S.E. 2d
THE STATE OF SOUTH CAROLINA
In The Supreme Court
WDW Properties, a
South Carolina general
partnership, Appellant,
v.
City of Sumter, South
Carolina; South Carolina
Jobs-Economic
Development Authority;
and Uptown Synergy,
LLC, Respondents.
Appeal From Sumter County
Linwood S. Evans, Jr., Master-in-Equity
Opinion No. 25174
Heard June 8, 2000 - Filed July 24, 2000
AFFIRMED
Thomas E. Player, Jr., of Player & McMillan, LLC, of
Sumter, for appellant.
Steve A. Matthews and B. Eric Shytle of Sinkler &
Boyd, P.A., of Columbia, for respondents.
JUSTICE WALLER: WDW Properties (WDW) brought a
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WDW PROPERTIES v. CITY OF SUMTER
declaratory judgment action challenging the legitimacy of a program in which
the proceeds of tax-exempt bonds issued by a state agency would be loaned to
a developer renovating retail and commercial properties in a blighted area of
the city of Sumter (City). A master-in-equity rejected WDW's claims after a
bench trial and WDW appeals. 1
FACTS
The parties have stipulated to the following facts. The Internal
Revenue Code authorizes the use of federally tax-exempt local government
bonds that finance business enterprises in designated urban "empowerment
zones." See 26 U.S.C. §§ 1391-1392 (Supp. 1999). The secretary of the United
States Department of Housing and Urban Development (HUD), at the request
of local government officials, in 1998 declared about 18 square miles located in
Richland and Sumter counties as an urban empowerment zone. 2 The governing
body of City in 1999 declared its downtown to be a "slum and blight area" and
designated it as a "redevelopment project area" located in the empowerment
zone.
Uptown Synergy plans to develop the Hampton at Main Project,
located in the redevelopment project area. The $4.3 million project consists of
interior and exterior renovations of three adjoining historic. buildings, which
would be leased for commercial office and retail space. The project is expected
to create twenty full-time jobs, and the developer hopes to target low- and
1 The Court of Appeals transferred this case to us on the parties' motion.
See S.C. Code Ann. § 14-8-200(b)(4) (Supp. 1999) (providing for direct appeals
to Supreme Court in cases involving various types of government bonds).
2 An area is eligible for designation as an "empowerment zone" only if it
meets criteria that relate to population, economic distress, geographic area, and
poverty rates. Such areas are nominated by local governments in a competitive
process. Designations are effective for ten years unless revoked earlier by HUD.
A commercial, retail, or service business in an empowerment zone qualifies for
tax-exempt financing if at least thirty-five percent of its employees live in the
empowerment zone, and most of its income and property are generated by or
engaged in the business in the empowerment zone. See 26 U.S.C. §§ 1391-1392
(Supp. 1999).
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WDW PROPERTIES v. CITY OF SUMTER
moderate-income persons for employment at the various offices and retail
businesses. In its application for financing to the South Carolina Jobs
Economic Development Authority (JEDA), Uptown Synergy stated the project
would "serve as the cornerstone for the revitalization of downtown Sumter and
the surrounding communities."
JEDA's governing board adopted a resolution in which it pledged
to seek authorization from the state Budget and Control Board to issue $2.5
million in economic development revenue bonds that would be exempt from
state and federal income taxation. Under loan documents executed in 1999,
JEDA would loan the bond proceeds to Uptown Synergy to finance about 58
percent of the project's cost. Uptown Synergy would repay the loan with
revenue from the project. No tax money is involved or pledged with regard to
the project. However, the tax-exempt nature of the bonds would result in lower
interest costs to Uptown Synergy than it would pay if it had to obtain
conventional financing.
WDW, a general partnership, owns and leases Liberty Square,
which includes mini-warehouse units, retail businesses, and commercial office
space. Liberty Square is not located in the empowerment zone and is not
eligible for government-sponsored financing. Uptown Synergy's project would
compete with Liberty Square for tenants and patrons. The apparent reason for
WDW's lawsuit is its belief that government-sponsored financing gives Uptown
Synergy an unfair economic advantage in the competition for tenants and
patrons.
ISSUE
Did the master err in holding that the JEDA
loan program serves a public purpose
through the redevelopment of blighted urban areas?
STANDARD OF REVIEW
When an appeal involves stipulated or undisputed facts, an
appellate court is free to review whether the trial court properly applied the law
to those facts. J. K. Constr Inc. v Western Carolina Regional Sewer Authority,
336 S.C. 162, 519 S.E.2d 561 (1999). This Court will not declare a statute or
regulation unconstitutional unless its repugnance to the Constitution is clear
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WDW PROPERTIES v. CITY OF SUMTER
and beyond a reasonable doubt. Southeastern Home Bldg. & Refurbishing, Inc.
v. Platt, 283 S.C. 602, 325 S.E.2d 328 (1985); Pelzer. Rodgers & Co. v. Campbell
& Co., 15 S.C. 581 (1881).
DISCUSSION
WDW contends the master erred in ruling that the JEDA
loan program at issue in this case serves a public purpose through the
redevelopment of blighted urban areas. The master erred by reading Carll v.
South Carolina Jobs-Economic Development Authority, 284 S.C. 438, 327
S.E.2d 331 (1985), to mean that so long as the issuance of a given series of
bonds is authorized by the JEDA Act, then the issuance of such bonds
necessarily serves a required public purpose. Carll should be interpreted only
to hold that the issuance of revenue bonds to finance industrial facilities serves
a public purpose, a principle previously established by this Court, WDW argues.
WDW bases its argument on the fact that, when Carll was decided
in 1985, JEDA regulations prohibited loans to retail or food establishments.
Current JEDA regulations allow economic development bond loans to
commercial businesses in certain situations, including downtown
redevelopment and in economically distressed areas. WDW believes those
regulatory changes mean Carll is not dispositive. 3
3 JEDA regulations were first promulgated in 1984. The regulation at
issue initially stated, as it did when Carll was decided, that:
A. [JEDA] will make loans only to manufacturing, industrial, or
service businesses which:
(1) Operate as private "for profit" enterprises; and
(2) Have a net worth not exceeding three million dollars; and
(3) Have a net profit after taxes averaging 20% or less of net
worth for the previous three years.
B. No loans will be made to:
(1) Retail establishments
(2) Food establishments.
25 S.C. Code Ann. Regs. § 68-10 (Supp. 1984). (3 continued...)
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WDW PROPERTIES v. CITY OF SUMTER
( 3 continued...) The regulation was amended in 1985 after Carll was decided to provide:
A. [JEDA] will make loans to manufacturing, industrial, service,
and other commercial businesses which:
(1) Operate as private "for profit" enterprises.
B. No loans will be made to:
(1) Retail establishments except where downtown
redevelopment is involved
(2) Food establishments.
25 S.C. Code Ann. Regs. § 68-10 (Supp. 1985).
The regulation was last amended in 1987 and has since remained
unchanged. It presently provides:
A. [JEDA] will make Community Development Block Grant loans,
economic development bond loans, on either a tax-exempt or
taxable basis, and loans from any other program funds which
become available, to manufacturing, industrial, research, service,
commercial and other businesses which:
(1) Are located in South Carolina; and
(2) Create or maintain jobs in South Carolina.
B. No economic development bond loans or Community
Development Block Grant loans will be made to:
(1) Commercial establishments, including hotels, shopping
malls, office buildings, and mercantile establishments, except
where downtown redevelopment is involved or where located
in an economically distressed area or where it will result in
increased employment; provided, however, that in the case of
hotels, loans may also be made regardless of location for
projects which will have a higher than usual promotional
impact upon the tourism industry in the State; and provided
further that, in the case of medical facilities, loans may also
be made regardless of location where there has been a
showing that the assistance will help relieve a shortage of (3 continued...)
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WDW PROPERTIES v. CITY OF SUMTER
WDW urges us to follow the views expressed in State ex rel. McLeod
v. Riley, 276 S.C. 323, 278 S.E.2d 612 (1981), and Anderson v. Baehr, 265 S.C.
153, 217 S.E.2d 43 (1975). In McLeod, this Court considered amendments to
the Industrial Revenue Bond Act 4 that allowed the issuance of revenue bonds
for the benefit of commercial and retail facilities. The Court also considered a
statute allowing the State to issue general obligation bonds to finance an
alcohol fuel development program. The Court struck down both the
amendments and the statue as unconstitutional, ruling, among other things,
that neither primarily served a public purpose.
The McLeod Court stated that revenue bonds for retail and
commercial businesses would provide only a "remote or indirect public benefit."
Such businesses would not alleviate the pervasive problems of lack of industry
and employment, would provide a minuscule number of jobs compared to
industrial projects, and would merely result either in the relocation of existing
businesses or importation of national chains to compete with existing
businesses. McLeod, 276 S.C. at 332, 278 S.E.2d at 617. Approving the
issuance of revenue bonds for retail and commercial businesses would "permit
local governments to effectually promote undertakings to compete in free
enterprise with other businesses which do not have the advantage which the
Act would give." Id. at 333, 278 S.E.2d at 617.
In Anderson, supra, the city of Spartanburg intended to issue
revenue bonds in order to purchase property in blighted areas (through
condemnation if necessary), find an interested developer, and lease or sell the
property to the developer in the hope that such payments would cover
repayment of the city-issued bonds. The Court held that the act, which it
described as allowing the city to "join hands" with unknown private developers,
(3 continued...) doctors, specialists or medical services in the area where the
project is located.
(2) Restaurant establishments except where such
establishments are located on the premises of a hotel and for
which economic development bonds are being issued.
25A S.C. Code Ann. Regs. § 68-10 (1989).
4 S.C. Code Ann. §§ 4-29-10 to -150 (1986 & Supp. 1999).
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WDW PROPERTIES v. CITY OF SUMTER
did not serve a public purpose because the benefit to the developer would be
substantial, while the benefit to the public would be negligible and speculative.
The Court also noted the Legislature had not made any findings of public
purpose in the act. Anderson, 265 S.C. at 159-63, 217 S.E.2d at 46-47.
In response, City argues that Carll, supra, is dispositive. City
further asserts that the views expressed in McLeod and Anderson have been
implicitly rejected by later cases in which this Court has taken a broader view
of public purpose and exhibited greater deference to the legislative
determinations regarding public purpose. The public purpose doctrine "is an
evolving concept that reflects the changing needs of society." Even if Carll is
not dispositive, the JEDA loan program in this case serves a public purpose,
City asserts.
Revenue bonds such as those that JEDA would issue in this case
are payable solely from the revenues of the particular project or enterprise, not
from taxpayer funds. See Wolper v City Council of City of Charleston, 287 S.C.
209, 214, 336 S.E.2d 871, 874 (1985); Anderson v. Baehr, 265 S.C. at 159-60,
217 S.E.2d at 46; Elliott v. McNair, 250 S.C. 75, 83,156 S.E.2d 421, 425 (1967);
Black's Law Dictionary 1319 (1990). Revenue bond debt, as well as general
obligation debt incurred by the government and repaid by government funds,
may be incurred only for a public purpose. S.C. Const. art. X; § 13(9); Elliott,
250 S.C. at 86, 156 S.E.2d at 427 (holding that Industrial Revenue Bond Act
serves a public purpose as required by state constitution); Feldman & Co. v.
City Council of Charleston, 23 S.C. 57, 62-63 (1885) (holding that a law
authorizing taxation for any purpose other than a public purpose is void). 5
5 S.C. Const. art. X, § 13(9) provides:
The General Assembly may authorize the State or any of its
agencies, authorities or institutions to incur indebtedness for any
public purpose payable solely from a revenue-producing project or
from a special source, which source does not involve revenues from
any tax but may include fees paid for the use of any toll bridge, toll
road or tunnel. Such indebtedness may be incurred upon such
terms and conditions as the General Assembly may prescribe by
law. All indebtedness incurred pursuant to the provisions of this
subsection shall contain a statement on the face thereof specifying (5 continued...)
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WDW PROPERTIES v. CITY OF SUMTER
In Carll we rejected several constitutional challenges to the 1983
act creating JEDA. In discussing whether the Act served a public purpose, we
explained that
[a]ll legislative action must serve a public rather than
a private purpose. In general, a public purpose has for
its objective the promotion of the public health, morals,
general welfare, security, prosperity, and contentment
of all the inhabitants or residents within a given
political division . . . . It is a fluid concept which
changes with time, place, population, economy and
countless other circumstances. It is a reflection of the
changing needs of society.
Carll, 284 S.C. at 442-43, 327 S.E.2d at 334 (citations omitted); see also S.C.
Code Ann. §§ 41-43-10 to -280 (1986 & Supp. 1999) (codifying South Carolina
Jobs-Economic Development Fund Act). We held that the JEDA Act served a
public purpose because its provisions were reasonably related to the legitimate
public goals of economic development and job creation. We observed the
Legislature's findings regarding the State's economic development problems
were "detailed and comprehensive." Id.
We agree with WDW that Carll is not dispositive. Carll did not
involve any particular bond issue or loan, but was an attack on the facial
validity of the act creating JEDA. More importantly, regulations then in
existence prohibited JEDA from making government-sponsored loans to retail
or commercial businesses. JEDA regulations were amended in 1987 to allow
such loans in certain situations. See footnote 3. A statutory or regulatory
change could transform a previously constitutional loan program into one that
violates the public purpose doctrine. Therefore, Carll should not be read to
foreclose challenges to JEDA programs simply because a given loan does not
violate JEDA's statutory or regulatory framework as it exists when the loan is
proposed or made.
However, we hold that the JEDA loan program in this case serves
a public purpose as required by the constitution. We adhere to the views
(5 continued...) the sources from which payment is to be made.
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WDW PROPERTIES v. CITY OF SUMTER
espoused in Carll and Nichols v. South Carolina Research Authority, 290 S.C.
415, 351 -S.E.2d 155 (1986).
In Nichols, we upheld a statute authorizing a state agency to issue
revenue bonds in order to provide financial assistance to advanced technology
businesses. We overruled Byrd v. County of Florence, 281 S.C. 402, 315 S.E.2d
804 (1984), in which we had struck down on public purpose grounds Florence
County's proposal to issue general obligation bonds to acquire and develop an
industrial park to be used to attract industrial investment. In Nichols, we
extensively discussed the public purpose doctrine and its inconsistent
application in various cases over the years. We explained that
[t]imes change. The wants and necessities of the
people change .... On the one hand, what could not be
deemed a public use a century ago may, because of
changed economic and industrial conditions, be such
today.
The consensus of modern legislative and judicial
thinking is to broaden the scope of activities which may
be classed as. involving a public purpose. It reaches
perhaps its broadest extent under the view: that
economic welfare is one of the main concerns of the
city, state and the federal governments.
The views we express here reflect the decisions of
multiple other jurisdictions which recognize industrial
development as a public purpose.
Finally, legislation may subserve a public purpose even
though it (1) benefits some more than others and, (2)
results in profit to individuals: Legislation does not
have to benefit all of the people in order to serve a
public purpose. At the same time legislation is not for
a private purpose merely because some individual
makes a profit as a result of the enactment.
Nichols, 290 S.C. at 425-26, 351 S.E.2d at 161 (emphasis in original) (citations
and internal quotes omitted).
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WDW PROPERTIES v. CITY OF SUMTER
We emphasized anew that [i]t is uniformly held by courts
throughout the land that the determination of public purpose is one for the
legislative branch .... The question of whether an Act is for a public purpose is
primarily one for the Legislature." Id.
We reached a similar conclusion in Wolper, decided the year before
Nichols. In Wolper, we upheld the constitutionality of a statute that allows
cities to incur debt to revitalize deteriorating areas, with the debt service to be
provided from the increased increments of property tax revenue resulting from
the redevelopment project. We concluded that elimination of decaying and
unhealthy areas within a city directly benefits the public, although private
parties within the area also may benefit incidentally. Wolper, 287 S.C. at 216,
336 S.E.2d at 875.
Although we overruled Byrd, supra, in Nichols, we adopted the four
part test from Byrd to use in determining whether the public purpose doctrine
is violated. "The Court should first determine the ultimate goal or benefit to the
public intended by the project. Second, the Court should analyze whether
public or private parties will be the primary beneficiaries. Third, the
speculative nature of the project must be considered. Fourth, the Court must
analyze and balance the probability that the public interest will be ultimately
served and to what degree." Nichols, 290 S.C. at 429, 351 S.E.2d at 163
(emphasis in original).
Accordingly, we apply the Nichols test in this case. First, the
ultimate benefits to the public are to increase the number of available jobs,
improve the appearance of rundown buildings in Sumter's downtown, attract
new businesses, and reinvigorate a downtown area that has been classified by
the local and federal governments as economically distressed. Second -
deferring to the Legislature's determination in establishing the JEDA program
- the public will be the primary beneficiary, although the developers certainly
will benefit from a more favorable loan rate. Third, the project is speculative,
as is any redevelopment effort, but it is not so speculative that it violates the
public purpose doctrine. And fourth, the public interest is likely to be served to
a substantial degree through the creation of jobs, the reinvigoration of the
downtown area, and benefits, both tangible and intangible, that should result
from that reinvigoration.
We conclude that our opinion in Nichols implicitly overruled
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WDW PROPERTIES v. CITY OF SUMTER
McLeod's holding that revenue bonds may not be issued on behalf of retail or
commercial businesses. We now take a broader view of the public purpose
doctrine and give substantial weight to legislative determinations of the issue.
We find Anderson, supra, distinguishable from the present case.
The Legislature did not make specific findings regarding the public purpose of
the Act at issue in Anderson, while the Legislature has made such findings in
the JEDA Act. The power of eminent domain was involved in Anderson, but not
in this case. The city would have played a major role in the revitalization
process in Anderson, leading the Court to conclude that the "Act undertakes to
permit the city to effectually promote business undertakings to compete in free
enterprise with other businesses which do not have the advantage which the
Act would give. We think it a fair conclusion to say that benefit to the developer
or entrepreneur, would be substantial, and the benefit to the public would be
negligible and speculative." Anderson, 265 S.C. at 163, 217 S.E.2d at 47. In
contrast, the role of City and JEDA in this case is more limited in that neither
is actively promoting business undertakings to compete in free enterprise with
other local businesses.
CONCLUSION
We affirm the master's ruling that the JEDA loan program serves
a public purpose as required by the state constitution. We overrule McLeod,
276 S.C. 323, 278 S.E.2d 612, to the extent it conflicts with the views expressed
in Carll supra, Nichols, supra, and this opinion. We find Anderson, 265 S.C.
153, 217 S.E.2d 43, distinguishable from this case.
AFFIRMED.
TOAL, C.J., MOORE, BURNETT and PLEICONES, JJ., concur.
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