State Ex Rel. Sathre v. Hopton , 66 N.D. 313 ( 1936 )

For several years the tillable land of this state was taxed to create a permanent surplus fund for the protection of crops against hail, and now, through the medium of chapter 155 of the Session Laws of 1935, the legislature seeks to divert to the state equalization fund, for an entirely different purpose, over one million dollars of this fund, upon the theory that the purpose for which the tax was levied has been accomplished and that this amount is surplus.

It is not disputed that where a fund is created by taxation for a certain definite, specific object, and this object is accomplished, any incidental surplus there may be remaining in the fund can be converted to the general fund for such other purpose as the legislature may determine. No tax-levying body can determine to the last cent the amount necessary to be raised for a purpose to be completed in the future nor how much can be collected. State ex rel. Jackson v. Butler County, 77 Kan. 527,94 P. 1004, 1007. Where after the purpose has been completely fulfilled some money remains in the fund, such money cannot be returned to the taxpayers proportionately. It belongs to the general public and may be converted by its agents to some public purpose. But that is not the situation confronting us here.

The statute under consideration is loaded down with numerous "whereases." These are not a part of the law. They constitute a preamble that throws light upon the purpose of the legislature. They show us the legislature believed itself confronted with a grave emergency, that it believed there was "insufficient money available through the normal tax statutes of the state of North Dakota to keep open and properly maintain the public school system of this state and that unless immediate and direct help be given, many of the elementary public schools within this state will cease to function. . . ." Being concerned over this condition, the legislature looked around for some source of supply and seeing that there was a little over four million dollars in the "permanent surplus fund for the prompt payment of hail losses" — an amount of money raised by taxation for an entirely different object — determined to divert part of this fund to the laudable purpose in mind. But the end never justifies the means. Where the end desired is praiseworthy, the means by which it is accomplished become the all-important factor and these means must be justified by law and good conscience. The farm owner now finds that taxes which he paid for the purpose of protecting himself against the hazards of nature are to be used for a totally different purpose. That this is the purpose is evident from consideration of the portion of the law quoted. This money is to be diverted to the "state equalization fund, created and established by chapter 229, Session Laws of 1933." Thus cities and villages, not in any way taxed for this fund, that have never contributed one cent to the fund, are to be the beneficiaries of a trust fund raised by the taxation of agricultural and tillable lands for the protection of crops against hail.

In order to give plausibility to the actual fact of diversion, it is said there is a surplus in this permanent surplus fund. This must mean that the purpose for which this fund was created has been completed and a surplus remains, that the fund can no longer be used for the original purpose. Therefore, being public money, it may be converted to another object. To my mind this is based on the fallacy that the purpose for which the money is raised has been accomplished. The hail insurance department has not been wound up. It does not cease to exist. The state is not going out of the business of insuring crops against hail. The purpose for which the fund was raised is still in existence. The permanent surplus fund (what is left of it) is still to be used and "applied in paying losses more promptly." Not only this, but under the law in force when the surplus fund reached five million dollars, through the medium of this tax, of penalties and interest for nonpayment of hail taxes, and of interest on balances, the money was not to be used for any other purpose than the object sought to be obtained through the hail insurance department, for the excess over the five million was to be applied upon the payment of losses for the next succeeding year and thus reduce the assessments for that year.

The defendants argue that because the legislature of 1935 in its discretion, as shown by the numerous "whereases" which precede the law, decided that the former legislature was too cautious in its judgment as to the amount necessary for the future, and that the former legislature could well have limited the fund to three million dollars, therefore this conflict of legislative judgments shows a surplus. If the legislature can determine that the presence of four million dollars in the permanent fund shows a surplus of one million dollars, there is nothing to hinder a subsequent legislature from determining that the three million dollars left shows a surplus of a million dollars, and later another legislature determine that anything over a million dollars was a surplus, and thus the permanent fund raised by taxation for a specific purpose be whittled away. Thus would be done by indirect methods what could not be done directly because of constitutional provisions.

I realize that an emergency creates impatience of restraint, and the greater the emergency and the more pressing and laudable the end desired, the greater is the strain on constitutional provisions. It is a commonplace and persistent statement with all judicial bodies that the wisdom and purpose of legislation is for the lawmaking body to determine. The courts do not pass upon the wisdom of the measure. But the courts are required to say whether the means adopted are permissible. If a supposed law clearly violates the constitution, then it is not a law in the proper sense even though the forms of enactment may be preserved.

A perusal of the law shows that the legislature itself had great doubts as to the validity of this measure, because it specifies various methods of distribution to be followed seriatim and a saving clause in case unconstitutionality is established.

In Brye v. Dale, 64 N.D. 41, 250 N.W. 99, we were required to pass upon the validity of Chapter 64 of the Session Laws of 1933 which sought to transfer and loan "to the real estate bond interest payment fund from the Permanent Hail Surplus Fund the sum of $500,000.00, to be used in the payment of interest now due, or to become due, on said bonds. . . ." We held unanimously that such loan was a diversion and unconstitutional under "§§ 175, 177 and article 24 of the Amendments to the Constitution of the state of North Dakota." In the opinion we showed that in these constitutional provisions it was stated specifically "how taxes so raised shall be applied and certainly the legislature did not have authority to use it for any purpose except the purpose specifically mentioned in the Constitution, namely: the creating of a fund to insure against losses by hail. A fund created under these provisions of the Constitution is beyond the power of the legislature to use in any way except as authorized in the Constitution." Further we said: "There is no question but what a plain diversion of the fund would be a violation of the Constitution, but it is the contention of the respondent that under the act of 1933 the transfer of the fund is a loan." We then showed the meaning of the word "diverted" and held that even a temporary loan or transfer is a diversion, and we said: "In the instant case the fund to insure against losses by hail is a special fund provided for in the Constitution itself."

The majority opinion says this decision, rendered in the latter part of 1933, is readily distinguished from the case at bar because the legislature did not purport to appropriate a surplus and says very succinctly that "It was sought under the guise of a loan to divert money which, according to the statute, continued to be needed for the purpose for which the tax had been imposed." It is true this claim of surplus was not raised. Evidently the legislature of 1933 did not consider there was a surplus in this permanent fund or it might have authorized a gift instead of a loan. It may well be said here that, under the guise of a "surplus," the attempt is made not merely to borrow from the fund, but to take from it permanently money raised for an entirely different purpose, which purpose is not yet accomplished for the Hail Insurance Department is still in existence and a Permanent Surplus Fund is still necessary.

The Michigan case cited in the majority opinion — 45 Mich. 161, 7 N.W. 716 — is readily distinguishable from the case at bar. The money involved therein was part of a sinking fund created to pay a certain definite and ascertained debt and no other. There was no possibility of any increase of that debt. There were no unknown quantities to be guarded against. The payment of the bonds ended the purpose. Had the debt been paid at that time or any subsequent time, there would be a balance remaining in the fund. The court went to the extent of saying in effect we will consider done that which ought to be done or which will be done, and as it is a mathematical certainty there will be money left over when the debt is paid, we may as well use the remainder now. Even this is a doubtful reasoning and suggests a desire to take time by the forelock. However, the situation pictured there cannot be said to be the situation here. Because in the numerous "whereases" which precede the law the legislature says the experience gained in the last ten years has shown the highest demand for the prompt payment of losses to be the sum of two million five hundred and seventy-one thousand dollars ($2,571,000) and the average for a ten-year period one million two hundred and sixty-six thousand dollars ($1,266,000), therefore the legislature will assume that in the future the greatest annual demand will not exceed this sum of three million dollars ($3,000,000). Now this, even with the benefit of ten years of experience, is speculative. Who knows what may be the damage caused by a state-wide hailstorm? Not unknown was the amount involved in the Michigan case. The two situations are entirely different.

A number of cases are cited showing the right of the legislature to dispose of a surplus. These are not applicable here because we must first assume there is a surplus. These cases are dealing with a situation where the object of the levy has been accomplished and, as said in Field v. Stroube, 103 Ky. 114,44 S.W. 363, "The surplus remaining after the object of a levy has been accomplished must be treated as a part of the general funds. . . ." Under the law there was to be a permanent surplus fund of four million dollars, and if it exceeded five million dollars provision was made for the use of the excess. Assessments would be reduced and it is conceivable that in some years no assessments would be needed. Under this declared purpose the tax was levied. The amount of the fund is as much a part of the purpose of the act as the object itself.

The case of Goer v. Taylor, 51 N.D. 792, 200 N.W. 898, cited in the majority opinion is not applicable here. There this court had under consideration a matter wherein we held the plaintiffs had no interest in the fund under consideration so as to give them the right to challenge the constitutionality of the act. However, on page 801, we showed that the fund under consideration in that case was "not analogous to a sinking fund, a special assessment fund or to any other tax fund created for a particular purpose which has not been accomplished or discharged." We were therein discussing an annual license fee, where each year there was a surplus, and the statute involved itself makes provision for the disposition of this surplus.

Mere declaration by the legislature that there is a surplus does not make it a surplus. The term "surplus" must be determined in the light of the situation involved. A man who pays a four-dollar debt from a five-dollar bill may be said to have a surplus of one dollar in that respect; but when we speak of a surplus in the "Permanent Surplus Fund" we must necessarily mean that which remains when use or need is satisfied, the excess, the overplus, "That which is left from a fund which has been appropriated for a particular purpose." Bouvier. When the permanent surplus fund is completed and that feature of the hail insurance is wound up, if there be anything left over, it will be surplus; but for the legislature to consider that because in its judgment more is provided than what is now deemed necessary, therefore the difference is a surplus, will result in the very thing the constitution forbids — the application of the proceeds of the tax to a purpose other than that for which it was levied.

It is not the judgment of a changing legislature which creates a surplus, nor the varied judgments of representative men. Facts exist independent of such judgment. For the legislature to determine that there is a surplus in the permanent surplus fund when that fund is still in existence and still being used for the purpose for which it is created, and no one can tell what annual demand may be made upon it, is simply proof that the emergency affected judgment and impelled distraught public servants to a course forbidden by the constitution. But a praiseworthy object does not justify statutory embezzlement.