. 12 53 However, it is my opinion that there is no loan or pledge of the credit of the Commonwealth on the face of this bill, Massachusetts Bay Transportation Authority v. Boston Safe Deposit and Trust Co., supra, except with regard to the capital participation loan provision. In section 8 of the bill, creating the mortgage guarantee fund, there is very specific language in subsection 20 to the effect that "the total amount of the debt service obligation payable on account of all loans to all mortgagors which are subject to mortgage loan guarantee agreements shall not ex- ceed the amount of the mortgage fund." And in subsection 22 it is clearly stated that an "obligation shall be payable solely from the mort- gage guarantee fund and shall not constitute a pledge of the taxing power or the faith and credit of the commonwealth." Similar language restricts the business loan guarantee provisions (subsections 23 and 26 of section 9) and the power to issue revenue financing bonds (subsections 30 and 34 of section II). The Board thus may not become obligated beyond its own resources, and may not in any way rely upon the credit of the Commonwealth. Statutory language of this type has been interpreted by the courts to effectively withhold commitment of the state's credit and thus comply with the requirements of Art. 62, § 1 of the Articles of Amendment to the Constitution of Massachusetts. See, Massachusetts Housing Finance Agency v. New England Merchants National Bank, 356 Mass. 202 (1969); Opinion of the Justices, 354 Mass. 779, 779-81 (1968).' Therefore, it is my opinion that the powers given the Board do not involve an unlawful pledge of the credit of the Commonwealth or an un- lawful delegation of authority in violation of Art. 62, § 1 of the Articles of Amendment to the Constitution of Massachusetts, except with regard to the capital participation loan provisions where no disclaimer is in- cluded. Here again, omission may be interpreted as notice of a different intention. in. Borrowing Power Article 62, § 3 of the Articles of Amendment to the Constitution of Massachusetts declares that: "In addition to the loans which may be contracted as before provided, th^ commonwealth may borrow money only by a vote, taken by the yeas and nays, of two-thirds of each house of the general court present and voting thereon. The governor shall re- commend to the general court the term for which any loan shall be con- tracted." (Emphasis supplied.) Since House 5233 would authorize the Board to borrow money, it raises the question of unlawful delegation of power by the Legislature to the Board on matters of borrowing money. The issue turns upon whether the Board has a "substantive existence independent of the Commonwealth" so that borrowing by it does not constitute borrowing by the Commonwealth. Opinion of the Justices, 354 Mass. 779, 785 (1968); Massachusetts Bay Transportation Authority V. Boston Safe Deposit and Trust Co., supra; Opinion of the Justices, 334 Mass. 731 (1956); Opinion of the Justices, 322 Mass. 745 (1948). 'I nole th;il one case. A\ci v. Cuiiiiiuwidiii-r oj Ailniini'.liiiuon. 140 Mass. 5X6 (1960). slalcd hy way of dicia thai "the Act provides that the bonds shall not constitute a deht of the ( ommonwealth or a pledge of its faith or credit. (§ 14). This disclaimer is ineffective if. contrary to the disclaimer, such he the natural and reasonable effect of the statute." However. I find no reason to believe, on the face of the bill, that the disclaimer \\ill he ineffective. 54 P.D. 12 It is my opinion that the Board of Business Assistance Approval would, in effect, have an independent existence of its own, and that bor- rowing by it would not constitute borrowing by the Commonwealth of Massachusetts. Borrowing of money would be done by the Board which would be primarily liable for the payment of all its notes and bonds and all loans incurred by it (subsection 34 of section 1 1). See, Opinion of the Justices, 322 Mass. 745 (1948). The Commonwealth incurs no liability from dealings of the Board. Moreover, what the Supreme Judicial Court said about the independent status of housing authorities in Johnson-Foster Co. v. D'Amore Construction Co., 314 Mass. 416, 419, seems applicable here as well: "The statutes establishing housing authorities make it plain that such an authority, although organized by and in each city and town in cooperation with the State, is nevertheless, when organized, a complete corporate entity in itself, distinct from the municipal corporation within whose territory it is set up, and exercising its powers in its own independent right. ... It is an instrumentality of government, but it is also a corpora- tion having the contracting powers of a corporation and su- able as such 'in the same manner as a private corporation.' ... Its contracts are its own and are not those of the munici- pality." In a similar manner the Board of Business Assistance Approval, al- though established by the Commonwealth, will have a genuine existence of its own which is distinct from the existence of the Commonwealth. It has the power to make contracts and own property which cannot accu- rately be said to be property of the Commonwealth (subsection 30 of section 11). Opinion of the Justices, 322 Mass. 745 (1948). The Board must pay all its obligations without the assistance of the Commonwealth or its credit. I have noted that the Supreme Judicial Court has recog- nized the independent status of certain governmental instrumentalities even where the State did extend its credit to guarantee bonds and loans made by the agency. Opinion of the Justices, 354 Mass. 779 (1968) (Massachusetts Educational Facilities Authority); Massachusetts Bay Transportation Authority v. Boston Safe Deposit and Trust Co., supra; Opinion of the Justices, 322 Mass. 745 (1948) (Financing of low rent housing projects for war veterans). Finally, the Board has not been set up "as merely colorable entities or as a subterfuge to evade the provi- sions of Art. 62, § 3, and to enable the Commonwealth to borrow money without the two-thirds vote of each house and the recommendation of the Governor required by section 3." Opinion of the Justices, 322 Mass. 745 (1948); Ayer v. Commissioner of Administration, supra. It is the Board which decides to borrow money and how that money should be used. Thus I must agree with the statement of the Justices of the Supreme Judicial Court when they declared, regarding the status of housing au- thorities in Opinion of the Justices, 322 Mass. 745 (1948), that to say that the Commonwealth would be borrowing money under this bill "would involve a failure to recognize the true relations intended to be P.D. 12 55 brought about and would extend the word 'borrow" beyond its natural signification as used in Art. 62. § 3." Although it is my opinion that House 5233 does not violate the intent of Art. 62, § 3 of the Amendments to the Constitution of Massachusetts, there is language, however, in the bill that might be construed by a court as indicative that the Board does not constitute an independent entity. In particular, 1 note that the Board of Business Assistance Approval is "created and placed in the department of commerce and development," (subsection 14 of section 7) and that it acts "for and on behalf of the commonwealth" (subsection 18 of section 8, subsection 23 of section 9. and subsection 27 of section 10). Such language draws into doubt the substantive independence of the Board, and, in my opinion, weakens the bill from a constitutional standpoint. Very truly yours, ROBERT H. QUINN Attorney General