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FRANK M. TOSTO v. PENNSYLVANIA NURSING HOME LOAN AGENCY AND GRACE M. SLOAN (01/27/75)

SUPREME COURT OF PENNSYLVANIA


decided: January 27, 1975.

FRANK M. TOSTO, A CITIZEN, RESIDENT AND TAXPAYER OF THE COMMONWEALTH OF PENNSYLVANIA, IN HIS OWN RIGHT AND ON BEHALF OF ALL OTHER RESIDENTS AND TAXPAYERS OF THE COMMONWEALTH, PLAINTIFF,
v.
PENNSYLVANIA NURSING HOME LOAN AGENCY AND GRACE M. SLOAN, STATE TREASURER, DEFENDANTS

COUNSEL

Gilbert J. Helwig, Robert L. Potter, Reed, Smith, Shaw & McClay, Pittsburgh, Israel Packel, Atty. Gen., Harrisburg, for Pennsylvania Nursing Home Loan Agency.

Leonard J. Paletta, McArdle, McLaughlin, Paletta & McVay, Pittsburgh, for respondents.

Jones, C. J., and O'Brien, Roberts, Pomeroy and Manderino, JJ. Eagen and Nix, JJ., did not participate in the consideration or decision of this case.

Author: Roberts

[ 460 Pa. Page 6]

OPINION OF THE COURT

This is a taxpayer's suit seeking to enjoin the operation of the recently enacted Nursing Home Loan Agency Law, Act of July 22, 1974, P.L. --, No. 207, Pa.Legis. Serv. 571 (1974) (to be codified as 62 P.S. § 1521.101 et seq.). Plaintiff filed his complaint in the Commonwealth Court alleging a variety of constitutional defects. Defendants petitioned this Court to assume plenary jurisdiction,*fn1 which we did by per curiam order on October 25, 1974. The parties, after stipulating that no issues of fact existed to be tried, have filed motions for judgment on the pleadings. We determine that judgment should be awarded to defendants.

The N.H.L.A.L. stems from legislative concern with the inability of many nursing homes to provide safe and healthy accommodations for their residents.*fn2 Pursuant

[ 460 Pa. Page 7]

    to article VIII, section 7(a)(3) of the Constitution, P.S.,*fn3 the Legislature submitted to the voters the question whether they "favored the incurring of indebtedness by the Commonwealth of $100,000,000 for use as loans to repair, reconstruct and rehabilitate nursing homes in order to meet standards for health and safety?"*fn4 The program was approved by referendum on May 21, 1974.

[ 460 Pa. Page 8]

Section 201 of the Law creates the Pennsylvania Nursing Home Loan Agency composed of six ex officio members from the executive departments and three gubernatorial appointees. § 202. The agency is authorized in § 203(6) "to make loans to nursing homes for repair, reconstruction and rehabilitation . . . in order that such nursing homes may meet State and Federal Safety Standards . . . ." Section 301 provides:

"All nursing homes meeting applicable State and Federal regulations, with the exception of Life Safety Code, for the acceptance of Medicaid patients shall be eligible to apply for loans from the Nursing Home Loan Agency under provisions of this act."*fn5

Funds for the loans are to be provided by a sale by competitive bidding of general obligation bonds (not exceeding $100,000,000) backed by the credit of the Commonwealth. §§ 401, 402(c). The Law creates a sinking fund for payment of interest and principal. § 408(a). The sources of the sinking fund are funds received in repayment of loans to nursing homes and appropriations by the Legislature. §§ 205, 411.

Plaintiff's first attack on the N.H.L.A.L. is cast in terms of the absence of a public purpose. He invokes the principle, well-settled for over a century, that "the legislature [does not have] any constitutional right to create a public debt, or to lay a tax, . . . in order to raise funds for a mere private purpose." Sharpless v. Mayor of Philadelphia, 21 Pa. 147, 168 (1853) (opinion of Black, C. J.); see Citizens' Savings & Loan Association v. Topeka, 87 U.S. (20 Wall.) 655, 22 L.Ed. 455 (1874). He does not contend that the safety of residents of nursing homes is not a proper subject of legislative

[ 460 Pa. Page 9]

    concern. Rather, he argues that (1) the means chosen by the Legislature are not "reasonably designed to achieve its stated public purpose";*fn6 and (2) "the obvious private gain to proprietors of nursing homes"*fn7 undermines and dissipates the Law's public purpose. Both arguments are without merit.

Plaintiff correctly asserts that the means chosen by the Legislature must be "reasonably designed" to achieve permissible ends. Basehore v. Hampden Industrial Development Authority, 433 Pa. 40, 50, 248 A.2d 212, 217 (1968); see id. at 65, 248 A.2d at 224 (concurring opinion of this writer). However, the role of the judiciary in scrutinizing the particular approach selected by the Legislature is a limited one. We do not, at the invitation of a disgruntled taxpayer, re-assess the wisdom and expediency of alternative methods of solving public problems. "It is the province of the legislature, not the judiciary, . . . to determine the means necessary to combat" public problems, for with means as with ends, "the legislature, which is more responsive to the people and has more adequate facilities for gathering and assembling the requisite data, is in a better position to evaluate and determine" alternative approaches. Basehore, supra, at 49, 248 A.2d at 217; see also Johnson v. Pennsylvania Housing Finance Agency, 453 Pa. 329, 337-338, 309 A.2d 528, 533 (1973). Our inquiry is limited to a determination of whether the means selected are so "demonstrably irrelevant to the policy the Legislature is free to adopt"*fn8 as to be arbitrary and irrational.

In this case, plaintiff has failed to demonstrate that a program of making "loans to nursing homes for repair, reconstruction and rehabilitation"*fn9 is not a rational

[ 460 Pa. Page 10]

    approach to assisting nursing homes to comply with State and Federal safety standards and thus enhancing the safety of their residents. We conclude that the legislative program is reasonably designed to effectuate the Law's public purpose. See Basehore, supra, 433 Pa. at 49-50, 248 A.2d at 217.

Plaintiff's argument that private gain to nursing homes somehow outweighs the public purpose of the Law is equally meritless. We rejected this theory in Basehore, where we sustained the constitutionality of the Industrial Development Authority Law. Speaking through Mr. Justice (now Chief Justice) Jones, we stated:

"The taxpayers' main concern is that the party who is really benefiting from this program is the private manufacturer who acquires an industrial plant at a much lower cost than he would have incurred had he built it himself. It is beyond question that private manufacturers receive a very large benefit from this program; however, this fact alone should not invalidate the program. If the legislative program is reasonably designed to combat a problem within the competence of the legislature and if the public will benefit from the project, then the project is sufficiently public in nature to withstand constitutional challenge."

433 Pa. at 50, 248 A.2d at 217; see also Sharpless, supra, 21 Pa. at 169; cf. Washington Park, Inc. Appeal, 425 Pa. 349, 353, 229 A.2d 1, 3 (1967); Belovsky v. Redevelopment Authority of Philadelphia, 357 Pa. 329, 341, 54 A.2d 277, 283 (1947). Because the N.H.L.A.L. is reasonably designed to yield benefits to the public, it withstands this constitutional challenge.

Plaintiff next contends that the N.H.L.A.L. involves an unconstitutional delegation of legislative power in violation of article II, section 1 of the Constitution.*fn10

[ 460 Pa. Page 11]

He invokes the so-called non-delegation rule which, as a "natural corollary" of article II, section 1, "requires that the basic policy choices involved in 'legislative power' actually be made by the Legislature as constitutionally mandated." Chartiers Valley Joint Schools v. Allegheny County Board of School Directors, 418 Pa. 520, 529, 211 A.2d 487, 492 (1965). More specifically, the rule demands that, when the Legislature delegates policymaking discretion to administrative agencies, it must make the "basic policy choices" which will serve as standards to guide and restrain the exercise of discretion.*fn11 See Commonwealth v. Cherney, 454 Pa. 285, 289-290, 312 A.2d 38, 41 (1973); DePaul v. Kauffman, 441 Pa. 386, 391-392, 272 A.2d 500, 503 (1971); Chartiers Valley Joint Schools, supra; Commonwealth Water & Power Resources Board v. Green Spring Co., 394 Pa. 1, 5, 145 A.2d 178, 183 (1958); O'Hara's Appeal, 389 Pa. 35, 47-48, 131 A.2d 587, 593 (1957).

Plaintiff argues that the Legislature did not provide standards in the N.H.L.A.L. He points to various sections of the Law*fn12 which grant the agency policy

[ 460 Pa. Page 12]

    making discretion without, he contends, adequate standards. In this he is mistaken. The entire Law reveals that the agency's policy decisions must be directed to the effectuation of the Legislature's basic policy of assisting nursing homes that do not comply with the Life Safety Code*fn13 and are unable to achieve compliance through private sources of financing,*fn14 which assistance is to be given with prudence for protection of the loan fund.*fn15 This pervasive general policy is clearly sufficient to satisfy the constitutional requirement that "basic policy choices" be made by the Legislature. But the Law goes even further. It provides very specific definitions of pivotal statutory terms*fn16 and detailed guidelines for certain important agency decisions.*fn17 We have no doubt that the standards requirement has been satisfied.

More importantly, the N.H.L.A.L. provides numerous procedural guidelines for protection against administrative arbitrariness and caprice.*fn18 For example, the agency

[ 460 Pa. Page 13]

    is required to establish criteria for use in determination of priority among applicants*fn19 and eligibility for loan refinancing*fn20 and to develop a standard form for loan applications.*fn21 The use of neutral, generally applicable criteria and forms is an important safeguard against the arbitrariness of ad hoc decision making. In addition, section 203(2) of the Law provides that the promulgation of rules and regulations by the agency must be in accordance with the Commonwealth Documents Laws*fn22 assuring regularity and due notice in administrative policymaking.

The Legislature has provided adequate standards and guidelines for the guidance and restraint of administrative discretion. We reject plaintiff's contention as meritless.

Plaintiff argues that the N.H.L.A.L. creates an arbitrary classification and thus is a "special law" violating article III, section 32 of the Constitution.*fn23 Pointing to section 301 of the Law,*fn24 he argues that it arbitrarily singles out the benefited class of nursing homes "from all the other nursing homes that may not meet one or the other of State or Federal regulations for acceptance of Medicaid patients. Yet, these other facilities are caring for old and disabled citizens of Pennsylvania and

[ 460 Pa. Page 14]

    urgently require this type of loan."*fn25 We are not persuaded.

It is well settled that the prohibition of special laws does not forbid the Legislature from creating statutory classifications. Rather it requires only that a classification must have some rational relationship to a proper state purpose. See Johnson v. Pennsylvania Housing Finance Agency, 453 Pa. 329, 347, 309 A.2d 528, 538 (1973); Milk Control Commission v. Battista, 413 Pa. 652, 198 A.2d 840, appeal dismissed, 379 U.S. 3, 85 S.Ct. 75, 13 L.Ed.2d 22 (1964); Philadelphia v. Smith, 412 Pa. 262, 268-269, 194 A.2d 177, 180 (1963); Bargain City U. S. A. v. Dilworth, 407 Pa. 129, 133, 179 A.2d 439, 442 (1962). Confining loans to nursing homes which comply with all "applicable State and Federal regulations, with the exception of [the] Life Safety Code, for the acceptance of Medicaid patients" is rationally related to a purpose of assuring that loan recipients are in all respects (except for compliance with the Life Safety Code) fit institutions for the care of their patients. We have no doubt that this purpose is a proper one, for it "works . . . to promote the general welfare . . . ." Note, Developments in the law -- Equal Protection, 82 Harv.L.Rev. 1065, 1081 (1969). Accordingly, the N.H.L.A.L. is not a "special law."

Plaintiff's final contention is that the N.H.L.A.L. violates article VIII, section 8 of the Constitution, which 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."

He argues that the lending to nursing home proprietors of funds raised by an issue of general obligation Commonwealth

[ 460 Pa. Page 15]

    bonds constitutes a pledge or loan of Commonwealth credit to the nursing homes. He correctly points out that in our two prior cases dealing with section 8, Johnson v. Pennsylvania Housing Finance Agency, 453 Pa. 329, 309 A.2d 528 (1973); Basehore v. Hampden Industrial Development Authority, 433 Pa. 40, 248 A.2d 212 (1968), the obligations involved were revenue bonds not backed by the credit of the Commonwealth. We are thus presented for the first time with the question of the application of article VIII, section 8 to general obligation bonds.

In determining the meaning of section 8, we look to the evil to which it is addressed. See Statutory Construction Act, 1 Pa.C.S. § 1921(c)(3) (Special Pamphlet, 1973). In the mid-nineteenth century, industrial expansion, particularly the growth of the railroads, created great demands for investment capital. When the private sector was unable to satisfy the demand, state and local governments stepped in to fill the need.*fn26 One common method of assisting the railroads to raise capital was public guaranty of railroad obligations, frequently taking the form of an exchange of railroad bonds for state bonds, which the railroad then sold on the open market. In this way, railroads were able to attract investors who, without the credit of the state on which to rely, would not have invested. Article VIII, section 8 was adopted in 1857 in reaction to and with the specific purpose of eliminating these speculative forms of financing.*fn27 The phrase "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

[ 460 Pa. Page 16]

    that serve a public purpose and are otherwise lawful.

Courts may not declare a statute unconstitutional "unless it clearly, palpably, and plainly violates the Constitution." Daly v. Hemphill, 411 Pa. 263, 271, 191 A.2d 835, 840 (1963). This presumption in favor of the constitutionality of a statute is strengthened where, as here, the program has been submitted to the voters and has received their approval. We would be overstepping our constitutional bounds were we to strike down an act bolstered by such a strong presumption of constitutionality on the basis of a constitutional provision designed to eliminate an evil far removed from the public goals of this enlightened legislation. Plaintiff has failed to persuade us that the N.H.L.A.L. is prohibited by article VIII, section 8.

We have examined the N.H.L.A.L. and the constitutional defects*fn28 which plaintiff perceives. We conclude that they are meritless. Judgment on the pleadings is therefore entered for defendants. Each party to pay own costs.


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