City of Frostburg v. Jenkins

Prescott, J.,

filed the following dissenting opinion.

It is regrettable, when one member of the Court is unable to concur with the majority upon such an important and far reaching question as is here involved, that time will not permit a careful and comprehensive statement of the reasons why that member cannot yield his full concurrence. As sufficient time is not available, the following is freely acknowledged to be a hurriedly put together statement of some of those reasons.

The majority opinion holds that under the provisions of section 103 of Chapter 662 of the Acts of 1953, the City of Frostburg, if authorized by a referendum, may constitutionally issue bonds or certificates of indebtedness for the purpose of buying land and erecting thereon buildings to be used by private manufacturing companies for private profit. The statute recites no public distress or urgent public need, as do similar acts elsewhere, but states its simple purpose is, “in order to encourage industrial development.” It likewise fails to state how the bonds or certificates are to be redeemed, but it is axiomatic that this must be done by taxation.

This Court, many years ago, held that taxes can not be im *20 posed for a private purpose; that by Art. 15 of the Declaration of Rights and the fundamental maxims of free 'government taxes can only be imposed to raise money for public purposes; that counties (the same certainly also applies to municipalities) have no inherent power of taxation; what power of taxation they exercise must be delegated to them by the legislature; the legislature, however, cannot delegate a power prohibited by the constitution; therefore, the taxing power, when exercised by the counties, “is but the exercise of the taxing power of the Legislature delegated to them, and is subject to every constitutional limitation to which the taxing power of the Legislature is subject.” (Emphasis supplied). Balto. & E. S. R. Co. v. Spring, 80 Md. 510, 517, 31 A. 208 .

Art. Ill, sec. 34, of our Constitution, in part, reads as follows : “The credit of the State shall not in any manner be given, or loaned to, or in aid of any individual, association or corporation * * *.” Art. Ill, sec. 54, and Art. XI, sec. 7, permit the counties and Baltimore City to do so under certain conditions, but there is no provision- in the Constitution with reference to municipalities.

Thus, the questions are presented: (1), Will the taxes to raise the funds for the payment of the bonds be imposed for a public purpose?; and, (2), When the bonds are issued, will the credit of the State “in any manner be given, or loaned to, or in aid of any individual, association or corporation”?

The Supreme Court of the United States and several of our sister States have made rulings on these points; and as they express reasons that are, to me, persuasive, I shall quote at some length from them.

The recent case (1957) of State v. York (Neb.), 82 N. W. 2d 269 , seems to be on all fours with the case at bar. The City of York entered into an agreement with the York Cold Storage Company and the York Packing Company, that upon the completion of certain industrial buildings to be constructed by the first named company, the City would purchase the same by issuing revenue bonds, pursuant to legislative authority; and upon the purchase of said industrial buildings, the City proposed to lease them to the York Packing Company as a packing plant. The constitutional provision in *21 volved was practically identical with ours. It read: “The credit of the state shall never be given or loaned in aid of any individual, association, or corporation.” The unanimous Court, with much of its cogent reasoning omitted, said:

“It is here contended that the prohibition contained in the foregoing constitutional provision applies only to the State as an entity and has no application to political subdivisions thereof. We do not concur in this view. Political subdivisions of the State exist at the will of the State exercised through the Legislature. For us to say that the State may not loan its credit to an individual, association, or corporation, but that it might create a political subdivision and authorize it to do that which the State itself is prohibited from doing would be, to say the least, a very anomalous situation. It would permit the State to do by indirection the very thing it could not directly do, a theory which has been consistently condemned by this court.

“The defendants cite cases from other states upholding the constitutionality of similar acts. Faulconer v. City of Danville, 313 Ky. 468 , 232 S. W. 2d 80 ; Newberry v. City of Andalusia, 257 Ala. 49, 57 So. 2d 629 ; Holly v. City of Elizabethton, 193 Tenn. 46 , 241 S. W. 2d 1001 (cases cited and relied upon in our majority opinion). These cases are based on what we deem fundamental fallacies of reasoning. The first is that a revenue bond for which a city is not generally liable is not within the prohibition against the State giving or loaning its credit. The second is that the issuance of such revenue bonds for the construction of industrial plants for private users is a valid exercise of the proprietary powers of a municipality. The third is that the issuance of revenue bonds for the construction of industrial buildings for private use is for a public purpose.

*22 “We summarize as follows: The constitutional prohibition against the State as to giving or loaning its credit to an individual, association, or corporation is applicable to all subdivisions of the State. * * * The money realized from revenue bonds is public money and it may not be appropriated for a private purpose or used for the purpose of acquiring property for the benefit of a private concern. It is not material what such undertakings may be called, or what forms are devised to conceal their main purpose, or how worthwhile they may appear to be, when 'the question of constitutionality is presented, their substance will be examined. The financing of private enterprises with public funds is foreign to the fundamental concepts of our constitutional system. To permit such encroachments upon the prohibitions of the Constitution would bring about, as experience and history have demonstrated, the ultimate destruction of the private enterprise system. We have not overlooked the fact that the Legislature determined that the Act was for a public purpose. While such a legislative declaration is entitled to great weight, it is not conclusive. There are limits beyond which the Legislature cannot go. It cannot authorize a city to spend public money, or lend or give away, directly or indirectly, its credit or property for a purpose which is not a public one.

“The purpose of the statute, and the contract in the present case springing therefrom, is to assist a private corporation that is engaged in an enterprise for profit. It is true, of course, that the city may be benefited by the location of the company in the city. It may produce employment for citizens of the community. It may tend to balance a locally restricted economy. But general benefit to the economy of a community does not justify the use of public funds of the city unless it be for a public as distinguished from a private purpose. This is simply a case where the city is attempting to use the powers, *23 credits, and public moneys of the city to purchase land and erect industrial buildings thereon for the use of a private corporation for private profit and private gain. It serves no public or municipal purpose. The Act purports to grant powers to cities which are beyond the authority of the Legislature to confer.

“To permit legislation of this character to stand in the face of constitutional prohibitions would constitute a death blow to the private enterprise system and reduce the Constitution to a shambles in so far as its protection of private enterprise is concerned. The contract pleaded in the petition is void and the act upon which it is based is a plain violation of the letter and spirit of Article XIII, section 3, of the Constitution of this State.”

For another case reaching the same result with equally persuasive reasoning, see State v. Town of North Miami (Fla.), 59 So. 2d 779 . See also, Carothers v. Town of Booneville (Miss.), 153 So. 670 ; Nash v. Town of Tarboro (N. C.), 42 S. E. 2d 209 ; Bybee v. City of Minneapolis (Minn.), 292 N. W. 617 ; Seeley v. Town of Belleair, 127 F. 2d 840 ; Village of Suring v. Suring State Bank (Wis.), 207 N. W. 944 .

Some years ago, there was a devastating fire in the City of Boston which destroyed an important part of that great city. The governor of the state convened the legislative body of Massachusetts, called the General Court, for the express purpose of dealing with the distressing situation. An act was passed which authorized the city to issue $20,000,000 worth of bonds. The proceeds of the bonds were to be loaned to the owners of the land, the buildings upon which had been burned, and the loans were to be secured by first mortgages, etc. The Supreme Judicial Court, unanimously, held the act unconstitutional, and during the course of their opinion stated:

“The power to levy taxes is founded on the right, duty and responsibility to maintain and administer *24 all the governmental functions of the State, and to provide for the public welfare. To justify any exercise of the power requires that the expenditure which it is intended to meet shall be for some public service, or some object which concerns the public welfare. The promotion of the interests of individuals, either in respect of property or business, although it may result incidentally in the advancement of the public welfare, is, in its essential character, a private and not a public object. 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. It is the essential character of the direct object of the expenditure which must determine its validity, as justifying a tax, and not the magnitude of the interests to be affected, nor the degree to which the general advantage of the community, and thus the public welfare, may be ultimately benefited by their promotion.” Lowell v. Boston, 111 Mass. 454 .

The Supreme Court of the United States has also had occasion to pass upon the question. The legislature of Kansas attempted to authorize municipalities to issue bonds to aid and encourage the building of bridges, etc. The City of Topeka issued its bonds to aid and encourage a certain company in establishing bridge shops within the city. The Court held the act unconstitutional upon the ground that the taxes required for the redemption of the bonds would not be imposed for a public purpose. During the course of its opinion, the Court stated:

“To lay with one hand the power of the government on the property of the citizen, and with the other to bestow it upon favored individuals to aid *25 private enterprises and build up private fortunes, is none the less a robbery because it is done under the forms of law and is called taxation. This is not legislation. It is a decree under legislative forms.

“It is undoubtedly the duty of the legislature which imposes or authorizes municipalities to impose a tax to see that it is not to be used for purposes of private interest instead of a public use, and the courts can only be justified in interposing when a violation of this principle is clear and the reason for interference cogent. And in deciding whether, in the given case, the object for which the taxes are assessed falls upon the one side or the other of this line, they must be governed mainly by the course and usage of the government, the objects for which taxes have been customarily and by long course of legislation levied, what objects or purposes have been considered necessary to the support and for the proper use of the government, whether State or municipal. Whatever lawfully pertains to this and is sanctioned by time and the acquiescence of the people may well be held to belong to the public use, and proper for the maintenance of good government, though this may not be the only criterion of rightful taxation.

“But in the case before us, in which the towns are authorized to contribute aid by way of taxation to any class of manufacturers, there is no difficulty in holding that this is not such a public purpose as we have been considering. If it be said that a benefit results to the local public of a town by establishing manufactures, the same may be said of any other business or pursuit which employs capital or labor. The merchant, the mechanic, the innkeeper, the banker, the builder, the steamboat owner are equally promoters of the public good, and equally deserving the aid of the citizens by forced contributions. No line can be drawn in favor of the manufacturer which *26 would not open the coffers of the public treasury to the importunities of two-thirds of the business men of the city or town.” (Emphasis supplied.) Loan Association v. Topeka, 87 U. S. 655 .

See also Jarrolt v. City of Moberly, 103 U. S. 580 . The Supreme Court has adopted a policy of attempting to permit the highest Courts of the States to determine what is, and what is not, a public purpose. It may be assumed they would disagree in case of a flagrant misinterpretation.

Art. III, sec. 34, above, first placed in our Constitution in 1851, was not original with the framers of that Constitution. It is practically, if not, identical with a provision of the New York Constitution; this provision being added in 1846. Its purpose, as stated by Judge Cardoza, was “to put an end to the use of the credit of the state in fostering the growth of private enterprise and business.” (Emphasis supplied.) (Should not this statement alone make us re-examine the statute we are presently considering?). The Court of Appeals of New York, in the case of People v. Westchester County Nat. Bank, 132 N. E. 241 , held that a soldiers’ and sailors’ bonus bill was in violation of that State’s constitutional provision (the one that is the same as ours), although the taxes that would be required to redeem the bonds would be imposed for a public purpose; that no matter how worthy the cause, or how useful the objects designed by the legislature, the bonus bill proposed to give the credit of the state to the veterans, which was prohibited by the above named section of the constitution. See also Veterans’ Welfare Board v. Jordan (Cal.), 208 P. 284 .

I shall not attempt to analyse all of the Maryland decisions that relate to the points being considered. There is no previous Maryland case that controls the decision here. The majority decision is new law in Maryland. This Court has held, rightfully in my opinion, that the legislature may authorize expenditures for public highways, education, hospitals, wharves, etc., where public services were rendered, and there was no private profit. I have found, and been referred to, no Maryland case, before the majority opinion herein, where *27 public funds were used to establish private enterprise for private profit. The port development project in Baltimore anticipated, as incidental to its over-all object of opening the harbor of Baltimore to the markets of the world, leasing at least some of the wharves to private concerns. Marchant v. Baltimore, 146 Md. 513 , 126 A. 884 .

In Finan v. M. & C. C. of Cumberland, 154 Md. 563 , 141 A. 269 , this Court sanctioned, as a public purpose, the expenditure of public funds for the purposes of a hospital conducted by the Allegany Hospital of Sisters of Charity, although a private eleemosynary corporation. It will be noted that this was an eleemosynary institution and no private profit was involved. It would seem that this liberal construction of section 34 and of what is a public purpose should certainly be the borderline; to go further, as permitted by the majority opinion, will be, in my opinion, the utilization of taxation for private purposes, and will contravene the explicit inhibition of section 34 that, “the credit of the State shall not in any manner be given, or loaned to, or in aid of any individual, association or corporation.” (Emphasis supplied.)

Before concluding, let us consider one simple illustration. Suppose A owns a parcel of land in Frostburg and desires to erect thereon a manufactory to make shoes. B is interested in conducting a shirt manufactory, and the desirable location therefor is A’s parcel of ground. Are there many persons who would consider that B’s undertaking is such a “public purpose” as would entitle the City of Frostburg to condemn A’s property in order to erect an establishment for B, paying both for the property and the erection of the building from the proceeds of the bonds issued in pursuance of the act being considered? 1 I think not; yet the majority opinion holds that the bonds to be issued are for a “public purpose”.

With due deference to, and respect for, my colleagues, I think the act is unconstitutional and void; that, as stated by *28 the Nebraska, Florida and other Courts, the ruling will strike a terrific blow to private enterprise, a system under which this country has thrived and prospered; and with the government of Maryland and all of its municipalities in business, it is difficult to visualize the boundaries to which the principle may extend.

. 1 Cooley Taxation (4th Ed.) sec. 176, says: “For the most part the term ‘public purposes’ is employed in the same sense in the law of taxation and in the law of eminent domain.” And the charter of Frostburg grants it the right of eminent domain.