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Honorable Aubrey L. Layne, Jr.
June 2, 2017
Page 3
"[T]he moving consideration and motivating cause of a transaction are the chief factors
by which to determine if it is prohibited by [the Credit Clause]. Whether or not a
transaction contravenes the 'credit clause' ... depends upon its animating purpose and
the object that it is designed to accomplish."
[... ]
"[T]o state the matter another way, its purpose is to see that public money is used only
for public purposes." If the purpose is clearly to foster and encourage the operation of a
private enterprise, however, then the Supreme Court has not hesitated to declare the
transaction violative of [the Credit Clause of the Constitution]. [I 11
Given your description of the facts at hand, the Court's analysis in Button v. Day, as discussed in
the 1991 opinion of the Attorney General, is especially informative. Here, the Commission guaranteed
the Bank loan of $5,000,000 to PEX. Without that guarantee, the Bank would not have provided the loan
to PEX. While the loan to PEX was reportedly for operating expenses, the loan transaction documents
also list significant debts of PEX for repayment. Indeed, based upon the information presently available,
the loan appears to also largely refinance existing debt of PEX. Accordingly, the "moving consideration
and motivating cause" 12 of the guarantee was to facilitate the refinancing of existing debt of PEX, in
addition to providing some startup operating costs. That is, the loan guarantee was for the purpose of
"[encouraging] the operation of a private enterprise,"13 which brings it within the ambit of the Credit
Clause prohibition.
Because the loan guarantee is subject to the prohibition in the Credit Clause, the precise question
presented is whether the General Assembly has authorized the Commission to "insure and guarantee
loans to finance industrial development and industrial expansion," acts which are permissible for
Virginia public authorities under the exception to the Credit Clause.
The legal authority to insure and guarantee such industrial loans has been granted by the General
Assembly only in limited circumstances using specific language.
For example, the Virginia Small
Business Financing Authority is empowered to provide "loans, guarantees, insurance and other
assistance to small and other eligible businesses" as part of its mission to promote industrial development
in the Commonwealth.
14
11 1991 Op. Va. Att'y Gen. 213, 215-16 (quoting Almond, 197 Va. at 790, and Button, 208 Va. at 694).
12 See DeHaan, 228 Va. at 585.
13 1991 Op. Va.Att'yGen.213,216.
14 VA. CODE ANN. § 2.2-2280(A) (2014) (emphasis added). Comparable authority has been granted by the
General Assembly in a number of other situations. For example, see the Industrial Development and Revenue Bond
Act (VA. CODE ANN.§§ 15.2-4900 to 15.2-4920 (2012 & Supp. 2016). Also, the Economic Development Authority
of the City of Newport News created by the 1972 Acts of Assembly, ch. 726 (as the Oyster Point Development
Corporation), as amended, has such specific powers under § 4(e) of their legislative authority. See
http:! /law .!is. virginia.gov/authorities/economic-development-authority-of-newport-news/.
The
Virginia
Port
Authority has such powers under§ 62.l-132.l(A)(6) of the Code. The Chesapeake Port Authority created by the
1987 Acts of Assembly, ch. 397, as amended, has such powers under § 6, paragraphs 21 and 22 of their legislative
authority; and the City of Chesapeake under § 7 of that legislative authority may "make such appropriations and
provide such funds for the operation and carrying out the purposes of the Authority as its Council may deem proper,
either by outright donation or by loan." See http://law.lis.virginia.gov/authorities/chesapeake-port-authority/.
Interestingly, the Portsmouth Port and Industrial Commission created by the 1954 Acts of Assembly, ch. 157, (as the
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