WDW Props. v. City of Sumter - 342 S.C. 6, 535 S.E.2d 631 (2000)

Rule:

The court should first determine the ultimate goal or benefit to the public intended by the project in determining whether the public purpose doctrine is violated. Second, the court should analyze whether public or private parties will be the primary beneficiaries. Third, the speculative nature of the project must be considered. Fourth, the court must analyze and balance the probability that the public interest will be ultimately served and to what degree.

Facts:

The Internal Revenue Code authorizes the use of federally tax-exempt local government bonds that finance business enterprises in designated urban "empowerment zones." The secretary of the United States Department of Housing and Urban Development (HUD), at the request of local government officials, in 1998 declared about 18 square miles located in Richland and Sumter counties as an urban empowerment zone. The governing body of City in 1999 declared its downtown to be a "slum and blight area" and designated it as a "redevelopment project area" located in the empowerment zone. Uptown Synergy plans to develop the Hampton at Main Project, located in the redevelopment project area. The $ 4.3 million project consists of interior and exterior renovations of three adjoining historic buildings, which would be leased for commercial office and retail space. The project is expected to create twenty full-time jobs, and the developer hopes to target low- and moderate-income persons for employment at the various offices and retail businesses. In its application for financing to the South Carolina Jobs-Economic Development Authority (JEDA), Uptown Synergy stated the project would "serve as the cornerstone for the revitalization of downtown Sumter and the surrounding communities." JEDA's governing board adopted a resolution in which it pledged to seek authorization from the state Budget and Control Board to issue $ 2.5 million in economic development revenue bonds that would be exempt from state and federal income taxation. Under loan documents executed in 1999, JEDA would loan the bond proceeds to Uptown Synergy to finance about 58 percent of the project's cost. Uptown Synergy would repay the loan with revenue from the project. No tax money is involved or pledged with regard to the project. However, the tax-exempt nature of the bonds would result in lower interest costs to Uptown Synergy than it would pay if it had to obtain conventional financing. WDW, a general partnership, owns and leases Liberty Square, which includes mini-warehouse units, retail businesses, and commercial office space. Liberty Square is not located in the empowerment zone and is not eligible for government-sponsored financing. Uptown Synergy's project would compete with Liberty Square for tenants and patrons. The apparent reason for WDW's lawsuit is its belief that government-sponsored financing gives Uptown Synergy an unfair economic advantage in the competition for tenants and patrons. A master-in-equity rejected WDW's claims after a bench trial and WDW appealed. 

Issue:

Did the master err in holding that the JEDA loan program serves a public purpose through the redevelopment of blighted urban areas?

Answer:

No.

Conclusion:

The court affirmed the opinion of the lower court, holding that the determination of public purpose was one for the legislative branch and that legislation was not for a private purpose merely because some individual made a profit as a result of the enactment. Elimination of decaying and unhealthy areas within a city directly benefited the public, although private parties within the area might also benefit incidentally. The public would be the primary beneficiary although developers within the empowerment zone would benefit more from the favorable loan rate and the new businesses attracted than those outside the zone.