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Abstract

Provision in the Wisconsin Constitution that “The state shall never contract any public debt . . .” led the Wisconsin Legislature to authorize a complex plan for financing an extension to an existing state office building. Following statutory authority, the State Building Commission (hereafter called “the commission”) proposed to lease the existing building, and the land upon which it stood, to the Wisconsin State Public Building Corporation (hereafter called “the corporation”), a dummy corporation. The consideration was one dollar, and the lease was made on condition that the corporation construct a desired extension to the office building. The lease was for fifty years, and expressly authorized the corporation to borrow money from the State Investment Board to finance construction of the extension by mortgaging the leasehold interest in the existing building and lands. By an agreement between the State Investment Board and a private insurance company, the latter was to take over the loan. The corporation was to re-lease the entire property back to the commission, for a term of thirty-four years, at a rate equal to the semi-annual payment of principal and interest on the corporation’s mortgage. The commission in turn was to rent space in the building to the various state agencies—the rent being paid from general tax revenues. Upon default of the corporation’s obligation the mortgagee-insurance company was given power to foreclose upon the leasehold interest and dispose of it at public auction. In a declaratory judgment action to determine the validity of this statutory plan, held: the statutes, insofar as they authorized mortgaging an interest in the existing building and lands, were unconstitutional and void. In so doing, the court repudiated a case precedent of twenty-five years standing, upholding a similar plan.

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