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Bob Ferguson

AGLO 1979 No. 4 -
Attorney General Slade Gorton


It would be a violation of Article VIII, § 7 of the state constitution for a municipal utility or public utility district to advance funds to its customers in order to enable them to purchase conservation materials notwithstanding a projected resulting benefit to utility customers, generally.

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                                                                 January 17, 1979

Honorable R. Ted Bottiger
State Senator, 2nd District
405 Public Lands Building
Olympia, Washington 98504                                                                                                                 Cite as:  AGLO 1979 No. 4

Dear Sir:

            By recent letter you made reference to AGO 1978 No. 13 (issued to you on May 1, 1978) and then asked for our opinion on a related question involving a proposed public utility conservation program described in your letter as follows:

            "In particular, we are concerned whether or not conservation programs of the type being offered by the state's investor owned electrical utilities could also be offered by municipal utilities and PUDs.  In these programs, which have been approved by the UTC (Cause Nos. U-78-45, ‑46, and ‑47), the utility offers to pay on behalf of its residential heating customers the costs of labor and materials associated with installing conservation measures in the customer's residence which are "cost-effective" for the utility.  In this instance, cost-effective means that the cost of saving the energy through the conservation measures (including the costs of  [[Orig. Op. Page 2]] financing) is less than the cost of acquiring an equivalent amount of energy from the next least costly alternative available to the utility.  The customer is obligated to repay the utility at the end of ten years or when the customer sells his home.  The obligation is evidenced by a promisory [promissory]  note and a real estate mortgage.  A key finding in this decision was that all the utility's rate payers would benefit from such a program since the increase in rates required to pay for the conservation program would be less than the increase without a conservation program."

            Your specific question is ". . . whether a municipality or PUD could offer a conservation program as described above under Article VIII, § 7 . . ." of the Washington Constitution.  For the reasons set forth below we must answer in the negative.


            Article VIII, § 7 of the Washington Constitution reads as follows:

            "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, or become directly or indirectly the owner of any stock in or bonds of any association, company or corporation."

            As earlier explained in AGO 1978 No. 13, supra,

            ". . . this provision of our constitution actually contains the following four separate prohibitions which are here relevant:

            "(1) A prohibition against gifts of money;

            "(2) A prohibition against gifts of property;

            "(3) A prohibition against loans of money; and

             [[Orig. Op. Page 3]]

            "(4) A prohibition against the lending of municipal credit."

            In this previous opinion the two types of assistance to utility customers involved were (1) the guarantying, by a city or public utility district, of payment of part or all the agreed purchase price for conservation materials acquired by utility customers from a private vendor and (2) the actual sale of such materials by the utility itself, to its customers,

            ". . . by means of installment contracts under which payment of the purchase price, plus a service charge would be made by the purchasers on a periodic basis over a specified period of time."

            Our ultimate conclusion was that neither of these approaches would involve (1) an unconstitutional gift of money or (2) property or (3) an unconstitutional loan of money.  The guaranty program, however, was determined to involve an unconstitutional lending of municipal credit.  Accord,Gruen v. State Tax Commission, 35 Wn.2d 1, 211 P.2d 651 (1949).  On the other hand the installment contract sale of conservation material by a public utility was upheld by this office, with certain qualifications, on the ground that the sale of goods under such a contract involves, basically, the credit of the purchaser rather than the credit of the seller.

            Here, in our opinion, a different prohibition in Article VIII, § 7,supra, would be involved.  Specifically, from the description contained in your letter (as above quoted) it seems apparent to us that the participating public utility district or municipal utility would belending its money to selected customers, ". . . evidenced by a promissory note and a real estate mortgage . . .," so that those customers could then have the necessary funding to enable them to acquire and install "cost effective" conservation materials.

            In this regard the case ofWash. Nat. Gas Co. v. P.U.D. No. 1 of Snohomish County, 77 Wn.2d 94, 459 P.2d 633 (1969), discussed on pages 11-13 of AGO 1978 No. 13, must be distinguished on the same basis that we later distinguished, at page 20 of our prior opinion, between an installment contract and a purchase money note and mortgage.  Simply stated, it is one thing, under the constitution, for a municipality to sell  [[Orig. Op. Page 4]] goods or services to its customers by means of an installment contract.  But it is quite another thing for the municipality to loan its funds to those same customers (or any other private individuals) so as to enable the borrowers to purchase similar goods or services‑-whether from the lending municipality or from some other source.

            This leaves us, then, with only one remaining issue.  Is the postulated long-range benefit to the lending public utility and its customers, as explained in your letter, sufficient to cause the contemplated loan of public funds to be, somehow, constitutional?  This question is one which we believe must be answered in the negative.

            As we also explained in AGO 1978 No. 13, supra, there are only two recognized exceptions to the prohibitions of Article VIII, § 7, supra, one express and the other the product of judicial interpretation.  The express exception, of course, covers aid to persons in need; i.e., the poor and infirm.  See,State v. Guaranty Trust Co., 20 Wn.2d 588, 148 P.2d 323 (1944), andMorgan v. Dep't of Social Security, 14 Wn.2d 156, 127 P.2d 686 (1942).  And the other exception, resulting from judicial interpretation, relates to gifts or loans to other governmental entities‑-in other words, strictly intergovernmental transactions.  See,Rands v. Clarke County, 79 Wash. 152, 139 Pac. 1090 (1914);cf.,Anderson v. O'Brien, 84 Wn.2d 64, 524 P.2d 390 (1974).  Conversely, the Washington court has expressly rejected, on repeated occasions, an argument for (in essence) a third exception; namely, that a correlative public benefit, or public purpose, is sufficient to cause a particular gift or loan of public funds, property or credit to be constitutionally valid.  See, in particular,Johns v. Wadsworth, 80 Wash. 352, 141 Pac. 892 (1914), from which the court later quoted with approval in State ex rel. O'Connell v. Port of Seattle, 65 Wn.2d 801, 399 P.2d 623 (1965), at page 805 as follows:

            "'The section of the constitution last quoted [Art. 8, § 7, supra], in most express terms, prohibits a county from giving any money, property or credit to, or in aid of, any corporation, except for the necessary support of the poor and infirm.  If the framers of the constitution had intended only to prohibit counties from giving money or loaning credit for other than corporate or public purposes, they would doubtless have said so in direct words.  That agricultural fairs serve a good purpose is not questioned, but the constitution makes no distinction between purposes,  [[Orig. Op. Page 5]] but directly and unequivocally prohibits all gifts of money, property, or credit to, or in aid of, any corporation, subject to the exception noted. . . .'"

            Accordingly, our direct answer to your present question must likewise be in the negative.  It would be a violation of Article VIII, § 7 of the constitution, supra, and specifically the "loan of money" prohibition contained therein, for a municipality or public utility district to enter into such a conservation program as you have here described.

            It is hoped that the foregoing will be of assistance to you.

Very truly yours,

Attorney General

Deputy Attorney General