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AGO Opinion 97051

Constitutionality of Advances from the Federal Government to the State for Payment of Unemployment Compensation Benefits
Opinion 97051

DATE: October 1, 1997

SUBJECT: Constitutionality of Advances from the Federal Government to the State for Payment of Unemployment Compensation Benefits

REQUESTED BY: Fernando Lecuona, III, Commissioner

Department of Labor

WRITTEN BY: Don Stenberg, Attorney General

Fredrick F. Neid, Assistant Attorney General




You have requested the opinion of the Attorney General

concerning the constitutionality of a financing arrangement under

federal law that authorizes the State to borrow funds from the

federal government to fund payment of benefits provided in the

Employment Security Law, Neb. Rev. Stat. §§ 48-601 to 48-671 (1993

and Cum. Supp. 1996). Among other things, the Employment Security

Law establishes various funds for payment of unemployment

compensation benefits to eligible individuals and provides for

determining the contribution rate applicable to each employer for

each calendar year.




State unemployment agencies may receive "advances" from the

federal government for payment of benefits upon application of the

Governor of the State under the provisions of 42 U.S.C.A. §§ 1321

and 1322. The specific question you ask is whether borrowing by

the State of Nebraska from the federal government is subject to the

restrictions set forth in Article XIII, sec. 1 or any other section

of the Nebraska Constitution. It is our opinion that borrowing

funds from the federal government for payment of unemployment

benefits would fall within the constitutional prohibition against

contracting debts set forth in Article XIII, sec. 1 of the Nebraska

Constitution. It is unnecessary to address other constitutional

issues since we have concluded that the constitutional debt

limitation is applicable to the borrowing arrangement you have

inquired about.




STATUTORY BACKGROUND




You indicate the constitutional question arises because the

Commissioner of Labor is charged with the duty of determining the

rate of combined tax applicable to each employer under the

provisions of Neb. Rev. Stat. §§ 48-649 and 48-650 (Cum. Supp.

1996). As part of the rate determination procedure, the

Commissioner considers anticipated benefit payments, anticipated

combined receipts, and fund balances available for payment of

benefits. The Department of Labor is interested in knowing whether

borrowing funds from the federal government may be considered as a

funding source for payment of unemployment benefits.




Federal statutes authorize the states to receive "advances"

from the federal government for payment of unemployment

compensation benefits. 42 U.S.C.A. § 1321 in material part states:




(a)(1) Advances shall be made to the States from the

Federal unemployment account in the Unemployment Trust

Fund as provided in this section, and shall be repayable,

with interest to the extent provided in section 1322(b)

of this title, in the manner provided in sections

1101(d)(1), 1103(b)(2), and 1322 of this title. An

advance to a State for the payment of compensation in any

3-month period may be made if -




(A) the Governor of the State applies therefor

no earlier than the first day of the month

preceding the first month of such 3-month period,

and




(B) he furnishes to the Secretary of Labor his

estimate of the amount of an advance which will be

required by the State for the payment of

compensation in each month of such 3-month

period. . . .




Federal statutes further provide for the method of repayment

of the loans and for loan interest amounts. 42 U.S.C.A. § 1322 in

part states:




(a) Repayment by State; certification; transfer




The Governor of any State may at any time request

that funds be transferred from the account of such State

to the Federal unemployment account in repayment of part

or all of that balance of advances, made to such State

under section 1321 of this title, specified in the

request. The Secretary of Labor shall certify to the

Secretary of the Treasury the amount and balance

specified in the request; and the Secretary of the

Treasury shall promptly transfer such amount in reduction

of such balance.




(b) Interest on loan




(1) Except as otherwise provided in this

subsection, each State shall pay interest on any advance

made to such State under section 1321 of this title.

Interest so payable with respect to periods during any

calendar year shall be at the rate determined under

paragraph (4) for such calendar year. . . .




The Federal unemployment account in the Unemployment Trust

Fund is the funding source for "advances" to states. The account

is established under the provisions of 42 U.S.C.A. § 1104 and

Federal Unemployment Tax amounts determined by the Secretary of the

Treasury are transferred to the account pursuant to 42 U.S.C.A.

§§ 1101 and 1102.




CONSTITUTIONAL DEBT LIMITATIONS




The Nebraska Constitution limits the amount of state

indebtedness and prohibits continuing legislative appropriations.

Article XIII, sec. 1 in pertinent part states:




The state may, to meet casual deficits, or failures in

the revenue, contract debts never to exceed in the

aggregate one hundred thousand dollars, and no greater

indebtedness shall be incurred except for the purpose of

repelling invasion, suppressing insurrection, or

defending the state in war, and provision shall be made

for the payment of the interest annually, as it shall

accrue, by a tax levied for that purpose, or from other

sources of revenue, which law providing for the payment

of interest by such tax shall be irrepealable until such

debt is paid. . . .




(Emphasis added).




Various legislative enactments and financing plans authorized

by those acts have been determined to be violative of Article XIII,

sec. 1 by the Nebraska Supreme Court. The issue is whether the act

and the financing arrangements authorized result or may result in

the contraction of debt or the incurrence of an indebtedness within

the meaning of the constitutional prohibition. A purpose of the

constitutional limitation upon state indebtedness is to prevent the

anticipation of revenue by the creation of an obligation to be paid

from revenue in future fiscal periods. Obligations which are to be

paid from revenue subject to appropriation by future legislatures

are subject to the state debt limitation provisions.




In State ex rel. Douglas v. Thone, 204 Neb. 836, 286 N.W.2d

249 (1979), a legislative act which provided for the construction

of plants and facilities for the manufacture of agricultural ethyl

alcohol (gasohol) was found to be violative of the debt limitation.

The Nebraska Supreme Court concluded that the constitutional

limitation of state indebtedness was violated because the financial

arrangements which guaranteed the payment of bond indebtedness was

guaranteed through pledging of state funds. Similarly, a

legislative act to assist in the financing of waste water treatment

works was determined to be unconstitutional since fees and charges

to be received would be pledged as security for repayment of bond

indebtedness. State ex rel. Meyer v. Duxbury, 183 Neb. 302, 160

N.W.2d 88 (1968). Also see Ruge v. State, 201 Neb. 391, 267 N.W.2d

748 (1978) (finding that lease provisions that obligated the state

to certain open-ended costs were violative of the constitutional

debt limitation).




We believe the question, whether borrowing funds from the

federal government is constitutionally offensive, is for the most

part addressed by State ex rel. Meyer v. Steen, 183 Neb. 297, 160

N.W.2d 164 (1968). In this case, the state would incur

indebtedness through issuance of bonds or notes to be repaid from

fee revenue from the sale of permits and licenses to hunt, trap,

and fish. It was argued that the constitutional debt limitation

did not apply because the indebtedness was to be repaid only from

permit and license fees and not from revenue derived from general

taxation ("Special Fund Doctrine"). The Nebraska Supreme Court

observed that revenue derived from sale of permits and licenses is

subject to control of the Legislature and, in this respect, is

similar to other revenue collected and received by the State.




In finding the financing arrangement unconstitutional, the

Court stated:




If the Legislature is free to authorize unlimited

indebtedness payable from special funds derived from

excise taxes, it is apparent that the constitutional

limitation upon indebtedness is ineffective.




Id. at 300, 160 N.W.2d at 167.




Similarly, we believe the borrowing mechanism authorized by

the federal statutes would constitute indebtedness of the state

payable from special fund taxes that is offensive to Article XIII,

sec. 1 of the Nebraska Constitution.




We further do not think that the fact that the state would be

borrowing funds from the federal government would serve to vitiate

in some fashion the constitutional prohibition against indebtedness

of the state. It has generally been held that a state cannot avail

itself of loans available under federal statutes, the National

Industrial Recovery Act of 1933, because of state constitutional

provisions limiting state indebtedness. See, Re Opinion to

Governor, 54 R.I. 45, 169 A. 748 (1934). We have found no case

authority that negates state constitutional debt limits if the

federal government is the provider of funds to a state in a

financing arrangement.




In summary, we conclude that borrowing funds from the federal

government by the state under the facts you present would likely

offend the constitutional limitations regarding indebtedness of the

state.




Sincerely yours,




DON STENBERG

Attorney General




Fredrick F. Neid

Assistant Attorney General