Brashier v. SCDOT

Case Date: 01/01/1997
Docket No: 24665

24665 - Brashier v. SCDOT

Davis Adv. Sh. No. 24
S.E. 2d

THE STATE OF SOUTH CAROLINA

In The Supreme Court

T. Walter Brashier, Appellant,

v.

South Carolina

Department of

Transportation, Interwest

Carolina Transportation

Group, L.L.C., and

Connector 2000

Association, Inc., Respondents.

Appeal From Greenville County

Charles B. Simmons, Jr., Master-in-Equity

Opinion No. 24665

Heard May 6, 1997 - Filed August 6, 1997

AFFIRMED AS MODIFIED

Ray D. Lathan, of Lathan & Barbare, P.A., of Greenville,

for appellant.

J. Douglas Nunn, of Nelson Mullins Riley & Scarborough,

L.L.P., of Columbia, for respondent South Carolina

Department of Transportation.

Jack H. Tedards, Jr., of Leatherwood Walker Todd &

Mann, P.C., of Greenville, for respondent Interwest

Carolina Transportation Group, L.L.C.

Steve A. Matthews, Robert Y. Knowlton, and John K. Van

Duys, of Sinkler & Boyd, P.A., of Columbia, for respondent

Connector 2000 Association, Inc.

Suzanne E. Coe, of Greenville, for amicus curiae petitioners

Bobby J. Ayers, David Wettlin, and Wayne Taylor,

p3


BRASHIER v. SC DEPT.OF TRANSPORTATION, et al.

individually and as citizens, residents, taxpayers and

registered electors of Greenville County.

WALLER, A.J.: On appeal is an order upholding an innovative financing

scheme to build a toll-access highway in Greenville County. We affirm as modified.

FACTS/PROCEDURAL POSTURE

The proposed highway, known as the Southern Connector, will connect

interstate highways 1-85 and 1-385 around the southern perimeter of the City of

Greenville. It will be an approximately sixteen-mile-long, four-lane toll-access

highway with a 70 miles per hour design speed. After many years of consideration

and planning, on July 1, 1995, the South Carolina Department of Transportation

("SCDOT") issued a request for proposals seeking developmental concepts and

financing options for the Southern Connector. Concurrently, SCDOT issued a request

for proposals to extend South Carolina Highway 153 ("SC 153") from its existing

terminus at 1-85 to connect with the Southern Connector.1

On January 5, 1996, Interwest Carolina Transportation Group, L.L.C.

("Developer")2 submitted its proposal to SCDOT. On February 29, 1.996, SCDOT

awarded Developer the right to negotiate a contract to finance and build the Projects.

The resulting plan to finance, develop and operate the Projects is embodied in four

agreements.3

Essentially, under the agreements, three separate entities will be involved in

the Southern Connector Project: SCDOT, Developer, and a nonprofit public benefit

corporation without members called the Connector 2000 Association, Inc.

_______________________

1When necessary, the Southern Connector and SC 153 projects will be collectively

referred to as "the Projects."

2 Developer was formed December 29 1.995, to act as the developmental entity for

the Projects. It consists of: (I.) Florence & Hutcheson, Inc., a South Carolina

engineering firm specializing in highway construction; (2) Thrift Bros., Inc., a South

Carolina paving contractor; and (3) Interwest Management, Inc., an Arizona

engineering and consulting firm.

3 (1) Association-Developer Agreement; (2) Agreement to Develop the Southern

Connector and SC 153; (3) First Amendment to the Development Agreement; and (4)

License Agreement. Unless otherwise specified, general references throughout this

opinion to "agreements" are intended to mean the entire scheme as embodied in these

four agreements.

p4

BRASHIER v. SC DEPT. OF TRANSPORTATION, et al.

("Association").4 Association will pay Developer to construct the Southern Connector

with proceeds from tax-exempt toll revenue bonds. These bonds will be issued by

Association, to be repaid with the revenues of a toll exacted upon users of the

Southern Connector. Association will not have title in the Southern Connector. The

agreements provide that "[f]ee simple title to the Southern Connector, all tolling

facilities and all real property and improvements thereon and the rights of way

thereunder is and at all times shall remain vested in SCDOT." Association will pay

SCDOT a fee for a license to operate and collect tolls on the Southern Connector.

Payment of the license fee will be subordinate to the repayment of the toll bonds and

to the cost of operating and maintaining the Southern Connector. Once the bonds

have been defeased, Association's license will expire, Association will dissolve and all

of its assets will be distributed to SCDOT.

Regarding the SC 153 Project, SCDOT will pay for its construction with the

proceeds of general obligation state highway bonds. After its completion, SC 153 will

be owned, operated and maintained by SCDOT and will not be toll-access.

Appellant T. Walter Brashier5 filed a declaratory judgment action seeking to

have these agreements invalidated and to permanently enjoin SCDOT from

performing them. He argued SCDOT was required to comply with section 57-3-615

of the South Carolina Code before initiating the Southern Connector Project, and that

in any event the agreements violate several constitutional provisions. The case was

referred to a master-in-equity with direct appeal to this court.6 After a hearing, the

master issued an order denying Appellant injunctive relief, finding compliance with

section 57-3-615 was not required and the agreements were constitutional.

_________________________

4Association, incorporated January 12, 1996, was formed to facilitate the financing

of the Southern Connector Project. It is governed by a five-member Board of

Directors, serving in a volunteer capacity, comprised of business and civic leaders in

Greenville.

5Appellant owns approximately 1300 acres of land located in the planned path of

the Southern Connector, on which he intends to develop a golf course and industrial

park.

6Also allowed to argue before the master were certain amicus curiae petitioners.

These petitioners are a group of Greenville taxpayers who have filed a separate

lawsuit attacking the Southern Connector Project for reasons similar to those raised

by Appellant. Their lawsuit has been stayed pending resolution of the case sub judice. Petitioners were allowed to file an amicus curiae brief in this case.

p5

BRASHIER v. SC DEPT. OF TRANSPORTATION, et al

ISSUES

I. Was compliance with section 57-3-615 of the South Carolina Code required

before SCDOT could initiate the Southern Connector Project?

II. Does the plan to finance the Southern Connector violate Article X, section 11

of the South Carolina Constitution?

III. Do the agreements improperly delegate SCDOT's authority?

DISCUSSION

1. Section 57-3-615

Appellant argues SCDOT's ability to enter into the agreements is limited by

the following provision:

If a toll is administered on a project by the Department of

Transportation, the toll must be used to pay for the construction,

maintenance costs, and other expenses for only that project. A toll project that is in excess of one hundred fifty million dollars may only be initiated as provided in Chapter 37 of Title 4.

S.C. Code Ann. § 57-3-615 (Supp. 1996) (emphasis added). The master ruled

compliance with this section was not required because it violated Article VIII, section

14 of the South Carolina Constitution. Appellant argues this ruling was error. We

disagree and affirm the master's finding of unconstitutionality.

Under section 57-3-615, certain toll projects may only be initiated as provided

in Chapter 37 of Title 4. See S.C. Code Ann. §§ 4-37-10 to -40 (Supp. 1996). This

chapter prescribes procedures which a county may employ to finance and construct

highways, roads, streets, bridges, etc. Counties may raise revenue for such projects

by either sales and use taxes or by toll revenue bonds. Id. at § 4-37-40. Voter

approval is required in a county-wide referendum to accomplish whatever project is

desired. Id. at § 4-37-30(B).

Article VIII, section 14(6) of the South Carolina Constitution provides: "In

enacting provisions required or authorized by this article, general law provisions

applicable to the following matters shall not be set aside: . . . (6) the structure and

the administration of any governmental service or function, responsibility for which

rests with the State government or which requires statewide uniformity." Article

VIII, section 14 "precludes the legislature from delegating to counties the

responsibility for enacting legislation relating to the subjects encompassed by that

section." Robinson v Richland County Council, 293 S.C. 27, 30, 358 S.E.2d 392, 395

(1987). When construing Article VIII, section 14, this Court has consistently held a

p6

BRASHIER v. SC DEPT. OF TRANSPORTATION, et al.

subject requiring statewide uniformity is effectively withdrawn from the field of local

concern. See, e.g., Davis v. County of Greenville, _ S.C. _, 470 S.E.2d 94, 96

(1996) ("Article VIII, § 14 limits the powers local governments may be granted");

Kramer v. County Council, 277 S.C. 71, 282 S.E.2d 850 (1981) (per curiam); Douglas

v. McLeod, 277 S.C. 76, 282 S.E.2d 604 (1981). We have already held that "[t]he

planning, construction, and financing of state roads is a governmental service which

requires statewide uniformity." Town of Hilton Head Island v. Coalition of

Expressway Opponents, 307 S.C. 449, 456, 415 S.E.2d 801, 805 (1992).

Based on this authority, we hold section 57-3-615 violates Article VIII, section

14(6). Section 57-3-615 requires compliance with Chapter 37 of Title 4 in order to

build certain toll projects in the State. Under this chapter, the decision of whether

to construct these projects rests entirely within counties' discretion. Counties are

under no obligation to even submit a certain project to a referendum. See S.C. Code

Ann. § 4-37-10 (Supp. 1996) (county must comply with requirements of chapter if it

chooses to finance construction of a transportation-related project; county may choose

to enter into agreement with other governmental entities). Furthermore, the State,

with which the duty to plan, construct, maintain and operate the state highway

system has been entrusted, and which has been specifically authorized to finance

state roads with tolls, has no other method of building these toll roads other than by

getting county approval. See S.C. Code Ann. §§ 57-1-30; 57-3-200 (Supp. 1996). Thus,

counties have been delegated the authority to approve or disapprove a governmental

service requiring statewide uniformity. The master correctly held Article VIII,

section 14(6) forbids such delegation.7 We find, however, the master erred in ruling

section 57-3-615 unconstitutional only as applied to the Southern Connector Project.

He based this limitation on his finding that some highway projects might be of a

"purely local nature." This finding conflicts with the holding from Town of Hilton

Head Island, which we have here reaffirmed, that state highway projects require

statewide uniformity. Therefore, we modify the master's ruling to hold section 57-3-

615 unconstitutional on its face.

_____________________

7In light of this ruling we decline to address the master's ruling the provisions of

section 57-3-615 do not apply to the Southern Connector Project because it was

initiated before the effective date of the act and because its costs do not exceed $150

million.

Additionally, we decline to address the argument of Respondents Developer

and Association that affirmance is proper on the additional sustaining ground section

57-3-615 violates equal protection and due process. This issue is unpreserved because

it was not ruled on by the trial judge, and while these Respondents claim it was

raised below, there is no evidence in the record of this. O'Tuel v. Villani, 318 S.C.

24, 455 S.E.2d 698 (Ct. App. 1995) (citing Carter v. Peace, 229 S.C. 346, 93 S.E.2d

113 (1956)) (even if matter was raised to trial judge, proposition relied on as

additional sustaining ground must be presented to and passed on by trial court to

warrant consideration on appeal).

p7

BRASHIER v. SC DEPT. OF TRANSPORTATION, et al.

II. Article X. section 11

A. Pledge of State's Credit

"The credit of neither the State nor any of its political subdivisions shall be

pledged or loaned for the benefit of any [private entity]." S.C. Const. art. X, § 11.

Appellant argues the Southern Connector Project's financing scheme violates this

section. We disagree.

There is no lending of the State's credit unless "general credit and taxing

powers are pledged." Medlock v South Carolina State Family Farm Dev. Auth., 279

S.C. 316, 320, 306 S.E.2d 605, 608 (1983). "The limitation imposed ... by Article X,

§ 11 . . . 'relates solely to general obligation bonds payable from the proceeds of ad valorem tax levies."' Carll v. South Carolina Jobs-Economic Dev. Auth., 284 S.C. 438,

443-44, 327 S.E.2d 331, 335 (1985) (quoting Elliott v. McNair, 250 S.C. 75, 85, 156

S.E.2d 421, 426 (1967)) (emphasis added). See also Johnson v. Piedmont Mun. Power

Agency, 277 S.C. 345, 353, 287 S.E.2d 476, 481 (1982) ("bonds issued [by the State]

which are payable out of special funds [such as revenue bonds] do not create debts");

Elliott, 250 S.C. at 86 156 S.E.2d at 427 ("The word 'credit' as here used was

intended to protect the state against pecuniary liability") (emphasis added).

Here, the Southern Connector Project is not being financed with general

obligation bonds, nor is the State required to use any tax revenues to pay the bonds.

To the contrary, the bonds will state on their face they are payable solely from and

secured by toll revenues collected from users of the Southern Connector, and will not

be a debt or loan of credit of the State. This Court has repeatedly held similar

disclaimers sufficient to protect the State from pecuniary liability. See, e.g., Car11,

284 S.C. at 444, 327 S.E.2d at 335; Medlock, 279 S.C. at 320, 306 S.E.2d at 609;

Bauer v. South Carolina State Housing Auth., 271 S.C. 219, 246 S.E.2d 869 (1978).

Furthermore, Association will issue the bonds, not the State. In no way can the State

be legally obligated to pay the bonds. While Appellant argues the State may be

morally obligated to pay off the bonds should toll revenues fall short, this same

argument was made to and dismissed by the court in Carll: "Appellant speculates

that if the Authority defaults on its bonds, the State may choose to pay off the bonds.

The purpose of [Article X, section 11] is to prevent the State from being obligated to

use State tax revenues to pay off the bonds." 284 S.C. at 444, 327 S.E.2d at 335

(emphasis in original). There will be no pledge of the state's credit.

B. Joint Ownership

"Neither the State nor any of its political subdivisions shall become a joint

owner of or stockholder in any company, association, or corporation." S.C. Const. art.

X, § 11. Appellant argues SCDOT has become a joint owner of Association and the

Southern Connector. We disagree.

p8

BRASHIER v. SC DEPT. OF TRANSPORTATION, et al.

SCDOT has a certain amount of control over Association. Directors of

Association are subject to approval by SCDOT and SCDOT can remove any director

for cause. Also, upon Association's dissolution its assets will be distributed to

SCDOT. However, this involvement is insufficient to create joint ownership in

Association or in the Southern Connector by SCDOT. SCDOT is not a stockholder

in Association. The agreements make it clear the Southern Connector will be owned

by SCDOT but operated by Association. "[Tjhis Court has never held a public entity's

naked title to property operated by a private entity resulted in unconstitutional joint

ownership." Johnson v. Piedmont Mun. Power Agency, 277 S.C. 345, 355, 287 S.E.2d

476, 481 (1982) (also noting public entity had acquired neither stock nor any other

form of ownership in private company). At no time will SCDOT and Association

jointly own anything. Nichols v. South Carolina Research Auth.. 290 S.C. 415, 351

S.E.2d 155 (1986), cited by Appellant, is clearly distinguishable. In Nichols, a state

agency admitted that in carrying out joint ventures, it planned to procure ownership

interests in private entities. Id. at 421, 351 S.E.2d at 158.

"This project is admittedly a complex undertaking, but complexity alone does

not condemn it under our Constitution." Johnson, 277 S.C. at 354, 287 S.E.2d at 481.

The State will not be a joint owner in any private entity.

III. State Delegation of Authority

A. Setting of Toll Rates

Article X, section 5 of the South Carolina Constitution states that "[n]o tax,

subsidy or charge shall be established, fixed, laid or levied, under any pretext

whatsoever, without the consent of the people or their representatives lawfully

assembled." Appellant argues the tolls constitute a tax, and SCDOT delegated its

authority to set the tolls (i.e. to tax) because it must consult with Association before

revising toll rates and because Association sets the optimum toll rates. We disagree.

Under the License Agreement, toll rates will be set in the following manner:

Section 3.4. Toll Rates. Pursuant to Section 57-5-1340 of the Code,

SCDOT hereby fixes the initial toll rates for the Southern Connector at

those rates as set forth on Exhibit 1. SCDOT, after consultation with

the Association, shall have the right (but not the obligation) to revise

such toll rates from time to time to rates which are not less than 90%

and not more than 120% of the optimum toll rates as estimated by an

independent traffic consultant retained by the Association.

Notwithstanding the foregoing, all toll rates must satisfy the applicable

rate covenants contained in the Association's financing documents with

the Lender(s) or otherwise applicable to any Project Debt.

Initially, the tolls will not constitute a tax. See, e.g., State v. State Toll Bridge Auth.,

p9

BRASHIER v. SC DEPT. OF TRANSPORTATION, et al.

82 S.E.2d 626 (Ga. 1954) (tolls collected to reimburse building and maintenance costs

do not constitute payment of taxes); North Carolina Turnpike Auth. v. Pine Island.,

Inc., 143 S.E.2d 319, 325 (N.C. 1965) ("Tolls are not taxes"). Furthermore, an

independent expert will be estimating the appropriate toll rate, not Association. The

contract does not require Association's consent before SCDOT can revise the toll

rates. Therefore, even assuming the tolls charged would be considered a tax, there

is no violation of Article X, section 5 and no improper delegation.8

B. Noncompetition Agreement

Appellant argues SCDOT improperly delegated its police power to plan and

implement highways by covenanting not to build "Competitive Transportation

Facilities"9 within a specified geographical area ("Zone")10 of the Southem Connector

8We reject Appellant's argument SCDOT has not been given the statutory

authority to set toll rates. SCDOT has the power to "fix and revise from time to time

and charge and collect tolls for transit over each turnpike facility constructed by it."

S.C. Code Ann. § 57-5-1340(2) (1976). Appellant's argument SCDOT is not

constructing the Southern Connector is meritless. SCDOT is a party to the

agreements and will own the highway being constructed. Finally, appellant's

argument the Southern Connector is not a turnpike facility because it will not be

financed with state turnpike bonds is equally meritless. "Turnpike facility" is defined

as a "highway constructed under the provisions of this article by the department,

whether or not financed with turnpike bonds . . . ." S.C. Code Ann. § 57-5-1320(2)

(Supp. 1996). See also id. at § 57-5-1330 (giving SCDOT power to build turnpike

facilities whenever it determines such facility is justified); id. at § 57-5-1350 (SCDOT

may request issuance of state turnpike bonds to finance facility). Turnpike facilities

do not have to be financed by the issuance of state turnpike bonds.

Additionally, to the extent SCDOT has agreed to contractually limit its own

authority by way of this agreement, we find no improper delegation for the reasons

discussed infra in Part III(B).

9Competitive Transportation Facilities are defined as:

[A]ny facilities which are not Exempt Transportation Facilities and

which are one of the following:

(a) any tolled or non-tolled State Highway, expressway or freeway

which (i) is placed into service after the Agreement Date and (ii)

is located within the [Zone];

(b) any new lanes for use by all types and occupancies of motor

vehicles (except those developed by [Developer] and/or the

Association) (i) which are added to State Highways existing as of

the Agreement Date, (ii) which are not necessary for improved

safety, or emergency maintenance purposes, (iii) which are placed

into service after the Agreement Date, (iv) which are located

p10

BRASHIER v. SC DEPT. OF TRANSPORTATION, et al.

until termination of the agreements.11 We disagree.

SCDOT has been given the police power and duty to plan, construct, maintain,

and operate the state highway system consistent with the needs and desires of the

public. S.C. Code Ann. § 57-1-30 (Supp. 1996). See also id. at § 57-1-20 (establishing

SCDOT as an administrative agency); 39 Am. Jur. 2d Highways,Streets & Bridges

§ 32 (1968) (laying out of highways and streets for public use involves exercise of

state's police power). Initially, we point out that in making these covenants SCDOT

did not actually give its authority to another entity; rather, it contractually limited

__________________________

within the [Zone], and (v) which have a materially adverse impact

on Total Revenues.

Exempt Transportation Facilities are defined as:

Any State project listed in the approved 1995 State

Transportation Improvement Plan[;]

Any State highway improvement, enhancement or modification

necessary for improved safety or emergency maintenance

purposes;

Any action or program carried out by any city, county or other

non-state jurisdiction which has not included funding provided by

SCDOT; and

Any improvements which do not add vehicle capacity or

significantly improve operating speed on competitive routes.

Any state project which is determined to have no material adverse

impact on the Total Revenues of the Southern Connector Project.

For this purpose, "material adverse impact" shall mean a

reduction in the estimated Total Revenues following completion

of the Competitive Transportation Facility which would, with the

delivery of notice, the passage of time, or both, give rise to the

occurrence of an Event of Default of the Association under any

Agreement evidencing or securing any Project Debt.

10Greenville County, south of and including the following routes:

U.S. Route 123 at Pickens County Line to 1-385 in Greenville;

1-385 from downtown Greenville to 1-85; and

1-85 from 1-385 to Spartanburg County Line.

Anderson County south of and including I-85 and east of and including U.S.

Route 76.

Laurens County north of and including U.S. Route 76 and west of I-385.

11The agreements will terminate upon repayment of the bonds, which should occur

thirty-five years after issuance as currently scheduled.

p11

BRASHIER v. SC DEPT. OF TRANSPORTATION, et al.

its authority. As a general rule, administrative bodies cannot alienate, surrender, or

abridge their powers and duties, by contract or otherwise.12 However, courts have

upheld contracts entered into by administrative bodies or local governments arguably

bartering away police power if that body has legislative authority to do so. See, e.g,

Vap v. City of McCook 136 N.W.2d 220 (Neb. 1965) (contract to improve federal

highways within city's borders whereby city, in order to secure federal funds,

promised to prohibit parking on a certain street, held not an improper delegation

because legislature authorized governmental entities to do whatever necessary to

secure federalfunds); Bidlingmeyer v. City of Deer Lodge, 274 P.2d 821 (Mont.

1954).13 This is in keeping with the well-settled principle such bodies may only

exercise those powers specifically delegated to them. See, e.g., S.C. Code Ann. § 57-1-

20 (Supp. 1996) (SCDOT shall have such functions and powers as provided by law);

Riley v. South Carolina State Hwy. Dept., 238 S.C. 19, 118 S.E.2d 809 (1961) (powers

exercised by Highway Department must be found in some legislative act because it

has no inherent authority). Thus, the issue here is whether SCDOT has legislative

authority to enter into noncompetition agreements such as are involved here. We

hold that it has.

To accomplish its functions and purposes of "the systematic planning,

construction, maintenance, and operation of the state highway system ... consistent

with the needs and desires of the public,"14 SCDOT has the following relevant powers.

Generally, it has the power to "lay out, build, and maintain public highways and

bridges."15 It may "enter into such contracts as may be necessary for the proper

discharge of its functions and duties," and "do all other things required or provided

by law."16 More specifically, SCDOT has been given authority to "enter into . . .

partnership agreements with . . . private entities to finance, by tolls and other

financing methods, the cost of acquiring, constructing, equipping, maintaining and

___________________________