Could the Peninsula Airport Commission legally guarantee a private bank loan to People Express Airlines using public airport funds?

Plain-English summary

The Secretary of Transportation asked whether the Peninsula Airport Commission's guarantee of a $5 million bank loan from TowneBank to People Express Airlines (PEX) was legal under Virginia law. When PEX defaulted, the Commission paid the bank the full balance using airport entitlement funds, which are public money from the state Commonwealth Airport Fund. The Commission had also been paying interest on the loan when PEX could not.

The Attorney General concluded the arrangement was unlawful. Article X, § 10 of the Virginia Constitution (the Credit Clause) prohibits the Commonwealth or any county, city, town, or regional government from extending its credit "directly or indirectly, under any device or pretense whatsoever" to any person, association, or corporation. The clause was added after Virginia's 19th-century debacle with public money in private turnpikes, canals, and railroads. There is one exception, also constitutional: the General Assembly may establish an authority specifically empowered to insure and guarantee loans for industrial development and expansion.

Applying the Supreme Court of Virginia's "moving consideration and motivating cause" test (from Almond v. Day and City of Charlottesville v. DeHaan), the AG concluded the Commission's guarantee was a Credit Clause violation. The bank would not have made the loan without the guarantee, and the loan largely refinanced existing PEX debt. So the guarantee's animating purpose was to support a private enterprise, not a public benefit. The exception did not save the transaction because the General Assembly never gave the Peninsula Airport Commission the explicit power to guarantee private loans. That power had been carefully granted elsewhere (Virginia Small Business Financing Authority, Virginia Port Authority, certain port and economic-development authorities), but not to this Commission.

Currency note

This opinion was issued in 2017. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here.

Background and statutory framework

The Credit Clause has been part of the Virginia Constitution since the post-Civil War era. The Commonwealth had taken on debt by investing public money in private turnpikes, canals, and railroad companies, and the clause was a categorical bar against that practice. The text is sweeping: neither the Commonwealth, nor any county, city, town, or regional government may grant credit "directly or indirectly, under any device or pretense whatsoever" to a person, association, or corporation. The Peninsula Airport Commission, as a political subdivision of the Commonwealth, is subject to the clause (Cty. of York v. Peninsula Airport Comm'n, 235 Va. 477 (1988)).

A 1969 amendment carved out one industrial-loan exception: the General Assembly may "establish an authority with power to insure and guarantee loans to finance industrial development and industrial expansion and from making appropriations to such authority." This exception was a direct response to Button v. Day (1968), where the Court held that the Virginia Industrial Building Authority could not constitutionally guarantee industrial loans under the pre-amendment Credit Clause.

The Supreme Court of Virginia tests Credit Clause cases by asking what the "moving consideration and motivating cause" of the transaction is. If the underlying purpose is to benefit the State and the public, and private parties only incidentally profit, the clause is not violated (City of Charlottesville v. DeHaan, 228 Va. 578 (1984)). If the underlying purpose is to support a private enterprise, the clause is violated, even when the public body claims it is acting for an economic-development reason.

The AG's analysis hit two boxes. First, the Credit Clause applies: PEX's loan substantially refinanced existing PEX debt, the bank required the Commission's guarantee to make the loan, and so the guarantee's animating purpose was to assist the private airline. Second, the exception does not apply: the General Assembly has used very specific language when it grants industrial-loan-guarantee powers (the Virginia Small Business Financing Authority gets that power in Code § 2.2-2280(A); the Virginia Port Authority gets it in Code § 62.1-132.1(A)(6); certain port and economic-development authorities also get it). The Peninsula Airport Commission's enabling Act has nothing like that language.

Common questions

What does the Credit Clause actually prohibit?
Public bodies (the state, counties, cities, towns, regional governments, and their political subdivisions) cannot lend their credit to or for the aid of any private person, association, or corporation, in any form. That includes loan guarantees, even where the public body claims an economic-development justification.

What is the "moving consideration and motivating cause" test?
The Supreme Court of Virginia uses this test to decide whether a transaction violates the Credit Clause. It looks past the form of the transaction to its purpose. If the underlying purpose is a public benefit (and private benefit is just incidental), the clause is not violated. If the underlying purpose is to support a private enterprise, the clause is violated regardless of how the deal is structured.

Was the loan to PEX really for a private purpose?
According to the AG, yes. The loan was structured for "operating expenses" but the documents listed significant PEX debts for repayment, so the loan was substantially refinancing existing private debt. Without the Commission's guarantee, the bank would not have made the loan. The animating purpose was therefore propping up the private airline, not a public benefit.

Aren't airports public goods? Why isn't supporting an airline a public purpose?
The AG distinguished between supporting the airport (clearly a public function the Commission is created to perform) and guaranteeing a private airline's bank debt. Public bodies can run airports, lease space to airlines, build runways, and so on. They cannot guarantee a private airline's commercial bank loan unless the General Assembly has specifically authorized that activity.

What kind of authority does have power to guarantee private loans?
The General Assembly has granted it carefully, using explicit language, to certain bodies. The Virginia Small Business Financing Authority gets it under Code § 2.2-2280(A). The Virginia Port Authority gets it under Code § 62.1-132.1(A)(6). Industrial development authorities have it through the Industrial Development and Revenue Bond Act (Code §§ 15.2-4900 to -4920). Specific economic-development authorities (Newport News, Chesapeake) have similar powers in their enabling Acts. Without that explicit language, an authority cannot guarantee private loans.

Could the Peninsula Airport Commission's general "do all things necessary or convenient" clause cover loan guarantees?
No. The AG concluded that guaranteeing private credit is not one of the "purposes of the Act" establishing the Commission. Under the doctrine expressio unius est exclusio alterius (mentioning specific items implies omitted items were excluded), the Commission's lack of explicit loan-guarantee power means the General Assembly did not intend to grant it. The Dillon Rule reinforces the same result.

What practical consequences flow from this opinion?
Public airport authorities, port authorities, and other political subdivisions should not rely on general welfare or "incidental power" language to guarantee private bank loans. They need explicit statutory authority and the proper Credit Clause exception. The Commission's payment of the loan from public airport funds raises potential recoupment, audit, and personal-liability questions for the officials who approved the transaction, although the opinion does not address those.

Citations

• Va. Const. art. X, § 10 (the Credit Clause)
• Va. Code § 2.2-2280 (Virginia Small Business Financing Authority)
• Va. Code § 62.1-132.1(A)(6) (Virginia Port Authority)
• Va. Code §§ 15.2-4900 to -4920 (Industrial Development and Revenue Bond Act)
• Button v. Day, 208 Va. 494 (1968) (industrial-loan guarantee unconstitutional)
• City of Charlottesville v. DeHaan, 228 Va. 578 (1984) (moving consideration test)
• Almond v. Day, 197 Va. 782 (1956)
• Cty. of York v. Peninsula Airport Comm'n, 235 Va. 477 (1988) (Commission is political subdivision)
• 1991 Op. Va. Att'y Gen. 213

Source

• Landing page: https://www.oag.state.va.us/annual-reports-opinions/official-opinions
• Original PDF: https://www.oag.state.va.us/files/Opinions/2017/17-023Layne.pdf

Original opinion text

COMMONWEALTH of VIRGINIA
Office of the Attorney General
Mark R. Herring
Attorney General

June 2, 2017

The Honorable Aubrey L. Layne, Jr.
Secretary of Transportation
Post Office Box 1475
Richmond, Virginia 23218

Dear Secretary Layne:
I am responding to your request for an official advisory opinion in accordance with § 2.2-505 of
the Code of Virginia.

Issue Presented
You ask whether the guarantee of a private loan to People Express Airlines ("PEX") by the
Peninsula Airport Commission (the "Commission") is permitted under Virginia law.

Background
You have provided several documents, including: a loan commitment letter, a line of credit
agreement, a line of credit note, and a commercial guarantee of a $5,000,000 loan to PEX by the
Commission. The loan was made by TowneBank, a state-chartered bank (the "Bank"). You state that
without the loan guarantee of the Commission, the Bank would not have made the loan to PEX.

You state that when the bank loan was called into default, the Commission, as the guarantor,
repaid the Bank the entire loan amount. The Commission utilized certain airport entitlement funds to pay
the bank balance. Those funds are public funds allocated to the airport from the Commonwealth.[1] You
also state the Commission made several monthly interest payments on behalf of PEX (when PEX failed
to make the payments due) from additional airport entitlement funds prior to the loan being called into
default.

Applicable Law and Discussion
As a result of Virginia's long and troubled history of incurring debt by investing public money in
private turnpike, canal, and railroad companies, the Commonwealth sought to curb such practices
through various laws, including a provision of article X, section 10 of the Constitution of Virginia,
commonly known as the "Credit Clause."[2] It provides as follows:

Neither the credit of the Commonwealth nor of any county, city, town, or regional
government shall be directly or indirectly, under any device or pretense whatsoever,
granted to or in aid of any person, association, or corporation ...[3]

An exception to the Credit Clause provides that "[t]his section shall not be construed to prohibit the
General Assembly from establishing an authority with power to insure and guarantee loans to finance
industrial development and industrial expansion and from making appropriations to such authority."[4]

The Supreme Court of Virginia has considered a number of cases involving the Credit Clause.
They include cases involving the purchase of securities when the purchase was made in the
Commonwealth's interest, namely, the Virginia Supplemental Retirement System;[5] the lease of Virginia
Port Authority facilities by a private company;[6] the issuance of bonds by a public school authority;[7] and
the loan and bond commitments with the City of Charlottesville designed to support a private hotel in the
redevelopment of a blighted neighborhood.[8]

In each of these cases, the Court relied heavily on the "moving consideration and motivating
cause of [the] transaction."[9] Illustrative of the Court's analysis is the case of the City of Charlottesville v.
DeHaan, where the Supreme Court of Virginia held that "[w]hen the underlying and activating purpose
of the transaction and the financial obligation incurred are for the State's benefit, there is no lending of
its credit though it may have expended its funds or incurred an obligation that benefits another. Merely
because the State incurs an indebtedness or expends its funds for its benefit and others may incidentally
profit thereby does not bring the transaction within the letter or the spirit of the 'credit clause'
prohibition."[10] However, the inverse also is true: if the obligation was incurred primarily to benefit a
private enterprise rather than the public body, then the Credit Clause does apply. As the Attorney
General opined in 1991:

"[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].[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]

The General Assembly has not enacted comparable language for the Commission.[15] Without that
specific grant of authority, I must conclude that the Commission is not authorized to utilize public funds
to insure and to guarantee loans to a private airline.[16]

Conclusion
For the foregoing reasons, it is my opinion that the action of the Peninsula Airport Commission
in guaranteeing a bank loan to People Express Airlines is an extension of public credit within the ambit
of the prohibition in the Credit Clause contained in article X, section 10 of the Constitution of Virginia.
As such, it is permissible only if the General Assembly has specifically authorized the Commission to
insure or guarantee such extensions of public credit under the exception to the Credit Clause. It is my
further opinion that the General Assembly has not so authorized the Commission.
With kindest regards, I am
Sincerely yours,

Mark R. Herring
Attorney General

[1] Section 58.1-638(A)(3) of the Code of Virginia creates in the Department of the Treasury from sales and use tax revenue "a special non-reverting fund which shall be part of the Transportation Trust Fund and which shall be known as the Commonwealth Airport Fund .... The funds shall be allocated by the Virginia Aviation Board to any Virginia airport which is owned by the Commonwealth, or a governmental subdivision thereof," in this case the Commission.

[2] See The Honorable Stephen R. McCullough, Modern Transportation Needs and the Prohibitions of Article X, Section 10 of the Virginia Constitution, 47 U. RICH. L. REV. 441, 441-45 (2012).

[3] VA. CONST. art. X, § 10. I note that the Credit Clause is "applicable to all political subdivisions of the State." 1977-1978 Op. Va. Att'y Gen. 181, 182 (citing Harrison v. Day, 200 Va. 750 (1959)). As a political subdivision of the State, the Peninsula Airport Commission is therefore subject to the Credit Clause. See Cty. of York v. Peninsula Airport Comm'n, 235 Va. 477, 481 (1988).

[4] Id. This exception was added by amendment in 1969 in response to the case of Button v. Day, 208 Va. 494 (1968). See 2 A. E. DICK HOWARD, COMMENTARIES ON THE CONSTITUTION OF VIRGINIA 1127-29 (1974). That case held that under the then-current version of the Credit Clause, it was not constitutionally permissible for the Virginia Industrial Building Authority to guarantee loans for industrial projects. The crux of the Court's holding was that a fund designed "for the sole purpose of guaranteeing future payment of defaulted loans of private debtors" was invalid under the Credit Clause. Button, 208 Va. at 504. Despite the amendment in question, the analysis in Button v. Day remains a legal cornerstone in the application of the Credit Clause.

[5] Almond v. Day, 197 Va. 782, 783 (1956).

[6] Harrison v. Day, 202 Va. 967, 968-72 (1961).

[7] Button v. Day, 203 Va. 687, 688-89, 693-94 (1962).

[8] City of Charlottesville v. DeHaan, 228 Va. 578, 582, 592 (1984).

[9] Id. at 585 (quoting Almond, 197 Va. at 790).

[10] City of Charlottesville, 228 Va. at 586 (quoting Almond, 197 Va. at 791).

[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'y Gen. 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.lis.virginia.gov/authorities/economic-development-authority-of-newport-news/. The Virginia Port Authority has such powers under § 62.1-132.1(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 Portsmouth Port Commission), as amended, has the independent power "[t]o provide financing by leasing, selling, which shall include selling by pocket deeds, or making loans for facilities for a § 501(c)(3) organization, including all items of cost for such facilities and for working capital for use by such § 501(c)(3) organization, and to adopt such resolutions and to enter into indentures, contracts, instruments and agreements as may be expedient to issue qualified § 501(c)(3) bonds and to provide for such loans and any security therefor." Those powers are found at § 25(a) of their legislative authority. See http://law.lis.virginia.gov/authorities/portsmouth-port-and-industrial-commission/.

[15] The Commission is empowered to "do all things necessary or convenient to the purposes of this Act. Grant of regulatory authority by this Act, including regulations that displace, eliminate or limit competition by or among persons or entities, is based on the policy of the Commonwealth to provide for the safe, adequate, economical and efficient provision of air transportation and related facilities and services to the public." Peninsula Airport Commission Act, at § 3(r) (1946 Va. Acts ch. 22; 1964 Va. Acts ch. 270; 1968 Va. Acts ch. 777; 1989 Va. Acts ch. 270). This language cannot reasonably be interpreted to authorize the Commission to guarantee private credit, since doing so is not one of "the purposes of [the] Act." Further, the General Assembly could easily have given the Commission the explicit power to guarantee private debt as it did for the Virginia Small Business Financing Authority, yet it chose not to do so. When interpreting legislation, one must "assume that the legislature chose, with care, the words it used when it enacted the relevant statute." Alger v. Commonwealth, 267 Va. 255, 261 (2004) (internal quotation marks omitted). Further, under the doctrine of expressio unius est exclusio alterius, the "mention of specific item in a statute implies that omitted items were not intended to be included within the scope of a statute." GEICO v. Hull, 260 Va. 349, 355 (2000) (internal quotation marks omitted). The clause in question does authorize certain specific activities, such as limiting competition and providing safe air transportation, but it does not mention guaranteeing private debt.

[16] Nor does the Commission, as a political subdivision of the Commonwealth, have the implied authority under the Dillon Rule to insure or guarantee such a loan. See Commonwealth v. Cty. Bd. of Arlington Cty., 217 Va. 558, 562 (1977); 1985-1986 Op. Va. Att'y Gen. 91, 93.