Wilson v. Board of County Commissioners

³² Smith, J., delivered the opinion of the Court. We shall here affirm a holding that revenue bonds proposed to be issued by the County Commissioners of Allegany County (the County) in connection with pollution control measures to be installed by Westvaco Corporation (the Company) are valid. The Company has a plant at Luke in Allegany County. Its 2000-man payroll is of substantial importance to a county with a population as reflected by the 1970 census of approximately 84,000 people.

Appellants, William L. Wilson and wife (Wilson), are taxpayers of Allegany County who challenged the validity of the bond issue. It is contended by Wilson that (1) the proposed bond issue is invalid because of the lack of sufficient public purpose; (2) even if the construction of facilities calculated to abate air and water pollution be deemed a sufficient public purpose, a public purpose will not be served in this instance since the company is under an order to construct the facilities; (3) the proposed bond issue is invalid because (a) work on the facilities began prior to the effective date of the act authorizing the financing of pollution abatement facilities, and (b) the construction began before the passage of a resolution by the County; and (4) bonds may not be issued for (a) that portion of the facilities to be constructed in West Virginia and (b) that portion to be constructed in Garrett County. We granted certiorari prior to the consideration of the case by the Court of Special Appeals because of the importance of the issues and the fact that this Court has not given prior consideration to the points raised. The bonds in question are to be issued under the provisions of Maryland Code (1957, 1971 Repl.

Vol., 1973 Cum. Supp.) Art. 41, §§ 266A-266-I, inclusive (the Act). Pertinent portions of § § 266A and 266B state: “§ 266A. Definitions. “(a) Industrial building or buildings. — As used in this subheading, the term ‘industrial building’ or ‘buildings’ means any building or structure, or ³³ portion thereof, suitable for or intended for use as a factory, . . . and/or necessary or useful machinery and equipment, to be leased or sold to an industrial concern ... by the . . . county by which it is acquired. . . .

The term also means the land site or interests in land necessary or desirable for the building or structure, together with roads, or other rights of access, utilities, and other necessary facilities.. . . «(fa) * * * “(c) Industrial building and port facilities; acquisition. — The terms ‘industrial building’ and ‘port facility’ include (1) an addition, extension, or permanent improvement thereto, and (2) ‘pollution control facilities.’ The term ‘acquisition’ includes the rehabilitation, remodeling, extension, or permanent improvement of an industrial building or a port facility. “(d) Pollution control facilities. — The term ‘pollution control facilities’ means any building, structure, machinery, equipment or facility designed for the control, reduction, prevention or abatement of pollution of the natural environment by gaseous, liquid, or solid substances, discharges or radiation, (including adverse thermal effects therefrom), noise or any combination thereof. The term . . . includes but shall not be limited to pollution control facilities which can be financed by bonds determined to be tax exempt under provisions of the Internal Revenue Code of 1954. Pollution control facilities may be constructed as part of, and may include, facilities also designed for the recovery of chemicals or other products or to serve some other purpose, but which also contribute to the control or abatement of such environmental pollution. “(e) Municipality; county. — ... ‘County’ means one of the twenty-three counties of Maryland ³⁴ “§ 266B. Revenue bond issues authorized; ordinance or resolution; eminent domain; dedication of pollution control facilities; findings conclusive. “(a) Legislative findings. — Legislative findings are made that: (1) conditions of unemployment exist in many areas of this State; (2) the development of new commercial, industrial and manufacturing plants are essential to relieve this unemployment and to establish a balanced economy within this State; (3) the present and prospective health, happiness, safety, right of gainful employment, and general welfare of the citizens of each of the counties and municipalities of this State will be promoted by the establishment of industrial buildings and port facilities as herein provided; and (4) the control or abatement of pollution of the environment of this State is necessary to retain existing industry in, and attract new industry to, this State and to protect the health, welfare and safety of the citizens of this State, to protect the natural resources of this State and to encourage the economic development of this State. “(b) Legislative purpose. — It is the declared legislative purpose to relieve conditions of unemployment in this State, to encourage the increase of industry and a balanced economy in this State, to assist in the retention of existing industry in this State through the control, reduction or abatement of pollution of the environment, to promote economic development, to protect natural resources and in this manner to promote the health, welfare and safety of the residents of each of the counties and municipalities of this State. “(c) Power of municipality or county to issue revenue bonds. — In order better to accomplish the foregoing purposes, in addition to whatever other ³⁵ powers it may have and notwithstanding any limitation of law, any . . . county may borrow money by issuing negotiable revenue bonds for the purpose of financing the cost of acquiring any industrial building or buildings . . . , either by purchase or construction. . . . “(d) Ordinance or resolution. — An ordinance or resolution shall be adopted by the legislative body of the . . . county specifying the proposed undertaking, the amount of bonds to be issued, the rate or rates of interest the bonds are to bear, or the method of determining such rate or rates, and such other provisions not inconsistent with this subheading as shall be determined by such legislative body to be necessary or desirable to effect the financing of the proposed undertaking.

The ordinance or resolution shall further provide that the industrial building ... is to be acquired pursuant to the provisions of this subheading, and shall also provide that the industrial building . . . is to be acquired for a bona fide tenant or tenants or purchaser or purchasers, as the case may be, as evidenced by a letter of intent or similar agreement between the prospective tenant or tenants or purchaser or purchasers and the . . . county issuing the bonds. “(e) * * * “(f) Findings of legislative body conclusive. — In any suit, action, or proceeding involving the validity or enforceability of any bond issued under this subheading or the security therefor, any finding by the legislative body of the . . . county in regard to the existence or relief of conditions of unemployment, the increase of industry in this State, the retention of existing industry in this State, the control and abatement of pollution, the promotion of economic development, the creation of a balanced economy, the protection of natural ³⁶ resources, and the promotion of the health, welfare and safety of the residents of such. . . county shall be conclusive.” The facts were stated by the trial judge (Getty, J.) in a comprehensive and well-reasoned opinion: “The mill at Luke was originally constructed in the late 19th century and has been periodically expanded and modernized so that today it produces approximately 300,000 tons of high-grade paper annually and employs approximately 2,000 persons. “In the manufacturing process, the mill uses or consumes enormous quantities of chemicals, fuel, water, and wood. Of necessity, in the process the mill discharges substantial amounts of gas and liquid effluents into the air of Allegany County and into the adjacent Potomac River, which is situated within Allegany County. “In 1969 and early 1970, engineers from Westvaco met with the enforcement agents of the Department of Water Resources of the State of Maryland and the division of Air Quality Control of the Environmental Health Services of the State of Maryland, formally and informally, to plan a strategy for bringing the plant at Luke into compliance with the air and water quality regulations governing that location. As a result of the meetings and exchange of information between the parties, on February 13, 1970, with the consent of all parties, there was entered by the Department of Water Resources an Order setting a time schedule for implementation of a water pollution abatement program with respect to five general projects. In addition, the Order called for the evaluation and study of an ongoing problem dealing with color control, for which there was at that time no known solution, and specified that there would continue to be reports made with respect to the ³⁷ company’s ongoing abatement program and its results. . . . “Similarly, on June 25, 1970, the company and the Division of Air Quality Control, with the approval of the Department of Health and Mental Hygiene, entered into a Plan for Compliance with the Maryland air quality regulations by the mill at Luke, which consists of approximately seven pages. . . . “Beginning immediately upon execution of the Order and the plan, Westvaco began compliance procedures.

So far as is relevant to this case and so far as the records of Westvaco disclose,. . . there is set forth data which shows with respect to the specific projects in the Order and the plan the amount of money that was or is expected to be spent with respect to a given project; the amount of money which had been actually spent on that project as of June 1, 1972 (the effective date of certain amendments to the Act); August 28, 1973 (the date of the resolution hereinafter discussed); and the date on which the project was or is expected to be completed. “In the summer of 1973, Westvaco Corporation approached the Board of County Commissioners for Allegany County and requested the Commissioners to consider acting pursuant to [Code (1957, 1971 Repl. Vol., 1973 Cum. Supp.)] Article 41, Sections 266A-266-I, . . . (the “Act”) by issuing bonds on behalf of Westvaco to finance the pollution control facilities which it had constructed and which it proposed to construct in order to comply with the plan and the Order.

It was then anticipated that the cost of facilities and the additional costs and expenditures incident thereto would be approximately $22,700,000. “On or about August 28, 1973, after due consideration, the Board of Commissioners of ³⁸ Allegany County passed a resolution ... in which it found that the issuance of revenue bonds as requested ‘will facilitate and expedite the construction and acquisition of such pollution control facilities by the company’ and that The construction and acquisition of the facilities by the Company and the financing thereof by the County (a) promote the declared legislative purposes of the Act through furtherance of the control, reduction or abatement of pollution of the environment and (b) facilitate compliance with the requirements of federal, State and local laws and regulations governing the control, reduction or abatement of pollution of the environment, and thus (i) sustain jobs and employment opportunities and aid in maintaining employment, thus relieving conditions of unemployment in the State of Maryland and in the County; (ii) encourage the increase of industry and a, balanced economy in the State of Maryland and in the County; (iii) assist in the retention of existing industry in the State of Maryland and in the County; (iv) promote economic development; (v) protect natural resources; and (vi) promote the health, welfare and safety of the residents of Allegany County, Maryland, and of the State of Maryland . . . “Pursuant to the__authority conferred in that resolution, the County has executed a Memorandum Agreement ... in which the County undertook, subject to certain terms and conditions, to issue bonds pursuant to the above mentioned law in an amount not to exceed $22,700,000, to finance pollution control facilities as described on an exhibit attached to that memorandum. . . . [T]he estimated construction costs of facilities [were] broken into two categories: those which were ³⁹ constructed or under construction and those which were in the planning stage and still subject to authorization. Note that the facilities in the planning stage are described in terms of pollution control objectives rather than in terms of equipment (with exceptions not relevant to this case). “On June 4, 1974, William L. Wilson and Elizabeth G. Wilson, residents and citizens of Allegany County, filed the Petition for Injunction and Declaratory Relief in this case setting forth in paragraph 10 thereof multiple bases for their contention that the issuance of the bonds and expenditure of the proceeds as contemplated and set forth in the Resolution aforesaid and the Memorandum of Agreement aforesaid would violate State law, the State Constitution, and the Federal Constitution. “Notice was given to the Attorney General of the State of Maryland by Petitioners as required by law, and in due course the State of Maryland filed a motion to intervene in support of respondents in which it alleged that There is a strong Statewide public interest in implementing the particular resolution challenged in this action, and in other undertakings affected by construction of the enabling law, Sections 266A through I, Article 41, Annotated Code of Maryland. Such public interest relates to both environmental and economic concerns, and is expressed through programs of several State agencies. On July 1, 1974, by Order, this Court authorized intervention by the State of Maryland in support of respondents. “On or about July 3, 1974, the Mayor and City Council of Baltimore; Dover Poultry Products, Inc.; ⁴⁰ SCM Corporation; and Allied Chemical Corporation filed a motion for leave to intervene in support of respondents in which it was alleged that each of the intervenors, with Baltimore City being representative of other municipalities, relied in the past and would rely in the future upon the validity of the legislation underlying the resolution of Allegany County and that in particular in Baltimore City, an adverse decision in the instant case would constitute a threat to the City’s financing program for pollution control facilities.

On or about July 3, 1974, this Court entered an Order permitting the aforesaid parties to intervene on behalf of respondents. “The facilities which are to be financed by the bond proceeds were, with two exceptions to be discussed here, constructed or are to be constructed for the sole purpose of abating air or water pollution. These facilities will in no way increase the productive capacity of the plant, decrease the cost of the plant or increase the efficiency of the plant in any respect. In fact, were this not the case, the bond issue would not be entitled to the federal tax exemption which is the major if not sole purpose of the bond issue. Therefore, in this respect, the construction of these facilities generates no benefit to Westvaco or to Westvaco’s stockholders or creditors since it consumes an enormous amount of capital and requires heavy expenditures for maintenance and operation and yet provides no increase in income or reduction in cost. “The two exceptions to be noted are the recovery boiler and the coal washing machine.

Recovery boilers have been used by pulp and paper mills for many years because it is in fact economically advantageous to recover and reuse the chemicals in the liquor cycle. In the instant case, however, there ⁴¹ were installed and operating at Luke two recovery boilers which were functioning satisfactorily from a production standpoint. There was no intent on the part of Westvaco to replace nor any benefit to be gained by Westvaco in replacing the existing recovery boilers. The replacement was done as an integral portion of several constructions designed to reduce the TRS emissions from the recovery boiler. “To the extent that the new facility had a longer useful life than the old facilities and to the extent that the new facility had a larger capacity than the old facility, the construction of the new facility represented some benefit to Westvaco. “At the federal level it has been necessary to pro-rate the construction cóst in accordance with the regulations under § 103 of the Internal Revenue Code, allocating a certain proportion to pollution control and the remainder to increased capacity.

The regulations permit the issuance of bonds with the exemption to the extent of an approved percentage. What that percentage will be has not yet been determined. A Revenue Ruling request has been submitted and is currently being reviewed. The proposal to the County as to the portion of the cost of the recovery boiler to be financed incorporates the anticipated result of the Internal Revenue Ruling Request in which it has been argued that approximately 60% of the cost of this new facility was due exclusively to pollution control. “It is currently anticipated that the coal washing plant, if it is to be relatively efficient, must incorporate the economy of size.

Currently it is anticipated that an economical size will mean the construction of a plant capable of processing more coal than the Luke plant currently requires. While this coal will be made available to the public at a competitive price, the moneys recovered from the ⁴² sale of this coal will not, under current or anticipated market conditions, the company contends, be sufficient to underwrite the cost of the facility. In other words, the facility would never have been constructed except to abate pollution. The operation of the coal washer will in no manner increase the productivity or efficiency of the production operation at Luke, and whatever income is generated from the sale of surplus coal will not be sufficient to offset the cost of operating the facility; hence, no portion of it could be used to amortize the capital expenditure. “Thus, the construction of these facilities, except insofar as costs are specifically excluded from the bond proceeds, generates no benefit for Westvaco.

Obviously then the company is investing an enormous amount of non-productive capital and is required to carry heavy interest payments in order to take the first steps into what will be a cleaner national environment. These steps are taken pursuant to orders or compliance plans which in general terms set forth the progress agreed upon between the State and the industry. “The contemplated financing involves the issuance of pollution control revenue bonds by Allegany County, the proceeds of which will be lent to Westvaco. The revenue bonds are not an obligation of the County and will be repaid solely from loan repayments from Westvaco to Allegany County. Neither the full faith and credit nor the taxing power of the County is in any way pledged to the repayment of these bonds. “Purchasers of the bonds rely solely on the credit of Westvaco for repayment.

The purchasers in no way consider that the County is liable to repay the bonds. The issuance of these pollution control revenue bonds in no manner impairs or uses up the County’s capacity to issue its own general obligation bonds.” ⁴³ I Public Purpose One of the arguments advanced by the County in response to Wilson’s claim that the bond issue is invalid because of the lack of a sufficient public purpose is that the bond issue does not involve the use of public funds since it is not a general obligation of the County and is not payable out of the general revenues of the County, hence a public purpose is not required. The general rule that the public funds of municipalities cannot properly be devoted to a private use, even when expressly authorized by the Legislature, was noted by Judge Henderson for this Court in Frostburg v. Jenkins, 215 Md. 9, 14 , 136 A. 2d 852 (1957). Wilson quotes Goldberg and Robinson, Tax Exempt Financing of Industrial Development and Pollution Abatement Facilities (1973): “It has been suggested that since revenue bonds do not involve a general obligation of the Issuer and are not payable out of the general revenues, such bonds do not necessarily have to serve a public purpose.

This reasoning, however, has not been relied upon by any court in approving an issue of industrial development revenue bonds.” Id. at 388. We note that in the next succeeding paragraph it is stated: “A majority of the courts approve industrial revenue bond issues on the basis that industrial development serves a public purpose or on the basis that the legislature is the appropriate body to determine whether the purpose served by industrial revenue bond issues is a public purpose.” Id. at 388. We observe that by § 266C (c): “The principal amount of the bonds, the interest payable thereon, their transfer, and any income derived therefrom, including any profit made in the sale or transfer thereof, shall be and remain exempt from taxation by the State of Maryland and ⁴⁴ by the several counties and municipalities of this State.” See also Code (1957, 1969 Repl. Vol., 1973 Cum.

Supp.) Art. 81, § 280 (b). We further note that the rule in Maryland is that exemptions from taxation must be only for a public purpose. Katzenberg v. Comptroller, 263 Md. 189, 197 , 282 A. 2d 465 (1971), and Kimball-Tyler v. Balto. City, 214 Md. 86, 97 , 133 A. 2d 433 (1957).

Therefore, we prefer to consider this matter assuming, but without deciding, that it is necessary that a public purpose be established. D. Pinsky, State Constitutional Limitations of Public Industrial Financing: An Historical and Economic Approach, 111 U. Pa. L. Rev. 265 (1963), states: “The majority of decisions have sustained the validity of the revenue bond plans under the public aid limitations and the public purpose test. The courts have held that a statute which pledges only project revenues does not pledge the public credit, and therefore does not lend the public credit in aid of anyone.

The public purpose test and the public aid limitations have been identically treated. Of the four courts that invalidated revenue bond statutes, two relied on both the credit clause and public purpose test, one on the credit clause alone, and one on the public purpose test alone. “These minority courts and law review commentators have asserted that several factors justify the invalidation of revenue bond statutes under the credit clause and the public purpose test. Public officers who administer the plans must perform various duties similar to those of the mortgage trustee, including fixing and collecting rentals and providing insurance coverage. It is alleged that it is improper for them to be so occupied.'If so, taxpayers have a valid interest in the proper use of officers’ time.

Further, the use of officers’ time can be translated into an expenditure ⁴⁵ of public funds — a given percentage of their salaries. In addition, improper performance of their duties by municipal officers may create municipal liability to bondholders or others. Even if that does not occur, a default by the lessee might produce a default on the bonds which would adversely affect the city’s credit status.” Id. at 315 . The bonds to be issued here will require payment by the Company to a trustee who, without expanse to the County, will disburse the required payments on the bonds to those entitled to receive them.

This procedure effectively negates all such objections in this case other than the last objection. Citing Lerch v. Md. Port Authority, 240 Md. 438 , 214 A. 2d 781 (1965), 15 E. McQuillin, Municipal Corporations (J. Latta 3d ed. 1970 rev. vol.) § 43.29 states: “The legislature may determine whether or not the object for which bonds are to be issued