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CHAPTER XXI

STATE DEBTS AND CORPORATIONS

ARTICLE VII

282. Purpose and Limits.- Section 1. The credit of the State shall not, in any manner, be given or loaned to, or in aid of, any individual, association, or corporation; and the State shall never assume, or become responsible for, the debts or liabilities of any individual, association, or corporation, unless incurred in time of war for the benefit of the State.

Sec. 2. The State may contract debts to supply casual deficits or failures in revenues, or to meet expenses not otherwise provided for; but the aggre gate amount of such debts, direct and contingent, whether contracted by virtue of one or more acts of the General Assembly, or at different periods of time, shall never exceed the sum of two hundred and fifty thousand dollars; and the money arising from the creation of such debts shall be applied to the purpose for which it was obtained, or to repay the debts so contracted, and to no other purpose whatever.

It will be seen that great pains was taken to prevent the legislature from involving the State in needless debt, but the following sections provide for exceptional

cases.

All

283. First Exception to Limit.-Sec. 3. losses to the permanent, school or university fund of this State, which shall have been occasioned by the defalcation, mismanagement or fraud of the agents or officers controlling and managing the same, shall be audited by the proper authorities of the State. The amount so audited shall be a permanent funded debt against the State, in favor of the respective fund, sustaining the loss, upon which not less than six per cent.

annual interest shall be paid. The amount of liability so created shall not be counted as a part of the indebtedness authorized by the second section of this article.

The educational funds of the State coming from the Federal land grants (130 and 296-301) must be sacredly guarded, and this is the first exception to the general restriction on State indebtedness. Such a loss was incurred early in the history of the State, and, in accordance with this section, the State issued bonds to the amount of $234,498.01 as a permanent debt to make good the loss to the school fund. This debt was not paid until 1893, when the United States government repaid to Iowa her share of the Direct War Tax of 1861. (Hinsdale's American Government, & 343.) The receipt of this money from the Federal Government enabled Iowa to pay her bonds, and left about $150,000 to be expended on a Soldiers' and Sailors' Monument to be erected on the grounds of the State Capitol. (77).

284. Second Exception to Limit. Sec. 4. In addition to the above limited power to contract debts, the State may contract debts to repel invasion, suppress insurrection, or defend the State in war; but the money arising from the debts so contracted shall be applied to the purpose for which it was raised, or to repay such debts, and to no other purpose whatever.

All ordinary restrictions may need to be laid aside under the danger of invasion or serious insurrection, and this second exception is evidently wise and proper.

285. Third Exception.-Sec. 5. Except the debts hereinbefore specified in this article, no debt shall be hereafter contracted by or on behalf of this State, unless such debt shall be authorized by some law for some single work or object, to be distinctly specified therein; and such law shall impose and provide for the

collection of a direct annual tax, sufficient to pay the interest on such debt, as it falls due, and also to pay and discharge the principal of such debt, within twenty years from the time of contracting thereof, but no such law shall take effect until at a general election it shall have been submitted to the people, and have received a majority of all the votes cast for and against it at such election, and all money raised by authority of such law shall be applied only to the specific object therein stated, or to the payment of the debt created thereby, and such law shall be published in at least one newspaper in each county, if one is published therein, throughout the State, for three months preceding the election at which it is submitted to the people.

Sec. 6. The legislature may, at any time after the approval of such law by the people, if no debt shall have been contracted in pursuance thereof, repeal the same; and may, at any time, forbid the contracting of any further debt, or liability, under such law; but the tax imposed by such law, in proportion to the debt or liability, which may have been contracted in pursuance thereof, shall remain in force and be irrepealable, and be annually collected, until the principal and interest are fully paid.

The third exception to the law restricting the indebtedness of the State is based on the principle of the "referendum." In Switzerland, it is customary to require laws to be referred to the people for sanction before they take effect, and it is the opinion of many that the same plan would be of advantage in the United States. Notice how carefully provision is made for the annual payment of interest and the liquidation of the whole debt within twenty years; also for cases where the necessity disappears for borrowing the whole amount authorized.

286. Requirement.- Sec. 7. Every law which imposes, continues, or revives a tax, shall distinctly state the tax, and the object to which it is to be applied;

and it shall not be sufficient to refer to any other law to fix such tax or object.

287.

kind.

Outline Study.

State debts, Art. VII.

Prohibition against, Sec. 1.

Granting the credit of the state,
Assuming certain debts.
Exception;

Contraction of state debt, Sec. 2.

For what purposes,
General limitation;

First exception, touching certain funds, Sec. 3.
Provision for such cases,

Second exception, touching public danger, Sec. 4.

Provision,

Third exception, by referendum, Sec. 5.

How paid,

Limit of time,

Publication,

Payment of interest,

Repeal of law, Sec. 6.

Restriction.

Requirement touching all laws imposing or reviving taxes, Sec. 7.

288. Corporations.-"A corporation is a body consisting of one or more natural persons, empowered by law to act as an individual, and continued by a succession of members." A corporation may own property, sue, and be sued like an individual. There are (1) public or municipal corporations, created for political purposes and sometimes spoken of as political corporations; (2) private or civil corporations created for the private emolument of the members. Cities, counties, and incorporated towns are examples of the first kind, and railroad companies, banks, and manufacturing companies are examples of the second

Article VIII., Section 1. No corporation shall be created by special laws; but the General Assembly shall provide, by general laws, for the organization of all corporations hereafter to be created, except as hereinafter provided.

Sec. 2. The property of all corporations for pecuniary profit shall be subject to taxation, the same as that of individuals.

Sec. 3. The State shall not become a stockholder in any corporation, nor shall it assume or pay the debt or liability of any corporation, unless incurred in time of war for the benefit of the State.

Section I guards against corporations monopolizing privileges by securing rights which others may not have under similar circumstances. The justice of Sec. 2 is very evident. As the State may not be sued, it would be an unwise plan to allow a State to become a stockholder in any corporation which can be sued. 289. Prohibition.-Sec. 4. No political or municipal corporation shall become a stockholder in any banking corporation, directly or indirectly.

This means that no county, city, or town can hold stock in any bank. The county, city, and town, unlike the State, are liable to suit, but a strong prejudice against banks existed in the State when the constitution was adopted (38, 42, 43), and this section is inserted in deference to this feeling and the belief that even local government should have no interest in banking establishments.

290. Bank Legislation.-Sec. 5. No act of the General Assembly, authorizing or creating corporations or associations with banking powers, nor amendments thereto, shall take effect, or in any manner be in force, until the same shall have been submitted, separately, to the people, at a general or special election, as provided by law, to be held not less than three months after the pas

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