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Bob Ferguson

AGLO 1971 No. 49 - Mar 23 1971
Attorney General Slade Gorton

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                                                                  March 23, 1971
Honorable Jonathan Whetzel
State Senator, 43rd District
Legislative Building
Olympia, Washington 98501
                                                                                            Cite as:  AGLO 1971 No. 49 (not official)
Dear Sir:
            This is written in response to your recent letter requesting our opinion on a number of questions involving the constitutionality of a student loan program such as would be provided for by Senate Bill No. 840.  Your questions are as follows:
            "1. Under our present constitution can the state loan funds to a student for his education?  Does it make any difference if the loan is merely guaranteed by the state instead of loaned by the state?
            "2. Are the separation of church and state provisions of the constitution involved so that if the student is enrolled at a church affiliated school, the loan or guarantee constitute support of a religion and would conflict with the constitution?
            "3. Does it make any difference whether the student is attending a state supported school or a private school when he receives the loan or the state guarantees his loan?  If he is a resident, does it matter if the school he attends is out of state?
            "4. In the case of a state supported institution, does it make any difference if the loan funds are used for tuition payments and other fees paid to the institution, or may the loans be used for the student's support and expended by the student other than in payments to the state institution?
            "5. Does the guarantee of loans by the state constitute the incurring of state debt subject to the provisions of Article VIII of the constitution?"
             [[Orig. Op. Page 2]]
            Except for the last of these questions, each of them raise issues which have already been resolved in previous opinions of this office relating to earlier legislative proposals for student financial assistance programs.  See, in particular, AGO 57-58 No. 226, to State Senator R. R. Bob Greive, together with a letter dated November 14, 1968, to State Representative Gladys Kirk, copies of both are enclosed.  Based upon the second of these previous opinions, which affirmed the essential conclusions stated in the earlier one (albeit, on the basis of slightly modified reasoning), the 1969 legislature enacted chapter 222, Laws of 1969, Ex. Sess., presently codified as RCW 28B.10.802 ‑ 28B.10.824.1/   In terms of the issues raised by your present questions, the significant conclusion expressed in these previous opinions (as set forth in the syllabus to AGO 57-58 No. 226) is as follows:
            "(3) Legislation providing state funds, directly to needy students whether in the form of loans or cash awards, to use for educational expenses at any institution in Washington accredited by the Northwest College Association, whether state or private, and including private sectarian institutions, would be constitutional."
            The underscored phrase "directly to needy students," it will be seen, is the key.  In order to avoid the prohibitions against state financial aid to sectarian educational institutions which are contained in Article I, § 11 (Amendment 34) and Article IX, § 4 of our state constitution, it is necessary that a grant or loan of state funds under any student financial assistance program be made directly to the student himself, and not to the institution at which he is enrolled.  Likewise, for the prohibitions of Article VIII, § 5 of the constitution with respect to loans or gifts of state credit or money to be rendered inapplicable, it is necessary that the recipients of the subject state funded or guaranteed financial assistance be limited to persons who are "needy" ‑ i.e., students whose own financial resources (including those of their parents) are inadequate to defray their necessary educational expenses.
            Before responding directly to your specific questions in the light of these propositions, we may first say that, in  [[Orig. Op. Page 3]] our judgment, both of these critical tests were met by the provisions of chapter 222, Laws of 1969, Ex. Sess., and they both would likewise be met by Senate Bill No. 840.  See, in particular, § 8 (4) and (5) of chapter 222, Laws of 1969, Ex. Sess., and § 6 of Senate Bill No. 840.  Thus, we believe that the financial assistance program which would be provided for by this bill would be constitutionally defensible even without the concurrent adoption of such proposed constitutional amendments as are contained in either S.J.R. No. 34 or S.J.R. No. 22, to which you have made some reference in your letter.  All that either of these proposed amendments, both relating to Article VIII, § 5, supra, would do in this general context is to remove financial "need" on the part of the recipient from the ambit of constitutional requirements for such a program.
            Turning, then, to your several specific questions as set forth at the outset of this opinion, our answers to the first four, based upon the foregoing, may be briefly stated as follows:
            (1) Under our present constitution the state can loan funds to a student for his education if that student is a "needy" student, as explained in AGO 57-58 No. 226.  It makes no difference whether the loan is merely guaranteed by the state or the funds in question are actually loaned by the state, for the governing constitutional provision in either case is Article VIII, § 5, which is inapplicable where the recipient of the state funded or guaranteed financial assistance can meet this test of need.  Accord, Morgan v. Dept. of Social Security, 14 Wn.2d 156, 127 P.2d 686 (1942); compare, State v. Guaranty Trust Co., 20 Wn.2d 588, 148 P.2d 323 (1944).
            (2) The constitutional provisions relating to the separation of church and state are not violated if the financial aid in question is made available directly to the student to be assisted, even though he or she may be enrolled in a church affiliated school.
            (3) From a constitutional standpoint, it would make no difference whether the student in receipt of direct state financial assistance were to attend a state supported school or a private school; moreover, if it desires to do so the legislature can make the financial assistance in question available to a qualified Washington resident who is attending school somewhere outside of this state.
             [[Orig. Op. Page 4]]
            (4) So long as the financial assistance is made on the basis of direct payments to a "needy" student, it makes no difference, constitutionally, whether the funds are used for tuition payments and other fees imposed by the institution where he is enrolled, or are used, instead, for the student's personal support ‑ e.g., food and lodging, etc.
            This leaves us, then, only with the fifth and final question ‑ i.e., whether the guarantee of loans by the state to "needy" students would constitute an incurrence of state debt which would be ". . . subject to the provisions of Article VIII of the constitution."  Presumably you have reference, here, to the constitutional debt limitation provisions which are set forth in the first three sections of this Article ‑ the sections which establish a four hundred thousand dollar state debt limitation (§ 1); and then provide that this limitation may be exceeded only under certain emergency circumstances (§ 2); or on the basis of voter approval (§ 3).
            While this question (unlike your first four) has not previously been directly answered by this office, we believe that it is, nevertheless, readily answerable in the negative.  Our own state supreme court, in two recent cases, has held that a "state debt" under these constitutional provisions is incurred only when the state itself borrows money, as through the issuance of general obligation bonds.  See, State ex rel. Wittler v. Yelle, 65 Wn.2d 660, 399 P.2d 319 (1965), and State ex rel. Troy v. Yelle, 36 Wn.2d 192, 217 P.2d 337 (1950).  By way of contrast, the obligation which the state incurs when it becomes the guarantor of a loan made to some other borrower, being merely a contingent liability, is not governed by these sections of Article VIII.  Accord, Comfort v. Tacoma, 142 Wash. 249, 252 Pac. 929 (1927), and cases cited therein, holding that an indebtedness under the comparable provisions of Article VIII, § 6 (municipal indebtedness) is not incurred by virtue of a city's guarantee of local improvement district special assessment bonds.  Here, speaking of this type of obligation, the court said (at pp. 255-256):
            ". . . To state the matter more simply, the city agrees that if the property-holders, whose property has been assessed for the improvement, fail to pay in the regular assessments to cover the bonds when due, then the city will make payment for them to a certain extent by accepting the bonds from  [[Orig. Op. Page 5]] the holders and levying a tax for the money to pay the same.  This will readily be seen to be only a contingent liability as far as the city is concerned, and in no sense a debt proper.
            "If A is indebted to B and C promises that, if A does not pay B, then he (C) will, no one would contend that C had an outstanding debt.  He has but a contingent liability that may or may not ripen into a debt.  If A fails to pay, then, in that event, the contingent liability has ripened and the debt is absolute as to C.  But until that time arrives C owes B nothing.
            "So in the present case, the city will have nothing to pay if the property-holders meet their obligations and pay their assessments.  If they fail to do so, then the city will pay into the fund to the extent outlined in the statute.
            "The distinction between a debt and a contingent liability is nowhere more concisely stated than in Walla Walla v. Walla Walla Water Co., 172 U.S. 1, 43 L.Ed. 341:
            "'There is a distinction between a debt and a contract for future indebtedness to be incurred, provided the contracting party perform the agreement out of which the debt may arise.  There is also a distinction between the latter case and one where an absolute debt is created at once, as, by the issue of railway bonds or for the erection of a public improvement,‑- though such debt be payable in the future by installments.  In the one case the indebtedness is not created until the consideration has been furnished; in the other the debt is created at once, the time of payment being only postponed.'"
            Thus, instead of being governed by §§ 1-3 of Article VIII, the obligation which the state incurs as a guarantor of a loan to some other borrower is governed by § 5 of this Article ‑ to which, as above seen, the factor of financial "need" on the part of benefited individuals gives rise to a constitutionally permissible exception.
             [[Orig. Op. Page 6]]
            We trust that the foregoing will be of assistance to you.
Very truly yours,

Philip H. Austin
Deputy Attorney General
Richard M. Montecucco
Assistant Attorney General
                                                         ***   FOOTNOTES   ***
1/Of course, consistent with long-standing policy, we must now presume the constitutionality of this 1969 enactment.  See, AGO 1971 No. 12 [[to Gordon L. Walgren, State Senator on March 16, 1971]].