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THE STATE OF SOUTH CAROLINA

In The Supreme Court

WDW Properties, a

South Carolina general

partnership, Appellant,

v.

City of Sumter, South

Carolina; South Carolina

Jobs-Economic

Development Authority;

and Uptown Synergy,

LLC, Respondents.

Appeal From Sumter County

Linwood S. Evans, Jr., Master-in-Equity

Opinion No. 25174

Heard June 8, 2000 - Filed July 24, 2000

AFFIRMED

Thomas E. Player, Jr., of Player & McMillan, LLC, of

Sumter, for appellant.

Steve A. Matthews and B. Eric Shytle of Sinkler &

Boyd, P.A., of Columbia, for respondents.

JUSTICE WALLER: WDW Properties (WDW) brought a

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declaratory judgment action challenging the legitimacy of a program in which

the proceeds of tax-exempt bonds issued by a state agency would be loaned to

a developer renovating retail and commercial properties in a blighted area of

the city of Sumter (City). A master-in-equity rejected WDW's claims after a

bench trial and WDW appeals. 1

FACTS

The parties have stipulated to the following facts. The Internal

Revenue Code authorizes the use of federally tax-exempt local government

bonds that finance business enterprises in designated urban "empowerment

zones." See 26 U.S.C. §§ 1391-1392 (Supp. 1999). The secretary of the United

States Department of Housing and Urban Development (HUD), at the request

of local government officials, in 1998 declared about 18 square miles located in

Richland and Sumter counties as an urban empowerment zone. 2 The governing

body of City in 1999 declared its downtown to be a "slum and blight area" and

designated it as a "redevelopment project area" located in the empowerment

zone.

Uptown Synergy plans to develop the Hampton at Main Project,

located in the redevelopment project area. The $4.3 million project consists of

interior and exterior renovations of three adjoining historic. buildings, which

would be leased for commercial office and retail space. The project is expected

to create twenty full-time jobs, and the developer hopes to target low- and

See S.C. Code Ann. § 14-8-200(b)(4) (Supp. 1999) (providing for direct appeals

to Supreme Court in cases involving various types of government bonds).

2 An area is eligible for designation as an "empowerment zone" only if it

meets criteria that relate to population, economic distress, geographic area, and

poverty rates. Such areas are nominated by local governments in a competitive

process. Designations are effective for ten years unless revoked earlier by HUD.

A commercial, retail, or service business in an empowerment zone qualifies for

tax-exempt financing if at least thirty-five percent of its employees live in the

empowerment zone, and most of its income and property are generated by or

engaged in the business in the empowerment zone. See 26 U.S.C. §§ 1391-1392

(Supp. 1999).

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moderate-income persons for employment at the various offices and retail

businesses. In its application for financing to the South Carolina Jobs

Economic Development Authority (JEDA), Uptown Synergy stated the project

would "serve as the cornerstone for the revitalization of downtown Sumter and

the surrounding communities."

JEDA's governing board adopted a resolution in which it pledged

to seek authorization from the state Budget and Control Board to issue $2.5

million in economic development revenue bonds that would be exempt from

state and federal income taxation. Under loan documents executed in 1999,

JEDA would loan the bond proceeds to Uptown Synergy to finance about 58

percent of the project's cost. Uptown Synergy would repay the loan with

revenue from the project. No tax money is involved or pledged with regard to

the project. However, the tax-exempt nature of the bonds would result in lower

interest costs to Uptown Synergy than it would pay if it had to obtain

conventional financing.

WDW, a general partnership, owns and leases Liberty Square,

which includes mini-warehouse units, retail businesses, and commercial office

space. Liberty Square is not located in the empowerment zone and is not

eligible for government-sponsored financing. Uptown Synergy's project would

compete with Liberty Square for tenants and patrons. The apparent reason for

WDW's lawsuit is its belief that government-sponsored financing gives Uptown

Synergy an unfair economic advantage in the competition for tenants and

patrons.

ISSUE

Did the master err in holding that the JEDA

loan program serves a public purpose

through the redevelopment of blighted urban areas?

STANDARD OF REVIEW

When an appeal involves stipulated or undisputed facts, an

appellate court is free to review whether the trial court properly applied the law

to those facts. J. K. Constr Inc. v Western Carolina Regional Sewer Authority,

336 S.C. 162, 519 S.E.2d 561 (1999). This Court will not declare a statute or

regulation unconstitutional unless its repugnance to the Constitution is clear

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and beyond a reasonable doubt. Southeastern Home Bldg. & Refurbishing, Inc.

v. Platt, 283 S.C. 602, 325 S.E.2d 328 (1985); Pelzer. Rodgers & Co. v. Campbell

& Co., 15 S.C. 581 (1881).

DISCUSSION

WDW contends the master erred in ruling that the JEDA

loan program at issue in this case serves a public purpose through the

redevelopment of blighted urban areas. The master erred by reading Carll v.

South Carolina Jobs-Economic Development Authority, 284 S.C. 438, 327

S.E.2d 331 (1985), to mean that so long as the issuance of a given series of

bonds is authorized by the JEDA Act, then the issuance of such bonds

necessarily serves a required public purpose. Carll should be interpreted only

to hold that the issuance of revenue bonds to finance industrial facilities serves

a public purpose, a principle previously established by this Court, WDW argues.

WDW bases its argument on the fact that, when Carll was decided

in 1985, JEDA regulations prohibited loans to retail or food establishments.

Current JEDA regulations allow economic development bond loans to

commercial businesses in certain situations, including downtown

redevelopment and in economically distressed areas. WDW believes those

regulatory changes mean Carll is not dispositive. 3

issue initially stated, as it did when Carll was decided, that:

A. [JEDA] will make loans only to manufacturing, industrial, or

service businesses which:

(1) Operate as private "for profit" enterprises; and

(2) Have a net worth not exceeding three million dollars; and

(3) Have a net profit after taxes averaging 20% or less of net

worth for the previous three years.

B. No loans will be made to:

(1) Retail establishments

(2) Food establishments.

25 S.C. Code Ann. Regs. § 68-10 (Supp. 1984). (3 continued...)

p.434

( 3 continued...) The regulation was amended in 1985 after Carll was decided to provide:

A. [JEDA] will make loans to manufacturing, industrial, service,

and other commercial businesses which:

(1) Operate as private "for profit" enterprises.

B. No loans will be made to:

(1) Retail establishments except where downtown

redevelopment is involved

(2) Food establishments.

25 S.C. Code Ann. Regs. § 68-10 (Supp. 1985).

The regulation was last amended in 1987 and has since remained

unchanged. It presently provides:

A. [JEDA] will make Community Development Block Grant loans,

economic development bond loans, on either a tax-exempt or

taxable basis, and loans from any other program funds which

become available, to manufacturing, industrial, research, service,

commercial and other businesses which:

(1) Are located in South Carolina; and

(2) Create or maintain jobs in South Carolina.

B. No economic development bond loans or Community

Development Block Grant loans will be made to:

(1) Commercial establishments, including hotels, shopping

malls, office buildings, and mercantile establishments, except

where downtown redevelopment is involved or where located

in an economically distressed area or where it will result in

increased employment; provided, however, that in the case of

hotels, loans may also be made regardless of location for

projects which will have a higher than usual promotional

impact upon the tourism industry in the State; and provided

further that, in the case of medical facilities, loans may also

be made regardless of location where there has been a

showing that the assistance will help relieve a shortage of (3 continued...)

p. 435

WDW urges us to follow the views expressed in State ex rel. McLeod

v. Riley, 276 S.C. 323, 278 S.E.2d 612 (1981), and Anderson v. Baehr, 265 S.C.

153, 217 S.E.2d 43 (1975). In McLeod, this Court considered amendments to

the Industrial Revenue Bond Act 4 that allowed the issuance of revenue bonds

for the benefit of commercial and retail facilities. The Court also considered a

statute allowing the State to issue general obligation bonds to finance an

alcohol fuel development program. The Court struck down both the

amendments and the statue as unconstitutional, ruling, among other things,

that neither primarily served a public purpose.

The McLeod Court stated that revenue bonds for retail and

commercial businesses would provide only a "remote or indirect public benefit."

Such businesses would not alleviate the pervasive problems of lack of industry

and employment, would provide a minuscule number of jobs compared to

industrial projects, and would merely result either in the relocation of existing

businesses or importation of national chains to compete with existing

businesses. McLeod, 276 S.C. at 332, 278 S.E.2d at 617. Approving the

issuance of revenue bonds for retail and commercial businesses would "permit

local governments to effectually promote undertakings to compete in free

enterprise with other businesses which do not have the advantage which the

Act would give." Id. at 333, 278 S.E.2d at 617.

In Anderson, supra, the city of Spartanburg intended to issue

revenue bonds in order to purchase property in blighted areas (through

condemnation if necessary), find an interested developer, and lease or sell the

property to the developer in the hope that such payments would cover

repayment of the city-issued bonds. The Court held that the act, which it

described as allowing the city to "join hands" with unknown private developers,

project is located.

(2) Restaurant establishments except where such

establishments are located on the premises of a hotel and for

which economic development bonds are being issued.

25A S.C. Code Ann. Regs. § 68-10 (1989).

4 S.C. Code Ann. §§ 4-29-10 to -150 (1986 & Supp. 1999).

p. 436

did not serve a public purpose because the benefit to the developer would be

substantial, while the benefit to the public would be negligible and speculative.

The Court also noted the Legislature had not made any findings of public

purpose in the act. Anderson, 265 S.C. at 159-63, 217 S.E.2d at 46-47.

In response, City argues that Carll, supra, is dispositive. City

further asserts that the views expressed in McLeod and Anderson have been

implicitly rejected by later cases in which this Court has taken a broader view

of public purpose and exhibited greater deference to the legislative

determinations regarding public purpose. The public purpose doctrine "is an

evolving concept that reflects the changing needs of society." Even if Carll is

not dispositive, the JEDA loan program in this case serves a public purpose,

City asserts.

Revenue bonds such as those that JEDA would issue in this case

are payable solely from the revenues of the particular project or enterprise, not

from taxpayer funds. See Wolper v City Council of City of Charleston, 287 S.C.

209, 214, 336 S.E.2d 871, 874 (1985); Anderson v. Baehr, 265 S.C. at 159-60,

217 S.E.2d at 46; Elliott v. McNair, 250 S.C. 75, 83,156 S.E.2d 421, 425 (1967);

Black's Law Dictionary 1319 (1990). Revenue bond debt, as well as general

obligation debt incurred by the government and repaid by government funds,

may be incurred only for a public purpose. S.C. Const. art. X; § 13(9); Elliott,

250 S.C. at 86, 156 S.E.2d at 427 (holding that Industrial Revenue Bond Act

serves a public purpose as required by state constitution); Feldman & Co. v.

City Council of Charleston, 23 S.C. 57, 62-63 (1885) (holding that a law

authorizing taxation for any purpose other than a public purpose is void). 5

The General Assembly may authorize the State or any of its

agencies, authorities or institutions to incur indebtedness for any

public purpose payable solely from a revenue-producing project or

from a special source, which source does not involve revenues from

any tax but may include fees paid for the use of any toll bridge, toll

road or tunnel. Such indebtedness may be incurred upon such

terms and conditions as the General Assembly may prescribe by

law. All indebtedness incurred pursuant to the provisions of this

subsection shall contain a statement on the face thereof specifying (5 continued...)

p.437

In Carll we rejected several constitutional challenges to the 1983

act creating JEDA. In discussing whether the Act served a public purpose, we

explained that

[a]ll legislative action must serve a public rather than

a private purpose. In general, a public purpose has for

its objective the promotion of the public health, morals,

general welfare, security, prosperity, and contentment

of all the inhabitants or residents within a given

political division . . . . It is a fluid concept which

changes with time, place, population, economy and

countless other circumstances. It is a reflection of the

changing needs of society.

Carll, 284 S.C. at 442-43, 327 S.E.2d at 334 (citations omitted); see also S.C.

Code Ann. §§ 41-43-10 to -280 (1986 & Supp. 1999) (codifying South Carolina

Jobs-Economic Development Fund Act). We held that the JEDA Act served a

public purpose because its provisions were reasonably related to the legitimate

public goals of economic development and job creation. We observed the

Legislature's findings regarding the State's economic development problems

were "detailed and comprehensive." Id.

We agree with WDW that Carll is not dispositive. Carll did not

involve any particular bond issue or loan, but was an attack on the facial

validity of the act creating JEDA. More importantly, regulations then in

existence prohibited JEDA from making government-sponsored loans to retail

or commercial businesses. JEDA regulations were amended in 1987 to allow

such loans in certain situations. See footnote 3. A statutory or regulatory

change could transform a previously constitutional loan program into one that

violates the public purpose doctrine. Therefore, Carll should not be read to

foreclose challenges to JEDA programs simply because a given loan does not

violate JEDA's statutory or regulatory framework as it exists when the loan is

proposed or made.

However, we hold that the JEDA loan program in this case serves

a public purpose as required by the constitution. We adhere to the views

p.438

espoused in Carll and Nichols v. South Carolina Research Authority, 290 S.C.

415, 351 -S.E.2d 155 (1986).

In Nichols, we upheld a statute authorizing a state agency to issue

revenue bonds in order to provide financial assistance to advanced technology

businesses. We overruled Byrd v. County of Florence, 281 S.C. 402, 315 S.E.2d

804 (1984), in which we had struck down on public purpose grounds Florence

County's proposal to issue general obligation bonds to acquire and develop an

industrial park to be used to attract industrial investment. In Nichols, we

extensively discussed the public purpose doctrine and its inconsistent

application in various cases over the years. We explained that

[t]imes change. The wants and necessities of the

people change .... On the one hand, what could not be

deemed a public use a century ago may, because of

changed economic and industrial conditions, be such

today.

The consensus of modern legislative and judicial

thinking is to broaden the scope of activities which may

be classed as. involving a public purpose. It reaches

perhaps its broadest extent under the view: that

economic welfare is one of the main concerns of the

city, state and the federal governments.

The views we express here reflect the decisions of

multiple other jurisdictions which recognize industrial

development as a public purpose.

Finally, legislation may subserve a public purpose even

though it (1) benefits some more than others and, (2)

results in profit to individuals: Legislation does not

have to benefit all of the people in order to serve a

public purpose. At the same time legislation is not for

a private purpose merely because some individual

makes a profit as a result of the enactment.

Nichols, 290 S.C. at 425-26, 351 S.E.2d at 161 (emphasis in original) (citations

and internal quotes omitted).

p.439

We emphasized anew that [i]t is uniformly held by courts

throughout the land that the determination of public purpose is one for the

legislative branch .... The question of whether an Act is for a public purpose is

primarily one for the Legislature." Id.

We reached a similar conclusion in Wolper, decided the year before

Nichols. In Wolper, we upheld the constitutionality of a statute that allows

cities to incur debt to revitalize deteriorating areas, with the debt service to be

provided from the increased increments of property tax revenue resulting from

the redevelopment project. We concluded that elimination of decaying and

unhealthy areas within a city directly benefits the public, although private

parties within the area also may benefit incidentally. Wolper, 287 S.C. at 216,

336 S.E.2d at 875.

Although we overruled Byrd, supra, in Nichols, we adopted the four

part test from Byrd to use in determining whether the public purpose doctrine

is violated. "The Court should first determine the ultimate goal or benefit to the

public intended by the project. Second, the Court should analyze whether

public or private parties will be the primary beneficiaries. Third, the

speculative nature of the project must be considered. Fourth, the Court must

analyze and balance the probability that the public interest will be ultimately

served and to what degree." Nichols, 290 S.C. at 429, 351 S.E.2d at 163

(emphasis in original).

Accordingly, we apply the Nichols test in this case. First, the

ultimate benefits to the public are to increase the number of available jobs,

improve the appearance of rundown buildings in Sumter's downtown, attract

new businesses, and reinvigorate a downtown area that has been classified by

the local and federal governments as economically distressed. Second -

deferring to the Legislature's determination in establishing the JEDA program

- the public will be the primary beneficiary, although the developers certainly

will benefit from a more favorable loan rate. Third, the project is speculative,

as is any redevelopment effort, but it is not so speculative that it violates the

public purpose doctrine. And fourth, the public interest is likely to be served to

a substantial degree through the creation of jobs, the reinvigoration of the

downtown area, and benefits, both tangible and intangible, that should result

from that reinvigoration.

We conclude that our opinion in Nichols implicitly overruled

p.440

McLeod's holding that revenue bonds may not be issued on behalf of retail or

commercial businesses. We now take a broader view of the public purpose

doctrine and give substantial weight to legislative determinations of the issue.

We find Anderson, supra, distinguishable from the present case.

The Legislature did not make specific findings regarding the public purpose of

the Act at issue in Anderson, while the Legislature has made such findings in

the JEDA Act. The power of eminent domain was involved in Anderson, but not

in this case. The city would have played a major role in the revitalization

process in Anderson, leading the Court to conclude that the "Act undertakes to

permit the city to effectually promote business undertakings to compete in free

enterprise with other businesses which do not have the advantage which the

Act would give. We think it a fair conclusion to say that benefit to the developer

or entrepreneur, would be substantial, and the benefit to the public would be

negligible and speculative." Anderson, 265 S.C. at 163, 217 S.E.2d at 47. In

contrast, the role of City and JEDA in this case is more limited in that neither

is actively promoting business undertakings to compete in free enterprise with

other local businesses.

CONCLUSION

We affirm the master's ruling that the JEDA loan program serves

a public purpose as required by the state constitution. We overrule McLeod,

276 S.C. 323, 278 S.E.2d 612, to the extent it conflicts with the views expressed

in Carll supra, Nichols, supra, and this opinion. We find Anderson, 265 S.C.

153, 217 S.E.2d 43, distinguishable from this case.

AFFIRMED.

TOAL, C.J., MOORE, BURNETT and PLEICONES, JJ., concur.

p.441