Oregon Advisory Opinions July 06, 1982: OAG 82-42 (July 6, 1982)
Collection: Oregon Attorney General Opinions
Docket: OAG 82-42
Date: July 6, 1982
Advisory Opinion Text
OAG 82-42.
On May 18, 1962, the voters of the City of Monmouth adopted a charter provision which provides:
Pursuant to this provision, the Monmouth City Council has referred to its voters some housing projects proposed by the Polk County Housing Authority. Several attempts by developers to obtain city approval to be financed by the Housing Division have been thwarted in the preliminary stages by asserted applicability of this provision."No Slum Clearance, urban redevelopment, urban renewal or public project, financed wholly or partially by funds obtained from the United States Federal Government, shall be initiated nor executed within the limits of the City of Monmouth, Polk County, Oregon, unless the question of whether such project shall be initiated and carried out shall first have been submitted to the electors of the City of Monmouth at a general city election and shall have been approved by a majority of the qualified electors voting in said election." Ch XXXV, sec 1, City of Monmouth Charter. (Emphasis added.)
The Housing Division Multi-unit Housing Finance Program began in 1973 when the Oregon legislature authorized the Housing Division to issue revenue bonds to provide direct mortgage financing for lower-income housing. ORS 456.615 to 456.720. In 1975, as part of this program, the Housing Division began a program to finance apartments which receive rent subsidies from the United States Department of Housing and Urban Development (HUD) pursuant to 42 USC sec 1437, et seq. (hereinafter
referred to as section 8). Under the section 8 program, the Housing Division enters into an agreement with a sponsor whereby the sponsor agrees to complete a designated housing project. The Housing Division and HUD agree that upon completion of the project, the HUD rent subsidy will be provided to enable lower-income families to occupy units in the housing project. The funds for the rent subsidy are passed from HUD to the Housing Division to the project sponsor.
Ordinarily the Multi-unit Housing Finance Program operates as follows.
First, the sponsor obtains a conventional construction loan from a private lending institution. When the construction is complete, the Housing Division uses the proceeds of revenue bonds to "purchase" the construction loan (generally by paying off the loan to the private lending institution). Then, the division provides permanent financing to the sponsor for an appropriate term (usually 30 years). Once the units are occupied, HUD calculates a rent subsidy for each tenant based on the tenant's income and the fair market rental in the area. The rent subsidy is paid to the sponsor on behalf of the tenant as part of the tenant's rent. The rent subsidy is ordinarily used by the developer to pay back the division's loan, and the right to receive the rent subsidy payments is assigned by the sponsor to the division as part of the collateral for the loan.
The first question asked is whether the Multi-unit Housing Finance Program comes within the provisions of ch XXXV, sec 1 of the Monmouth Charter. Specifically, are the projects "financed wholly or partially by funds obtained from the United States Federal Government?"
We recognize that the city is charged with administering its charter provisions, and we would therefore ordinarily defer to the city's own interpretation of an ambiguous provision in its charter. However, in this case the charter is only arguably ambiguous, and as will be discussed below the city's interpretation would render the provision unconstitutional.
We temporarily defer discussion of the constitutional issues. The basic question is whether the phrase "financed wholly or partially by funds obtained from the United States Federal Government" refers only to the initial financing of a project, to the furnishing of loans or grants for the acquisition of property or the construction of a project; or whether it should be construed so broadly as to include a project when the initial financing is from other sources, but the rents are then federally subsidized. Of course the initial financing loans cannot be paid off unless the project generates sufficient rental income. Without rent subsidies, the project could not be offered to lower-income households. Thus, it might be argued that there is "financing of the project" by the federal government.
The City of Monmouth did not treat projects made possible by federal rent subsidies as "federally financed" and subject to ch XXXV, sec 1 in
several cases occurring after its adoption.(fn1) But in November, 1980, ostensibly under ch XXXV, sec 1 it referred to the voters a Polk County Housing Authority housing project in which the only contemplated federal financing was such after-construction rent subsidy. The proposal was defeated.
We conclude that housing projects financed under the Multi-unit Housing Finance Program and which receive section 8 rent subsidies do not fall within the express terms of ch XXXV, sec 1 of Monmouth's charter. The provision refers to financing of public housing projects. The word "finance" ordinarily means the direct loan of money. This interpretation is consistent with the generally accepted definition of the word "finance," which is:
". . . to supply with funds through the issuance of stocks, bonds, notes, or mortgages; to provide with capital or loan money as needed to carry on a business." Black's Law Dictionary 568 (5th ed 1979).
The Housing Division's Multi-unit Housing Finance Program does not involve the loan of money to the sponsor of a housing project by the federal government. Projects constructed under the program are financed by loans from private institutions and state revenue bonds, not federal funds. Federal funds are not received by the sponsor until after the project is completed and the units are occupied. Even then the federal funds are not a loan, as the term "finance" would normally imply, but are in the nature of a grant to the tenant because the funds serve to reduce or subsidize the rent the tenant would otherwise have to pay.
We also reject the only arguably supportable construction that the term "federal financing" includes after-completion federal rent subsidies, for the compelling reason that such a construction, as shown in the following discussion, would clearly be unconstitutional.
The particular case is to be distinguished from any case in which the city is itself involved in the project construction, financing, administration or sponsorship. Such a case would present different problems, which we do not reach. The situation before us is one in which the city is involved only because of the necessity to obtain building permits and satisfy building code requirements. Under the city's zoning ordinances, multi-unit housing is a permitted use of the property involved in the various proposals discussed. Construction of apartments with the same density, to be occupied by middle-income tenants whose rents would not be subsidized, could proceed without voter approval, or any city action except the purely ministerial acts of determining compliance with the zoning ordinances and building codes, and issuance of necessary permits.
In these circumstances, the charter provision discriminates between a builder or sponsor who obtains state or private financing, and a builder or sponsor who obtains federal financing. If the builder's mortgagee is a bank, the project may go ahead; if it is a federal agency, the project is
subject to voter approval and may be rejected. We do not focus on this situation, since no federal money goes into construction of Housing Division projects, but application of the charter provision would raise serious constitutional questions here as well.(fn2)
We focus instead on the situation in which a federal rent subsidy to be paid after completion of construction of the project is deemed to be federal financing, and to require voter approval of the project. In that situation there is a clear disparity between the treatment of middle- and upper-income persons, and low-income persons. The charter provision, so construed, would place no restriction on the construction of housing for middle- and upper-income persons. It would require voter approval for construction of housing for low-income persons. A project can be blocked by the voters if the intended tenants will receive the benefit of rent subsidies, although the identical project could be constructed without impediment if it is intended for a different class of tenants.
The constitutional provisions involved are the Equal Protection requirements of the Fourteenth Amendment to the United States Constitution, and Art I, sec 20 of the Oregon Constitution. The Fourteenth Amendment provides that no state shall "deny to any person within its jurisdiction the equal protection of the laws." Oregon Const Art I, sec 20 provides:
"No law shall be passed granting to any citizen or class of citizens privileges, or immunities, which, upon the same terms, shall not equally belong to all citizens."
Of course not every classification granting privileges to or imposing restrictions upon certain persons or citizens and not to or upon others is invalid. We do not need here to go into the body of cases holding that only unreasonable classifications are invalid.(fn3) We briefly note that the cases establish certain classifications as inherently suspect, e.g., race, national origin and religion, and therefore subject to very close scrutiny. Poverty standing alone, however, has been held repeatedly not to be a suspect classification. E.g., Harris v. McRae, 448 US 297 (1980); James v. Valtierra, 402 US 137 (1971).
Aside from the reasonableness, however, and whether or not a suspect classification is involved, the classification to be valid must rest upon some grounds which are relevant to the achievement of a valid state objective. Turner v. Fouche, 396 US 346 (1970). There must be an appropriate governmental interest, Police Department of Chicago v. Mosley, 408 US 92 (1972); there is a requirement of rationality, James v. Strange, 407 US 128 (1972). These cases saying the same thing in different ways mean that the City of Monmouth can impose a voter approval requirement on rent-subsidized projects, but not on otherwise identical projects, only to achieve a valid purpose of the City of Monmouth.(fn4)
We can discern no possible valid reason for making it more difficult to construct housing for low-income people than for other people. The
referendum requirement here does indeed appear to be "wholly irrelevant to the achievement of a valid state objective." Turner v. Fouche, supra, 396 US at 362.
While we unhesitatingly conclude that Monmouth is not entitled to exclude (or by the referendum to allow its voters to exclude) low-income people from the city, or to prevent the building for them of housing which fully complies with the city's comprehensive plan, zoning ordinances and all building code requirements, nothing in the state or federal constitutions requires the city to act affirmatively to construct low-income housing or otherwise to become involved in such a project.(fn5) (Disregarding, of course, the necessary ministerial acts such as inspection and permit issuance.) This is what distinguishes the case of James v. Valtierra, supra, in which the Court upheld validity of a California constitutional requirement of local voter approval of low-rent housing projects.
In James v. Valtierra, the Court noted that the record did not support any claim that the requirement was aimed at a racial minority, and pointed out that California law provides for mandatory referenda in other areas. Low-income housing was not singled out.
Footnote 4 in the quotation reads as follows:"The people of California have also decided by their own vote to require referendum approval of low-rent public housing projects. This procedure ensures that all the people of a community will have a voice in a decision which may lead to large expenditures of local governmental funds for increased public services and to lower tax revenues. (fn4) It gives them a voice in decisions which will affect the future development of their own community. This procedure for democratic decision making does not violate the constitutional command that no State shall deny to any person 'the equal protection of the laws.'" James v. Valtierra, supra, 402 US at 142-143. (Emphasis added.)
"4. Public low-rent housing projects are financed through bonds issued by the local housing authority. . . . [T]he local government body must agree to provide all municipal services for the units and to waive all taxes on the property. . . ." Id. at 143. (Emphasis added.)
Thus California state law places responsibility for affirmative decision making upon local housing authorities and local governing bodies. This local responsibility and involvement goes far beyond the ministerial responsibility to issue building permits. We take it that this is the reason the Court did not find the challenged classification to rest on grounds wholly irrelevant to the achievement of a valid state objective.(fn6) Monmouth would waive no taxes, nor would it be required to furnish any services which it would not equally be required to furnish to an identical project otherwise financed.
Nor would the referendum requirement bear scrutiny under Or Const Art I, sec 20. In School District No. 12 v. Wasco County, 270 Or 622, 627-628, 529 P2d 386 (1974), the Oregon Supreme Court pointed out that US Const Amd XIV and Or Const Art I, sec 20 embody the same meaning:
"Plaintiffs correctly state that Article I, Section 20, of the Oregon Constitution proscribes any grant of special privileges or immunities to a class of citizens legally indistinguishable from all others so situated; whereas Section 1 of the Fourteenth Amendment of the United States Constitution proscribes the denial of the rights of a disfavored minority. However, this court has stated that such semantic and conceptual differences which may exist between the Fourteenth Amendment and Article I, Section 20, can be resolved in favor of common underlying principles. In Plummer v. Donald M. Drake Co., 212 Or 430, 437, 320 P2d 245 (1958), the court said:
"'The controlling principles which guide the courts in determining questions of alleged unconstitutional discrimination or class legislation are the same whether it is the equal protection clause of the Fourteenth Amendment of the Constitution of the United States which is invoked, or the privileges and immunities provision in Art. I, [sec] 20 of the Oregon Constitution. . . .'"
Finding no valid basis for singling out housing for low-income people as requiring the prior approval of the electorate in all cases, we thus do not need even to reach the prohibition of the Fourteenth Amendment. Article I, sec 20 of our own constitution forbids such discrimination.
As earlier stated, we do not find here applicable the reasons the United States Supreme Court stated for upholding the referendum requirement involved in James v. Valtierra, supra. Further, we note that Oregon courts are not slavishly bound to hold valid anything tested under the federal constitution and found permissible, when tested under a similar provision of the Oregon Constitution. The Oregon Supreme Court has said in Deras v. Myers, 272 Or 47, 64, 535 P2d 541 (1975):
". . . The cases relied upon by defendant were tested under the federal constitution which, as we have already noted, is not controlling where this court is of the opinion that our constitution should provide a larger measure of protection to the citizen."
In a footnote to this comment the court remarked that this would be so even if both constitutions contained the same language.
We believe that applying the test stated in Turner v. Fouche, supra, the charter provision in question would fail. We do not consider James v. Valtierra, supra, in point for reasons stated. Further, even if that case were apposite, we believe that our Oregon Supreme Court would probably consider irrelevant the question of whether the charter provision would or would not violate the Fourteenth Amendment. The court, we predict, would hold that there is present here no permissible basis for discriminating against low-income housing, and the charter provision thus cannot withstand scrutiny under Or Const Art I, sec 20.
We recognize that Deras v. Myers, supra, is a free speech case, and that the Oregon court has held in that and other cases that Or Const Art I, secs 8 and 26 afford different and probably greater free speech and assembly protections than does the First Amendment to the United States Constitution. In contrast, as we have previously noted, it was held in School District No. 12 v. Wasco County, supra, that the Equal Protection
clause of the Fourteenth Amendment and Or Const Art I, sec 20 embody "common underlying principles." If however the United States Supreme Court were to narrow the protections afforded by the Fourteenth Amendment, as we understand them under its previous holdings, we are quite sure that the Supreme Court of Oregon would feel free to conclude that a different result could be appropriate under the different language of Or Const Art I, sec 20.
The initiative and referendum rights guaranteed by the Oregon Constitution (Art IV, sec 1) are entitled to great deference, but the referendum right granted by the charter in this case is not constitutionally protected. It is not referral of a legislative act by the city council. Furthermore, it has long been held that even the constitutionally protected rights of initiative and referendum can rise no higher than the power of the governing body involved. Thus for example if the county commission cannot perform an act by ordinance, the voters of the county cannot do so by initiative or referendum, unless the law otherwise specifically provides.
As early as 1915, it was held that Art IV, former sec 1a, granted voter power only with respect to those municipal powers granted by charter to the city council. Robertson v. Portland, 77 Or 121, 149 P 545 (1915); Portland v. Portland Gas & Coke Co., 80 Or 194, 150 P 273, 156 P 1070 (1916). More recently, in Allison v. Washington County, 24 Or App 571, 548 P2d 188 (1976), it was held that county voters could refer an amendment to the county comprehensive plan. But the court said:
See also 41 Op Atty Gen 100 (1980). Other cases standing for the same proposition (local voters have no more or less legislative authority than the local governing body) include Zilesch v. Polk County, 107 Or 659, 215 P 578 (1923); and Patton v. Withycombe, 81 Or 210, 159 P 78 (1916).". . . Of course . . . the people's law-making power is subject to the same standards, controls and limits as the governing body's based upon the state delegation. . . ." Id. at 587-588.
The point of these two preceding paragraphs is that if the city cannot delegate authority to its city council or an administrative body, to turn down a project which complies with all criteria which have been established, or to prohibit a project on the basis that its tenants will have their rent subsidized, it is equally powerless to delegate such authority to its voters.
In summary, we conclude that the City of Monmouth cannot apply its charter provision to require a referendum on a proposed project of the Housing Division's Multi-unit Housing Finance Program. Its charter
cannot reasonably be read to require such a referendum; if it is, the requirement is clearly unconstitutional.
Footnotes:
1 In January, 1981, there were 72 U.S. Farmer's Home Administration (FmHA) financed single-family homes in Monmouth where the owners received mortgage interest rate reductions adjusted to grants or loans where the grant will be forgiven or the loan repaid on a formula determined by income. There was a 12-unit FmHA-financed project where a lower interest rate mortgage was provided and where nearly all tenants received rent subsidies. Also the Polk County Housing Authority leased 76 units in Monmouth under the section 8 program. Provisions of ch XXXV, sec 1 were not invoked in the approval of any of these projects.
2 It can be argued that in the absence of significant local involvement in the project, there is no legitimate local governmental interest in the identity of the lender financing the project, or rational basis for discriminating between a developer who borrows from the federal government and another who obtains private financing.
3 See Gale v. Department of Revenue, 293 Or 221, 646 P2d 27 (1982), in which the Oregon Supreme Court expounded on "reasonable classification."
4 The acts of a municipality are state acts under the Equal Protection Clause. Lovell v. Griffin, 303 US 444 (1937); Home Telephone and Telegraph Company v. Los Angeles, 227 US 278 (1912).
5 The Land Conservation and Development Commission's Goal 10 requires local governments to take affirmative actions to provide opportunities for the development of lower-income housing. "Providing opportunities" is of course not the same as active sponsorship. The charter provision, however, has the effect of affirmatively discouraging opportunities for the development of lower-income housing.
6 The Oregon Housing Division, in the particular case, would make the decision which would have been made by a local housing authority in the Valtierra case. No governmental body would be required to decide to waive taxes. We suppose that Oregon could subject the Housing Division's discretionary decisions to local or statewide vote, but that no local government, without authorization by state law, could veto or allow its voters to veto such a state agency decision as such.