74 Op. Att'y Gen. 169 (1985)
 
74 OAG 169 172 175 178 181 184
       170 173 176 179 182 185
       171 174 177 180 183 END

OPINION NO. OAG 32-85,

Opinions of the Attorney General

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.

ANTHONY S. EARL Governor

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.[1]

Your letter states:

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.

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 OAG 169 172 175 178 181 184
       170 173 176 179 182 185
       171 174 177 180 183 END

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.

I.

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.

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, the
supreme court will not inquire
into the motives of the legislature . ."

State ex rel. Thomson v. Giessel,
265 Wis. 558, 564,
61 N.W.2d 903 (1953).

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

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

7th.

For granting corporate powers or
privileges, except to cities.
Wis. Const. art. IV, sec. 31.

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.

Wis. Const. Article IV, Section 32.

 
74 OAG 169 172 175 178 181 184
       170 173 176 179 182 185
       171 174 177 180 183 END

The proposed legislation grants no
powers or privileges to public purpose
corporations; rather, it imposes
regulations upon them.[2]

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.

In 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) 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] Section 31, Article IV. . .

Id. at 194. The court stated:

It is only a privilege inhering in the
corporate charter as part of the
corporation's organic act that
is within the provision in
Section 31, art. IV, Wis.
Const., prohibiting the
granting of corporate
powers or privileges
by special act.

 
74 OAG 169 172 175 178 181 184
       170 173 176 179 182 185
       171 174 177 180 183 END

In In re Southern Wisconsin Power Company,
supra, the court said, with reference to
a franchise to construct a dam (p. 257):

     While the franchise here granted was
     a legislative grant, it was not a
     corporate power or privilege within
     the meaning of Section 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.

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.

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.

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.

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."

 
74 OAG 169 172 175 178 181 184
       170 173 176 179 182 185
       171 174 177 180 183 END

Nothing in chapter 181 would limit the
freedom of any person or persons to organize
a corporation for this purpose.[3]

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.[4]

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.

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

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,[5] would be public purpose
corporations and thus as subject to the
proposed legislation as WHEC.

Having concluded that the legislation would
create a class of corporations, and not just
regulate WHEC, the question remains whether
the classification is valid.

 
74 OAG 169 172 175 178 181 184
       170 173 176 179 182 185
       171 174 177 180 183 END

There are four rules for determining the
propriety of a classification under article
X, Section 31 of the Wisconsin Constitution.

(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.

Stein, 47 Wis.2d at 360.

The proposed legislation satisfies
all four rules.

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.

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.

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.

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.

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.

 
74 OAG 169 172 175 178 181 184
       170 173 176 179 182 185
       171 174 177 180 183 END

If the Legislature chose to, it could
regulate WHEC by name and not create
special or private legislation
contrary to the constitution.

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.

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,[6] 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 OAG 169 172 175 178 181 184
       170 173 176 179 182 185
       171 174 177 180 183 END

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.[7]

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.[8]

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).[9]

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[10] as a
corporation and was reorganized a
century later by the society
itself under chapter 181.

42 Op. Att'y Gen. 333 (1953).

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).

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 OAG 169 172 175 178 181 184
       170 173 176 179 182 185
       171 174 177 180 183 END

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.

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.

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

Art. IV, Section 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.

Chapter 234, Stats., does not involve the
promotion of private or local interests,
as condemned by the framers of Section 31,
but a legitimate governmental and statewide
purpose as declared by the legislature.

Chapter 234 is not objectionable as either a
special or private law.

Nusbaum, 59 Wis.2d at 448.

In 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.

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 OAG 169 172 175 178 181 184
       170 173 176 179 182 185
       171 174 177 180 183 END

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

    "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.

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.
 

The society was incorporated in the year
1841 pursuant to Laws of 1841,
Bill No. 53, ch. 2, Section 1.

Later statutes contained provisions
for SMS to be continued with the
general powers of a corporation.

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. . .

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

State Medical Society,
70 Wis.2d at 147-48, 149.

Further authority for the Legislature's right
to control corporations exercising public
purposes is found in

Thomson v. Giessel, 265 Wis. 185.

The claim there was that turnpike
corporations, organized by the State Turnpike
Commission, were themselves state agencies
because routes had to be approved by the
highway commission and the Governor
and that when their bonds were retired
the roads would become state property.

 
74 OAG 169 172 175 178 181 184
       170 173 176 179 182 185
       171 174 177 180 183 END

These restrictions, the court held,

     do not make a turnpike corporation
     a state agency.

     The legislature has declared that the
     purpose to be served by the construction
     of the toll road is a public purpose.

     It is only proper that its construction
     be subject to the approval of the state
     highway commission and the governor.

Thomson v. Giessel, 265 Wis. at 196.

Other precedents exist for legislative
regulation of particular state-created
corporations.

Just as board membership of public purpose
corporations would be regulated by the
proposed legislation, the members of the
boards of the Wisconsin University Building
Corporation and the Wisconsin Public
Broadcasting Foundation are
limited by statute.

Bareis, 257 Wis. at 501;
Section 39.12 (4), Stats.

In State ex rel. Warren v. Reuter,
44 Wis.2d 201, 216,
170 N.W.2d 790 (1969), the court found not
only a right, but a duty to regulate private
corporations receiving public funds:

The question of reasonable regulations for
control and accountability to secure the
public interest is one of degree and
depends upon the purposes, the agency
and the surrounding circumstances.

Only such control and accountability as is
reasonably  necessary under the circumstances
to attain the public purpose is required.

Budgeting and auditing are, of course, basic
and necessary controls; additional types of
control vary with the demands or requirements
of the circumstances.

What would be sufficient control for daily
operations may not serve for capital
improvements and vice versa.

What controls may be necessary for an agency
to be formed may not be necessary for an
agency which has been operating for many
years and has established an acceptable
policy and is under regulations and
control of other governmental bodies.

Likewise, controls which are sufficient today
for this appropriation may not be sufficient
tomorrow under different circumstances.

I understand that WHEC receives no public
funds except as consideration for
services rendered.

Nevertheless, as guidelines for the
permissible scope of government regulation
of private entities performing public
purposes, the above-quoted language is
instructive.[11]

Within reasonable limits, I believe that WHEC
and entities like WHEC are subject to
legislative oversight in the public interest.

 
74 OAG 169 172 175 178 181 184
       170 173 176 179 182 185
       171 174 177 180 183 END

In addition to the state's general interest
in promoting public well-being by regulating
governmentally-created corporations, the
state has a particular relationship with WHEC
by virtue of the language of Section 39.33
and WHEC's relationship with HEAB and the
student loan revenue obligation bond program.

Under Section 39.33(1), HEAB was authorized
to organize and "maintain" a guarantee
corporation.

Thus, the state has the responsibility
to see that WHEC remains in existence.

It is reasonable to conclude that the duty
to maintain WHEC carries with it a right,
if not a duty, to regulate its affairs that
would not necessarily exist with respect to
just any corporation.

Another particular aspect of the state s
relationship with WHEC provides a reasonable
basis for the proposed legislation.

The state has issued $215,000,000 of Student
Loan Revenue Obligation Bonds to finance its
operations as a lender under the guaranteed
student loan program.

All loans made with bond proceeds
have been guaranteed by WHEC.

The board and WHEC are parties to the
Corporation Reserve Agreement, setting out
certain rights and obligations by both
parties to secure the integrity of the
bonds and the program itself.

As long as any bonds are outstanding,
the state has a special interest
in the operations of WHEC.

Finally, throughout its history, WHEC has
in other ways played a unique role in the
performance of the state's duties under
the guaranteed student loan program,[12]
justifying more precise legislative oversight
than might otherwise be the case.

HEAB has statutory authority to furnish
administrative services to WHEC.

Section 39.33, Stats.

By contract, the state has obligated
itself to do so.

This obligation is a covenant
with bondholders.

Thus, by virtue of its responsibilities to
bondholders, the state is intimately
concerned in the operations of WHEC.

In recent months WHEC's relationship with the
state has become even more intimate.

I understand that, by contract, WHEC now
provides administrative services to HEAB,
including the servicing of loans
made by private lenders.

By assuming the responsibility of
administering the lender servicing program
one of HEAB'S major statutory
responsibilities, Section 39.33(10)[13]
WHEC has subjected itself to a reasonable
degree of legislative control.

 
74 OAG 169 172 175 178 181 184
       170 173 176 179 182 185
       171 174 177 180 183 END

It is my further understanding that 174
of 193 HEAB employes now work for
WHEC under contract with HEAB.

This unusual state of affairs is further
evidence of WHEC's special status.

The legislative history reveals that there is
concern that WHEC is considering making major
expenditures, for a building and a computer,
out of its insurance reserve fund.

Report from the Legislative Fiscal Bureau to
the Joint Finance Committee, May 10, 1985.

The state is justified in legislating to
preserve the integrity of insurance reserves.

The insurance code (which would apply to
public purpose corporations, being insurers)
is replete with regulations to protect
consumers of insurance.

WHEC's reserve fund is of special concern to
the state because WHEC'S operations are part
and parcel of a special government program.

In summary, the proposed legislation imposes
reasonable controls over the operations of
public purpose corporations, including WHEC.

The legislation does not violate article IV,
Sections 31 and 32 of the Wisconsin
Constitution.[14]

 
74 OAG 169 172 175 178 181 184
       170 173 176 179 182 185
       171 174 177 180 183 END

II.

Your letter also asks whether the proposed
legislation affects the state's covenants
under the student loan revenue obligation
bond program (the "Program").

In my opinion, it does not.

In the State Building Commission resolution
creating the Program (the "Resolution"), the
state covenanted with bondholders that as
long as any bonds issued to finance the
Program are outstanding and unpaid, the
state will not limit or alter its powers to
fulfill the terms of any agreements with
bondholders or in any way impair the
rights and remedies of bondholders.

A similar pledge is contained in Section
18.61(1) with respect to revenue
obligation programs generally.

The Resolution also contains a covenant that
the state will maintain and enforce a
contract between the state and WHEC known
as the Corporation Reserve Agreement and
take no action in connection therewith
which in any manner will adversely
affect the rights of bondholders.

Among other provisions, the Corporation
Reserve Agreement obligates the state to
provide administrative services to WHEC
as long as any bonds are outstanding.

These covenants are protected against
impairment by the contract clauses of
the state and federal constitutions.

Wis. Const. Article 1, Section 12.
U.S. Const. Article 1, Section 10.

See United States Trust Co. v. New Jersey,
431 U.S. 1 (1977).

WHEC's contractual obligations, e.g., lender
servicing agreements, employment contracts,
etc., are similarly protected.

In 72 Op Att'y Gen. at 142,
I cautioned that any

     attempt to abrogate WHEC's obligation to
     collect delinquent student loans] or
     otherwise transfer WHEC's obligations to
     the state would more than likely be a
     violation of the Contract Clause.

I also stated that state assumption of WHEC's
guarantee function would amount to giving the
state's credit in aid of private individuals
in violation of Wisconsin Constitution
article VIII, Section 3.

If the proposed legislation were interpreted
to have the effect of transforming WHEC into
a state agency, the state's covenant not to
impair the rights of bondholders would be
breached.

A state guarantee of student loan payments
would be unconstitutional and, thus, void.

The bondholders would be left without an
essential component of the Program's
security.

 
74 OAG 169 172 175 178 181 184
       170 173 176 179 182 185
       171 174 177 180 183 END

The proposed legislation does not, however,
transform WHEC into a state agency.

The supreme court has repeatedly held that
dummy corporations are not state agencies.

E.g.,

Thomson v. Giessel 265 Wis. at 196;

Thomson v. Giessel,
267 Wis. at 340;

Bareies,
257 Wis. at 501;

Nusbaum, 59 Wis.2d at 424.

There is historical precedent for regulations
of governmentally-created entities like that
proposed by AB 85.

The Wisconsin Federal Surplus Property
Development Corporation had to report to the
state Department of Resource Development.

Herro, 42 Wis.2d at 95.

State turnpike corporations had to seek
route approval from the Legislature
and the Governor.

Thomson v. Giessel, 265 Wis. at 198.

The members and officers of the Wisconsin
University Building Corporation had to be

     persons who [held] certain offices
     in the administrative structure
     of the university.

Bareis, 257 Wis. at 501.

The membership of the board of the
corporation organized by the Educational
Communications Board is statutorily
restricted and the corporation must submit
to an examination of its records by the
Educational Communications Board, the
Department of Administration,
the Legislative Fiscal Bureau and the
Legislative Audit Bureau, among others.

Section 39.12(3) and (4), Stats.

Similar restrictions are part of the laws
governing Wisconsin Housing and Economic
Development Authority and the Bradley Center
Sports and Entertainment Corporation.

I have no fear that WHEC would be construed
as a state agency in light of these
historical precedents.

If the closeness of WHEC's relationship
to the state were a problem.

WHEC was closest when the bonds were issued;
until recently, WHEC's board was the HEAB
board. For most of its existence.

WHEC had no employes, but, rather, was a
shell, with legal independence from the state
but practical dependence upon the state for
the performance of its functions.

Even after the proposed legislation, WHEC
will be more of a separate creature than at
the time the bonds were issued.

If separation from the state were important
to bondholders, they may be benefitted,
rather than injured, by WHEC's new
relationship with the state.

Bondholders might benefit in other ways.

The proposed legislation subjects WHEC to the
ethics law permits legislative audit, limits
expenses of travel and employe compensation.

opens WHEC's affairs up to public scrutiny
and returns board membership to
gubernatorial appointees.

 
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These could all be perceived as enhancing
the security of bondholders, to the extent
the integrity of the bonds is dependent
upon the integrity of WHEC.

The state has an obligation to do nothing to
jeopardize the well-being of bondholders.
 

The proposed legislation does not
affront that obligation.

With respect to WHEC's contractual
obligations, as opposed to the state's
contractual obligations to bondholders, there
are no apparent impairment problems either.

On its face, the proposed legislation does
not affect WHEC's ability to perform its
contractual obligations to private
lenders, employes or others.
 

But  "impairment is ultimately
      an issue of fact."

72 Op Att'y Gen. at 140.

Whether or not any particular contract
would be impaired cannot be
determined at this time.

On the basis of the facts known to me the
proposed legislation does not violate either
the state or federal contract clause.

III

Having concluded that the proposed
legislation is constitutional and would not
violate the state's duty to bondholders, I
must still caution the state's lawmakers
to tread carefully in this area.

The wisdom of creating dummy corporations and
of delegating to them the administration of
important government programs, is for the
Legislature and the Governor to determine.

The supreme court has recognized the state's
right to do so and right to regulate to a
degree the entities so created.

But there are limits to the state's
control even where a private entity
receives public money.

A private agency cannot and should
not be controlled as two-fistedly
as a governmental agency.

If such need for control is present, it might
be better to use a governmental agency.

A private agency is selected to aid the
government because it can perform the service
as well or better than the government.

We should not bog down private agencies with
unnecessary governmental control.

Warren v. Reuter, 44 Wis.2d at 217.

Similar thoughts were expressed regarding
dummy corporations.

     If a person enters into a contract with
     a dummy  corporation, which is both
     created and limited by the statutes,
     he is entitled to rely on the
     provisions of the statutes.

Herro, 42 Wis.2d at 118.

 
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If we are going to recognize that . . . dummy
corporations are separate and distinct from
the state, then it must be determined that
the property owned by the dummy corporation
is not the state's property. . . . The
legislature, as well as the public, must
treat the dummy corporation as a distinct
entity.

Herro, 42 Wis.2d at 116.

One might well question why the Legislature
would allow HEAB, a state agency over which
it has complete authority, to contract away
its program responsibilities to WHEC, a
private corporation over which it has
less authority, and then try to regulate
WHEC, rather than attempt to achieve
the same results by regulating HEAB.

Constitutionally, however, the Legislature,
in this case at least, has the power to take
either course, the proposed regulations being
reasonably related to the purpose sought to
be achieved and properly drawn to achieve
that purpose.

BCL: ESM
 
 
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FOOTNOTE  SECTION:
 

[1]

Subsequent to your request, on July 15, 1985,
Assembly Bill 85 was enacted into law as
1985 Wisconsin Act 29.

The provisions in question were vetoed.

Since the veto is subject to override,
this opinion refers to the provisions in
question as the "proposed legislation"
or the "proposal" References are to the
Engrossed Bill, dated June 14, 1985.

[2]

Arguably, public purpose corporations are
already subject to legislative audit one of
the proposed requirements, by operation of
Section 181.27(2), which allows the state,
for good cause, to petition the circuit
court for access to the books and
records of any chapter 181 corporation.

[3]

Proposed Section 181.79 would be read as an
exception to Section 181.03 which prohibits
the organization under chapter 181 of
insurance corporations.

[4]

Risch involved a challenge to a legislative
classification on equal protection grounds.

There is no reason to believe that the
principle stated would not apply to
classifications challenged under
article IV, Sections 31 and 32
of the Wisconsin Constitution.

[5]

To be eligible to participate in the
federal program private guarantors
must be nonprofit.

[6]

American authorizes trace their ancestry to
the Port of London Authority, which was so
named because Lloyd George did not want to
use such common names as commission,
"board" or agency.

Having observed that each Section of
the draft enabling act began "Authority is
hereby given . . .," he suggested the name
"Port of London Authority" Cohen, They
Builded Better Than They Knew 290 (1946).

[7]

The Bradley Center Sports and Entertainment
Corporation is subject to state audit and
has a board of directors appointed by the
Governor   two of the regulations the
proposed legislation would impose
on public purpose corporations.

[8]

This corporation is subject to state audit
and board membership is regulated   two
controls sought to be placed upon
public purpose corporations.

Section 39 12. Stats.

[9]

On the local level, Milwaukee County
organized the Milwaukee County Industrial
Development Corporation.

State ex rel. Bowman v. Barczak,
34 Wis.2d 57,
148 N W 2d 683 (1967).

[10]

This was prior to the 1871 constitutional
amendment creating the prohibitions
against specific legislation.

[11]

WHEC receives other benefits from the state:
it enjoys a virtual monopoly by dint
or its creation by HEAB.

[12]

WHEC's Articles of Incorporation state that
the corporation's purposes are "primarily
to aid governmental programs for
promotion of higher education . ."

[13]

This opinion is not the vehicle for judging
the propriety of a state agency apparently
contracting away the entire operation
of a statutory program.

Nevertheless, it is appropriate to question
whether the Department of Administration's
authority to "contract for services which
can be performed more economically or
efficiently by . . . contract,"
Section 16.705(1). extends this far.

It is also appropriate to raise whether
loan servicing is within the scope of
WHEC's authority under its Articles
of Incorporation, which states as
the corporation's purpose,

     "to maintain, operate and administer
      a guaranteed student loan program."

[14]

What has been stated with respect to the
constitutional prohibition against special or
private legislation leads to the conclusion
that the proposed legislation is also
valid under due process and equal protection
principles See discussion of

State ex rel. Risch v. Trustees
at page 174 hereof.

The State's authority to regulate public
purpose corporations in the manner proposed
derives from the police power.

The police power is not limited to
regulations designed to promote public
health, public morals or public safety,
or to the suppression of what is offensive
disorderly, or unsanitary, but extends to
so dealing with conditions which exist as
to bring out of them the greatest welfare
of the people by promoting public convenience
or personal prosperity.

Watchmaking Examining Bd. v. Husar,
49 Wis.2d 526, 531,
182 N.W 2d 257 (1971).

The police power properly can be used "to
promote the general prosperity of the state
by the regulation of economic conditions."

Id at 530.

In testing the constitutionality of the
proposed legislation under the due process
and equal protection clauses the question is
whether it has "any reasonable basis."

Id. at 530.

Almost by definition, corporations
performing public purposes are
imbued with public interest.

WHEC was created to guarantee loans under
the government s student loan program.

One could argue that the integrity of the
program depends upon the responsible
administration of the corporation.

The proposed "public accountability" measures
are all reasonably related to that end.


 
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