MARY SUE TERRY, ATTORNEY GENERAL OF VIRGINIA v. EDWARD J. MAZUR, COMPTROLLER OF VIRGINIA
Record No. 870428
Supreme Court of Virginia
November 25, 1987
Present: All the Justices
234 Va. 442
Dexter S. Odin (Robert K. Richardson; Odin, Feldman & Pittleman, P.C., on brief), for respondent.
Amicus Curiae: The Virginia Municipal League, Virginia Chamber of Commerce, Virginia Retail Merchants Association, Virginia Asphalt Association, Virginia Economic Developers Association, The Greater Washington Board of Trade, Batman Company, Inc., Best Products Co., Inc., Buvermo Management, Inc., Commonwealth Gas Companies, County of Fairfax, County of Loudoun, G T Realty and Management Co., Inc., The Henry A. Long Company, James River Corporation, Mobil Oil Corporation, S&K Famous Brands, Scott & Stringfellow, Inc., Signet Banking Corporation, Trammel Crow Company, Webb/Sequoia, and Wheat First Securities, Inc. (William G. Broaddus; William J. Strickland; Arthur E. Anderson; McGuire, Woods, Battle & Boothe, on brief), for petitioner.
STEPHENSON, J., delivered the opinion of the Court.
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:
- 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. - 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 . - 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
The Act creates a new, special nonreverting fund in the Department of the Treasury called the Transportation Trust Fund (the Fund).
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.
The Act establishes the Board as the successor to the State Highway and Transportation Board, formerly known as the State Highway and Transportation Commission.
“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.
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.”
We first consider whether highway user revenue bonds constitute debts proscribed by
Subsection (a) permits the contracting of debts “to meet emergencies and redeem previous debt obligations.” The types of debts contemplated by
Subsection (b) of
Subsection (c) of
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
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
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-
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
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
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
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
Prior to the 1986 amendment,
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
as 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
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-
The Constitution recognizes the element of legislative discretion inherent in highway user taxes. The Constitution provides that if a debt incurred under
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
secured 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
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
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
If we examined
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 . . . .
Clearly,
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
The third question the Comptroller presents is whether the Act violates the mandate of
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-
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.
For the foregoing reasons, we hold that the 1986 amendments to the Bond Act violate
Writ denied.
THOMAS, J., concurring.
I concur fully with the Court‘s opinion in this case. I write separately because the experience of our sister state of Washington with regard to a statutory scheme substantially similar to that discussed in the main opinion, is highly instructive but has not been mentioned.
In 1949, the Supreme Court of Washington, in a five to four decision, upheld the constitutionality of a statutory scheme which called, in part, for the payment of certain bonds from a “special fund” made up from excise taxes on cigarettes. Fourteen years later, in 1963, the Washington court, in a unanimous opinion, reversed itself when it became apparent that all of the state‘s revenue was being carved up into “special funds” to support various bonds. The State of Washington learned the hard way that whenever taxes of any kind are placed into a so-called “special fund,” the treasury can be depleted. Thus, through actual experience, our sister state learned the true meaning of creating debt and lending the state‘s credit.
The case was styled Gruen v. Tax Commission, 211 P.2d 651 (Wash. 1949). One basis for challenging the statute was that it violated the state constitutional provision against lending the credit of the state. The court held that the credit of the State had not been lent to the recipients of the bonuses. However, it said nothing about whether the credit of the state had been lent to support the bonds.
The statute was also challenged on the ground that it violated the state constitutional provision against creating debt without following certain procedures set forth in the Constitution. The court held that the bonds did not create a debt within the meaning of the constitution because they were to be paid from a special fund made up of money generated from excise taxes.
In Gruen, the dissenters made several key points. Concerning the creation of debt, one dissenter wrote as follows:
[W]hen bonds are to be paid from future taxes irrevocably allocated to that purpose, which taxes could otherwise be devoted by the legislature to any legitimate public use, a debt is created, and it is immaterial whether the taxes are ad valorem or excise.
Id. at 695 (Hill, J., dissenting).
Another dissenter pointed out that because the statute required the legislature to agree to impose taxes sufficient to fund the bonds, the power of taxation had been unconstitutionally contracted away. Further, it was pointed out that the pledge to use tax money to pay the bonds effectively lent the state‘s credit to the bonds.
In 1949, the dissenters were not persuasive. But fourteen years later, in State v. Martin, 384 P.2d 833 (Wash. 1963), their views carried the day completely. By that time, $660,000,000 in bonds had been authorized; $500,000,000 in bonds had been issued; and only $85,000,000 of the authorized amount had ever been submitted to the people for a vote. The Martin court looked back on
The Martin court rejected the type of special fund which had been approved in Gruen, and which is embodied in the legislation here under review. In Martin, the court made this important point:
If the revenues in [the special fund] derive exclusively from the operation of the device or organ of government financed by the fund, as in the case of a toll bridge, or the operation of the State Liquor Control Board, or from sales or leases of publicly owned lands, any securities issued solely upon the credit of the fund are not debts of the state, but debts of the fund only. But if the state undertakes or agrees to provide any part of the fund from any general tax, be it excise or ad valorem, then securities issued upon the credit of the fund are likewise issued upon the credit of the state and are in truth debts of the state.
Martin, 384 P.2d at 842 (emphasis added). We would be unwise, indeed, if the lessons learned in our sister state were ignored in Virginia.
We have no more solemn duty as the Court of last resort for the Commonwealth than to insure compliance with our Constitution. In the instant case, our decision that the Constitution has been violated is supported by logic, reason, and the lessons of history.
CARRICO, C.J., dissenting.
The majority refuses to apply the Special Fund Doctrine in this case because, it says, the special fund involved here would consist of “tax revenues that the General Assembly is legally obligated to pledge, impose, and appropriate.” The majority acknowledges that the Doctrine is not rendered inapplicable by the inclusion of tax revenues appropriated to a fund as a result of a “moral obligation.” See Harrison v. Day, 202 Va. 967, 121 S.E.2d 615 (1961). In my opinion, however, it makes no difference whether the tax revenues involved in this case find their way into a special fund as
The test for determining if particular obligations involve the full faith and credit of the Commonwealth is whether “the obligations are payable only from the specified revenue sources and the holders may not look to the State‘s general revenue for payment.” Button v. Day, 205 Va. 739, 743, 139 S.E.2d 838, 840 (1965) (Button II). Here, the answer is a clear and resounding “no” to the question whether bondholders, in the event the special fund is inadequate to discharge the bonds, may look to the State‘s general revenue for payment. Unquestionably, bondholders may look only to the special fund.
I would reply in the negative, therefore, to the first question posed by the Comptroller, viz., whether the Bond Act creates a debt to which the Commonwealth‘s full faith and credit are pledged or committed. I would also reply in the negative to the other questions posed by the Comptroller.
One of these questions involves the two and one-half year limitation imposed on appropriations by
The remaining question is whether the Bond Act violates the language of
The Bond Act authorizes the Commonwealth to agree with bondholders to maintain at a minimum level the special fund created by the Act. This is a contractual undertaking protected against impairment by both the State and the Federal constitutions and, to this extent, the authority of the General Assembly under
The manner selected by the General Assembly to finance highway improvements may or may not be the wisest choice. It is not the province of this Court, however, to pass upon the wisdom of the legislation, only its validity. Believing the legislation to be valid, I would grant the writ.