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Myers v. Alaska Housing Finance Corp. (4/18/2003) sp-5682
Myers v. Alaska Housing Finance Corp. (4/18/2003) sp-5682
Notice: This opinion is subject to correction before
publication in the Pacific Reporter. Readers are
requested to bring errors to the attention of the Clerk
of the Appellate Courts, 303 K Street, Anchorage,
Alaska 99501, phone (907) 264-0608, fax (907) 264-0878,
email corrections@appellate.courts.state.ak.us.
THE SUPREME COURT OF THE STATE OF ALASKA
ERIC F. MYERS, a taxpayer and )
resident of the State of Alaska, both )
individually and as a representative of )
other Alaska residents and taxpayers, )
) Supreme Court No. S-9941
Appellant, )
) Superior Court No.
v. ) 3AN-00-11118 CI
)
ALASKA HOUSING FINANCE ) O P I N I O N
CORPORATION; and NORTHERN )
TOBACCO SECURITIZATION ) [No. 5682 - April 18,
2003]
CORPORATION, )
)
Appellees. )
________________________________)
Appeal from the Superior Court of the State
of Alaska, Third Judicial District,
Anchorage, Dan A. Hensley, Judge.
Appearances: Peter J. Maassen, Ingaldson
Maassen, P.C., Anchorage, and Peter
Gruenstein, Gruenstein & Hickey, Anchorage,
for Appellants. Douglas D. Gardner,
Assistant Attorney General, Juneau, Joseph H.
McKinnon, Assistant Attorney General,
Anchorage, Bruce M. Botelho, Attorney
General, Juneau, and Robert M. Johnson,
Wohlforth, Vassar, Johnson & Brecht,
Anchorage, for Appellees.
Before: Fabe, Chief Justice, Matthews,
Eastaugh, Bryner, and Carpeneti, Justices.
CARPENETI, Justice.
BRYNER, Justice, with whom FABE, Chief Justice, joins,
dissenting.
I. INTRODUCTION
Alaska Constitution article IX, section 7 prohibits the
legislature from dedicating future revenues directly to any
special purpose. But can the legislature sell the state's right
to a future revenue stream that is based on a settlement of a
lawsuit and then immediately appropriate the proceeds? We
conclude that selling the right to receive future revenue from
the tobacco lawsuit settlement involved in the present case is
constitutional for three reasons: (1) the legislative
appropriation power includes the power to sell state assets, (2)
lawsuit settlements are not traditional sources of public
revenue, and (3) the legislature has the responsibility to manage
the state's risk.
II. FACTS AND PROCEEDINGS
In 1998 Alaska, along with numerous other states and
territories, settled its past and present smoking-related claims,
and provided a continuing release of future smoking-related
claims, against the four largest tobacco manufacturers. The
Master Settlement Agreement provided that the tobacco
manufacturers would make annual payments to a fund from which the
state would receive a portion in perpetuity. The state is
projected to receive between $16 million and $36 million annually
through 2031.
Eric Myers, a director of the Alaska Division of the
American Cancer Society and proponent of tobacco-control
programs, lobbied the legislature to spend a significant portion
of the tobacco settlement on anti-tobacco initiatives. The
legislature appropriated only $1.4 million from the state's
general fund to such initiatives, substantially less than the
$8.2 million requested. Funding for rural school upgrades and
construction was a competing priority, in part because a superior
court had recently concluded that the then-existing education
funding scheme violated the state constitution and the federal
Civil Rights Act of 1964.1
To fund the extensive school improvements, the
legislature could have appropriated funds from the state's
general fund or could have proposed a bond measure that would
have required voter approval. Instead, the legislature, viewing
the state's right to future payments from the tobacco settlement
as an asset, sought to sell it for a lump sum representing the
present value of the future revenue stream from the settlement.
The proceeds from the sale could then immediately be appropriated
to finance the rural school improvements.
The legislature devised chapter 130, SLA 2000 to
accomplish this objective without offending constitutional
principles. Chapter 130, SLA 2000 authorized the commissioner of
revenue to sell the right to receive forty percent of the annual
revenue from the settlement to the Alaska Housing Finance
Corporation (AHFC), "anticipated to be at least $93,000,000."2
The legislature also authorized AHFC to create a subsidiary
corporation and issue revenue bonds secured by the right to
receive forty percent of the tobacco settlement.3 The
legislature then appropriated $164,876,000 from the anticipated
proceeds of the bonds for school, university, port, and harbor
construction, renovation, and improvement.4
AHFC created a subsidiary corporation, the Northern
Tobacco Securitization Corporation (NTSC). The NTSC held public
hearings to discuss the proposed sale of the tobacco settlement
revenue stream. In early October 2000 the NTSC board of
directors authorized the issuance of the bonds. At nearly the
same time, Myers filed this suit seeking a declaratory judgment
that chapter 130, SLA 2000 violated the prohibition on the
dedication of funds found in article IX, section 7 of the Alaska
Constitution. Myers later amended his complaint to request that
the superior court enjoin the NTSC bond sale.
Following oral argument on Myers's request for
declaratory judgment, Superior Court Judge Dan A. Hensley ruled
that chapter 130, SLA 2000 was constitutional. Although he noted
that the anti-dedication clause applied to all state revenue,
which included money from lawsuit settlements, Judge Hensley
concluded that reducing the settlement to present value and
selling it for a lump sum did not violate the anti-dedication
clause. He reasoned that the settlement was an asset unlike
traditional types of revenue used for annual state government
funding; that the form of the settlement as periodic payments
instead of a lump sum was a mere fortuity; that settlements
providing for periodic payments were fungible with lump sum
settlements; and that because the continued payment of the
settlement was not guaranteed, the legislature must be able to
manage the state's assets to avoid risk. Because of the slippery
slope argument that the legislature could reduce any asset
consisting of a future revenue stream to present value, sell it,
and appropriate the proceeds immediately, Judge Hensley
emphasized that his ruling was limited to lawsuit settlements as
a particular type of revenue. Myers appeals this decision.
After Judge Hensley's decision, the NTSC issued $116
million of revenue bonds secured by the right to receive forty
percent of the future revenues from the tobacco settlement. The
NTSC received $93 million and the remainder was used to pay the
costs of issuance. The $93 million is now apparently being used
for school and harbor construction projects as appropriated by
chapter 131, SLA 2000.
III. STANDARD OF REVIEW
This case requires us to decide if the enactment of
chapter 130, SLA 2000 violates article IX, section 7 of the
Alaska Constitution. We use our independent judgment to decide
constitutional issues.5
IV. DISCUSSION
The sole issue presented in this appeal is whether the
sale of the future revenue stream from the tobacco settlement
violates the constitutional prohibition against dedicating a
source of state revenue to any special purpose. We first discuss
the anti-dedication clause and its interpretation, then determine
that directly dedicating the tobacco settlement revenues would be
unconstitutional, and finally conclude that the sale of the
tobacco settlement revenue stream reduced to present value is
constitutional.
A. The Anti-Dedication Clause and Its Interpretation
Section 7 of article IX provides in relevant part that
"[t]he proceeds of any state tax or license shall not be
dedicated to any special purpose."6 The drafters of the anti-
dedication clause adopted it to preserve control of and
responsibility for state spending in the legislature and the
governor. " `[T]he more special funds [that] are set up the more
difficult it becomes to deny other requests until the point is
reached where neither the governor nor the legislature has any
real control over the finances of the state.' "7 The anti-
dedication clause helps preserve the state's annual appropriation
model and ensures that governmental departments will not be
restricted in requesting funds from all sources.8
We have twice considered whether an appropriation
violated the anti-dedication clause, but neither case presented a
question similar to the one presented here. In State v. Alex, we
decided that an act purporting to dedicate a "special
assessment," rather than a tax or license, violated the anti-
dedication clause because the clause applied to any source of
public revenue.9 In Sonneman v. Hickel, we held that an act
violated the anti-dedication clause because it limited the
ability of one state agency to request funding from revenues
produced by the Marine Highway System.10 In both cases, the
unconstitutional acts dealt clearly with future allocation of
future revenues; neither case involved a reduction to present
value and outright sale of a future revenue stream. Accordingly,
neither Alex nor Sonneman directly resolves the more complex
question in the present case.
The Alaska anti-dedication clause is almost unique
among state constitutions. Only Georgia has a similar provision,
which indirectly was the source of the Alaska provision.11 The
relevant portion of the Georgia anti-dedication clause provides:
"[N]o appropriation shall allocate to any object the proceeds of
any particular tax or fund or a part or percentage thereof."12
The Georgia Supreme Court has interpreted its anti-
dedication provision only once. In State Ports Authority v.
Arnall, the Georgia legislature passed a bill appropriating all
of the rentals received from a lease of the Western & Atlantic
Railroad to the State Ports Authority for the purpose of paying
bond debt.13 The Georgia Supreme Court held that the
appropriation was unconstitutional for two independent reasons:
because it violated the provision concerning the creation of
state debt and because it violated the provision prohibiting the
dedication of funds.14
Arnall, however, is of limited use in resolving the
present case. Like our earlier cases, Arnall dealt with the
appropriation of future revenues and did not decide whether the
sale of a future income stream reduced to present value violated
the anti-dedication clause.
The state argues that Arnall "favorably" cited Wright
v. Hardwick15 and that this supports the constitutionality of the
sale of a stream of revenue. In Wright, the Georgia legislature
made an "outright sale of rentals to be received from the lease
of the Western & Atlantic Railroad."16 The Georgia Supreme Court
approved of the sale because the " `legislative act [did] not
seek to authorize the creation of debt.' "17
The state's argument is unconvincing because it
misconstrues Arnall and overstates the scope of Wright. First,
Arnall did not favorably cite Wright. Arnall distinguished
Wright in its creation-of-debt analysis and made no mention of
Wright in its anti-dedication analysis.18 Second, Wright did not
support the contention that the sale of rentals from the railroad
lease was constitutional under Georgia's anti-dedication
provision, for Wright was decided before Georgia adopted its anti-
dedication provision.19 Wright was decided in 1921, well before
the anti-dedication provision first appeared in the Georgia
Constitution of 1945.20 In fact, the appellant in Wright argued
that the sale of the right to future rents violated the annual
appropriation model of the Georgia constitution, but the court
stated, "No scheme or fiscal policy for the state appears in any
direct or express language of the Constitution limiting all
expenditures for the state in any one year to the revenues of the
state derived from all sources during that year, and declaring
that the revenues shall not be anticipated."21 Thus, Wright did
not, and could not, support the validity of a sale of future
lease revenues with respect to Georgia's anti-dedication
provision.
In sum, neither the text of our anti-dedication clause
nor the relevant case law provides a direct answer to the
question before us.
B. The Tobacco Settlement Revenue Is Subject to the
Anti-Dedication Clause.
The superior court ruled that the anti-dedication
clause generally applied to the tobacco settlement revenue:
"[A]lthough the Constitution speaks in terms of tax or license,
the Alaska Supreme Court, in State v. Alex, interpreted that
phrase to include all state revenues, which would include money
from lawsuit settlements." This conclusion is consistent with
existing case law.
In State v. Alex, we held in the context of a tax-like
assessment on the sale of fish on behalf of a regional
aquaculture association, that "the constitution prohibits the
dedication of any source of revenue."22 We expressly agreed with
an Alaska Attorney General's opinion that states:
Section 7 of Article IX of the state
Constitution can be given its intended effect
and serve its repeatedly expressed purpose
only if the words "proceeds of any tax or
license" are interpreted to mean what their
framers clearly intended, i.e., the sources
of any public revenues.
Accordingly, it is our conclusion that
the dedication of any source of public
revenue: tax, license, rental, sale,
bonus_royalty, royalty, or whatever is
limited by the state Constitution to those
existing when the Constitution was ratified
or required for participation in federal
programs.[23]
A more recent informal opinion of the attorney general
specifically stated that the constitution prohibited dedication
of money from civil settlements: "[T]he constitutional
prohibition against dedicated funds applies to money received
from fines, penalties and civil settlements . . . ."24
The conclusion that the anti-dedication clause applies
to the tobacco settlement means only that a current legislature
is prohibited from dedicating future settlement revenues to a
particular purpose. Thus, the anti-dedication clause would
prohibit the legislature from appropriating the tobacco
settlement revenue stream for more than the immediately
forthcoming fiscal year directly to secure a bond issue. But the
legislature did not do this. Instead, the legislature sold the
settlement reduced to present value. The question then becomes
whether the sale of the tobacco settlement is unconstitutional
because its effect is the same as a dedication of the future
tobacco settlement revenue to repay the bond issue.
C. The Sale of the Right to the Future Annual
Payments from the Tobacco Settlement Is Not an
Impermissible Dedication.
Determining the outcome of this case requires us to
choose between competing constitutional values: the prohibition
on dedicated funds and the legislative power to manage and
appropriate the state's assets. Myers argues that allowing the
state to sell the future revenues from the settlement defeats the
purpose of the anti-dedication clause. The state argues that the
tobacco settlement is a state asset, which the legislature is
free to sell; upon the sale, the legislature may appropriate the
proceeds. The superior court distinguished between the sale of
the tobacco settlement and other "traditional kinds of revenues"
and concluded that the transaction was constitutional. We agree
with the superior court.
Myers interprets the prohibition of the anti-dedication
clause broadly and concludes that chapter 130, SLA 2000 is
unconstitutional because its effect is inconsistent with the
purposes of the anti-dedication clause. Myers argues that the
sale of the tobacco settlement conflicts with the annual
appropriation model and effectively reduces the legislature's
control of state assets because those anticipated future revenues
become unavailable. He also argues that we should not allow the
legislature to accomplish indirectly what it cannot do directly.
Because the state admits that the legislature cannot dedicate
forty percent of the tobacco settlement to secure bonds directly,
Myers argues that the legislature should not be able to
accomplish the same effect by the simple expedient of selling the
right to future revenues from the tobacco settlement.
But Myers apparently does not dispute that the
legislature has the power to sell a state asset like a building,
and selling an income-producing asset could be viewed as
inconsistent with the anti-dedication clause in the same ways as
the sale of the tobacco settlement revenue stream. If the state
owns a real property asset on which it collects rents, selling
the property outright and appropriating the money effectively
eliminates the rents as a source of revenue previously available
to future legislatures. Likewise, if the state has loaned money,
selling the state's interest in the repayment of the loan and
appropriating the income eliminates the stream of revenue from
future loan payments. The same considerations would apply if the
state sold state property on an installment basis. Clearly the
legislature has some power to manage the state's assets and to
appropriate those proceeds in the year received even though such
actions may conflict with the purposes of the anti-dedication
clause.
The state interprets the anti-dedication clause
narrowly and concludes that the tobacco settlement is simply an
asset - a property, thing in action, or chose in action - which
the legislature can sell and appropriate without violating the
anti-dedication clause. If this proposition is accepted, there
is no dedicated funds problem because the legislature has simply
sold an asset and appropriated the revenue generated. No future
revenues are impacted because the tobacco settlement no longer
exists as a state asset that will produce future revenues. The
state supports its interpretations with the opinion of the
attorney general that the legislature's action was
constitutional.25
The superior court expressly limited its ruling to the
issue in this case - the sale of the tobacco settlement revenue
stream. The superior court reasoned that the sale of the tobacco
settlement was constitutional because of four distinctions
between the tobacco settlement revenues and traditional kinds of
state revenues: (1) lawsuit settlements are discrete and have a
non-recurring nature; (2) the form of the lawsuit settlement as
periodic payments instead of a lump sum is a matter of fortuity;
(3) lawsuit settlements are more closely comparable to state
assets than to taxes or other traditional sources of state
revenue; and (4) the tobacco settlement entails some risk that
the legislature must be able to manage. We agree with the
superior court.
First, lawsuits and corresponding settlements have a
non-recurring nature unlike other sources of state revenue relied
upon in Alaska's annual appropriation process. Lawsuit
settlements are not traditional sources of significant state
revenue.26
Second, the form of the settlement as periodic payments
instead of a lump sum is a matter of fortuity. Clearly, if the
settlement had been a lump sum arrangement, the legislature would
be free to immediately appropriate the settlement proceeds, and
there would be no anti-dedication clause problem. Although Myers
argues that the state could have negotiated for a lump sum, there
is no reason to conclude it would have been successful. Indeed,
the omnibus nature and the significant complexity of the
settlement provided incentive to accept the settlement in the
form offered. In any event, the form of the settlement should
not dictate the constitutionality of the legislature's
disposition of it.
Third, lawsuit settlements, even those involving
periodic payments over time, are commonly considered to be assets
or property as distinct from taxes or licenses.27 Settlements
involving payments over time are comparable with lump sum
settlements by simply reducing them to present value.
Fourth, the legislature must be allowed to manage state
assets so as to control risk. Myers does not appear to dispute
that the legislature has the authority to manage the state's
affairs in accordance with its judgment on risk avoidance, but he
argues that there is little risk associated with the tobacco
settlement revenue stream as evidenced by the bonds' ratings. To
the extent that Myers asks us to decide the financial soundness
of the sale (whether the tobacco settlement is sufficiently risky
to warrant liquidation), we decline. That is a policy choice for
the legislature.28
Myers argues that the state's narrow interpretation of
the anti-dedication clause is a slippery slope: If the state can
reduce the tobacco settlement revenue stream to a present value,
sell it, and immediately appropriate the proceeds, the
legislature could perform the same maneuver on almost any revenue
stream, provided the existence of an interested buyer. For
example, the legislature might sell the state's right to future
oil and gas royalties and appropriate the proceeds immediately.
Myers argues that no distinction exists between the tobacco
settlement and oil and gas lease royalties as state assets.
Myers's argument is beyond the scope of this case. Because the
validity of selling future oil and gas royalty revenues reduced
to present value is not posed by this case, we express no opinion
on the constitutionality of that sort of transaction.29 The
fifth factor - whether the sale is what it purports to be, a
conveyance of the state's right to the revenue - does not help in
determining whether the revenue stream is an asset. Moreover,
the dissent's application of the factor rests on its earlier
incorrect conclusion that Part XVIII(p) of the master settlement
agreement prevents the state from assigning its interest in the
settlement proceeds. Because the master settlement agreement
does not prohibit the state from assigning its interest in the
settlement proceeds, it is irrelevant why the legislature chose
the mechanism that it did.
D. The NTSC's Issuance of Bonds Is Constitutional.
Assuming that the sale of the tobacco settlement was
constitutional, the state argues that the NTSC's bond issue was
constitutional. Although Myers asserts in one sentence that the
legislature's act effectively circumvented article IX, section 8,
which requires voter consent for a general bond issue, he does
not develop the point. Accordingly, we consider the issue
waived.30
Even if Myers had not waived the argument, the state is
correct that the NTSC issued the bonds within the requirements of
the constitution. Although article IX, section 8, provides that
the state can contract debt only with ratification by a majority
of the voters,31 article IX, section 11, provides an exception for
a state agency to issue revenue bonds secured only by the
agency's revenues.32 Because the NTSC bonds were secured solely
by the tobacco settlement revenues, the bonds are expressly
permitted under article IX, section 11.
V. CONCLUSION
Because the legislature sold the tobacco settlement and
then appropriated the resulting income, it did not directly
violate the anti-dedication clause. Although selling the tobacco
settlement revenue stream is an indirect method of producing an
effect very similar to the prohibited dedication of those future
revenues, the anti-dedication clause clashes with the
legislature's appropriation power. We conclude that the sale of
the tobacco settlement is constitutional because the legislative
appropriation power includes the power to sell state assets,
lawsuit settlements are not traditional sources of public
revenue, and the legislature has the responsibility to manage the
state's risk. Accordingly, we AFFIRM the superior court's
ruling.
BRYNER, Justice, with whom FABE, Chief Justice, joins,
dissenting.
I agree with the opinion's initial conclusion that the
tobacco settlement revenue qualifies as a source of public
revenue covered by the Alaska Constitution's anti-dedication
clause.33 But I have serious doubts about the court's main
conclusion that chapter 130, SLA 2000, sells this revenue without
violating the anti-dedication clause. Because the superior court
did not address the issues that give rise to my doubts and the
record contains insufficient information to resolve them, I would
vacate the summary judgment order and remand to the superior
court for further proceedings.
Today's opinion approves the state's sale of its
tobacco settlement rights based on their discrete and non-
recurring nature, on the fortuity of the settlement's future
payout provisions, and on the fact that lawsuit settlements
generally are viewed as assets. But it seems to me that the
opinion too quickly accepts at face value the state's assurances
that the purchase and sale agreement actually sells the state's
current right to its tobacco settlement revenues; and in
approving this sale, the opinion gives too much emphasis to the
settlement's unusual and fortuitous nature.
The qualities relied on by today's opinion may indeed
suggest that the sale's future revenues are capable of being
treated as a present asset. But almost anything can be
conceptualized as an asset: virtually all future events having
any potential impact on state revenue could be expressed in
estimated economic values, labeled as assets, reduced to present
value, and "securitized." And surely a future revenue stream's
unusual nature or unanticipated appearance on the horizon does
not, standing alone, justify calling the revenue stream a
presently salable asset; nor is there any reason to suppose,
assuming that the revenue stream is in fact an asset, that every
sale purporting to dispose of it at present value would actually
comply with the anti-dedication clause. While the presence of
these factors may provide an appropriate embarkation point for
constitutional inquiry, their presence cannot eliminate the need
for a hard look at all other relevant circumstances.
In my view, we must examine the character of the
particular revenue stream at issue and the mechanics of its
proposed disposition to ensure the sale's constitutional
integrity: that is, to ensure both that a marketable asset exists
and that the proposed sale would actually market it in a way that
the anti-dedication clause allows. At least five factors seem
relevant in examining these issues:
< The source and nature of the future revenues and
how the law traditionally views similar revenues.
< Whether the state's right to the future revenues
is fully vested at the time of the sale.
< Whether any law, rule, or contractual provision
prohibits the state from selling its current right to the
revenue or prevents the buyer from stepping into the state's
shoes.
< Whether the revenue's future value can be
rationally predicted and whether the sale obliges the state
to perform contractual duties that might conflict with its
basic governmental duties.
< Whether the sale conveys the state's right to the
revenue or a right to receive the revenue from the state.
I believe that, when examined with an eye toward these
factors, the master settlement agreement, the legislation
implementing the state's sale of its settlement revenues,34 and
the state's purchase and sale agreement with AHFC and NTSC reveal
serious potential flaws in the state's constitutional theory.
1. The source and nature of the revenue stream
Today's opinion focuses almost exclusively on this
factor. The revenue stream at issue here is established by the
tobacco settlement agreement; the opinion notes that the law
traditionally treats legal settlements as assets. These points
suggest to the court that the state's current interest in future
revenues under the agreement can be regarded as an asset. But a
note of caution seems necessary: the law does not invariably
treat legal settlement agreements as transferrable property; it
deems some settlement agreements non-transferrable because the
transfer contemplated by the agreement would violate public
interest. Settlements compromising future child support rights,
for instance, are generally barred. Moreover, other settlement
agreements are non-transferrable by their own terms. For
example, a lease agreement containing an express non-assignment
clause could render the lease interest not freely transferrable
to a third party. In this case, as discussed below, there may
exist both contractual and policy reasons for limiting
transferability of the state's present settlement rights.
2. Whether the state's right is vested
The state's right to share in the master settlement
agreement's settlement funds appears to be fully vested. This
factor poses no apparent obstacle to treating the right as a
current, marketable asset.
3. Whether the law or the settlement agreement bars the
transfer
No state law bars the state from transferring its right
to receive revenues under the settlement agreement, and the
parties point to no federal law forbidding or limiting the
transfer. But the settlement agreement itself imposes a
limitation. The state fails to discuss this restriction, and
neither the superior court nor this court's opinion gives it
serious attention. Yet in my view it is potentially critical.
Part XVIII(p) of the master settlement agreement
explicitly limits the intended benefits of the agreement to the
settling states that joined in the agreement; and this provision
expressly prohibits settling states from assigning their
enforcement rights under the settlement agreement:
(p) Intended Beneficiaries. No portion
of this Agreement shall provide any rights
to, or be enforceable by, any person or
entity that is not a Settling State or a
Released Party. No Settling State may assign
or otherwise convey any right to enforce any
provision of this Agreement.
On its face, this language appears to require that all
settlement funds destined for Alaska be collectible exclusively
by the state of Alaska; the language further seems to preclude
the state from assigning to a third party like NTSC the state's
right to demand payment, or any other benefit of the agreement,
directly from the master settlement agreement's (MSA) escrow
agent. Although this paragraph might not bar the state from
selling to NTSC the state's present right to retain future
settlement funds upon their receipt by the state, it does seem to
say that the state cannot put a third party in its shoes by
assigning the state's right to collect directly from the MSA
escrow agent. The provision would appear to allow a settling
state to sell only the right to acquire settlement payments
through the state. As discussed more fully below, this
distinction could have critical constitutional implications.35
Relatedly, the court notes that Myers does not specifically raise
any argument based on Section XVIII(p) and has therefore failed
to adequately brief the issue. Opinion at 15, n.29. But Section
XVIII(p) raises unresolved uncertainties concerning the broader
constitutional point that Myers has unquestionably argued:
whether the state's sale of its future tobacco settlement
revenues violates the Alaska Constitution's anti-dedication
clause. The superior court granted summary judgment on this
point, declaring the sale to be constitutional. Since summary
judgment would be permissible only if the record resolved all
material issues in the state's favor and affirmatively
established its right to judgment as a matter of law, Myers's
failure to frame his constitutional argument in a particular way
does not relieve this court of its duty to review the record for
unresolved issues of fact that bear directly on Myers's
constitutional claim. See Alaska R. Civ. P. 56; cf. American
Restaurant Group v. Clark, 889 P.2d 595, 598 (Alaska 1995)
(holding that party's failure to call particular evidence to
court's attention "did not relieve the superior court of its
obligation to examine the record before determining that no
genuine issue of material fact existed").
4. Predictability of value and dependency on state's
performance of governmental functions
This factor recognizes that constitutional policies can
sometimes preclude legislation from treating future state
revenues as marketable assets: for example, the revenue's future
value might be so speculative as to defy meaningful prediction,
thereby precluding statutory "assetization" of the revenue, since
the legislation would amount to arbitrary and irrational state
action; alternatively, a legislative directive to sell not-yet-
realized revenues at present value might impermissibly constrain
the executive branch's prerogatives by foreclosing its future
ability to perform essential, constitutionally mandated
governmental duties.
In my view, a policy concern of this latter kind arises
under the purchase and sale agreement and deserves serious
attention. Although the superior court and the opinion describe
the tobacco settlement's payout provisions as "fortuitous," this
description hardly seems accurate. The settlement agreement's
opening recitals make it clear that the settlement is founded on
and carefully structured to address the settling states' strong
and continuing interests in promoting public health and reducing
youth smoking. Reflecting these ongoing concerns and interests,
the settlement agreement establishes a theoretically perpetual
stream of future payments whose size will depend inversely on
each state's ability to curb future smoking: the greater the
success a state achieves, the lower will be its future payment
stream.
From a settling state's perspective, this inverse
relationship makes sense as long as the tobacco settlement's
benefits inure exclusively to the settling parties, as
Part XVIII(p) of the settlement agreement itself (non-
fortuitously) seems to require. The state stands to receive less
if it succeeds in curbing smoking, but its loss of settlement
revenues through decreased smoking will presumably be more than
offset by the economic and public health benefits gained through
the successful state regulatory efforts that caused the decrease
in smoking. As long as the future revenues belong to the state,
then, there is no possibility of irreconcilable tension between
the state's two theoretically conflicting interests - maximizing
its settlement revenues, on the one hand, and protecting the
health and safety of its citizens, on the other. The settlement
thus offers settling states a "win-win" situation.
But a sharp disparity of interests potentially arises
when, as here, the state divorces its interest in receiving
future settlement revenues from its vital interests in public
health and safety by transferring its current right to future
revenues to a group of third-party investors. As we have seen,
under the terms of the master settlement agreement itself, the
state's rights to receive benefits under the agreement cannot be
assigned directly to a third party like NTSC; those rights can
only be assigned vicariously, since the settlement agreement
precludes their direct enforcement by anyone but a settling
state. For this reason, the terms of the master settlement
agreement apparently led the AHFC and NTSC to oblige the state,
in the purchase and sale agreement, to pledge to make all efforts
within its lawful powers to maximize the investors' future
revenue stream - presumably, even if this means placing the
investors' financial interests ahead of the state's governmental
duty to protect the health and safety of its citizens.
The court dismisses the potential for this kind of
conflict as "illusory," concluding that "[n]othing . . .
obligates the state to take steps to maximize the income stream.
The state is obligated only not to interfere with AHFC's receipt
of the income stream."36 But the express terms of the purchase
and sale agreement belie this conclusion. Specifically, the
agreement strives to enhance investor confidence by explicitly
requiring the state to promise, among other things, (1) to "take
all actions as may be required by law fully to preserve,
maintain, defend, protect and confirm [AHFC's and NTSC's]
interest[s]"; (2) "not [to] take any action that will adversely
affect [their] legal right to receive the Tobacco Assets"; (3)
not to "impair the rights and remedies of Bondholders" until the
bonds "are fully paid and discharged"; (4) "not [to] take any
action and [to] use its best reasonable efforts not to permit any
action to be taken by others that . . . would result in the
amendment, hypothecation, subordination, termination, or
discharge of, or impair the validity or effectiveness of, the MSA
or the Consent Decree"; (5) to "immediately pay over to the
Trustee the proceeds of any Tobacco Assets received by the State
in error"; and (6) to "exercise each and every right and remedy
under the MSA."
Given the inverse relationship between the size of a
settling state's future settlement payments and the state's
future success in curbing the public dangers of smoking, these
promises may well create an intolerable and irreconcilable
tension between the state's contractual obligation to maximize
revenues for bondholders and its non-delegable governmental duty
to protect the public health and safety of its citizens. At some
point, our constitution necessarily circumscribes legislative
authority to approve private contractual arrangements that have
the effect of preempting the executive's constitutionally based
prerogatives;37 so too, there are constitutional lines that no
branch of government is authorized to cross by contracting away
its own core governmental powers and duties.38 Hence, even if the
state's right to receive future settlement payments under the
master settlement agreement might otherwise be regarded as a
marketable asset, concerns of this nature may well preclude
"securitizing" these future revenues.
Because the parties and the superior court did not
develop or meaningfully address this issue, I believe that it
warrants further consideration on remand.
5. Whether the sale mechanism does what it purports to do
Not every transaction is what it purports to be. And
the constitutionality of the transaction at issue here must
ultimately be judged by what it does, not what it purports to do.
I therefore believe that it is crucial to examine the mechanics
of the state's sale of revenue rights to NTSC in order to
determine if the sale actually and immediately conveyed what it
purported to convey: "all right, title and interest of the State
. . . in and to" "forty percent of the revenue . . . that the
State has a right to receive from time to time under the MSA."
There is reason to doubt that it did.39
As already mentioned, the master settlement agreement
appears to preclude the state from assigning to NTSC the state's
right to receive the tobacco settlement funds directly from the
MSA escrow agent; the agreement seems to require that the funds
be held for the benefit of the state by the MSA escrow agent
until payment is due, and that they then be "transferred to the
appropriate State-Specified Account for such Settling State."
The purchase and sale agreement seems to recognize this
restriction but evidently attempts to skirt it by requiring the
state to create a trust within its "State-Specified Account" and
by having the state pledge its settlement payments to the account
trustee upon their deposit. As currently presented, the details
of this arrangement are sketchy. The arrangement is not
precisely described in the parties' briefing or in the superior
court's decision, and the trust agreement itself apparently has
not been included in the appellate record. But the most likely
scenario seems to be that as soon as the state's settlement
payment is deposited in the state-specified account, the
account's trustee (the bank in which the funds are deposited)
divides the funds according to the terms of the purchase and sale
agreement, disbursing forty percent to NTSC and sixty percent to
the state general fund.
The preliminary prospectus describing NTSC's tobacco
settlement asset-backed bonds appears to confirm this
interpretation, emphasizing that "[t]he State may not convey and
has not conveyed to NTSC or the Series 2000 Bondholders any right
to enforce the terms of the MSA" and declaring that the MSA
escrow agent "will disburse the [settlement] funds to the
Settling States."40
The prospectus includes a flow chart that lends further
support to this reading. This chart depicts settlement payments
flowing from the MSA escrow agent to the Alaska state-specified
account, where the payments appear to be received as state
revenue. According to the chart, after receipt in the state
account, the money is divided into two separate funds, with forty
percent flowing to NTSC and sixty percent to the state -
presumably to the general fund. The chart labels NTSC's forty
percent payment as "pledged revenues," suggesting that NTSC does
not acquire these monies by direct payment from the MSA
settlement, but instead as payment from state revenues
representing NTSC's forty percent share of the total received by
the state.
Seemingly, then, because the master settlement
agreement prohibits the state from assigning its right to
directly collect settlement revenues and requires settlement
payments to be deposited to a state-specified account for its
benefit, settlement payments necessarily arrive at the state-
specified account as state revenues. The fact that the
settlement payments are deposited into a state-specified account
rather than into the state's general fund certainly would not, by
itself, change their basic character upon deposit as state
revenue; nor is it clear how the state could contractually alter
the future payments' basic character as state revenue at the time
of their receipt by creating a trust within its account that
divides them after their deposit. For if the funds must be paid
to the state for its exclusive benefit and received in a state-
specified account, it would appear that the state's decision to
dedicate this account to one or more specific purposes merely
serves to make it a dedicated fund. This is precisely what the
dedication clause prohibits. After all, if the anti-dedication
clause could be circumvented by the simple expedient of
depositing state revenues into prerestricted trust accounts
instead of the general fund, then compliance with the clause
would be reduced to a minor accounting inconvenience.
Notably, Tamara Brandt Cook, Director of Legislative
Services for the Legislative Affairs Agency, foresaw and warned
of precisely this danger in her September 20, 2000, memo to
Representative John Coghill. Addressing the problem under the
appropriations clause rather than the anti-dedication clause,
Cook commented that, "because the `Tobacco Settlement' money is
to flow to AHFC upon receipt without an appropriation, the
arrangement may be vulnerable under Art. IX, sec. 13 of the state
constitution."41
This subtle transactional wrinkle - that the settlement
payments must be routed through the state instead of being paid
by the MSA escrow agent directly to NTSC - appears to be
dictated by the settlement's express non-assignment provision;
and as Cook aptly notes, the wrinkle has a crucial bearing on the
sale's constitutionality. For although the anti-dedication
clause might permit an advance sale of the state's right to
collect directly from the MSA escrow agent, it squarely prohibits
the state from selling to NTSC the right to receive from the
state the future revenues that the state itself will receive from
the MSA escrow agent.
That the master settlement agreement does not
explicitly preclude states from transferring their present
interests in future settlement funds and instead speaks only of
restricting a settling state's right to "assign or otherwise
convey any right to enforce" the agreement's provisions hardly
rescues a present transfer of future revenues from the anti-
dedication clause's proscriptions. The anti-dedication clause
looks to the character of the conveyance as well as its timing.
Because the master settlement agreement requires settlement funds
to be held for the exclusive benefit of the settling state,
requires those funds to be paid into the state-specified account,
and precludes the state from transferring any right to enforce
the agreement's provisions, it appears that neither NTSC nor the
state, acting on NTSC's behalf, could ever compel a distribution
of settlement funds directly to NTSC; instead, the funds must
seemingly pass to NTSC through the state. Yet if the present
transaction merely conveys the right to receive settlement
revenues through the state when it eventually receives them, then
the state's presently conveyed property interest is not what the
state claims it to be: it is not an immediate conveyance of the
state's title to the revenue stream itself but only a present
pledge to hand over the state's future revenues when they accrue,
through an airtight mechanism structured to ensure that the
pledge will be honored.
This form of sale - a dedication of proceeds from a
source of future state revenue - would be impermissible whether
characterized as a current sale at present value or as a promise
to sell in the future.42 It may be true that immediate
"assetization" and sale of the state's settlement rights makes it
possible for the state to "receive all of the tobacco settlement
payments now, rather than over a period of years." But
constitutionally speaking, the salient fact is that the state
receives its immediate payment not in exchange for its right to
receive settlement revenues directly from the MSA escrow agent,
but in exchange for irrevocably pledging to hand over its future
settlement revenues as soon as the state receives them. AHFC and
NTSC thus appear to be buying the fruit of the state's revenue
tree, not the tree itself, years in advance;43 yet the anti-
dedication clause requires this fruit to be sold one year at a
time, as it ripens.
The point seems worth stressing again: an assignment of
the right to receive the state's future revenues from the state
is paradigmatically a dedication of state revenues; it makes no
constitutional difference that the purchase and sale agreement
conveys a present interest in the state's future revenue stream
if that stream flows through the state's hands before reaching
NTSC's banks.
While the state goes to considerable lengths to justify
the transaction by relying on opinions of various former
attorneys general, these opinions lack persuasive force for the
same reason that both the superior court's decision and today's
opinion are unconvincing. The attorney general opinions all
address the conceptual question of whether a state's right to
receive future settlement revenues can be valued and sold as an
asset. But in considering this point, they simply assume, or
accept on faith, that the state's proposed sale actually will
convey a share of the state's right to receive the settlement
payment. None of the attorney general opinions take stock of the
master settlement agreement's anti-assignment provision or
discuss the agreement's apparent nullification of the state's
ability to sell its direct rights to collect the revenue.
Former Attorney General Charles Cole's letter to
Senator Torgerson exemplifies the omission: it expressly
acknowledges that "once money is received by the State, it is
`public revenue' which may not be dedicated for a special
purpose"; but the letter then accepts the state's
characterization of the transaction at face value, assumes
without examining the point that the settlement money will not be
received by the state, and thus concludes that the sale will be
valid.44 Conceptually, the letter's observations are
unassailable. Yet they incorrectly assume the truth of the
state's unexplained and potentially unwarranted assertion that
the "chose in action" - the thing that is to be sold here - is
the state's right to receive the settlement.45 Because the master
settlement agreement appears to require that the state receive
the MSA settlement first - before anyone else does - the chose in
action may not be a share of the settlement proceeds as such, but
merely a share of the state's settlement share.
Creating and freely trading in the present value of
this kind of chose in action might be commonplace and entirely
proper in the world of private finance. But in the sphere of
state government, article IX, section 7 of the Alaska
Constitution would strictly forbid it. For as Attorney General
Cole's memorandum emphasizes, "upon receipt by the State, but not
before, the `proceeds' of the settlement are subject to the
Section 7 constitutional restriction"; and "[o]nce money is
received by the State, it is `public revenue' which may not be
dedicated for a special purpose."
In summary, the state's brief portrays the disputed
transaction as a sale of the state's right to receive a stream of
tobacco settlement funds. The superior court accepted this
characterization of the disputed asset without serious question,
and so has the court in its opinion. Yet it appears that this
characterization may not reflect reality and may be barred by the
express terms of the master settlement agreement. The
transaction might more accurately be described as a sale of the
right to receive from the state a portion of the state's future
settlement revenues as soon as the state receives them. This
distinction is critical for purposes of the anti-dedication
clause. Moreover, it seems possible that other policy concerns
might independently preclude recognizing the state's right to
future settlement payments as a currently marketable asset: sale
of that asset could potentially pit the state's contractual
obligations to NTSC and its bondholders against the state's
fundamental governmental duty to ensure public safety and
welfare.
Neither the appellate record nor the record before the
superior court provides sufficient information to resolve these
concerns definitively. As matters currently stand, I do not
believe that the record can support a declaratory judgment in
favor of either party. I would therefore vacate the superior
court's judgment and remand for further proceedings.
For these reasons, I dissent from the court's decision
affirming the superior court's judgment.
_______________________________
1 Kasayulie v. State, 3AN-97-3782 Ci. (Alaska Super.,
September 1, 1999).
2 Ch. 130, 9, SLA 2000.
3 Ch. 130, 7, 10, SLA 2000.
4 Ch. 131, SLA 2000.
5 See Halliburton Energy Servs. v. State, Dep't of Labor, 2
P.3d 41, 50 n.46 (Alaska 2000); Chiropractors for Justice v.
State, 895 P.2d 962, 966 (Alaska 1995).
6 The remainder of section 7 of article IX provides three
exceptions to the dedicated funds prohibition - the Permanent
Fund, certain federal programs, and programs existing upon the
date of ratification of the section - but neither party to this
appeal argues that any of these exceptions applies.
7 Sonneman v. Hickel, 836 P.2d 936, 938 (Alaska 1992) (quoting
6 Proceedings of the Alaska Constitutional Convention (PACC) App.
V at 111 (Dec. 16, 1955)).
8 See id. at 940.
9 646 P.2d 203, 210 (Alaska 1982).
10 836 P.2d at 940.
11 The idea for the anti-dedication clause apparently came from
the Model State Constitution, whose anti-dedication clause is
virtually identical to that of the Georgia Constitution. See
Victor Fischer, Alaska's Constitutional Convention 142 (1975);
Model State Constitution art. VII, 7.03 in 1 Constitutions of
the United States: National and State (Michael L. Shore & Abigail
O'Donnell eds. 2001).
12 Ga. Const. art. III, IX, para. VI(a); Ga. Const. of 1945
art. VII, IX, para. IV.
13 41 S.E.2d 246, 247 (Ga. 1947).
14 Id.
15 109 S.E. 903 (Ga. 1921).
16 Arnall, 41 S.E.2d at 254.
17 Id. (quoting Wright, 109 S.E. at 909).
18 Id. at 254.
19 See id. At 255.
20 Id. ("This [anti-dedication] provision was not contained in
any constitution of this State prior to 1945.").
21 See Wright, 109 S.E. at 909.
22 646 P.2d 203, 210 (Alaska 1982).
23 1975 Formal Op. Att'y Gen. 9 at 24.
24 1986 Informal Op. Att'y Gen. vol. 1, at 429.
25 In general, the attorney general's opinion is entitled to
"great weight," because the attorney general is "the officer
charged by law with advising the officers charged with the
enforcement of the law as to the meaning of it." Allison v.
State, 583 P.2d 813, 816-17 n.15 (Alaska 1978) (quoting Smith v.
Mun. Ct. of Glendale Jud. Dist., 334 P.2d 931, 935 (Cal. 1959)).
26 For example, in Alaska's fiscal year 2000, oil revenue,
investment revenue, and restricted revenue (i.e., federal funds,
trusts, dedicated funds, and statutorily restricted funds)
accounted for approximately 94% of total state revenues.
Unrestricted revenues accounted for approximately 6% of total
revenues. Of those unrestricted revenues, just over two-thirds
were from taxes and licenses. Other miscellaneous unrestricted
revenues, the only category under which lawsuits would fall,
accounted for only 1.2% of total state revenues. Spring 2001
Alaska Dep't of Revenue, Tax Division Revenue Sources Book 9.
27 E.g., Bandow v. Bandow, 794 P.2d 1346, 1349 (Alaska 1990)
(holding that a medical malpractice settlement consisting of an
annuity paid in monthly installments was "in fact `property' " in
deciding how to divide that property in a divorce action).
28 See Municipality of Anchorage v. Repasky, 34 P.3d 302, 315
(Alaska 2001) (holding that court's decision appropriately
adheres to policy choice the legislature has already made);
Elliott v. Settje, 27 P.3d 317, 324 (Alaska 2001) (holding that
legislature is charged with general policy decision concerning
preference for joint physical custody; court's role is only to
apply law). See also Malone v. Meekins, 650 P.2d 351 (Alaska
1982) (political question doctrine).
29 The dissent proposes a five-factor test to determine whether
a future income stream and the mechanics of its proposed
disposition comport with the Alaska Constitution's anti-
dedication clause. Today's opinion considers the dissent's first
factor at length, and there is no question that the second factor
is satisfied. The remaining three factors do not assist in
answering the question before the court: whether the future
income stream is an asset that may be sold consistent with the
constitution.
The third factor - whether there is any limitation on
the transferability of the interest in question - does not help
in determining whether it is a constitutionally saleable asset.
But even assuming that the factor is helpful, the dissent
incorrectly applies it in this case. Section XVIII(p) of the
master settlement agreement (1) limits its benefits ("rights") to
the state only and (2) provides that the state may not assign its
right to enforce the agreement. It is silent on whether a
settling state may assign its right to receive settlement funds.
We note also that Myers has not advanced any argument related to
Section XVIII(p) of the master settlement agreement, a sufficient
reason in itself not to reach the argument. See Stosh's I/M v.
Fairbanks N. Star Borough, 12 P.3d 1180, 1183 & n.12 (Alaska
2000) (When "a point is given only a cursory statement in the
argument portion of a brief, the point will not be considered on
appeal.") (quoting Adamson v. Univ. of Alaska, 819 P.2d 886, 889
n.3 (Alaska 1991)).
The fourth factor - whether the future value of the
income stream can be rationally predicted and whether the state
might be required to perform contractual duties that conflict
with its governmental duties - does not help in determining
whether the revenue stream is an asset. Moreover, it is a truism
that assets fluctuate in value, and there is no reason to believe
that the statutory regime in this case did anything but give more
- not less - certainty to the value of the right to receive the
income. Finally, as to the conflict the dissent sees between the
state's contractual duties and its governmental duties, it is
illusory: Nothing in the master settlement agreement obligates
the state to take steps to maximize the income stream. The state
is obligated only not to interfere with AHFC's receipt of the
income stream.
30 See Stosh's I/M, 12 P.3d at 1183 & n.12.
31 Alaska Const. art. IX, 8 provides, in part: "No state debt
shall be contracted unless authorized by law for capital
improvements or unless authorized by law for housing loans for
veterans, and ratified by a majority of the qualified voters of
the State who vote on the question."
32 Alaska Const. art. IX, 11 provides in relevant part: "The
restrictions on contracting debt do not apply to debt incurred
through the issuance of revenue bonds by a public enterprise or
public corporation of the State or a political subdivision, when
the only security is the revenues of the enterprise or
corporation."
33 Alaska Const. art. IX, 7; see State v. Alex, 646 P.2d 203,
210 (Alaska 1982) (construing the anti-dedication clause to
include "the sources of any public revenue").
34 Ch. 130, SLA 2000.
35 The court's opinion asserts that it is irrelevant to ask
whether there is any limitation on transferability of the state's
interest in the tobacco settlement revenues, since the inquiry
"does not help in determining whether [that interest] is a
constitutionally saleable asset." Opinion at 14, n.29. But the
transferability of the state's rights under the settlement
agreement bears directly on the nature and scope of the state's
current "asset": for example, a limit on transferability might
altogether preclude any sale of future revenues, leaving the
state with no currently salable asset at all; alternatively, a
limitation might effectively preclude the state from selling its
entire asset now, making the asset currently salable only by an
agreement that commits the state to transfer title to its
settlement revenues as they accrue - that is, by a dedication of
future state revenues. Hence, an inquiry into transferability is
relevant to the existence of a constitutionally salable asset.
The opinion further asserts that the dissent
"incorrectly applies" this factor because Section XVIII(p) of the
master settlement agreement only limits a transfer of enforcement
rights and "is silent on whether a settling state may assign its
right to receive settlement funds." Opinion at 14-15, n.29. But
this assertion assumes that a bar on conveyance of enforcement
rights has no effect on the character of the state's currently
salable asset. As explained more fully in the text of this
dissent, Section XVIII(p) apparently bars a state from
transferring its right to collect settlement revenues directly,
consequently requiring the revenues to pass through the state
when they are eventually paid, even though they have ostensibly
already been sold. It hardly seems accurate, then, to say that
Section XVIII(p) is completely silent on whether a settling state
may assign its right to receive settlement funds.
36 Opinion at 15, n.29.
37 Cf. Pub. Defender Agency v. Superior Court, 534 P.2d 947
(Alaska 1975) (holding that separation of powers precludes
judiciary from ordering the attorney general to prosecute
particular cases of contempt of court).
38 Cf. State v. Alex, 646 P.2d 203, 211-13 (Alaska 1982)
(precluding legislature from delegating its taxing power to
private associations).
39 Although the court accurately observes that this inquiry
does not help in determining whether the revenue stream is an
asset, Opinion at 15, n.29, the court's observation misconstrues
the inquiry's point, which is not to determine whether the
revenue stream actually is an asset but to ascertain precisely
what that asset is and whether the specific manner of its
conveyance violates the anti-dedication clause. Nor is the court
correct in asserting that, because the master settlement
agreement does not forbid the state from selling its current
interest in the future revenues, "it is irrelevant [to ask] why
the legislature chose the mechanism that it did." Opinion at 15,
n.29. As detailed in the text, although the master settlement
agreement may not preclude a present sale of the state's future
revenues, the agreement's terms appear to dictate a payout
mechanism that may be constitutionally problematic because it
channels the future revenues through a dedicated state fund as
they are paid.
40 The purchase and sale agreement contains an ambiguous
provision in which the state promises to "cause the Escrow Agent
(as defined in the MSA) to deliver the Tobacco Assets directly to
the Trustee for the benefit of the Corporation." Yet because the
MSA itself seems to require payment directly into the "State-
Specified Account," and because it also makes the state the sole
beneficiary of the payment, it seems likely that the state has
simply designated its bank as a trustee and empowered it to
divide and distribute the MSA escrow agent's payments, upon
deposit, according to the purchase and sale agreement's terms.
It is nevertheless possible that a different mechanism has been
established. Because the issue could be of central importance
and has not been addressed, I think that it needs to be developed
on remand.
41 (Emphasis added.) A more complete rendition of Cook's
remarks is as follows:
You have identified my main concern with
respect to the financing mechanism used in HB
281. It seems to me that selling the right
to receive future state revenues, regardless
of the source of the revenue stream, could
raise constitutional issues not usually
implicated by the sale of other types of
state assets simply because application of
the constitutional appropriation requirement
is avoided. It is generally recognized that
money received by the state, even money
received from the federal government or other
sources for specific limited functions, must
be appropriated before it may be spent. . . .
For example, when the state enters into a
lease[,] payment of the rent each year is
subject to appropriation. Otherwise there is
a risk that the lease creates an invalid
state debt. . . . If the conveyed right to
receive revenue is also, like the lease
example, contingent upon appropriation of the
revenue for that purpose once it is received,
there would be little problem. However,
because the "Tobacco Settlement" money is to
flow to AHFC upon receipt without an
appropriation, the arrangement may be
vulnerable under Art. IX, sec. 13 of the
state constitution. It could be urged in
defense that the state never receives the
"Tobacco Settlement" because it will go
directly to AHFC and, therefore, it never
becomes subject to appropriation. This
argument sounds too much like a shell game to
be very reassuring to me.
42 See Alex, 646 P.2d at 210.
43 Cf. Eisner v. Macomber, 252 U.S. 189, 206 (1920) (using the
analogy of a tree and its fruit to illustrate the important
distinction between a transfer involving capital, that is, an
asset that produces a benefit, and one involving income, or the
benefit itself).
44 The pertinent text of Attorney General Cole's letter is as
follows:
Article IX, Section 7, of the Alaska
Constitution provides that the proceeds of
any state tax or license shall not be
dedicated to any special purpose. Although
this provision is limited by its express
terms to the proceeds of a "state tax or
license," and although the proceeds of the
Tobacco settlement do not, strictly speaking,
derive from the proceeds of any tax or
license, in State v. Alex, 646 P.2d 203
(Alaska 1982) the Alaska Supreme Court held
that the prohibition encompasses "the sources
of any public revenues." Accordingly, upon
receipt by the State, but not before, the
"proceeds" of the settlement are subject to
the Section 7 constitutional restriction.
However, the right to receive future
unpaid installments under the settlement is
to be distinguished from the proceeds upon
their receipt by the State. Once money is
received by the State, it is "public revenue"
which may not be dedicated for a special
purpose. On the other hand, the right to
receive future installments is a property
right owned by the State, the same as other
real and personal property owned by the
State. . . . At common law, the right to
receive future installments under the
settlement is a "thing in action," more
commonly referred to as a chose in action. .
. . Therefore under state law the right to
receive future proceeds under the Tobacco
settlement is state personal property which
may be sold as any other state property.
Furthermore, the right to receive a future
stream of payments under the settlement is
personal property which has a present value,
similar in value to the right to receive
future payments from the sale of other state
real and personal property. It is this
property right of current value which the
proposed legislation contemplates being sold
to AHFC, and it is the proceeds of the sale
which will be appropriated for a public
purpose, not the stream of future payments.
These features remove the proposed
legislation from the dedicated fund
prohibition in Article IX, Section 7.
45 The state's conclusory assertion that its future revenues
are "a chose in action" begs the question whether the mechanism
it used to "sell" this "chose" effected an immediate transfer of
the state's right to receive the future settlement revenues
directly from the MSA escrow agent. It is interesting to wonder,
in this regard, how the IRS might view the same sale mechanism in
a transaction between private parties: would it treat NTSC's
income as a receipt of tobacco settlement revenues, or would it
tax the income as money NTSC received from the state?
