Lending of Credit Reinterpreted: New Opportunities for Public and Private Sector Cooperation

In the nineteenth century popular disillusion with costly, direct public subsidies of private railroads led to the adoption of Washington Constitution article VIII, sections 5 and 7 and article XII, section 9.1 These provisions prohibit public purchase of stock in private corporations and the giving of public money or property or the lending of public credit to private individuals or corporations, except for the necessary support of the poor and the infirm. Today public incentives to private enterprise are heralded as prerequisites to economic revitalization and effective international competition.’ In addition, declining federal and state aid has caused local political and business leaders to view economic development jointly undertaken by the public and private sectors as a means to expand the local tax base and finance major public projects.4 Washington’s constitutional legacy has, however, constrained the response of state and local government to these contemporary economic challenges. The nineteenth century schemes were characterized by egregious private speculation with public tax dollars.’ Modern programs of cooperative public and private development are characterized by significant public controls and often do not even involve public funds. Nonetheless, in two major cases in 1974 and 1980, involving the issuance of tax-exempt industrial development bonds, the Washington Supreme Court significantly expanded the scope of these constitutional prohibitions.

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Jay A. Reich, Lending of Credit Reinterpreted: New Opportunities for Public and Private Sector Cooperation, 19 Gonz. L. Rev. 639 (1984).

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