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Honorable Aubrey L. Layne, Jr.
June2,2017
Page 2
through various laws, including a provision of article X, section 10 of the Constitution of Virginia,
commonly known as the "Credit Clause." 2 It provides as follows:
Neither the credit of the Commonwealth nor of any county, city, town, or regional
government shall be directly or indirectly, under any device or pretense whatsoever,
granted to or in aid of any person, association, or corporation ... Y1
An exception to the Credit Clause provides that "[t]his section shall not be construed to prohibit the
General Assembly from establishing an authority with power to insure and guarantee loans to finance
industrial development and industrial expansion and from making appropriations to such authority."4
The Supreme Court of Virginia has considered a number of cases involving the Credit Clause.
They include cases involving the purchase of securities when the purchase was made in the
Commonwealth's interest, namely, the Virginia Supplemental Retirement System;5 the lease of Virginia
Port Authority facilities by a private company;
6 the issuance of bonds by a public school authority;
7 and
the loan and bond commitments with the City of Charlottesville designed to support a private hotel in the
redevelopment of a blighted neighborhood. 8
In each of these cases, the Court relied heavily on the "moving consideration and motivating
cause of [the] transaction."9 Illustrative of the Court's analysis is the case of the City ofCharlottesville v.
DeHaan, where the Supreme Court of Virginia held that "[w]hen the underlying and activating purpose
of the transaction and the financial obligation incurred are for the State's benefit, there is no lending of
its credit though it may have expended its funds or incurred an obligation that benefits another. Merely
because the State incurs an indebtedness or expends its funds for its benefit and others may incidentally
profit thereby does not bring the transaction within the letter or the spirit of the 'credit clause'
prohibition."10 However, the inverse also is true: if the obligation was incurred primarily to benefit a
private enterprise rather than the public body, then the Credit Clause does apply. As the Attorney
General opined in 1991:
2 See The Honorable Stephen R. McCullough, Modern Transportation Needs and the Prohibitions ofArticle x;
Section JO ofthe Virginia Constitution, 47 U. RICH. L. REV. 441, 441-45 (2012).
3 VA. CONST. art. X, § 10. I note that the Credit Clause is "applicable to all political subdivisions of the State."
1977-1978 Op. Va. Att'y Gen. 181, 182 (citing Harrison v. Day, 200 Va. 750 (1959)). As a political subdivision of
the State, the Peninsula Airport Commission is therefore subject to the Credit Clause. See Cty. of York v. Peninsula
Airport Comm'n, 235 Va. 477,481 (1988).
4 Id. This exception was added by amendment in 1969 in response to the case of Button v. Day, 208 Va. 494
(1968). See 2 A. E. DICK HOWARD, COMMENTARIES ON THE CONSTITUTION OF VIRGINIA 1127-29 (1974). That case
held that under the then-current version of the Credit Clause, it was not constitutionally permissible for the Virginia
Industrial Building Authority to guarantee loans for industrial projects. The crux of the Court's holding was that a
fund designed "for the sole purpose of guaranteeing future payment of defaulted loans of private debtors" was
invalid under the Credit Clause. Button, 208 Va. at 504. Despite the amendment in question, the analysis in Button
v. Day remains a legal cornerstone in the application of the Credit Clause.
5 Almond v. Day, l 97 Va. 782, 783 (1956).
6 Harrison v. Day, 202 Va. 967, 968-72 (1961).
7 Button v. Day, 203 Va. 687, 688-89, 693-94 (1962).
8 City ofCharlottesville v. DeHaan, 228 Va. 578,582,592 (1984).
9 Id. at 585 (quoting Almond, 197 Va. at 790).
10 City ofCharlottesville, 228 Va. at 586 (quoting Almond, 197 Va. at 791).
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