AGLO 1973 No. 5 - Jan 9 1973
OFFICES AND OFFICERS ‑- STATE ‑- ECONOMIC ASSISTANCE AUTHORITY ‑- GRANT OF STATE FUNDS ‑- INDIANS
Discussion of the legality of a proposed grant of state funds to the Kalispel Indian Tribe under the provisions of the economic assistance authority act of 1972, constitutionality of using state funds for industrial development project by Indian tribe.
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January 9, 1973
Honorable Daniel B. Ward
Chairman, Economic Assistance Authority
General Administration Building
Olympia, Washington 98504 Cite as: AGLO 1973 No. 5
By letter previously acknowledged you have requested our opinion regarding the legality of a proposed grant of state funds to the Kalispel Indian Tribe under the provisions of the economic assistance authority act of 1972 ‑ chapter 117, Laws of 1972, 1st Ex. Sess.
We answer this question in the manner set forth in our analysis.
Your question arises by reason of an application which has been submitted to the economic assistance authority by the Kalispel Indian Tribe for a grant of $375,000 in state funds. If granted, these monies would be used to construct and equip an industrial building for light manufacturing, including the installation of water and sewer mains therefor. When completed this facility (to be located entirely on Indian trust lands) is to be leased to a Washington corporation, the Aluminum Box Company, in which the tribe owns a controlling (approximately 60%) interest ‑ the remaining interest being owned by a non-Indian operator of the company. It is contemplated that this lease would be relatively long term in duration, with rentals to reflect a reasonable amortization to the tribe for the leasehold value of the land and building. The principal activity of the Aluminum Box Company is the fabrication of aluminum tool boxes, carts and related items made from aluminum sheets. The major profits from this operation and all the lease proceeds would inure to the benefit of the entire tribe.
The basis for this application for state financial assistance, as noted in your leter, is chapter 117, Laws of 1972, 1st Ex. Sess. By this enactment the legislature created the economic assistance authority as a state agency and charged it with responsibility [[Orig. Op. Page 2]] for the administration of a program of financial assistance in implementation of the following declaration of policy, as set forth in § 1 of the act:
"It is declared to be the public policy of the state of Washington to direct financial resources of this state toward the fostering of economic development through the stimulation of investment and job opportunity in order that the general welfare of the inhabitants of the state is served. The legislature further finds that reducing unemployment as soon as possible is of major concern to the economic welfare of the state.
"It is further declared that such economic development should be fostered through provision of investment tax deferrals, construction of public facilities, the insurance of industrial mortgages, and technical assistance; that expenditures made for these purposes as authorized in this chapter are declared to be in the public interest, and to constitute a proper use of public funds, and that an economic assistance authority is needed which shall effect such development of economic opportunity."
Of the three categories of economic assistance contemplated by the act ‑ i.e., public facilities' grants or loans; investment tax deferrals; and industrial mortgage insurance ‑ we are here concerned only with the first. In order to fund these grants or loans for the remainder of the 1971-73 fiscal biennium the legislature has appropriated the sum of $20,000,000 pursuant to § 47, chapter 155, Laws of 1972, 1st Ex. Sess., ‑ the supplemental budget act. The disbursement of these funds is governed, basically, by the provisions of § 7, chapter 117, supra, which reads as follows:
"The authority is authorized to make direct grants and/or loans to [[Orig. Op. Page 3]] political subdivisions of the state and Indian tribes recognized as such by the federal government, for the purpose of assisting such organizations in financing the cost of public facilities, including the cost of acquisition and development of land and improvements for public facilities, as well as the acquisition, construction, rehabilitation, alteration, expansion, or improvement of such facilities." (Emphasis supplied.)
The application here in question establishes the fact that the Kalispel Indian tribal community is an Indian tribe ". . . recognized as such by the federal government, . . ." It is organized under a Constitution and bylaws adopted and approved pursuant to 25 U.S.C. § 476 and is chartered as a "body politic and corporate of the United States" pursuant to 25 U.S.C. § 477, the Indian Reorganization Act of 1934.
Having determined that the Kalispel Indian community qualifies on this count, it remains, however, to be determined whether the purposes of the particular requested grant in question are consistent with the several other conditions established by the legislature with regard to public facilities' grants or loans under the economic assistance authority act. First to be noted is a provision contained in § 6 of the act pursuant to which no such grants may be approved for projects not ". . . consistent with the plans, programs, and policies of state agencies and/or local governmental units within whose jurisdiction the project is located." Compliance with this requirement at one level, at least, is reflected in the 1970 Trico Economic Development District overall economic development plan listing industrial development on the Kalispel reservation as top priority. Beyond this, you have advised (as above noted) that the project in question is to be located entirely on Indian trust lands, and hence would not appear to be subject to other local county or state land use regulations under the reasoning described by our state supreme court in Snohomish County v. Seattle Disposal Co., 70 Wn.2d 668, 425 P.2d 22 (1967). Nevertheless, it has been indicated that the proposed location of the building is adjacent to an area designated as industrial in the land use plan of Pend Oreille County (wherein the facility would be located).
[[Orig. Op. Page 4]]
Next to be considered is a requirement contained in § 8 of the act to the effect that public facilities' grants and/or loans to an eligible recipient are to be used for projects which
". . . will improve the opportunities for the successful maintenance, establishment, or expansion of industrial or commercial plants or will otherwise assist in the creation or retention of long-term economic opportunities."
Based upon the data and information supplied that accompanied the application, it is our opinion that the proposed project could reasonably be found by the authority to fulfill this general criteria. The supporting materials accompanying the application indicate, for example, that the contemplated project would increase the number of available jobs with the subject company from a present figure of 13 part-time to a maximum long-term figure of 60 full-time jobs.
Next to be noted is § 9 of chapter 117, supra, which requires that moneys be made available for certain economically depressed geographic areas only. We understand that Pend Oreille County (in which the Kalispel reservation is located) has already been determined by the authority to qualify on this count. We note also in passing that in § 9 (1) (c) the legislature has expressly taken note of Indian tribal situations by providing that an area may be designated as an "economic assistance area" where
"The area is a federal Indian reservation manifesting economic distress as based on unemployment, low income levels, and other evidence of economic underdevelopment."
This brings us, then, to a consideration of the "public" nature of the over-all project itself. Section 7, supra, authorizes grants or loans to finance the costs of "public facilities" only; and § 11 (2), which is to be read in conjunction with this provision, states that any public facilities' grants or loans made by the authority are to be
". . . used directly or indirectly for any facility for public purposes, including, [[Orig. Op. Page 5]] but not limited to, sewer or other waste disposal facilities, arterials, bridges, access roads, port facilities, or water distribution and purification facilities;" (Emphasis supplied.)
Of the $375,000 here being sought by the Kalispel tribe, we note from the project cost breakdown accompanying the application that $44,200 would be used to finance the installation of water and sewer mains to service the proposed industrial facility ‑ and to this extent, the grant, if made, would clearly accord with this criteria. With respect to the remainder, however, our answer must be considerably more guarded.
In advising you earlier, by letter dated August 22, 1972, [[an Informal Opinion to Daniel B. Ward, Chairman, Economic Assistance Authority]], that a grant of state economic assistance to another Indian tribe (the Swinomish) for the construction of a fish processing plant would be "legally defensible," we quoted with approval from 3 Sutherland, Statutory Construction, § 6406 as follows:
"Where a public grant has as its purpose the promotion of great public enterprises and the happiness, prosperity and development of the community, the basic policy behind the rule of strict interpretation is dissolved, and the courts are inclined towards a liberal policy to insure the beneficent operation of the statute. . . ."
We also made note in this earlier opinion of the somewhat unique characteristics of an Indian tribe as a recognized governmental entity, as follows:
". . . it seems significant that in defining the permissible recipients of the subject grants, the legislature has spoken both of 'political subdivisions of the state' and of 'Indian tribes recognized as such by the federal government . . .' In so doing, the legislature appears to have given expression to the unique nature of these latter entities and to have indicated that they are not to be viewed in precisely the same manner as we ordinarily view 'political subdivisions of the state.' Thus the fact that the facility here in question differs in certain respects from those ordinarily operated by counties, cities and towns, or other political subdivisions should not compel a conclusion [[Orig. Op. Page 6]] based upon the rule of ejusdem generis that it is not a 'public facility' within the meaning of the act."
We then concluded by saying that
"In light of all of these factors we do not believe that a court would read the legislature as having intended to limit the scope of tribal public facilities solely to such facilities as counties, cities or other political subdivisions traditionally operate. On the contrary, we think the legislature's intention is manifest that those unique facilities historically viewed as tribal public enterprises may be equally considered with those of the state's political subdivisions in terms of determining their eligibility for 'public facilities'' grants or loans under the act. Therefore, fairly viewed, a fish processing facility which is operated, as a tribal asset, for the benefit of the entire community, by the Swinomish Indian community's elected governmental leaders, can reasonably be held to be a public facility within the meaning of the act."
Two points of distinction exist, however, between that application and the one here under consideration: First, we found in that case an historical connection not here present between the activity in question (catching and processing fish) and the particular tribe there applying for economic assistance; and secondly, the project there involved was a facility to be wholly owned and operated by the tribe rather than (as here) one to be leased to a private corporation (albeit one controlled by tribal interests).
Both because of its historical significance and its tribal ownership and operation, we felt able in our earlier opinion to characterize the entire fish processing plant involved in the Swinomish application as a "public facility" under the economic assistance authority act; and it is, of course, possible that a court might reach the same conclusion with respect to the Kalispel industrial plant in the instant case, notwithstanding the above‑noted two distinctions. However this result is, in our judgment, no more than about a 50-50 proposition.
[[Orig. Op. Page 7]]
The absence of an historical connection between the fabrication of aluminum tool boxes, etc., and the Kalispel tribe, per se, is bothersome to us primarily from the standpoint of legislative intent. Did the legislature truly envision a project such as this ‑ separate and apart from such obvious public facilities as supporting sewer or water systems, access roads, drainage facilities or the like ‑ as itself constituting a "public facility" to be financed by state aid under the economic assistance authority act? We are not at all certain that it did ‑ contrary to the feeling we had regarding the Swinomish fish processing plant.
But over and above this point we see in this case, because of the second of the two above‑noted distinctions between it and the Swinomish application, a possible constitutional problem which was not there involved; namely, the use of state funds or credit for acquisition and/or development of sites or facilities for the use of private industry or other nonpublic business activities.
Under Article VII, § 1 (Amendment 14) of our state Constitution it is provided that:
"All taxes . . . shall be levied and collected for public purposes only. . . ." (Emphasis supplied.)
Additionally, Article VIII, § 5, provides:
"The credit of the state shall not, in any manner be given or loaned, or in aid of, any individual, association, company or corporation."
As we recently noted in AGLO 1973 No. 3 [[an Informal Opinion to Frances E. Holman, State Senator on Jaunuary 5, 1973]](copy enclosed) dealing with "industrial development" by cities, those provisions (together with Article VII, § 7 in the case of municipalities) have the double‑barreled impact of (a) prohibiting any public (state or local) funds from being expended for nonpublic purposes;1/ and (b) regardless of the arguable "public purpose" of an expenditure, barring all gifts or loans of public money or credit to, or in aid of private individuals or businesses ‑ except in necessary support of "the poor and infirm." Because of these [[Orig. Op. Page 8]] constitutional restrictions (we there further observed) our state supreme court held some fourteen years ago in Hogue v. Port of Seattle, 54 Wn.2d 799, 341 P.2d 171 (1959), that the public funds of a port district could not be used to pay for the acquisition and development of industrial sites and facilities to be then leased to private business enterprises ‑ thus at least casting a cloud on such industrial development activities by all state or local units of government.2/
Although (as also pointed out in this recent opinion) the Constitution has since been amended to take care of this problem in the case of port districts,3/ the principles enunciated by the court in the Hogue case continue to render similar industrial development activities by other governmental entities ‑ including the state ‑ constitutionally questionable. On the other hand, there is evidence in other jurisdictions of a somewhat more liberal trend by other courts insofar as the constitutionality of publicly funded industrial development is concerned. See cases cited in The "Public Purpose" of Municipal Financing for Industrial Development, 70 Yale L.J. 789 (1961); also, Pinsky, State Constitutional Limitations on Public Industrial Financing: An Historical and Economic Approach, 111 U. Penn. L.R. 265 (1963), and in City of Pipestone v. Madsen, 178 N.W. 594-600 (1970). These sources indicate that the highest appellate courts of some twenty-two jurisdictions (other than Washington) have without [[Orig. Op. Page 9]] constitutional amendments upheld the validity of legislation authorizing governmental industrial aid bonds or other types of financial assistance to private industry.
Summary and Conclusion
Accordingly, in the final analysis, our position respecting your request must, at this time, be as follows:
(1) To the extent that the grant here in question would be used solely for the installation of such support facilities as water and sewer mains, we think the grant is clearly authorized by the economic assistance authority act;
(2) As for the remainder of the project ‑ i.e., the development of the site and the construction and equipping of the industrial plant ‑ we cannot at this time give you the same assurances of legality as we did in the case of the Swinomish fish project plant, supra;
(3) We are, however, fully prepared to defend the entire grant in court if, in your discretion, you decide to award it in this case and it is challenged in order to test its validity;4/
(4) On the other hand, if you would care to withhold action on this application (and any others of like nature which you may receive) until clarifying legislation together with a clear-cut constitutional amendment allowing publicly funded industrial development projects (other than by port districts), is designed, we would be most happy to assist you in formulating such measures for submission to the current session of the legislature.5/
[[Orig. Op. Page 10]]
We trust the foregoing will be of some assistance to you.
Very truly yours,
PHILIP H. AUSTIN
Deputy Attorney General
CHARLES F. MURPHY
Assistant Attorney General
*** FOOTNOTES ***
1/State ex rel. Collier v. Yelle, 9 Wn.2d 317, 115 P.2d 373 (1941).
2/Because the site acquisition involved in the Hogue case was a result of condemnation by the port under Article I, § 16 (Amendment 9) of the Constitution and the court devoted most of its attention to that aspect of the case, some have, nevertheless, argued that the decision should be limited to that particular factual situation.
3/See, Article VIII, § 8 (Amendment 45), adopted in 1966, which provides that:
"The use of public funds by port districts in such manner as may be prescribed by the legislature for industrial development or trade promotion and promotional hosting shall be deemed a public use for a public purpose, and shall not be deemed a gift within the provisions of section 7 of this Article."
4/This, of course, is our duty in any instance where the acts of a state agency are thus challenged. See, RCW 43.10.030 (3).
5/In similarly responding to the question posed in AGLO 1973 No. 3, supra, we attached a possible version of a proposed constitutional amendment to allow public funds to be used for industrial development, and we are also attaching a copy of this proposal here for your use and information.