Convention Center Authority v. Anzai
78 Haw. 157, 890 P.2d 1197 (1995)
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Rule of Law:
Revenue bonds backed by a “user tax” can be excluded from the state’s constitutional debt limit even if the public undertaking is not yet constructed, provided a rational causal relationship exists. However, reimbursable general obligation bonds for “new and unproved” undertakings cannot be excluded until the project demonstrates self-sustainability through at least one full fiscal year of operation.
Facts:
- In 1988, the Hawaii Legislature established the Convention Center Authority (the Authority) to review and supervise the development and construction of a convention center in Hawaii.
- The Transient Accommodations Tax (TAT), a tax on operators of transient accommodations like hotels, was adopted by the legislature in 1986, with its proceeds initially deposited into the state’s general fund.
- In 1993, the Legislature authorized the issuance of up to $350,000,000 in general obligation bonds or reimbursable general obligation bonds, and $350,000,000 in revenue bonds, to finance the development and construction of a convention center.
- The 1993 legislation also increased the TAT by one percent and specifically earmarked this increase for deposit into the Convention Center Capital and Operations Special Fund, dedicated to paying expenses associated with the convention center.
- The Convention Center Authority subsequently sought to have Earl I. Anzai, the acting State Director of Budget and Finance (the Director), issue the bonds authorized by the legislature.
- The Director refused to issue the bonds, asserting that it was unclear whether the bonds were exempt from the calculation of the state debt subject to the constitutional debt limitation.
Procedural Posture:
- In 1993, the Hawaii Legislature authorized the issuance of general obligation, reimbursable general obligation, and revenue bonds to finance a convention center, and also earmarked a 1% increase in the Transient Accommodations Tax (TAT) for the project.
- The Convention Center Authority requested Earl I. Anzai, the Director of Budget and Finance, to issue the authorized bonds.
- The Director refused to issue the bonds, citing uncertainty regarding their exemption from the constitutional debt limitation.
- On March 7, 1994, the Convention Center Authority filed an original complaint with the Hawaii Supreme Court, seeking a determination as to whether the bonds were exempt.
- The Hawaii Supreme Court accepted original jurisdiction over the matter.
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Issue:
1. Does a one percent increase in the transient accommodations tax (TAT) earmarked for a proposed convention center qualify as a "user tax" such that revenue bonds financed by it are excludable from the state's constitutional debt limit? 2. Do reimbursable general obligation bonds for a "new and unproved" convention center qualify for exclusion from the constitutional debt limit before the facility has been constructed and in actual operation for at least one fiscal year?
Opinions:
Majority - Chief Justice Moon
Yes, the one percent increase in the TAT earmarked for the proposed convention center does qualify as a "user tax," and therefore the revenue bonds financed by it are excludable from the state's constitutional debt limit. However, no, the reimbursable general obligation bonds for the proposed convention center do not qualify for exclusion from the constitutional debt limit because the facility has not yet been constructed and in actual operation for at least one fiscal year. The court first addressed whether the earmarked TAT increase constitutes a "user tax" for revenue bond exclusion. It held that the public undertaking (the convention center) does not need to be in existence for the tax to qualify as a "user tax." This interpretation was supported by the legislative history of the 1968 Constitutional Convention, which amended the revenue bond exclusion specifically to abrogate the Employees' Retirement Sys. v. Ho decision. The Ho case had held that bonds for non-existent projects secured by fuel taxes were not excludable because they were not solely secured by project revenues. The 1968 amendments broadened the definition of revenue bonds to allow them to be secured by "user taxes," implying that taxes for future projects could qualify. Furthermore, the court determined that the "substantially derived" standard for a user tax does not require a precise correlation between the earmarked tax percentage and the projected increase in room sales; the modifier "substantially" indicates that the nexus need not be exact. The court deferred to the legislature's findings of a rational causal relationship between the proposed convention center and increased TAT revenues, noting that common sense suggests increased tourism and occupancy from conventioneers. Therefore, the revenue bonds are excludable from the debt limit. Regarding reimbursable general obligation bonds, the court found clear constitutional history demonstrating the delegates' sensitivity to the risks of excluding general obligation debt for "new and unproved" undertakings. The 1968 delegates were concerned about compromising the state's financial security for projects whose revenue-producing capabilities were speculative. They explicitly intended that general obligation debt for such projects would count against the debt ceiling until the enterprise's revenue-producing capabilities were established by at least one full year of operation. Since the convention center is not yet constructed and has not been in operation for at least one fiscal year, it is a "new and unproved" undertaking as contemplated by the delegates. Consequently, the reimbursable general obligation bonds are not excludable from the debt limit until the convention center has been constructed and has operated for at least one fiscal year to demonstrate it is "self-sustaining."
Analysis:
This case significantly clarifies the application of Hawaii's constitutional debt limit exclusions for major public works projects. It establishes a more flexible standard for revenue bonds backed by "user taxes," allowing such financing for projects even before their completion, which can expedite development. However, it imposes a stricter, evidence-based requirement for reimbursable general obligation bonds, emphasizing fiscal prudence by demanding a proven track record of self-sustainability for "new and unproved" undertakings before they can be excluded from the state's debt calculations. This ruling creates a two-tiered approach to bond exclusion, influencing how the state approaches financing future large-scale public infrastructure and managing its constitutional debt ceiling.
