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decided: November 22, 1968.


Special certiorari to Court of Common Pleas of Cumberland County, Jan. T., 1968, No. 3, in equity, in case of Mark A. Basehore, in his own right and on behalf of all other citizens, residents, and taxpayers of township, v. Hampden Industrial Development Authority et al.; Appeal from decree of Court of Common Pleas of Butler County, June T., 1968, No. 6, in equity, in case of James E. Walker, in his own right and on behalf, etc., v. Butler County Industrial Development Authority et al.


Richard C. Snelbaker, for plaintiff (Basehore).

Paul H. Rhoads, with him Walter K. Swartzkopf, Jr., and Rhoads, Sinon and Reader, for defendant, Ralston Purina Company.

Tom H. Bietsch, for defendant, Hampden Industrial Development Authority.

William C. Sennett, Attorney General, and Vincent X. Yakowicz, Deputy Attorney General, with them Edward Friedman, Counsel General, for Commonwealth, intervenor.

Edward G. Bauer, Jr., City Solicitor, with him James L. J. Pie, Deputy City Solicitor, and Matthew W. Bullock, Jr., Second Deputy City Solicitor, for City of Philadelphia, intervenor.

Walter Stein, with him Frederick D. Wood, for Philadelphia Authority for Industrial Development, intervenor.

Silvio P. Cerchie, with him Saul J. Bernstein, for plaintiff, Walker, appellant.

Paul G. Perry, with him David E. Johnson, and Burgwin, Ruffin, Perry, Pohl & Springer, for defendant, Armco Steel Corporation, appellee.

Norman D. Jaffee, for Butler Authority, appellee.

Charles T. Chew, for Board of County Commissioners of Butler County, appellee.

Bell, C. J., Musmanno, Jones, Cohen, Eagen, O'Brien and Roberts, JJ. Opinion by Mr. Justice jones. Mr. Justice Cohen dissents. Mr. Justice Musmanno did not participate in the decision of this case. Concurring Opinion by Mr. Chief Justice Bell. Concurring Opinion by Mr. Justice Roberts.

Author: Jones

[ 433 Pa. Page 43]

Both these cases originated as equity actions to enjoin the respective defendants (municipal authorities, certain officials and private concerns) from taking any action pursuant to acquisition agreements ("Agreements") entered into by the respective defendants pursuant to the Industrial Development Authority Law (Act of August 23, 1967, P. L. 1609, 73 P.S. § 371) ("Act"), and the Amendment to the County Code (Act of January 12, 1968, P. L., § 1999g, 16 P.S. § 1999g) ("Amendment"), authorizing the issuance of

[ 433 Pa. Page 44]

    nondebt revenue bonds by counties of the third to eighth class. In effect, these are taxpayers' suits to test the constitutionality of the Industrial Development Authority Law, supra, and the amendment to The County Code and to test the constitutionality and legality of Agreements entered into between the Butler County Industrial Development Authority and Armco Steel Corporation and between the Hampden Industrial Development Authority and Ralston Purina Company. In both cases, the parties have stipulated the facts. In appeal No. 167, the Court of Common Pleas of Butler County upheld the constitutionality both of the Act and of the Acquisition Agreement and in appeal No. 91, this Court granted special certiorari to the Court of Common Pleas of Cumberland County.

The two Agreements here in question are similar in their provisions.*fn2 The Hampden Authority was formed pursuant to an ordinance of the Board of Township Commissioners of Hampden Township for the purpose of constructing or acquiring industrial development projects. On January 16, 1968, the Authority and Ralston entered into an Acquisition Agreement under which the Authority agreed to buy the industrial site on which the proposed factory will be built and the site would be leased to Ralston for a term of 30 years and the Authority will provide funds for the construction of the new industrial plant by floating revenue bonds issued by the Authority in the principal amount of $8 million.*fn3 Ralston agreed to construct the industrial plant with the funds and to lease it

[ 433 Pa. Page 45]

    from the Authority at an annual rent sufficient to pay the interest on and amortization of the principal of all bonds and other obligations incurred by the Authority in setting up the project; if the amount raised by the bonds does not cover the cost of construction, Ralston agreed to complete the project and, in addition, to pay all costs of maintaining and operating the project once it is completed. Moreover, Ralston agreed to pay annually in lieu of taxes an amount equal to the taxes it would have to pay if the project were not owned by a tax-exempt authority.

Ralston was the assignee of an option to purchase the site on which the project will be built.*fn4 On July 13, 1967, Ralston gave notice of its election to exercise the option and paid $12,000 toward the purchase price; no conveyance was made, but Ralston proposes to assign the contract to purchase the site to the Authority. Under the Agreement, Ralston has the right to assign or sublet the project once it is completed, but, if it does so, it will remain primarily liable for the performance of the Agreement.

Ralston has the further right to purchase the project during the term of the lease or after retirement of all debt obligations and, under no circumstances, would Ralston purchase the project without first providing sufficient funds to retire all debt obligations; in addition to paying all expenses of the Authority in winding up the project, Ralston would pay $1000 upon purchase of the project.

The bonds to be issued will be revenue bonds. It will be stated on the bonds that all principal and interest will be payable exclusively from the income, rentals and revenues of the project and that neither the general credit nor the taxing power of the township

[ 433 Pa. Page 46]

    or the Commonwealth is pledged for payment of the bonds. The bonds will state further that they are not obligations of the township or Commonwealth. All bonds will mature before the life of the Authority expires. The bond indenture prohibits foreclosure or execution on any property involved in the project.

The project envisages the construction of a new plant which will employ 100 persons at the outset*fn5 and will not replace a plant already in existence in Pennsylvania. Under Section 12 of the Act, Ralston will let the construction contracts and purchase machinery without competitive bidding.

The Secretary of Commerce of the Commonwealth approved the project on January 18, 1968, as required by Section 7(f) of the Act.

Industrial development authorities are not new, the first such authority having been set up in Mississippi in 1936. Today over 40 states have established such authorities. The principle behind the projects is relatively simple. Tax-exempt authorities are established to build plants for private manufacturing companies and the funds used to construct the projects come from revenue bonds which are tax-exempt under Section 103(a)(1) of the Internal Revenue Code of 1954.*fn6 Obviously, the projects are enticing to private manufacturers since the authority can build the plant at a lower cost utilizing tax-exempt revenue bonds than the company could by utilizing its own nontax-exempt bonds. The projects are enticing to the Commonwealth since presumably they will attract industry to the state or encourage industries already located in Pennsylvania to increase their facilities and increase employment.

[ 433 Pa. Page 47]

In effect, the federal government subsidizes the construction of plants for private manufacturers to enhance and increase employment.

In most states having such projects, taxpayers have brought suits to test their constitutionality and, in most instances, the courts have held that the projects are constitutional.*fn7 As in most of these suits, the taxpayers in the present suit have alleged that the Act and the Agreements violate several provisions of the State and National Constitutions. We will deal with their major contentions in turn.


There is no question that the Authorities are instrumentalities of the Commonwealth, that the projects are owned by the Authorities and that these requirements are essential in order for the revenue bonds to receive a tax-exempt status under Section 103(a)(1) of the Internal Revenue Code. The instant taxpayers claim that the Authorities are using public money for what is essentially a private purpose, i.e., constructing plants for two private manufacturing corporations. The Authorities argue, on the other hand, that the projects are primarily public in nature, that the Act is designed to attract businesses to Pennsylvania or enhance existing businesses and to increase employment, that new plants will create jobs, and that taking steps to create jobs is within the police power of the Commonwealth.

The Act details legislative findings that unemployment is a serious problem in the state and that industrial development projects are effective means to fight

[ 433 Pa. Page 48]

    unemployment.*fn8 The taxpayers argue that it is for the courts and not the legislature to evaluate the public purpose of a statute when that statute's constitutionality is attacked. On several occasions, this Court has stated that legislative findings of fact are entitled to a prima facie acceptance of their correctness: "It is to be noted, too, that the Housing Authorities Law declares the purposes of the act to be 'public purposes for which public money may be spent and private property acquired by the exercise of the power of eminent domain,' and, while such a legislative declaration is not conclusive -- it being for the ultimate decision of the courts as to whether a proposed use is a public one -- it is entitled not only to respect but to a prima facie acceptance of its correctness.": Dornan v. Philadelphia Housing Authority, 331 Pa. 209, 222, 200 Atl. 834 (1938). See also: McSorley v. Fitzgerald, 359 Pa. 264, 268, 59 A.2d 142 (1948); Belovsky v. Redevelopment Authority of Philadelphia, 357 Pa. 329, 334, 54 A.2d 277 (1947). Such a rule is salutary for courts are not in a position ...

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