HOUSE BILL REPORT

HJR 4219

BYRepresentatives Schoon, Vekich and B. Williams 

Revising constitutional prohibitions against the lending of public moneys or credit.

House Committe on Trade & Economic Development

Majority Report:  Do pass.  (18)

      Signed by Representatives Vekich, Chair; Wineberry, Vice Chair; Amondson, Beck, Belcher, Cantwell, Doty, Grant, Hargrove, Holm, Kremen, McLean, McMullen, Moyer, Rasmussen, Schoon, B. Williams and J. Williams.

House Staff:Bonnie Austin (786-7107)

AS REPORTED BY COMMITTEE ON TRADE & ECONOMIC DEVELOPMENT

MARCH 5, 1987

BACKGROUND:

Article VIII, sections 5 and 7 of the State Constitution prohibit state and local governmental entities from making gifts or loans of their money or credit to private individuals or organizations, except for the necessary support of the poor and infirm.

These constitutional provisions were enacted in the nineteenth century as a reaction to the excessive subsidies state and local governments provided to private railroads.  Subsidies took the form of gifts of cash and municipal bonds, the exchange of municipal bonds for stock in railroad companies, and public guarantees of railroad debt.  Railroad mismanagement resulted in the loss of these public funds in many states.

Today, these "lending of credit" provisions prevent public investment in certain economic development activities.  Due to cutbacks in federal economic development programs, there has been growing support for an amendment to the state constitution to allow the state to directly finance economic development activities such as land acquisition and site preparation, infrastructure development, and debt and equity financing.

Article XII, section 1 of the State Constitution prohibits the creation of corporations by special acts.  Article XII, section 9 of the State Constitution prohibits the state from purchasing the stock of private corporations, companies, or associations.

SUMMARY:

A constitutional amendment is proposed to allow the state or any county, town, or other municipal corporation, to:

(1) Make gifts of money or property to private individuals or entities;

(2) Make loans of money or credit to private individuals or entities;

(3) Become the owner of stocks and bonds of private corporation; and

(4) Form any corporation.

All of these activities are authorized only to the extent that they are for the necessary support of the poor and infirm or for other public purposes as authorized by legislation.

Fiscal Note:      Requested March 6, 1987.

House Committee ‑ Testified For:    Representative Schoon.

House Committee - Testified Against:      None Presented.

House Committee - Testimony For:    Many states have repealed their lending of the credit provisions to allow for economic development activities.  Only a few states still have lending of credit provisions in their constitutions.

House Committee - Testimony Against:      None Presented.