decided: September 19, 1973.
PENNSYLVANIA HOUSING FINANCE AGENCY ET AL., APPELLANTS
Appeal from Commonwealth Court of Pennsylvania, No. 139, C.D. 1973, in re Joyce Johnson v. Pennsylvania Housing Finance Agency, John Chately, Jr., William H. Wilcox, Robert R. LaVelle, Leon E. Hickman, James A. Lineberger, Richard J. Fox, John M. O'Brien, and John McCoy.
Jerome J. Shestack, with him Thomas R. Schmuhl, and Schnader, Harrison, Segal & Lewis, for appellants.
Mitchell S. Lipschutz, for appellee.
Justin J. Blewitt, Jr., Deputy Attorney General, Peter W. Brown, First Deputy Attorney General, and Israel Packel, Attorney General, for amicus curiae, Commonwealth of Pennsylvania.
Jones, C. J., Eagen, O'Brien, Roberts, Pomeroy and Manderino, JJ. Opinion by Mr. Justice Roberts. Mr. Justice Nix took no part in the consideration or decision of this case.
[ 453 Pa. Page 331]
This is a taxpayer's suit in equity, challenging the constitutionality of the recently enacted Housing Finance Agency Law, Act of December 5, 1972, P. L. 1259, §§ 1 et seq., 35 P.S. §§ 1680.101 et seq. (Supp. 1973). This Court has assumed plenary jurisdiction.*fn1 Given the innovativeness of the undertaking authorized by the
[ 453 Pa. Page 332]
Housing Finance Agency Law, "[i]t [has] naturally invite[d] . . . the attack of those who are inclined to regard all experiments in our social and economic life as presumptively unconstitutional." Dornan v. Philadelphia Housing Authority, 331 Pa. 209, 213, 200 Atl. 834, 836 (1938).
Appellee, plaintiff below, has presented to this Court a veritable barrage of constitutional arguments apparently "in the hope that a stray shot may find its way to some vital target." Belovsky v. Redevelopment Authority, 357 Pa. 329, 341, 54 A.2d 277, 283 (1947). However, our determination of the merits of appellee's contentions leaves the Housing Finance Agency Law unscathed; it is undoubtedly constitutional in all respects.
Specifically, appellee argues that the Housing Finance Agency Law (hereinafter "H.F.A.L.") is unconstitutional in that it (1) does not serve a public purpose; (2) contravenes the constitutional prohibition against delegation of legislative power; (3) authorizes a debt or pledge of credit by the Commonwealth; (4) constitutes an irrevocable grant of special privileges and immunities; (5) provides for a prohibited exemption from taxation; (6) creates a special or local law; and (7) fails, in its title, to state the full subject of the Law. As noted above, all of these contentions are without legal substance.
The legislative findings*fn2 make clear that the H.F.A.L. stems from and is mandated by the critical
[ 453 Pa. Page 333]
housing shortage presently existing throughout the Commonwealth with respect to low income, moderate
[ 453 Pa. Page 334]
income, and elderly persons and familiies.*fn3 H.F.A.L., 35 P.S. § 1680.102 (Supp. 1973). See also Reitmeyer v. Sprecher, 431 Pa. 284, 290, 243 A.2d 395, 398 (1968). In response to this problem of critical state concern, and in the hope of alleviating it, the Legislature has established the Pennsylvania Housing Finance Agency (H.F.A.L., 35 P.S. § 1680.201 (Supp. 1973)) as a "public corporation and government instrumentality," with express powers to administer two basic programs involving
[ 453 Pa. Page 335]
housing purchases (H.F.A.L., 35 P.S. § 1680.301a (Supp. 1973)) and housing rentals (H.F.A.L., 35 P.S. § 1680.401a-404a (Supp. 1973)).
Under the housing purchase program, the Housing Finance Agency is authorized to lend funds to any mortgagor for the "construction, reconstruction or rehabilitation of housing units for sale to individual purchasers of low or moderate income . . . ." H.F.A.L., 35 P.S. § 1680.301a(a) (Supp. 1973). All sales are to be supervised by the Agency. Once a unit is sold to a purchaser of low or moderate income, the original mortgagor's obligation to the Agency is released, and the new purchaser assumes his own mortgage obligation to the Agency. Under this phase of the program, the Agency is additionally empowered to issue loans directly to individuals of low or moderate income for the purchase of housing units. H.F.A.L., 35 P.S. § 1680.301a(e) (Supp. 1973).
The rental program (H.F.A.L., 35 P.S. § 1680.401a-404a (Supp. 1973)) authorizes the Agency to ". . . make mortgage loans to mortgagors for such projects as in the judgment of the Agency have promise of supplying well-planned, well designed apartment units which will provide housing for low and moderate income persons . . . ." H.F.A.L., 35 P.S. § 1680.402a (Supp. 1973). All loans granted by the Agency subject the mortgagor to regulation and limitation of rents charged, and permissible profits earned.
In order to finance the above programs, the General Assembly has empowered the Agency to issue bonds and notes, which are to be payable out of the Agency's revenue, including the proceeds of its mortgage loans. H.F.A.L., 35 P.S. § 1680.501a (Supp. 1973). As the H.F.A.L. declares, the notes and bonds issued by the Agency do not constitute "a debt of the Commonwealth or of any political subdivision thereof." and ". . . that neither the faith and credit nor the taxing
[ 453 Pa. Page 336]
power . . . is pledged to the payment of the principal of or the interest on such bonds." H.F.A.L., at 35 P.S. § 1680.502a (Supp. 1973). Furthermore, the Agency is required to establish and maintain a "Capital Reserve Fund" in an amount equal to the entire principal and interest due on its outstanding bonds and notes during the succeeding calendar year. H.F.A.L., 35 P.S. § 1680.504a (Supp. 1973).
If the Agency determines that there will be, in any year, a deficiency in the Capital Reserve Fund or a default in the payment of interest or principal, the Agency is required to submit to the Governor an estimate of the funds necessary to avoid such a deficiency or default. The Governor is then required to include this amount in the requested Commonwealth budget submitted to the Legislature; the Legislature, however, is not required to, but may, appropriate funds to avoid a deficiency or default. Id.
The H.F.A.L. further provides that all bonds and notes issued by the Agency are to be free from all taxes and assessments except inheritance, gift, estate, and transfer taxes. H.F.A.L., 35 P.S. § 1680.506a (Supp. 1973). The Commonwealth also pledges and covenants not to impair the rights and remedies of holders of Agency obligations. H.F.A.L., 35 P.S. § 1680.508a (Supp. 1973).
[ 453 Pa. Page 337]
Initially we note that statutes similar to the H.F.A.L. have been adopted by several states and have been upheld, without exception, when challenged on constitutional grounds closely akin to those presented here. See, e.g., Massachusetts Housing Finance Agency v. New England Merchants National Bank, 356 Mass. 202, 249 N.E. 2d 599 (1969); Maine State Housing Authority v. Depositors Trust Co., 278 A.2d 699 (Me. 1971); Advisory Opinion on the Constitutionality of Page 337} Act No. 346, 380 Mich. 554, 158 N.W. 2d 416 (1968); New Jersey Mortgage Finance Agency v. McCrane, 56 N.J. 414, 267 A.2d 24 (1970); Martin v. North Carolina Housing Corporation, 277 N.C. 29, 175 S.E. 2d 665 (1970); Vermont Home Mortgage Credit Agency v. Montpelier National Bank, 128 Vt. 272, 262 A.2d 445 (1970); West Virginia Housing Development Fund v. Copenhaver, 153 W. Va. 636, 171 S.E. 2d 545 (1969).
Plaintiff-appellee firstly contends that the H.F.A.L. is unconstitutional in that it does not involve a "public purpose" in which a public governmental body may engage. In direct contradiction to this argument, the Legislature has determined that the H.F.A.L.'s "purposes are public purposes for which public money may be spent." H.F.A.L., 35 P.S. § 1680.102 (7) (Supp. 1973).
In determining the merits of plaintiff-appellee's contention, we are guided by the salutary rule that the legislative declaration, although not conclusive "is entitled to not only respect but to a prima facie acceptance of its correctness." Dornan, supra at 222, 200 Atl. at 841. Moreover, we note that "views as to what constitutes a public use necessarily vary with changing conceptions of the scope and functions of government, so that to-day there are familiar examples of such use which formerly would not have been so considered. As governmental activities increase with the growing complexity and integration of society, the concept of 'public use' naturally expands in proportion." Id. at 221, 200 Atl. at 840.
With these two concepts in mind, we are unable to conclude that the purpose of providing housing to individuals of low and moderate income is not one of a "public" nature, particularly in view of the acute housing shortage existing within the Commonwealth. See note 2, supra. The Legislature has acted quite properly
[ 453 Pa. Page 338]
in ascertaining the extent of the problem and in determining "the means necessary to combat that problem." Basehore v. Hampden Industrial Development Authority, 433 Pa. 40, 48-49, 248 A.2d 212, 217 (1968). The need to deal effectively with the public challenge posed by the present lack of housing is of critical concern, and well within the ambit of lawful governmental authority. Basehore supra; Dornan, supra. Indeed, this Court has upheld programs far more expansive than the one instantly contested. See, e.g., Basehore, supra; McSorley v. Fitzgerald, 359 Pa. 264, 59 A.2d 142 (1948); Belovsky v. Redevelopment Authority, 357 Pa. 329, 54 A.2d 277 (1947); Dornan, supra.
As the New Jersey Supreme Court recently noted in sustaining a statute similar to the H.F.A.L.:
"[I]t is elementary that the very purpose of government is to provide for the health, safety and general welfare of the people. When a particular condition arises which poses a threat to the fulfillment of that function, the government has the power to take whatever steps are necessary to check the threat subject only to applicable constitutional limitations.
"The question of whether a citizenry had adequate and sufficient housing is certainly one of the prime considerations in assessing the general health and welfare of that body . . . . In the present case, the Legislature made a determination that there was 'a critical shortage of adequate housing,' that 'a large and significant number of . . . residents have and will be subject to hardship in finding adequate, safe and sanitary housing unless new facilities are constructed,' and that 'a major cause of this housing crisis is the lack of funds available to finance housing by the private mortgage lending institutions of the State.'" New Jersey Mortgage Finance Agency v. McCrane, supra, at 420-21, 267 A.2d at 27 (citations omitted).
[ 453 Pa. Page 339]
With these factors in mind, the New Jersey Supreme Court concluded that the New Jersey Mortgage Finance Agency Law, L. 1970, c. 38, N.J.S.A. 17:1B-4 et seq., undeniably fulfilled a "public purpose." Id. Our statute, based upon identical considerations as its New Jersey counterpart, and phrased in virtually identical language, is unquestionably designed to serve the same essential "public purpose."*fn4 McSorley, supra;
[ 453 Pa. Page 340]
exemplify "the character of legislative interference with local government that was intended to be prevented." Tranter, supra at 78, 173 Atl. at 295. The Agency herein involved is exclusively a state-wide governmental instrumentality.
Plaintiff's contention that the H.F.A.L. contravenes Article II, Section 1 is also meritless. Here, the guidelines and standards established for the Housing Finance Agency permit no broad or unusual discretion. In fact, the Legislature has specified with particularity the meaning of such arguable terms as "low rentals," "annual income," "total project cost," "project," and "moderate rentals." H.F.A.L., 35 P.S. § 1680.103 (Supp. 1973). Given the complexity of the instant program, it is not objectionable that "many things upon which wise and useful legislation must depend, which cannot be known to the law making power, . . . must, therefore, be a subject of inquiry and determination outside of the halls of legislation." Gima v. Hudson Coal Co., 310 Pa. 480, 484, 165 Atl. 850, 851 (1933).
Having previously upheld agency standards no more definite than those involved here, we cannot conclude that the Legislature has improperly delegated its power to the Housing Finance Agency. See Pennsylvania Water and Power Resources Board v. Green Spring Co., 394 Pa. 1, 7-12, 145 A.2d 178, 182-83 (1958); Dornan, supra at 229-30, 200 Atl. at 844, Kelley v. Earle, 325 Pa. 337, 352-53, 190 Atl. 140, 147 (1937).
Appellee next argues that the H.F.A.L. is unconstitutional in that it authorizes a debt to be incurred by or on behalf of the Commonwealth, in violation of Article
[ 453 Pa. Page 342]
VIII, Section 7 of the Pennsylvania Constitution,*fn7 and permits an improper loan or pledge of the Commonwealth's credit in contravention of Article VIII, Section 8.*fn8 Both of these contentions are unfounded.
We earlier noted that the H.F.A.L. unambiguously states that the bonds and notes issued by the Housing Finance Agency "shall not be deemed to constitute a debt of the Commonwealth or of any political subdivision thereof or a pledge of the faith and credit of the Commonwealth or of any such political subdivision." H.F.A.L., 35 P.S. § 1680.502a (Supp. 1973). "In view of that declaration, it is difficult to understand how the act in any way impinges upon these [Article VIII, Sections 7 and 8] constitutional provisions." Dornan, supra at 231, 200 Atl. at 845.
It is by now well and firmly settled, although appellee would have us decide otherwise, that revenue bonds of the nature authorized by the H.F.A.L. are not bonds which fall within the scope of the constitutional prohibition against debt. In Basehore this Court held:
"In short, the statutes controlling the bonds issued by the Authorities and the bonds themselves explicitly and unequivocally state that the bonds are not debts of the Commonwealth nor of any political subdivision of the Commonwealth. Such revenue bonds are quite common in this Commonwealth and purchasers of such bonds are well aware that they cannot look to the Commonwealth or any political subdivision for security.
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"Our case law supports this position. On numerous occasions we have held that revenue bonds are not debts of the Commonwealth or of any political subdivision: Conrad v. Pittsburgh, 421 Pa. 492, 218 A.2d 906 (1966); Beam v. Ephrata Borough, 395 Pa. 348, 149 A.2d 431 (1959); Detweiler v. Hatfield Borough School District, 376 Pa. 555, 104 A.2d 110 (1954); Greenhalgh v. Woodworth, 361 Pa. 543, 64 A.2d 659 (1949); Belovsky v. Redevelopment Authority of Philadelphia, 357 Pa. 329, 54 A.2d 277 (1947); Williams v. Samuel, 332 Pa. 265, 2 A.2d 834 (1938); Gemmill v. Calder, 332 Pa. 281, 3 A.2d 7 (1938); Dornan v. Philadelphia Housing Authority, 331 Pa. 209, 200 Atl. 834 (1938); Kelley v. Earle, 325 Pa. 337, 190 Atl. 140 (1937); Tranter v. Allegheny County Authority, 316 Pa. 65, 173 Atl. 289 (1934)."
Despite salutary case law to the contrary, appellee contends that because the H.F.A.L. (35 P.S. § 1680.504a(c) (Supp. 1973)) provides that the Legislature is "enabled to provide appropriations sufficient to make up any . . . deficiency [in the Agency's Capital Reserve Fund] or otherwise to avoid any default," the credit of the Commonwealth is being unconstitutionally "pledged or loaned." That argument is flawed in two crucial respects.
Firstly, even if this be viewed as a pledge of the Commonwealth's credit, the pledge extends only to the Pennsylvania Housing Finance Agency, and not to "any individual, company, corporation or association . . ." Pennsylvania Const. Article VIII, Section 8. This activity is not constitutionally proscribed. This Court made clear in Basehore, supra at 59, 248 A.2d at 222, that "[i]f credit is being lent to anyone, it is being lent to the [Agency]." We have already noted that the Pennsylvania Housing Finance Agency is not an "individual, company, corporation or association"
[ 453 Pa. Page 344]
within the meaning of Article VIII, Sections 7 or 8. See McSorley, supra at 271, 59 A.2d at 146; Belovsky, supra at 345, 54 A.2d at 284-85; Tranter, supra at 81, 173 Atl. at 296.
Moreover, as the permissive language of the H.F.A.L. indicates, no mandatory obligation is imposed upon the Legislature to appropriate any funds whatsoever to cover an Agency default or Capital Reserve Fund deficiency. The "moral make-up" clause of the H.F.A.L. merely "constitutes . . . an expression of future intention or expectation which has no legally binding effect." Massachusetts Housing Finance Agency v. New England Merchant's National Bank, supra at 216, 249 N.E. 2d at 609. Accord, Maine State Housing Authority v. Depositors Trust Co., supra; Martin v. North Carolina Housing Corp., supra; In re Advisory Opinion, supra.
In view of our determination that the Commonwealth is not a guarantor of the Agency's obligations, no purchaser or holder of Pennsylvania Housing Finance Agency bonds or notes has any basis "for relying to any extent on any appropriation . . . by the present or any subsequent Legislature, despite the amorphous legislative declaration of intention . . ." that appropriations may be made. Massachusetts Housing Finance Agency, supra.
Appellee's next contention is that Section 508a of the H.F.A.L., 35 P.S. § 1680.508a (Supp. 1973), constitutes an "irrevocable . . . grant of special privileges or immunities in violation of Article I, Section 17 of the Pennsylvania Constitution.*fn9 This argument is also unconvincing.
[ 453 Pa. Page 345]
The H.F.A.L., not atypically, contains a covenant by the Commonwealth "not [to] limit or alter the rights or powers hereby vested in the agency to perform and fulfill the terms of any agreement made with the holders of such bonds, bond anticipation notes or other obligations, or in any way impair the rights or remedies of such holders, until such bond, bond anticipation notes and other obligations, together with interest thereon, with interest on any unpaid installments of interest, and all costs and expenses in connection with any action or proceedings by or in behalf of such holders, are fully met and discharged or provided for. The agency may include this pledge and agreement of the Commonwealth in any agreement with the holders of bonds, bond anticipation notes and other obligations issued by the agency." H.F.A.L., 35 P.S. § 1680.508a (Supp. 1973). The Act also provides that all obligations of the Agency, and income derived therefrom, will be free from taxation and assessment (with exceptions noted earlier) at all times.
These provisions are obviously constitutional, for any privilege or immunity granted, quite plainly cannot be "irrevocable . . ., for it ends when the obligations assumed by [the Agency] are fully discharged." Williams v. Samuel, 332 Pa. 265, 273, 2 A.2d 834, 838 (1938). As the obligations will exist but for only a definite term, any rights conferred by them "are not irrevocable within the meaning of the Constitution." Kelley v. Earle, supra at 356, 190 Atl. at 149.
The challenged provision is nothing more than an amplification of the Federal and State constitutional prohibition against the impairment of contracts. U. S. Const. Art. I, Section 10, Pa. Const. Art. I, Section 17; Worthen v. Kavanaugh, 295 U.S. 56, 55 S. Ct. 555 (1935); Kelley, supra.
[ 453 Pa. Page 346]
state-wide] . . . the act cannot be regarded only as a local one." Bargain City U.S.A. v. Dilworth, 407 Pa. 129, 133, 179 A.2d 439, 442 (1962). Nor can the law be classed as " special," in that it is intended to apply throughout the Commonwealth and for the benefit of the entire citizenry. The classification dealing with low and moderate income classes does not render the H.F.A.L. "special" -- such classifications, being eminently reasonable, have long been sustained by this Court.
A quarter of a century ago, in DuFour v. Maize, 358 Pa. 309, 312-13, 56 A.2d 675, 677 (1948), this Court held: "'Legislation for a class distinguished from a general subject is not special, but general, and classification is a legislative question, subject to judicial revision only so far as to see that it is founded on real distinctions in the subjects classified, and not on artificial or irrelevant ones used for the purpose of evading the constitutional prohibition. If the distinctions are genuine, the courts cannot declare the classification void, though they may not consider it to be on a sound basis. The test is, not wisdom, but good faith in the classification.'" (Quoting from Seabolt v. Commissioners, 187 Pa. 318, 323, 41 Atl. 22, 24 (1898)).
Using this standard as our guide, it is clear that the H.F.A.L. does not run afoul of Article III, Section 32.
Finally,*fn12 "[a]s is not unusual in attempts to establish that a statute is unconstitutional . . . assault is
[ 453 Pa. Page 348]
made on the title of the Act*fn13 . . . . It is elementary, however, that the title of an act need not, in order to comply with the constitutional requirement, be an index of its provisions or a synopsis of its contents; so long as it indicates the general subject to which all the provisions of the act are incidental or germane . . . ." McSorley, supra at 272, 59 A.2d at 146.
"The purpose of the constitutional requirement is that the title shall give notice of the subject dealt with so that a reasonably inquiring state of mind would lead one to examine the body of the Act . . . ." Ewalt v. Pennsylvania Turnpike Commission, 382 Pa. 529, 536, 115 A.2d 729, 732 (1955).
The title of the instant act*fn14 satisfies the above requirements;
[ 453 Pa. Page 349]
the "general subject to which all the provisions of the act are incidental or germane" is made abundantly clear. McSorley, supra. "We are satisfied that the title here provided adequate notice of the Law's purpose to members of the Legislature and to the public." New Jersey Mortgage Finance Agency v. McCrane, supra at 425, 267 A.2d at 30.
We conclude that the Housing Finance Agency Law is constitutional in all respects. Judgment on the pleadings is, therefore, entered for defendant-appellants. Each party to pay own costs.
Judgment on pleadings entered for defendant-appellants.