Wisconsin Legislature: Corporations; Legislation; Wisconsin Higher Education Corporation;

74 Op. Att'y Gen. 169, 169 (1985)

Corporations; Legislation; Wisconsin Higher Education Corporation;

The Legislature may impose certain controls on public purpose corporations, including the Wisconsin Higher Education Corporation, without violating article IV, sections 31 and 32 of the Wisconsin Constitution or the state's covenants with student loan revenue obligation bondholders. OAG 32-85

August 16, 1985

74 Op. Att'y Gen. 169, 169 (1985)

Anthony S. Earl

Governor

74 Op. Att'y Gen. 169, 169 (1985)

Your June 5, 1985, letter requests my opinion as to the validity of certain provisions of 1985 Assembly Bill 85 (the budget bill). In my opinion the provisions would be valid if enacted into law.¯

74 Op. Att'y Gen. 169, 169 (1985)

Your letter states:

74 Op. Att'y Gen. 169, 169 (1985)

The proposal would impose upon the internal operations of the Wisconsin Higher Education Corporation (WHEC), a corporation organized under Chapter 181 of the Wisconsin Statutes, certain restrictions that would not be imposed upon any other Chapter 181 corporation in this state.

74 Op. Att'y Gen. 169, 169 (1985)

While undoubtedly WHEC would be the only corporation presently affected by the legislation and while the proponents of the proposal unquestionably are motivated by a desire to better oversee WHEC specifically (the legislative history refers exclusively to WHEC), the proposed legislation nowhere mentions WHEC; rather, it applies to a class of nonstock corporations defined as "public purpose corporations," of which class, conceptually, WHEC is but one member.

74 Op. Att'y Gen. 169, 170 (1985)

Chapter 181, Stats., is entitled "Nonstock Corporations." Section 2054m of AB 85 amends chapter 181 to create section 181.79, entitled "Public Purpose Corporations," defined as "any corporation organized under this chapter to provide for a guaranteed student loan program." Provisions are made for the appointment, compensation and removal of board members and the chief administrative officer of the corporation. In addition, section 181.79 subjects the corporations to state purchasing, travel expense, employe compensation, ethics and audit requirements. Sections 148m and 153m of AB 85 would add public purpose corporations to the list of entities covered by the open records law and open meetings law, respectively.

74 Op. Att'y Gen. 169, 170 (1985)

You first ask whether these provisions violate section 31, clause 7 or section 32 of article IV of the Wisconsin Constitution. In my opinion, they do not.

74 Op. Att'y Gen. 169, 170 (1985)

Consideration of this question is subject to several well-established rules of statutory construction. A statute will be upheld if there is any reasonable basis for the classification made.

Messner v. Briggs and Stratton Corp.

, 120 Wis. 2d 127, 137, 353 N.W.2d 363 (Ct. App. 1984). To defeat the proposed legislation, an opponent would have to demonstrate beyond a reasonable doubt that it is repugnant to an express provision of the constitution; the conflict must be "clear and irreconcilable."

State ex rel. La Follette v. Reuter

, 36 Wis. 2d 96, 113, 153 N.W.2d 49 (1967). If the legislation is open to more than one reasonable construction, the construction which will accomplish the Legislature's purpose and avoid unconstitutionality must be adopted.

Madison Metropolitan Sewerage Dist. v. Stein

, 47 Wis. 2d 349, 357, 177 N.W.2d 131 (1970). Finally, "[i]t is elementary that if the statute appears on its face to be constitutional and valid, not inquire into the motives of the legislature...."

State ex rel. Thomson v. Giessel

, 265 Wis. 558, 564, 61 N.W.2d 903 (1953).

74 Op. Att'y Gen. 169, 170 (1985)

The provisions in question provide, in pertinent part, as follows:

74 Op. Att'y Gen. 169, 170 (1985)

The legislature is prohibited from enacting any special or private laws in the following cases:

74 Op. Att'y Gen. 169, 170 (1985)

....

74 Op. Att'y Gen. 169, 171 (1985)

7th. For granting corporate powers or privileges, except to cities.

74 Op. Att'y Gen. 169, 171 (1985)

Wis. Const. art. IV, sec. 31.

74 Op. Att'y Gen. 169, 171 (1985)

The legislature shall provide general laws for the transaction of any business that may be prohibited by section thirty-one of this article, and all such laws shall be uniform in their operation throughout the state.

74 Op. Att'y Gen. 169, 171 (1985)

Wis. Const. art. IV, sec. 32. The proposed legislation grants no powers or privileges to public purpose corporations; rather, it imposes regulations upon them.¯

The simple response to your first question, therefore, is that the Legislature's proposal is outside the clear and explicit words of the constitutional provisions, so that even if it were to be construed as a special or private law, it is not the kind of special or private law prohibited by the constitution. Assuming, nevertheless, that the Legislature's proposal were to be construed as granting corporate powers or privileges, it still is not prohibited by article IV, sections 31 and 32 of the Wisconsin Constitution.

74 Op. Att'y Gen. 169, 171 (1985)

State ex rel. Wisconsin Dev. Authority v. Dammann

, 228 Wis. 147, 194-96, 277 N.W. 278 (1938) (on rehearing), the court considered whether an act granting the Wisconsin Development Authority (a corporation organized under general corporation statutes)

74 Op. Att'y Gen. 169, 171 (1985)

the privileges, (1) of access to records of the public service commission; (2) of commanding the public service commission to obtain further information; (3) of having the governor command any officer, agent, or employee of the state to give assistance or advice; and (4) of having the secretary of state audit certain of its accounts... violate[d] sec. 31, art. IV....

74 Op. Att'y Gen. 169, 171 (1985)

Id.

at 194. The court stated:

74 Op. Att'y Gen. 169, 171-172 (1985)

[I]t is only a privilege inhering in the corporate charter as part of the corporation's organic act that is within the provision in sec. 31, art. IV, Wis. Const., prohibiting the granting of corporate powers or privileges by special act. In

In re Southern Wisconsin Power Company, supra

, the court said, with reference to a franchise to construct a dam (p. 257):

74 Op. Att'y Gen. 169, 172 (1985)

"While the franchise here granted was a legislative grant, it was not a corporate power or privilege within the meaning of sec. 31, art. IV, of the constitution. If such a franchise were granted to a corporation it would become its property, but would not be essential to its corporate existence. The clause prohibiting the granting of corporate powers or privileges simply prohibits the grant of corporate charters by special act. A franchise is not essentially corporate, and it is not the grant of a franchise that is prohibited by the constitution, but the grant of a corporate franchise."

74 Op. Att'y Gen. 169, 172 (1985)

It follows that if in any of the above respects any power whatever was vested in the Wisconsin Development Authority the power was not a corporate power in the sense referred to in the constitutional provision.

74 Op. Att'y Gen. 169, 172 (1985)

Id.

at 195. The proposed regulations are no more privileges inhering in any corporation's charter as part of the corporation's organic act than were the provisions enacted with respect to the Wisconsin Development Authority.

74 Op. Att'y Gen. 169, 172 (1985)

Assuming that the proposed legislation was deemed to confer powers or privileges and was deemed to be part of the corporation's charter, it still is not constitutionally prohibited. In my opinion, it is not special nor private and, even if it is deemed to be so, the Legislature can properly single out for regulation entities like WHEC.

74 Op. Att'y Gen. 169, 172-173 (1985)

As already stated, nothing in AB 85 mentions WHEC. Chapter 181, a general law governing nonstock corporations, would be amended to provide for a class of nonstock corporations known as "public purpose corporations." All of the proposed regulations would apply to this class. While WHEC presently is the only existing corporation organized under chapter 181 to operate a guaranteed student loan program, the fact that at the time of a particular enactment applicable to a class, there is only one member thereof, does not militate against the validity of the legislation.

Adams v. The City of Beloit and others

, 105 Wis. 363, 81 N.W. 869 (1900);

accord, State ex rel. Thomson v. Giessel

, 265 Wis. 185, 197-98, 60 N.W.2d 873 (1953). A "public purpose corporation" is "any corporation organized under [chapter 181] to provide for a guaranteed student loan program." Nothing in chapter 181 would limit the freedom of any person or persons to organize a corporation for this purpose.¯

Nothing in section 39.33, authorizing the Higher Educational Aids Board ("HEAB") to organize a guarantee corporation, can be read to block anyone else's freedom to do the same. Thus, as far as state law is concerned, the public purpose corporation is a conceptually valid classification. It does not "preclude addition to the members included within" it,

State ex rel. Risch v. Trustees

, 121 Wis. 44, 54, 98 N.W. 957 (1904), and thus is not a closed class.¯

74 Op. Att'y Gen. 169, 173 (1985)

One might contend that only one guarantee entity in each state is contemplated by the federal laws governing the guaranteed student loan program, such that, even if promoters could organize a competing corporation under state law and could find lenders with whom to do business, the federal government would not contract with the competing corporation because one guarantor already was operating in that state. I find no legal support for such a contention.

74 Op. Att'y Gen. 169, 173 (1985)

The statutes and rules governing the essential provisions of the federal guaranteed student loan program--guarantee payments, advances for reserve funds, interest subsidy payments, payments of administrative costs--all contemplate the possibility of multiple non-governmental guarantee entities within a single state.

e.g.

, Title 20 U.S.C. 1072(a)(1), (c)(6)(A); 1078(b)(1)(K), (c)(1)(A), (f)(1) and 1078-1(a); 34 C.F.R. Part 682.

74 Op. Att'y Gen. 169, 173 (1985)

I understand that private guarantors organized in other states do business with Wisconsin lenders in competition with WHEC. I see no reason why other private guarantors organized in this state could not do likewise. Such other guarantors, if organized under chapter 181,¯

would be public purpose corporations and thus as subject to the proposed legislation as WHEC.

74 Op. Att'y Gen. 169, 173-174 (1985)

Having concluded that the legislation would create a class of corporations, and not just regulate WHEC, the question remains whether the classification is valid. There are four rules for determining the propriety of a classification under article X, section 31 of the Wisconsin Constitution.

74 Op. Att'y Gen. 169, 174 (1985)

(1) All classifications must be based on substantial distinctions which make one class really different from another; (2) the classification must be germane to the purpose of the law; (3) the classification must not be based on only existing circumstances; and (4) the law must apply equally to each member of the class.

74 Op. Att'y Gen. 169, 174 (1985)

Stein

, 47 Wis. 2d at 360. The proposed legislation satisfies all four rules.

74 Op. Att'y Gen. 169, 174 (1985)

There are substantial distinctions between public purpose corporations and other corporations, for-profit and non-profit alike. Public purpose corporations are conceived as guarantors of loans to post-secondary students under a federal program providing for interest subsidies, special financial inducements to lenders, reserve fund subsidies and, most significantly, federal reinsurance. No other class of corporations possesses these characteristics.

74 Op. Att'y Gen. 169, 174 (1985)

While there is no statement of legislative purpose in the proposal, the legislative history amply reveals that the classification is germane to the purpose of the legislation. The purpose of the legislation, as distinct from the motive to regulate WHEC, appears to be the improvement of legislative oversight over entities providing student loan insurance. The proposed classification, embracing WHEC and any other entity like WHEC, is germane to that purpose, since it (the classification) contains the essential characteristics of WHEC and any other entity which might come to exist.

74 Op. Att'y Gen. 169, 174 (1985)

The classification is not based only on existing circumstances. As already observed, a classification is valid even though only one member presently exists as long as others can aspire to membership. At any time, another corporation like WHEC could come into being and become a public purpose corporation subject to the same special regulation as WHEC.

74 Op. Att'y Gen. 169, 174 (1985)

Finally, the proposed legislation clearly applies equally to each member of the class; all public purpose corporations are subject to all of the requirements of the proposal.

74 Op. Att'y Gen. 169, 174-175 (1985)

Even if one or more of the four criteria for a valid classification were deemed to have been violated, and, therefore, the proposed legislation were deemed to apply only to WHEC, it is still constitutional. If the Legislature chose to, it could regulate WHEC by name and not create special or private legislation contrary to the constitution.

74 Op. Att'y Gen. 169, 175 (1985)

In reaching this conclusion, I have had to reevaluate an earlier formal opinion which concluded that "the Legislature could not single out [WHEC] for special enactments concerning its internal affairs...." 72 Op. Att'y Gen. 135, 138 (1983). This conclusion was based upon perceived distinctions between WHEC and other "private corporations" on the one hand, and public authorities, such as the Wisconsin Housing and Economic Development Authority, on the other hand. After reviewing the supreme court's pronouncements regarding legislative control over entities specially created outside the government to carry out a public purpose, including corporations, and in light of recent dramatic changes in the relationship between the state and WHEC, I have concluded that WHEC can be regulated by particular legislation applying to it alone, as long as other constitutional provisions are observed.

74 Op. Att'y Gen. 169, 175 (1985)

The state has the power to create separate entities designed to indirectly carry on a public purpose which the state cannot carry on because of constitutional restrictions.

State ex rel. Warren v. Nusbaum

, 59 Wis. 2d 391, 425, 208 N.W.2d 780 (1973). The state has exercised this power many times and in a variety of ways with no clear pattern. Some entities are or have been denominated authorities,¯

such as the Wisconsin Housing and Economic Development Authority. Others have been denominated corporations, such as the so-called "dummy building corporations." Still others are or have been denominated authorities but were or are corporations,

e.g.

, the Community Development Finance Authority, chapter 233, and the Wisconsin Economic Development Authority.

Dammann

, 228 Wis. 147.

74 Op. Att'y Gen. 169, 175-176 (1985)

Recently enacted is legislation, 1985 Wisconsin Act 26, creating the "Bradley Center Sports and Entertainment Corporation," which is a chapter 181 corporation, like WHEC, but which resembles more closely an independent authority.¯

74 Op. Att'y Gen. 169, 176 (1985)

WHEC was organized by a state agency (HEAB) under general corporation laws. This device has been used before. The Educational Communications Board organized the Wisconsin Public Broadcasting Foundation.¯

The Building Commission organized the Wisconsin State Public Building Corporation, the Board of Regents organized the Wisconsin University Building Corporation, the Wisconsin Federal Surplus Property Development Commission organized the Wisconsin Federal Surplus Property Development Corporation and the Wisconsin Turnpike Commission organized at least one turnpike corporation.

Herro v. Wisconsin Fed. Surp. P. Dev. Corp.

, 42 Wis. 2d 87, 166 N.W.2d 433 (1969);

State ex rel. Thomson v. Giessel

, 267 Wis. 331, 333, 65 N.W.2d 529 (1954);

Thomson v. Giessel

, 265 Wis. at 196;

State ex rel. Wisconsin Univ. Bldg. Corp. v. Bareis

, 257 Wis. 497, 501, 44 N.W.2d 259 (1950).¯

74 Op. Att'y Gen. 169, 176 (1985)

The State Historical Society, now denominated both a "body politic and corporate" and "an official agency and trustee of the state," section 44.01(1), was chartered specially by the Legislature in 1853¯

as a corporation and was reorganized a century later (by the society itself) under chapter 181. 42 Op. Att'y Gen. 333 (1953).

74 Op. Att'y Gen. 169, 176 (1985)

The State Medical Society, was specially chartered by the Legislature in 1841, but later given "the general powers of a corporation."

State Medical Society v. Comm. of Insurance

, 70 Wis. 2d 144, 147, 233 N.W.2d 470 (1975).

74 Op. Att'y Gen. 169, 176 (1985)

A myriad of other private entities carrying out public purposes was identified in

Dammann

, 228 Wis. at 172, 178: the State Horticultural Society, the Wisconsin Horse Breeders' Association, the Wisconsin Agricultural Society, Memorial Hall, Wisconsin Department of Grand Army of Republic, Wisconsin Department of Spanish War Veterans Associations, to name a few.

74 Op. Att'y Gen. 169, 177 (1985)

It is apparent that the state has chosen many different devices to carry out proper governmental functions. In a number of cases, the legislation relating to those devices has been upheld under the constitutional provisions prohibiting special or private laws. In

Barczak

, 34 Wis. 2d at 74-75, the court upheld section 59.071, authorizing the creation of local industrial development corporations. In

Thomson v. Giessel

, 267 Wis. at 341-42, the court upheld the creation of the Wisconsin State Public Building Corporation. In

Nusbaum

, 59 Wis. 2d at 428, the court upheld the housing authority. Finally, in

Wisconsin Solid Waste Recycling Auth. v. Earl

, 70 Wis. 2d 464, 488, 490, 235 N.W.2d 648 (1975), the court upheld the former solid waste recycling authority.

74 Op. Att'y Gen. 169, 177 (1985)

Of importance in

Barczak

and

Giessel

, was the fact that the corporations were organized under general corporation laws. WHEC was organized under chapter 181, a general corporation law. The proposed regulations are amendments to that general law and so are valid.

74 Op. Att'y Gen. 169, 177 (1985)

Nusbaum

and

Earl

, the authorities were not organized under general corporation laws but the legislation was still upheld.

74 Op. Att'y Gen. 169, 177 (1985)

Art. IV, sec. 31, Wisconsin Constitution, was not meant to deny the legislature the authority to grant limited corporate powers to the entities it creates to promote a public and state purpose. Ch. 234, Stats., does not involve the promotion of private or local interests, as condemned by the framers of sec. 31, but a legitimate governmental and statewide purpose as declared by the legislature. Ch. 234 is not objectionable as either a special or private law.

74 Op. Att'y Gen. 169, 177 (1985)

Nusbaum

, 59 Wis. 2d at 448.

74 Op. Att'y Gen. 169, 177 (1985)

Nusbaum

this court held that the Housing Finance Authority was created in order to promote public and state purposes rather than private or local interests and, therefore, the Housing Finance Authority Act did not contravene these constitutional provisions.

74 Op. Att'y Gen. 169, 177 (1985)

....

74 Op. Att'y Gen. 169, 177 (1985)

. . . We agree that

Nusbaum

is controlling here, since the Recycling Authority, no less than the Housing Finance Authority, involves a legitimate governmental and statewide purpose, rather than a special or private purpose.

74 Op. Att'y Gen. 169, 178 (1985)

Earl

, 70 Wis. 2d at 488, 490 (footnotes omitted).

74 Op. Att'y Gen. 169, 178 (1985)

"The purpose of [article IV, section 31] is to insure that legislation will promote the general welfare and further statewide interests, as opposed to private concerns."

La Follette v. Reuter

, 36 Wis. 2d at 113. WHEC, no less than the housing authority and the recycling authority, involves a legitimate governmental and statewide purpose--the provision of a guaranteed student loan program--rather than a special or private purpose. The proposed legislation, therefore, is constitutional under

Nusbaum

and

Earl

74 Op. Att'y Gen. 169, 178 (1985)

Other private but governmentally-created corporations have balked at legislative control in the past. In

State Medical Society

, the society-- a state-chartered corporation--tried to convert its WPS division into a chapter 611 domestic insurance corporation. The decision of the court is strong authority for the Legislature's right to regulate special corporations.

74 Op. Att'y Gen. 169, 178 (1985)

The society was incorporated in the year 1841 pursuant to Laws of 1841, Bill No. 53, ch. 2, sec. 1. Later statutes contained provisions for SMS to be continued with the general powers of a corporation.

74 Op. Att'y Gen. 169, 178 (1985)

Petitioner SMS contends that it is not "a unique organization," as assessed by the trial court. It finds little distinction in being a nonprofit association, holding a charter from the state and being cloaked with the general powers of a corporation. Whatever the number of entities which might be found to exist under each category, suffice it to say, that it is a rare organization that possesses all three attributes plus a history of statutory enactments reaffirming its existence and granting it special powers....

74 Op. Att'y Gen. 169, 178 (1985)

....

74 Op. Att'y Gen. 169, 178 (1985)

There is no basis... for SMS to deny that it is unique and charged with a public interest.

74 Op. Att'y Gen. 169, 178 (1985)

State Medical Society

, 70 Wis. 2d at 147-48, 149.