Research Memo

10/31/2005

Research Memo

05 RM 083 Date: October 31, 2005

Author: Joy N. Hill, Associate Research Analyst

Re: Comparison of Wyoming and Other States’ Constitutional Prohibition Against Loans and Gifts to Individuals, Private Entities, etc.

QUESTION 1. With respect to providing public assistance to individuals and private entities, do western states, particularly Arizona, have a Constitutional prohibition similar to Wyoming Constitution Article 16, Section 6?

2. What has Wyoming, or western states, done in an attempt to circumvent this prohibition?

ANSWER 1. Most of the western states reviewed do have Constitutional prohibitions similar to Wyoming’s Article 16, Section 6, which states, in part: Neither the state nor any county, city, township, town, school district, or any other political subdivision, shall loan or give its credit or make donations to or in aid of any individual, association or corporation, except for necessary support of the poor...1

To begin, it would be helpful to provide a brief background on the creation of the Wyoming Constitution: Wyoming’s desire to come into statehood was exemplified by the fact that the framers of the Wyoming Constitution took only 25 days to write the document. The document was a compilation of provisions from various other state Constitutions, particularly from those states admitted to the union just prior to Wyoming. These states- North Dakota, South Dakota, Montana, Idaho, and Washington-were the states Wyoming framers borrowed most heavily from, but included Colorado’s Constitution as well.2 For purposes of this request, it is important to note that Arizona was not admitted to the union until 1912, whereas the above- referenced states were admitted prior to 1890, with Wyoming being admitted in that year.

Below is a brief synopsis of the prohibitions similar to Article 16, Section 6 from the constitutions of the states referenced above, as well as other western states.

1 Please also note Article 1, Section 19, which prohibits appropriations to sectarian or religious societies or institutions; and Article 3, Section 36, which prohibits appropriations for “…charitable, industrial, educational or benevolent purposes to any person, corporation or community not under the absolute control of the state, nor to any denominational or sectarian institution or association.” 2 Keiter, Robert B., Newcomb, Tim, The Wyoming State Constitution: A Reference Guide, 1993; Prien, Richard Kenneth, “The Background of the Wyoming Constitution,” 1956.

WYOMING LEGISLATIVE SERVICE OFFICE • 213 State Capitol • Cheyenne, Wyoming 82002 TELEPHONE (307) 777-7881 • FAX (307) 777-5466 • EMAIL • [email protected] • WEBSITE http://legisweb.state.wy.us PAGE 2 OF 5

North Dakota Constitution. Article X, Section 18 Finance and Public Debt: “The state, any county or city may make internal improvements and may engage in any industry, enterprise or business, not prohibited by article XX of the constitution, but neither the state nor any political subdivision thereof shall otherwise loan or give its credit or make donations to or in aid of any individual, association or corporation except for reasonable support of the poor…”

South Dakota Constitution. Article XIII Public Indebtedness does not speak directly to providing funds in aid to individuals, associations or corporations, but states as follows: Section 1 - “For the purposes of developing the resources and improving the economic facilities of South Dakota, the state may engage in works of internal improvement, may own and conduct proper business enterprises, may loan or give its credit to, or in aid of, any association, or corporation, organized for such purposes.” In addition, South Dakota also has a provision, Article XIII, Section 17, which provides for home loans by the state: “The state may establish and maintain a system of credits for assisting in the building of homes by the people of the state, and therefor may loan money and extend credit to the people of the state upon real estate security in such manner and upon such terms and conditions as may be prescribed by general law.”

Montana Constitution. Montana held a Constitutional Convention in 1971-1972 to revise their Constitution. The revised Constitution does not appear to have any language speaking to either provision of aid to individuals, association or corporations, or an economic development or other provision similar to Wyoming Constitution Article 16, Section 6 et seq. However, Article 5, Section 35 of the 1889 Montana Constitution states: “No appropriation shall be made for charitable, industrial, educational or benevolent purposes to any person, corporation or community not under the absolute control of the state, nor to any denominational or sectarian institution or association.”

Idaho Constitution. Article VIII Public Indebtedness and Subsidies: Section 2 - “(1) The credit of the state shall not, in any manner, be given, or loaned to, or in aid of any individual, association, municipality or corporation;” Section 4 - “No county, city, town, township, board of education, or school district, or other subdivision, shall lend, or pledge, the credit of faith thereof directly or indirectly, in any manner, to or in aid of any individual, association, or corporation, for any amount or for any purpose whatever or become responsible for any debt, contract, or liability of any individual, association or corporation in or out of this state.”

Washington State Constitution. Article VIII State, County, and Municipal Indebtedness: Section 5 - “The credit of the state shall not, in any manner be given or loaned to, or in aid of, any individual, association, company or corporation.” Section 7 - “No county, city, town or other municipal corporation shall hereafter give any money, or property, or loan its money, or credit to or in aid of any individual, association, company or corporation, except for the necessary support of the poor and infirm…”

Colorado Constitution. Article XI, Section 1 Pledging credit of state, county, city, town or school district forbidden: “Neither the state, nor any county, city, town, township or school district shall lend or pledge the credit or faith thereof, directly or indirectly, in any manner to, or in aid of, any person, company or corporation, public or private, for any amount, or for any purpose whatever;”

Arizona Constitution. Article 9, Section 7 Gift or loan of credit; subsidies; stock ownership; joint ownership: “Neither the state, nor any county, city, town, municipality, or other subdivision of the state shall ever give or loan its credit in the aid of, or make any donation or grant, by subsidy or otherwise, to any individual, association, or corporation…”

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New Mexico Constitution. Article IX, Section 14 Aid to private enterprise; veterans’ scholarship program; student loans: “Neither the state, nor any county, school district, or municipality, except as otherwise provided in this constitution, shall directly or indirectly lend or pledge its credit, or make any donation in aid of any person, association or public or private corporation…nothing herein shall be construed to prohibit the state or any county or municipality from making provision for the care and maintenance of sick and indigent persons…The state may also establish by law a program of loans to students of the healing arts…”

Nevada Constitution. Article VIII, Section 9 Gifts or loans of public money to certain corporations prohibited: “The State shall not donate or loan money, or its credit, subscribe to or be, interested in the Stock of any company, association, or corporation, except corporations formed for educational or charitable purposes.”

Annotations for this section include opinions of the Nevada Attorney General’s office, including one that specifically states, “This Article relates entirely to municipal and other corporations and does not prohibit loans to individuals.” AGO 35 (3-28-1919). LSO research did not identify an Article or portion of the Nevada Constitution that prohibits loans to individuals.

Utah Constitution. Article VI, Section 29 Lending public credit and subscribing to stock or bonds forbidden - exception: “(1) Neither the State nor any county, city, town, school district , or other political subdivision of the State may lend its credit or, except as provided in Subsection (2), subscribe to stock or bonds in aid of any private individual or corporate enterprise or undertaking.”

OPINIONS OF THE WYOMING ATTORNEY GENERAL Attached to this memo are two opinions from the Attorney General’s office regarding Article 16 issues. Attachment A, issued December 3, 1986, discusses the constitutionality of counties and municipalities providing funds in aid of private organizations and charities, and the improvement of the economic climate. At that time, according to the attorney general’s opinion, counties and municipalities were constitutionally prohibited from utilizing funds to aid private organizations and charities. The question of improvement of the economic climate was not addressed due to the broad scope of the question. The Attorney General’s Office stated in their conclusion, “There are no easy answers to be found when one is attempting to address questions dealing with the propriety of expending public funds.” The opinion goes on further to quote from Witzenburger v. State ex. rel. Wyoming Community Development Authority, Wyo., 575 P.2d 1100, 1135 (1978): However laudable the program might be, that will not validate unconstitutional means…The exigency of a situation cannot override constitutional safeguards.

The second Attorney General’s opinion, Attachment B, was issued September 26, 2003, addressing the Business Ready Community Grant and Loan Program. The discussion section states, “The purpose of the constitutional prohibition is to prevent governmental bodies from depleting the public treasury by giving advantages to special interests, or by engaging in non-public enterprises.” The opinion goes on to discuss the criteria which must be met for a grant or loan under the program to “pass constitutional muster”: 1) A public purpose must exist; 2) Adequate consideration must be exchanged; and 3) Statutory authority must exist. A segregated fund administered by the Wyoming Business Council is specifically exempt from Article 16, Section 6 because of Section 12, stated below in a discussion of Wyoming Article 16 Exceptions.

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2. At this point there is no information from other states to indicate there has been any attempt to circumvent this prohibition.

Legislation has been offered each of the past five years that proposes to amend the Wyoming Constitution to allow appropriations for per capita payments to Wyoming citizens. The offered legislation was as follows: 2005, HJ0012 Distribution of excess funds (Attachment C), which is similar to HJ0007 (2004), HJ0004 (2003), HJ0010 (2002), and HJ0010 (2001).

Based upon LSO research of the above-referenced western states’ constitutions, and those from which the Wyoming Constitution was derived, clear indication that prohibitions similar to Article 16, Section 6 have been targeted for amendment or circumvention was not identified. In fact, many of the annotations for these sections include case law commentary affirming the importance of prohibiting political subdivisions from depleting the public treasury and emphasize the importance of public trust in the state to protect public resources.

WYOMING ARTICLE 16, SECTION 6 EXCEPTIONS There are two sections in Article 16, which are exceptions to Section 6. Section 12 creates an economic development loan fund: (b) The investment fund created by this section shall be used to provide fully-funded loan guarantees or loans to proposed or existing enterprises which will employ people within the state, provide services within the state, use resources within the state or otherwise add economic value to goods, services or resources within the state.

Section 13 empowers counties and incorporated municipalities to appropriate monies from local revenue sources (not to include monies received from the state or federal sources) to fund economic or industrial development projects or programs: Notwithstanding any other provision in this constitution, the legislature may authorize counties or incorporated municipalities, to appropriate from local sources of revenue such funds as may be deemed necessary for an economic or industrial development project or program, majority of the registered voters of the county or municipality voting upon the question. For purposes of this section, "funds from local sources of revenue" means funds raised from general taxes levied by the county or municipality and shall not include any funds received by the county or municipality which are derived from state or federal sources. (emphasis added).

OTHER STATES’ EXCEPTIONS There are some exceptions in the Constitutions of the other states similar to Article 16, Section 12 of the Wyoming Constitution, which provides for funding for economic development. South Dakota, as referenced above, has an economic development provision, as well as a home loan program. Washington State Constitution Article VIII, Sections 8 and 10, provide for industrial development and conservation assistance, respectively. North Dakota, Article X, Section 14 provides for economic development and growth. The Constitution of Idaho, Article VIII, Section 3B, empowers port districts to issue revenue bonds to fund facilities and projects. There is no apparent economic development provision in Arizona’s Constitution intended as an exception to Article 9, Section 7. Colorado has no apparent economic development provision, but Section 2a does state: “The general assembly may by law provide for a student loan program to assist students enrolled in educational institutions.” (emphasis added).

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It should be noted that the Management Council is forming a task force to address the issue of providing utility rate relief and other relief to the general public. LSO plans on providing a more in depth memo on that issue to the task force.

If you should need anything further please do not hesitate to contact LSO Research at 307-777-7881.