Si~nifil~lI1t Dccisions 01 thc Suprcmc Court 01 Arkansas SponsoT(!d by til' ArknllslLf SUpT(!l1I< Court Histoncal Soci~ty, Inc.
Cobb v. Parnell March 9, 1931 By Mort Citelman In modern times everyone is quite used to the idea of using public money to encourage economic development by private enterprise. State and local governments invest tax monies to build industrial parks, subsidize job-producing industries, build stadiums to lure sports franchises, create enterprise and empowerment zones, and issue bonds [Q enable expansion of private business activities. This practice did nor always prevail. In the period after the Civil War, states erected a "wall of separation" between the public and private sectors of the economy, and many state constitutions enacted or amended in the 1870's and thereafter prohibited public investment in the private sector. The Arkansas Constitution of 1874 is typical of the strict separation of the public and private sectors. In Article 16, Section I, our Constitution provides: "Neither the State nor any city, county, rown or other municipality in this State: shall ever loan irs credit for any purpose whatever; nor shall any county, city, town or municipality ever issue any interest-bearing evidences of indebtedness. ..." Our of mis provision grew the bedrock constitutional principle rhar public money could nor be used for private purposes, but only for public purposes. What influenced this principle was the experience in many states of me questionable practices of many railroad companies seeking public investment in the extension of their lines. Almough public subsidies to railroads were common in antebellum decades, during me rapid expansion of local rail lines after rhe Civil War, many companies sent out advance men to sell railroad srock and bonds to cities and towns in exchange for promises to run the lines through those places. Often the railroads would either build elsewhere or go into
28 n,e Arkansas Lawyer
www.arkbar.com
receivership, and the public would be stuck with worthless bonds or stock. Municipal bankruptcies were common and many states saw their treasuries looted by the rapacious rajlroads. In most states, inclucling Arkansas, the principle that public money could only be used for public purposes was strictly applied. In 1931, however, the Arlcmsas Supreme Coun essentiaJly abandoned me principle. The case was Cobb v. Pnnt"~ 183 Ark. 429, 36 S. W.2d 388. This case represents a sharp turning point and was decided by a 4路3 vore. What was Cobb about? The onset of the Creat Depression dealt Arkansas and the Midwest a double blow. In 1930 nearly twO dozen states in the central United States suffered the mOSt severe drought seen in many decades. Virtually all the crops failed, and the corron crop-a crop usually resistant to droughtwas less than 50 percent of the normal yield. Due to the drought and to the great stock market crash of 1929, more than 100 banks in Arkansas, including the state's largest, failed, and closed their doors during a threemonth period in 1930. Farmers throughout Arkansas, and many other persons were literally ar the edge of starvarion. The nnly relief available was the Red Cross, and a large number of citizens were entirely reliant on the Red Cross for subsistence. In one county 20,000 our of a population of 22,000 were on relief. Although widespread starvation was avoided, undernourishment and malnutrition prevailed mroughout the state. When the General Assembly convened on Jan. 12, 1931, rhe problem of the F.u-m distress was high on the agenda. Very quickly the legislature passed, and Governor Parnell signed, Acts 10 and 34, the acts challenged in the Cobb case. Acr 10 was approved on Feb. I I, and Act 34 on Feb. 18. The statutes created a state agricultural credit board, empowered to issue $1.5 miUion in bonds secured by rhe full faith and credit of the state, for the purpose of making loans to farmers and stocknlen. The acts also levied a general one-half mill tax to retire the bonds, and, in order to have immediate funds pending sale of [he bonds, authorized the transfer of $1.5 million from
the highway [[us< fund to the credir of rhe new board (upon sale of the bonds rhe proceeds would be rerurned to the accoum of rhe highway department). These aas were immediately challenged on constitutional grounds. The courts acted quickly. Chancellor Dodge in the Pulaski Chancery Court upheld the staJUtes; the case was appealed, and the Supreme Court opinions
were issued on March 9. 1931, less than a month after the enactments. The majority opinion. written by Justice Buder, acknowledged the principle rhat public money could not be used for private purposes; he also discussed rhe leading cases from ocher jurisdictions char upheld the principle in factually similar circumstances. The leading case "on all fours" was from Kansas, 5tau v. Osmvk~~ 7Ow1lship, 14 Kan. 418, 19 Am.Rep. 99. The Supreme Court of Kansas held that a statute appropriating money (0 be loaned (Q farmers after a drought year to enable the purchase of seed to planr a new crop was nor for a public purpose. Another seed grain case from Minnesota also held the same way. Justice Butler, however, found cases from Alabama, South Carolina and North Dakota holding mat me rdief ofcalamities following natural disasters was a public purpose. He was obviously impressed with the North Dakora case, where mat state's supreme court wrote that "legislation in aid of dcS[irute farmers will serve to illustrate the well-known fact that legislation under the pressure of a public sentiment, born of stern necessity, will adapt itself to new exigencies, even if in doing so a sanction is given to a broader application of elementary principles of government than have before been recognized and applied by the courts in adjudicated cases." Burler posed the issue: "The question presented for our consideration is this: Is the purpose and effect of the act now before us a loan by the State of irs credit to foster individual enterprises, or is it one which has for irs end the accomplishment of a purpose which will secure the State from a general threatened evil and promote the welfare of its cidzens?" He concluded: "We mink me
Historical Society Continued on page 31