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AGO Opinion 97022

LB 799; Constitutionality of Appropriation to the Nebraska Arts Council to Fund the Public Portion of the Proposed Cultural Trust
Opinion 97022




DATE: March 27, 1997




SUBJECT: LB 799; Constitutionality of Appropriation to the Nebraska Arts Council to Fund the Public Portion of the Proposed Cultural Trust




REQUESTED BY: Senator LaVon Crosby

Nebraska State Legislature




WRITTEN BY: Don Stenberg, Attorney General

Lynn A. Melson, Assistant Attorney General




You have requested our opinion regarding the constitutionality

of LB 799. This proposed legislation, including AMO653, would

create "a body politic and corporate, not a state agency, but an

independent instrumentality exercising essential public functions"

to be known as the Cultural Trust. A Cultural Trust Fund would

also be created which would be administered by five trustees

selected and approved by the Nebraska Arts Council and the state

affiliate of the National Endowment for the Humanities. The trust

fund would consist of revenue from public and private sources with

only the earnings used for the operations of the Nebraska Arts

Council and the state affiliate of the National Endowment for the

Humanities and their constituent organizations. LB 799 also states

the intent to appropriate $12,500,000 in each of the next two

fiscal years to the Nebraska Arts Council to fund the public

portion of the Cultural Trust. That appropriation is to be

returned to the general fund by the Cultural Trust in fiscal year

2023-24.




Your specific concerns are with Article XIII, section 3 of the

Nebraska Constitution which prohibits lending the credit of the

State and Article III, section 18 of the Nebraska Constitution

which prohibits special legislation or the granting of special

privileges and immunities. We will also discuss Article XII,

section 1 which prohibits the creation of a single corporation by

special law.




I. Article XIII, Section 3




We will first address whether LB 799 violates the provision of

the state constitution which mandates that "[t]he credit of the

State shall never be given or loaned in aid of any individual,

association, or corporation. . . . " Neb. Const. Art. XIII,

section 3.




The case of Haman v. Marsh, 237 Neb. 699, 467 N.W.2d 836

(1991), is a recent Nebraska Supreme Court decision which

interprets Article XIII, § 3 of the Nebraska Constitution. At

issue in Haman was legislation which appropriated state tax money

to compensate depositors who had suffered losses due to the failure

of industrial loan and investment companies in Nebraska. The

Nebraska Supreme Court set out a three-prong test, and stated that

to establish a law was unconstitutional under Article XIII, § 3, a

plaintiff had to prove each of the following elements: (1) The

credit of the state (2) was given or loaned; (3) in aid of any

individual, association, or corporation. Haman, 237 Neb. at 719.




The threshold question which must be analyzed is whether the

proposed amendments to LB 609 involve the "credit of the state."

In Haman, the court stated as follows: "There is a distinction

between the loaning of state funds and the loaning of the state's

credit. When a state loans funds it is in the position of

creditor, whereas the state is in the position of debtor upon a

loan of credit." Id. at 719-720. In Haman, the court found that

under the legislation in question, "the state would be forever

liable for the losses of industrial company depositors. . . ." Id.

at 720.




To the extent that LB 799 provides for a grant or loan of

state funds to be repaid in fiscal year 2023-24, it does not appear

to us that such provisions result in the state being either a

surety or guarantor of another's debts. Rather, the State would be

in the position of creditor. Therefore, we conclude that LB 799

does not violate Article XIII, § 3.




Although the "credit of the state" is not being given or

loaned under the provisions of LB 799, the constitutional analysis

does not end there. "Closely related to the prohibition against

the giving or lending of the state's credit . . . is the principle

of law that public funds cannot be expended for private purposes."

Haman v. Marsh, 237 Neb. 699 at 721-722. This constitutional

principle involves the expenditure of state funds in contrast to

the extension of credit. While the state constitution contains no

express provision against expending funds for essentially private

purposes, the Nebraska Supreme Court has stated that this principle

"is grounded on the 'fundamental concepts of our constitutional

system.'" State ex rel. Douglas v. Thone, 204 Neb. 836, 842, 286

N.W.2d 249 (1979) (quoting Beck v. City of York, 164 Neb. 223).




There is no hard and fast rule for determining whether a

proposed expenditure of public funds is for a public purpose. In

Platte Valley Public Power & Irrigation District v. County of

Lincoln, 144 Neb. 584, 14 N.W.2d 202 (1944), the Nebraska Supreme

Court discussed the parameters of a "public purpose." "A public

purpose has for its objective the promotion of the public health,

safety, morals, security, prosperity, contentment, and the general

welfare of all the inhabitants." Id. at 589.




The Nebraska Supreme Court has held that it is for the

Legislature to determine in the first instance what is and what is

not a public purpose. State ex rel. Douglas v. Thone, 204 Neb.

836, 286 N.W.2d 249 (1979). The Court also held therein that there

is no requirement that a legislative act calling for the

expenditure of public funds need contain an express declaration of

public purpose. Id. at 844-845. A number of cases from our

Supreme Court have evidenced a somewhat flexible interpretation of

the public purpose doctrine in relation to the expenditure of state

monies. For example, with regard to housing, the Court found

constitutional the act creating the Housing Authority of the City

of Omaha in Lennox v. Housing Authority of City of Omaha, 137 Neb.

582, 290 N.W. 451 (1940), and found constitutional the act creating

the Nebraska Mortgage Finance Fund in State ex rel. Douglas v.

Nebraska Mortgage Finance Fund, 204 Neb. 445, 283 N.W.2d 12 (1979).

The Court considered legislative findings such as the need for safe

and sanitary housing and the need for adequate housing which could

be financed by low income people in determining the existence of a

public purpose.




However, the Nebraska Supreme Court has also held that laws

which authorize the expenditure of state funds to encourage private

enterprises do not serve a public interest. A statute offering

compensation or a bounty to private companies to encourage the

manufacture of sugar and chicory was found unconstitutional in

Oxnard Beet Sugar Co. v. State, 73 Neb. 57 (1905). The Court based

its decision on the lack of a public purpose and did not undertake

a "lending the credit of the state" analysis.




In Chase v. County of Douglas, 195 Neb. 838, 241 N.W.2d 334

(1976), the Court found that the provisions of the statute

authorizing expenditures for the purpose of acquiring real estate

or options on real estate for industrial development were

unconstitutional and in violation of Article XIII, § 3 of the

Nebraska Constitution. Their holding was in part dependent upon

another constitutional provision at Article XIII, § 2.




Given the purpose of the proposed legislation to support the

arts and humanities in Nebraska and the Nebraska Arts Council, we

cannot clearly conclude that this expenditure has no public

purpose.




II. Article III, Section 18




Your other question concerns Article III, Section 18 of the

Nebraska Constitution which provides that:




[t]he Legislature shall not pass local or special laws in

any of the following cases, that is to say: . . .

Granting to any corporation, association, or individual

any special or exclusive privileges, immunity, or

franchise whatever. . . . In all other cases where a

general law can be made applicable, no special law shall

be enacted.




A legislative act can violate the special laws provision by

(1) creating a totally arbitrary and unreasonable method of

classification, or (2) by creating a permanently closed class.

Haman v. Marsh, 237 Neb. 699, 467 N.W.2d 836 (1991); Mapco v. State

Bd. of Equalization, 238 Neb. 565, 471 N.W.2d 734 (1991). With

regard to the first test, the Nebraska Supreme Court has held that

statutory classifications must be based on "some substantial

difference of situation or circumstances that would naturally

suggest the justice or expediency of diverse legislation with

respect to the objects to be classified." Haman at 713, 467 N.W.2d

at 847 (emphasis in original). The court in Haman also determined

that "[B]y definition, a legislative act is general, and not

special, if it operates alike on all persons of a class or on

persons who are brought within the relations and circumstances

provided for . . . ." Id at 709, 467 N.W.2d at 844-45).




While LB 799 creates only one entity, the Cultural Trust,

which would invest, administer and distribute the funds, the

analysis used by the Nebraska Supreme Court seems to focus upon

those persons who come within a statute's operation and how equally

the act operates on those affected by the statute. With regard to

LB 799, the analysis would presumably focus upon the nonprofit arts

organizations listed in section 2 of the bill which would

ultimately receive the funds and the public which would be served

by such organizations. LB 799 appears to apply equally to all

persons within that class and, thus, would be permissible provided

the classification rests upon a reasonable basis. The bill

arguably classifies as being entitled to receive funds those arts

organizations which best fit the public purposes described in

section 2 and which contribute to the public programs and projects

listed therein.




In its analysis of a constitutional challenge to the Nebraska

Mortgage Finance Fund, the Nebraska Supreme Court focused on the

public purpose for which those funds were intended. "Statutes

which are reasonably designed to protect the health, morals and

general welfare do not violate the Constitution where they operate

uniformly on all within a class which is reasonable. This is so

even if a statute grants special or exclusive privileges where the

primary purpose of the grant is not the private benefit of the

grantees but the promotion of the public interest." State ex rel.

Douglas v. Nebraska Mortgage Finance Fund, 204 Neb. 445, 466, 283

N.W.2d 12, 25 (1979). As we discussed in answer to your question

regarding Article XIII, section 3, there is no hard and fast rule

for determining whether a public purpose exists in a particular

situation. Assuming for purposes of this opinion that a court

would find that LB 799 accomplishes a public purpose, the

legislation would probably be held not to violate the special laws

prohibition as creating a totally arbitrary classification.




LB 799 clearly allows an increase in the number of class

members who may be entitled to receive funds because it applies to

all arts organizations which contribute to the public programs and

projects described, including future arts organizations.

Therefore, the legislation also does not appear to violate the

closed class prohibition of Article III, section 18.




III. Article XII, Section 1




Although you have not specifically inquired about Article XII,

section 1 of the Nebraska Constitution, we will briefly discuss

this provision in relation to LB 799. Article XII, section 1

provides in relevant part:




The Legislature shall provide by general law for the

organization, regulation, supervision and general control

of all corporations. . . . No corporations shall be

created by special law . . . except those corporations

organized for charitable, educational, penal or

reformatory purposes, which are to be and remain under

the patronage and control of the state.






Our office has previously discussed this provision in relation

to proposed legislation implementing the One-Call Notification

Center. Op. Att'y Gen. No. 92129. That bill created a single non-

profit corporation to operate the notification center. We noted

that, while the provision may at first seem to prohibit creation of

a specific corporation to perform the function described in the

legislation, the analysis used by the Nebraska Supreme Court again

seems to focus on who comes within the act's operation and how

equally the act operates on those affected by the act. This is

illustrated by the Douglas case discussed above in which the court

held that the Nebraska Mortgage Finance Fund was created by a

general law which was not in violation of Article XII, section 1.

"The Legislature may very well determine that a legitimate public

purpose can be accomplished by creating a single entity to handle

the matter." Douglas at 455, 283 N.W.2d at 20. "The fact that

certain of the funds once obtained through bonds may go to private

lending institutions who in turn will make the funds available for

low and moderate income citizens does not change the public purpose

for which the funds are intended." Id. at 460, 283 N.W.2d at 22.




We point out that, of course, a court may view support for the

arts differently than it viewed the shortage of adequate low cost

housing and may view the disbursement of funds to local arts

organizations differently than the disbursement of public funds to

low and moderate income citizens. However, in our opinion LB 799

does not present a clear violation of Article XII, section 1.




Sincerely,




DON STENBERG

Attorney General










Lynn A. Melson

Assistant Attorney General




cc: Patrick J. O'Donnell

Clerk of the Legislature




Approved By:









Attorney General








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