Giordano v. Ridge

COLINS, President Judge.

On February 12, 1999, Dom Giordano (Taxpayer) filed a petition for review in the nature of an action seeking declaratory and injunctive relief invoking this court’s original jurisdiction. Presently before this court for disposition are the preliminary objections of Tom Ridge, Governor of the Commonwealth of Pennsylvania, Mike Fisher, Attorney General of the Commonwealth of Pennsylvania, the Commonwealth of Pennsylvania, and the Cities of Philadelphia and Pittsburgh (collectively, Respondents).

The pertinent facts of this ease, as pleaded in Taxpayer’s petition, are as follows. On February 9, 1999, the Governor signed into law The Capital Facilities Debt Enabling Act, Act of February 9, 1999, P.L. 1, 72 P.S. §§ 3919.101-3919.5102 (Act 1 or Act).¹ Act 1 authorizes, and provides procedures for, application to the Commonwealth by municipalities and municipal authorities for state funding of certain capital projects. The Act authorizes the undertaking of debt by the Commonwealth’s issuance of general obligation bonds for the purpose of making grants to local authorities for the construction, repair, renovation, improvement, or equipment of qualifying capital projects.

Chapter 5 of the Act, which addresses sports facilities financing, provides for grants of Commonwealth funds to a municipality or authority for the purpose of constructing or renovating a qualifying sports facility upon application by the municipality or authority and approval by the Office of the Budget of the Commonwealth. The grants contemplated under Act 1 are made to the contracting municipality or authority under Section 502 of Act, and not directly to the tenant/professional sports organization. Furthermore, tenants are required to comply with certain certifications and conditions under Section 504 of the Act. These include such conditions as an agreement by the tenant leasing the facility to remain in the facility for a specified period of time; an agreement that, if the tenant sells or transfers its sports franchise, the transferee is to be bound by the same conditions as the trans-feror; an agreement that any costs of design and construction that are due to delays or overruns are the responsibility of the municipality, authority or tenant; an agreement that either the municipality or tenant is responsible for capital improvements, security, maintenance, and utilities at the facility; an agreement to set aside a certain number of days for the use of the facility by the municipality and the Commonwealth; and an agreement that the tenant is to make an additional rental payment of $25 million after the first ten-year period of occupancy, which payment may be reduced by certain tax credits.²

Taxpayer filed a petition for review claiming that Act 1 violates Article VIII of the Constitution of Pennsylvania by unconstitutionally incurring debt on behalf of the state and/or by pledging the credit of the Commonwealth to an individual, company, corporation, or association.³ The petition for review requests that this Court issue a declaratory judgment finding Act 1 unconstitutional and permanently enjoin Respondents from disbursing any funds under Act 1. In response to Taxpayer’s petition, Respondents filed preliminary objections in the nature of a demurrer alleging that Taxpayer has failed to state a claim sufficient to permit an award of the relief requested.⁴

Initially, we note that in ruling on preliminary objections, in the nature of a demurrer, the Court accepts as true all well-pleaded material allegations in the petition for review, as well as all inferences reasonably deduced therefrom. Envirotest Partners v. Department of Transportation, 664 A.2d 208 (Pa.Cmwlth.1995). The court need not accept as true conclusions of law, unwarranted inferences from the facts, argumentative allegations, or expressions of opinion. Id. A demurrer will not be sustained unless the face of the pleadings shows that the law will not permit recovery, and any doubts should be resolved against sustaining the demurrer. DeHart v. Horn, 694 A.2d 16 (Pa.Cmwlth.1997). Additionally, an Act of the general assembly may be declared unconstitutional only where it clearly, palpably, and plainly violates the Constitution. Consumer Party of Pennsylvania v. Commonwealth, 510 Pa. 158, 507 A.2d 823 (1986). It is axiomatic that Acts of the General Assembly enjoy a strong presumption of constitutionality. Id. With these standards in mind, we consider Respondents’ preliminary objections.

Article VIII, Section 8 of the Pennsylvania Constitution provides,

The credit of the Commonwealth shall not be pledged or loaned to any individual, company, corporation or association nor shall the commonwealth become a joint owner or stockholder in any company, corporation or association.

Our Supreme Court discussed the intent of Article VIII, Section 8 in Tosto v. Pennsylvania Nursing Home Loan Agency, 460 Pa. 1, 331 A.2d 198 (1975). The Court observed that Article VIII, Section 8 was adopted in 1857 in reaction to, and with the specific purpose of, eliminating the type of speculative financing by the Commonwealth that had become prevalent in the mid-nineteenth century in an effort to aid the growth of the railroads. The Court stated, “[t]he term ‘pledge or loan of credit’ is a term of art referring to these financing devices and was clearly not intended to prohibit other sorts of financial transactions between the Commonwealth and private citizens or corporations.... ” Id. at 15-16, 331 A.2d at 205. Additionally, our Supreme Court has held that this language does not prohibit loans from the Commonwealth to a municipal authority, even where the ultimate beneficiary of such loan may be a private entity. Basehore v. Hampden Industrial Development Authority, 433 Pa. 40, 248 A.2d 212 (1968). In Basehore, taxpayers challenged the Industrial Development Authority Law⁵ on several grounds, including an allegation that the law violated Article VIII, Section 8.⁶ Justice Jones, writing for a three-justice plurality of the Supreme Court, concluded,

The money ... will go to the Authorities and not to the industrial corporations; the Authorities will own the factories; the corporations will lease the plants from the Authorities. Therefore, if credit is being lent to anyone, it is being lent to the Authorities. On several occasions we have held that authorities similar to the Industrial Development Authorities involved in this case were not individuals, companies, corporations or associations within the meaning of [Article VTII, Section 8]. See: Bernstein v. City of Pittsburgh, 366 Pa. 200, 210, 77 A.2d 452 (1951); McSorley v. Fitzgerald, 359 Pa. 264, 271, 59 A.2d 142 (1948); Belovsky v. Redevelopment Authority of City of Philadelphia, 357 Pa. 329, 345, 54 A.2d 277, 172 A.L.R. 953 (1947); Williams v. Samuel, 332 Pa. 265, 275, 2 A.2d 834 (1938); Tranter v. Allegheny County Authority, 316 Pa. 65, 81, 173 A. 289 (1934).

433 Pa. at 59, 248 A.2d at 222.

Under Act 1, as in Basehore, the money flows from the Commonwealth to a municipality or municipal authority and not directly to the private entity. Therefore, even assuming the credit of the Commonwealth were being pledged or loaned within the meaning of Article VIII, Section 8, it is to a municipality or authority and not to any “individual, company, corporation or association.”

Given our Supreme Court’s pronouncements interpreting Article VIII and the type of financing proscribed by Act 1, we agree that Taxpayer has failed to state a claim of unconstitutional incursion of debt or pledging of the credit of the Commonwealth.

Accordingly, Respondents’ preliminary objections in the nature of a demurrer are sustained. Taxpayer’s petition for review fails to state a cause of action upon which the requested relief may be granted. Taxpayer’s petition for review in the nature of a complaint for declaratory judgment and injunctive relief is dismissed with prejudice.

ORDER

AND NOW, this 31st day of August, 1999, Respondents’ preliminary objections in the nature of a demurrer are sustained. Taxpayer’s petition for review fails to state a cause of action upon which the requested relief may be granted. Taxpayer’s petition for review in the nature of a complaint for declaratory judgment and injunctive relief is dismissed with prejudice.

Judge McGINLEY did not participate in the decision in this case.

1 . Act 1 is a reenactment and continuation of Article XVI-B of the law known as the Fiscal Code, Act of April 9, 1929, P.L. 343, as amended, formerly found at 72 P.S. §§ 1601-B-1616.2

2 . Tax credits would be calculated by a mathematical formula that, simply stated, is based on the increased tax revenue generated by the facility. Should the facility produce sufficient tax revenue, as calculated by the formula, this revenue would operate as a credit against the additional rental payment with the strong potential to reduce it to zero. Therefore, the additional payment would be made only in the event that the facility fails to generate tax revenue sufficient to produce the credit.

3 . Along with the petition for review, Taxpayer filed a motion for preliminary injunction and a motion for ex parte preliminary injunction, which was treated by this court as a request for a special. injunction without notice, and denied on February 12, 1999. Following a hearing bn February 25, 1999, this Court also denied Taxpayer’s motion for preliminary injunction. Taxpayer appealed the denial of the preliminary injunction to the Supreme Court and petitioned that Court for an injunction pending appeal. On March 26, 1999, the Supreme Court denied the request for an injunction pending appeal and directed that the appellate briefs be filed on April 9, 1999.

4 . The role of the trial court in ruling on preliminary objections in the nature of a demurrer is to determine whether or not the facts pleaded are legally sufficient to permit the action to continue. Where, as here, there is no factual dispute in the case, only a dispute over the interpretation of the Constitution,' it is the appropriate juncture for the court to interpret the pertinent provisions of the Pennsylvania Constitution and determine the merits of Taxpayer’s claim. Firing v. Kephart, 466 Pa. 560, 353 A.2d 833 (1976).

5 . Act of August 23, 1967, P.L. 251, as amended, 73 P.S. §§ 371-386. A 1971 amendment changed the title of the law to the "Industrial and Commercial Development Authority Law.”

6 . Article VIII, Section 8 was renumbered in 1967 and 1968. Although the section had already been renumbered by the time the Bas-ehore opinion was filed, the opinion refers to the section under its prior designation as Article IX, Section 6.