Recognizing both the housing need and the downward spiral effect on the state's economy if the housing situation were not remedied, the Legislature established a home mortgage program. Laws of 1983, ch. 161. Program funds are to be generated from the Commission's issuance of nonrecourse tax-exempt revenue bonds pursuant to federal law.1 Using bond proceeds, the Commission is authorized to invest in, purchase, or make commitments to purchase home mortgages to provide “decent, safe, sanitary, and affordable housing for eligible persons." Laws of 1983, ch. 161, sec. 5, p. 697. Payments made on such loans will be remitted to the Commission's trustee bank by the lender. All payments, along with bond proceeds, are held in trust for the benefit of bondholders.

To commence the program the Commission adopted two resolutions on August 3, 1983. The first authorized the issuance of revenue bonds for mortgage aid to first time home buyers. The second resolution authorized revenue bonds to aid mortgagors of qualified multifamily residential housing. The Chairman and Secretary refused to sign the resolutions after being advised that they might be unconstitutional. The Commission thereupon brought this mandamus action to compel their signatures on both resolutions. We find the petition meritorious and grant the writ.

Although the course of decisions under the Washington constitution's lending of credit prohibition2 has not been smooth, this court has firmly rejected, as violations of the clause, any legislative appropriation of tax revenues at the solicitation of private enterprise to aid or subsidize private commercial ventures. See, e.g., State Highway Comm'n v. Pacific Northwest Bell Tel. Co., 59 Wash.2d 216, 367 P.2d 605 (1961); Johns v. Wadsworth, 80 Wash. 352, 141 P. 892 (1914). At the time of our constitutional convention, fear of powerful corporate entities was uppermost in the minds of the convention members. The disastrous consequences to taxpayers as a result of corporate political clout were well known. L. Knapp, The Origin of the Constitution of the State of Washington, 4 Washington Historical Quarterly 227, 239-40

'Section 103(a)(1) of the Internal Revenue Code provides tax exempt status for certain government bonds. Bonds issued for residential housing programs are tax-exempt only if they meet the specific criteria of I.R.C. sections 103A and 103(bX4XA).

2Const. Art. VIII, sec. 5 provides:

The credit of the state shall not, in any manner be given or loaned to, or in aid of, any individual, association, company or corporation.

(1913). The concern of the constitutional convention was "protection of [the] weak from the strong within." Journal of the Washington State Constitutional Convention 1889, at 682. The constitutional framers believed that government was not instituted to confiscate private property through taxation to enhance corporate profit. Journal, supra. Nor did they consider it proper for the state to put taxpayers at undeterminable risk by pledging future tax revenues for private benefit. See Knapp, at 270-71.

In the past we did not distinguish whether tax revenues or the state's status was used to confer a benefit. See, e.g., State Health Care Facilities Auth. v. Ray, 93 Wash.2d 108, 605 P. 2d 1260 (1980). Recently, however, we have focused primarily on the risk that the state program posed to the public treasury or taxpayer. In re Marriage of Johnson, 96 Wash.2d 255, 634 P.2d 877 (1981). In doing so, we recognized that the constitutional convention did not intend to hinder state government from carrying out its essential function to secure the health and welfare of the state's citizens. In re Marriage of Johnson, 96 Wash.2d 255, 634 P.2d 877 (1981); Rauch v. Chapman, 16 Wash. 568, 48 P. 253 (1897). Certainly, the lending of credit clause was not intended to insulate taxpayers from all risk and debt accruing from the public decisions of their governing representatives. Risk flowing from public ventures legitimately undertaken is inherent in our form of government. The difficulty underlying the lending of credit decisions is making the distinction between proper risk to the taxpayer from public decision making, and improper risk to taxpayers due to abdication of public control over the state's assets or status to private commercial decision making.

The "risk of loss” approach requires us to evaluate whether the state program "has safeguards absent in the schemes of the nineteenth century." In re Marriage of Johnson, supra 96 Wash.2d at 268, 634 P.2d 877. The safeguards must ensure that "[t]he public controls both the use of the State conferred 'asset' and the extent of its liability." In re Marriage of Johnson, supra at 268, 634 P.2d 877. The state must also retain the means to effectuate the project's public objective. Because these safeguards are central to the lending of credit clause, we now extend the same inquiry to state projects financed by nonrecourse revenue bonds.

We are satisfied that the Commission's authority meets these criteria. The primary purpose of the Commission's program is not to enhance the private sector's profit at the taxpayer's expense, but rather to

make decent housing available statewide.3 In determining legislative motive, we give great weight to the statutory declaration of purpose. Public Employment Relations Comm'n v. Kennewick, 99 Wash.2d 832, 664 P.2d 1240 (1983). While a legislative declaration does not conclusively establish its legitimacy, we accept the declaration unless it is shown to be arbitrary or unreasonable. The facts in the present controversy indicate that the legislative purpose, to rectify state housing deficiencies, is eminently reasonable.

The Legislature had before it studies and testimony on the state's economy and the housing market. From these they reasonably concluded that a public problem existed requiring state action. Uncontroverted testimony indicated that a significant portion of the state's population was inadequately housed. Further, it was apparent that the private sector had been unable to correct the housing scarcity resulting from continuing high interest rates and escalating construction costs.

The adequacy of private housing and the health of the state's economy have traditionally been concerns of state government. See e.g. Housing Auth. v. Seattle, 56 Wash.2d 10, 351 P.2d 117 (1960). The range of remedies available to meet these state problems must necessarily be wide. We leave the wisdom of a chosen remedy in the legislative arena. Obviously, if the program is successful, the private sector will benefit through increased housing starts, and increased activity in the housing and mortgage markets. Mortgage lenders will be entitled to an origination fee established by the Commission even though the Commission subsequently purchases the mortgage. Additionally, participating lenders will be compensated for servicing the mortgages (collecting mort

3Section 1 of the housing financing act provides in part: "It is declared to be the public policy of the state and a recognized governmental function to assist in making affordable and decent housing available throughout the state and by so doing to contribute to the general welfare. Decent housing for the people of our state is a most important public concern. Interest rates and construction costs have made it impossible for many Washington, citizens to purchase their own homes. Older people, disabled persons, and low and moderate income families often cannot afford to rent decent housing. There exists throughout the state a serious shortage of safe, sanitary and energy efficient housing available at prices within the financial means of our citizens. General economic development within the state is also impeded by a lack of affordable housing. The state's economy, which is dependent on the timber, wood products, and construction industries, has been damaged by inadequate investment in housing construction and rehabilitation. The result has been high unemployment and economic hardship affecting the prosperity of all the people of the state, particularly those in the wood products industry." Laws of 1983, ch. 161, sec. 1, p. 693-94.

gage payments, insurance premiums and property taxes, and making appropriate remittances to the Commission's trustee bank). Although we are inclined to view these fees as compensation rather than profit, the profit, if any, to actually be realized is speculative and subject to marketplace vagaries.

Our discussion of legislative motive does not imply that a finding of public purpose validates an otherwise impermissible lending of credit. State ex rel. O'Connell v. Port of Seattle, 65 Wash.2d 801, 399 P.2d 623 (1965). See In re marriage of Johnson, supra, 96 Wash.2d at 266, 634 P.2d 877. Gratuitous state aid to private enterprise or private persons although for a laudable public purpose is prohibited by our constitution. But state aid to a circumscribed class of the public, in furtherance of legitimate state objectives, may provide the necessary "consideration" for the aid. See PERC v. Kennewick, supra, 99 Wash.2d at 837-838, 664 P.2d 1240. We review the legislative purpose to confirm that the statutory objective is to benefit a deserving class of the public.

Nor should we be understood as taking upon ourselves the business of determining who belongs in the benefited class. In early cases upholding aid to the "poor and infirm," we deferred to the legislative determination of what constituted need. State v. Guaranty Trust Co. of Yakima, 20 Wash.2d 588, 148 P.2d 323 (1944). Our only task is to assess the reasonableness of that determination.

The Legislature found that persons at certain income levels could not afford adequate housing. The resulting high demand for rental units forced many low income persons into substandard housing. The Legislature's criteria for mortgage loan eligibility ensure that these persons' needs are met. The Commission's eligibility standards must consider at least the following: income; family size; cost, condition and energy efficiency of available residential housing; availability of decent, safe, and sanitary housing; age or infirmity of recipients. Laws of 1983, ch. 161, sec. 5(2), p. 697. These guidelines establish a reasonable nexus between the recognized need and the persons to be benefited.

Accordingly, we conclude that the purpose of the mortgage loan program is to benefit a class of citizens reasonably determined to require public aid to meet their housing needs, and not to benefit a specific private enterprise. Because such a purpose is well within the legitimate purview of state government, it does not conflict with the lending of credit prohibition.

We further find that the Legislature has enacted safeguards that retain public control over the extent of risk to the taxpayers and effectuation of the program's public purpose. In reviewing the statutory safeguards, our function is not to weigh the economic risk but only to ascertain that risk to the state remains

within public control and is not abdicated to the private sector. The controls imposed on the mortgage loan program are impressive. The most significant risk to taxpayers from publicly financed projects is loss of tax revenues or pledging of future revenues. Under the mortgage loan program, however, there is no risk of this kind. Program funds must be derived entirely from the investment market, not from state appropriations. Laws of 1983, ch. 161, sec. 8(7), p. 700. The funds never enter the state treasury but are held in a special trust account. Sec. 17, p. 704. The bonds, although issued in the Commission's name, must contain a recital that they are not state obligations. Sec. 3, p. 695. Any obligation arising from the sale of bonds or the program is an obligation only of the Commission's special fund....

Whether bond default would impact the state's credit rating is open to question. See 50 Wash.L.Rev. 440, 464-67 (1975). At least two factors minimize any potential risk to the state's credit rating. Unlike the situation in Chemical Bank v. Washington Public Power Supply System, 99 Wash.2d 772, 666 P.2d 329 (1983), a constitutional challenge has been brought prior to bond sales. In further contrast, the bonds are secured in case of default by property with relatively high marketability. Interestingly, a market evidently exists for these bonds despite the recent default on nuclear power plant bonds.

Other risks to taxpayers are kept within the public control. The authority to issue bonds is limited in amount and expires in 1986. Laws of 1983, ch. 161 sec. 5(1)(a), p. 697. The Commission's plan for raising and using program proceeds is subject to public hearing. Sec. 7, p. 698. The Commission has authority to set standards and guidelines for private lenders to follow in disbursement of program funds. Sec. 8(1), p. 699.

These controls also assure that the public objectives of the program will be met. Legislative intent in this regard is underscored by the requirement that program proceeds are to be made available to mortgagors in a fair and equitable manner. Sec. 12, p. 702. The Commission's program must meet other specific objectives, including the housing needs of low-income and moderate-income persons, the elderly and handicapped. Sec. 7, p. 698.

The Legislature's carefully conceived safeguards convince us that the state is not impermissibly abdicating its responsibility over the use of state status or the extent of state liability to the private sector. Finding that the state housing finance program is consistent with the state's legitimate function and that the risk to the state's taxpayers and effectuation of the public purpose remains under public control, we hold that the Commission's authority under Laws of 1983, ch. 161, does not violate Const. art. VIII, sec. 5.

ROSELLINI, Justice (dissenting).

I read the majority opinion as providing that the Washington State Constitution does not prohibit lending of the State's credit when it supports a statutory objective to benefit a deserving class of the public. I disagree.

Both article 8, section 5 and article 12, section 9 of the Washington State Constitution provide that the credit of the State shall not, in any manner, be given or loaned to, or in aid of any private individual, association or corporation.

It is clear that the State or a municipality lends its credit whenever it allows its unique governmental status or authority to be utilized for the purpose of enabling a private corporation or individual to obtain property or money which it could not otherwise acquire for the same price.

The Washington State Housing Finance Commission would be doing just that by passing on to private, nonindigent home buyers or tenants the substantial benefit of its unique ability (as a State instrumentality) under the Internal Revenue Code to issue bonds as tax exempt rates of interest.

That the loan of credit serves a laudable public purpose does not validate an otherwise unconstitutional loan or gift of state or municipal credit. In Lassila v. Wenatchee, 89 Wash.2d 804, 576 P.2d 54 (1978), this court held that const. art. 8, sec. 7 absolutely prohibits a municipality from acting as a conduit for private enterprise. In response to the argument that the loan of credit served a laudable public purpose, the Lassila court states, at pages 811-12, 576 P.2d 54:

An expected future public benefit also does not negative an otherwise unconstitutional loan. We have repeatedly held that a loan of money or credit by a municipality to a private party violates Const. art. 8, sec. 7 regardless of whether it may serve a laudable public purpose....

The City contends we should liberally construe Const. art. 8, sec. 7 so that an expected future benefit will validate the loan. But, as we said in State ex rel. O'Connell v. Port of Seattle, supra [65 Wash.2d] at 806 [399 P.2d 623]:

If Article 8, sec. 7 is too restrictive in its terms, that is a matter for the citizens of this state to correct through the amendatory process. It is not for this court to engraft an exception where none is expressed in the constitutional provision, no matter how desirable or expedient such an exception might seem. Accordingly, the expected receipt of future public benefits cannot serve to validate an

otherwise unconstitutional loan of credit. (Italics added.)

A decision of similar import is Port of Longview v. Taxpayers, 85 Wash.2d 216, 533 P.2d 128 (1974). In response to an addition to the Internal Revenue Code, which generally provided that for federal income tax purposes gross income does not include interest on the obligations of a state or political subdivision of a state issued to provide for air or water pollution control facilities, our State Legislature enacted legislation which sought to allow port districts to make available pollution control facilities to nonpublic entities. The act allowed this to be done by lease, lease purchase agreement, or other agreement binding such user to pay for the use of said facilities for the full term of the revenue bonds issued by the port for the acquisition of said facilities.

This court held this form of financing constitutes the loaning of money or credit by a municipality to any private party in violation of article 8, section 7. In Port of Longview this court approvingly adopted the following language of the Nebraska Supreme Court:

It seems clear to us that the revenue bonds are issued by the city in its own name to give them a marketability and value which they would otherwise not possess. If their issuance by the city is an inducement to industry, some benefits must be conferred, or it would be no inducement at all. Such benefits, whatever form they may take, necessar

Discussion Notes

1. Why would the Washington Legislature have included in the statute the language quoted in footnote 3 of the court's opinion? What is its legal effect?

2. Isn't the meaning of Article VIII, section 5

ily must be based on the credit of the city. The loan of its name by a city to bring about a benefit to a private project, even though general liability does not exist, is nothing short of a loan of its credit. . . .

...It is not material what such undertakings may be called, or what forms are devised to conceal their main purpose, or how worthwhile they may appear to be, when the question of constitutionality is presented, their substance will be examined. The financing of private enterprises with public funds is foreign to the fundamental concepts of our constitutional system. To permit such encroachments upon the prohibitions of the Constitution would bring about, as experience and history have demonstrated, the ultimate destruction of the private enterprise system. Port of Longview, at 227, 533 P.2d 128 (quoting State ex rel. Beck v. York, 164 Neb. 223, 227, 229-30, 82 N.W.2d 269 (1957)).

The Nebraska Constitution was subsequently amended to specifically permit the kinds of financial arrangements found by the court in Beck to be violative of the ban against loan of credit. The Washington Constitution has also been amended to permit nonrecourse revenue bonds and obligations to be used to finance industrial development projects. See Const. art. 32, sec. 1 (amend. 73).

of the Washington Constitution, quoted in footnote 2 of the court's opinion, plain?

3. As to the history of the public purpose doctrine, see Note, "State Constitutional Prohibitions Against the Lending of State Credit to Municipal Corporations," American University Law Review 26 (Spring 1977): 669.

Most state constitutions contain the requirement of a "balanced budget," under which planned spending may not exceed anticipated revenues. This is another feature of state constitutions, similar to the item veto, which is being proposed at the federal level.

Wein v. State of New York 39 N.Y.2d 136, 347 N.E.2d 586 (1976)

Chief Judge BREITEL.

In a desperate fiscal crisis the Nation's largest city faces bankruptcy and the State lacks cash resources to tide the city over its immediate problems by outright grant of funds. The issue is whether appropriations, at an Extraordinary Session of the Legislature in mid-fiscal year, of $250 million to the City of New York and $500 million to the Municipal Assistance Corporation for the City of New York (MAC), to be funded by short-term State borrowing in the form of revenue or tax anticipation notes, constitute a gift or loan of the credit of the State to public corporations, in violation of constitutional limitations (NY Const, art. VII, sec. 8, subd. 1).

There should be an affirmance. The Constitution does not prohibit the State for a public purpose from giving or lending its money to assist a municipal or other public corporation. Nor does the constitution prohibit the State from short-term borrowing in advance of anticipated taxes and revenues to fund appropriations previously made. Indeed, short-term borrowing for this purpose is expressly and uncondi

tionally authorized by the literal terms of section 9 of article VII. Hence, if the State chooses to use the proceeds of otherwise constitutionally valid short-term borrowing, payable out of anticipated revenues, in disbursement of an appropriation of money to assist for a public purpose a municipal or other public corporation, the State's "credit" is not extended to the municipality or other public corporation in violation of constitutional limitations. The device is that the State gives cash in hand to the public corporation, albeit obtained by its own borrowing. Such borrowing is permitted in limited fashion by the Constitution, by short-term paper in advance of authentically anticipated revenues from taxes, Federal grants or longterm bonds authorized but not yet issued. The line is a narrow one, but one drawn by the Constitution.

Critical to understanding State finances is that the Constitution mandates a balanced budget (art VII, Sec. 2). At the annual regular session of the Legislature, usually not later than February 1, the Governor must present a balanced budget, namely, a plan of expenditures and revenues which balance, with permissible contingencies which do not merit consideration in the present context. Temporary borrowing, discussed later, is permitted to anticipate planned committed revenues and, in certain limited situations, not now relevant, unanticipated needs. There is no express treatment in the Constitution governing appropriations made after the regular session and during the fiscal year at extraordinary sessions, but the implication is, and an essential one, that additional appropriations must be covered by matching revenues, or else the balanced budget of the regular session would be a device easily evaded at a later extraordinary session. A control on such evasion, how