MASSACHUSETTS HOUSING FINANCE AGENCY vs. NEW ENGLAND MERCHANTS NATIONAL BANK OF BOSTON & others. [Note 1]

CUTTER, J. The plaintiff (MHFA) brings this bill for declaratory relief to determine whether two conditions (see fn. 7, infra, and related text of this opinion) of a purchase and sale agreement made by MHFA with the defendants (the banks) have been met. The banks' answer admits the allegations of the bill. It is stipulated in effect that the pleadings may be treated as constituting a case stated. The case was reported without decision by the single justice.

MHFA is "a body politic and corporate" established by St. 1966, c. 708, as amended by St. 1968, cc. 671, 709, and 761, Section 21. [Note 2] Section 5 (a) of the Act purports to authorize MHFA to make first mortgage loans to such sponsors of multi-dwelling projects as in MHFA's judgment, "have promise of supplying well planned, well designed apartment units which will provide housing for low income persons or families in locations where there is a need for such housing." [Note 3] MHFA has "issued commitments [which have been accepted] to provide construction and permanent mortgage financing to . . . four applicants." Two of these (Interfaith Housing Corporation of Cambridge and Interfaith Housing Corporation) are nonprofit corporations organized under G. L. c. 180. One is a limited dividend corporation.

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One is a limited dividend partnership. Each applicant is attempting to carry out a housing project. [Note 4] MHFA has adopted somewhat imprecise, general regulations governing rental determinations, see Section 6 (a) of the Act, and the terms of tenant selection plans. [Note 5] Section 7 (a) of the Act, requires plans to contain criteria [Note 6] and income limits for tenant selection "which may vary with the size and circumstances of the" applicant family and its income. Section 7 (a) also provides that "income limits shall be sufficiently flexible to avoid undue economic homogeneity among . . . tenants . . . , but for the purpose of initial selection , the annual income of the applicant shall not exceed five times the annual rental for the unit to be occupied" (emphasis supplied). Section 7 (b) provides that annually "tenants whose . . . incomes . . . increase" so that they "exceed six times the rental then being charged . . . shall have . . . [their]

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rental . . . increased to a figure (not in excess of the market rate rental) which will equal one-sixth of the tenant's then net annual income."

To raise funds required during the coming twelve months period, MHFA arranged to sell to the banks $7,000,000 temporary MHFA notes to be issued pursuant to Section 8 of the Act. On April 7, 1969, the banks notified MHFA that they would not accept delivery of the notes and transmitted to MHFA a copy of an opinion of the banks' counsel which (doubtless largely on the basis of Opinion of the Justices, 351 Mass. 716) raises serious doubt about the constitutional validity of the Act.

The agreement for the sale of the notes provided, among other things, that the "obligations of . . . [MHFA] to issue . . . and the . . . [banks] to purchase the [n]otes are subject to" various conditions, the most important of which is "(1) [t]hat the [n]otes, when issued, shall be valid obligations of . . . [MHFA] enforceable in accordance with their terms and duly authorized by the Act and the Constitution of The Commonwealth." Condition (2) is somewhat similar [Note 7] and calls for assurance that certain conditional assistance from future appropriations to ensure the repayment of MHFA's notes will be constitutionally permissible. [Note 8]

In considering the banks' refusal to accept the notes consideration must be given to somewhat complicated, interdependent provisions of the Act in addition to those already

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mentioned. Among these is Section 2 of the Act [Note 9] (entitled "Declaration of Public Necessity"), much relied on by MHFA as justifying the scheme adopted to carry out the Act's purpose. The basic purpose of the Act is expressed in the final sentence of Section 2, viz. "It is . . . imperative that the cost of mortgage financing, which materially affects rental levels . . . be made lower so as to reduce rental levels for . . . low income . . . families, that . . . housing for . . . families displaced by public action or natural disaster be increased, and that private enterprise be encouraged to build housing which will prevent the recurrence of slum conditions . . . by housing persons of varied economic means in the same projects . . . ."

The Act in Section 1 (d) defines "low income persons or families" as "those . . . whose annual income is less than the amount necessary to enable them to obtain . . . decent, safe and sanitary housing without the expenditure of over twenty-five per cent of such income for basic shelter rent plus the additional cost . . . of heat and hot water." Any precision in Section 1 (d) is somewhat reduced by the definition of "[a]nnual income" in Section 1 (e) as "a family's or person's gross annual income less such reasonable allowances for dependents (other than spouse) and for medical expenses as MHFA determines." See, however, fn. 12, infra.

By Section 5 (b) MHFA is authorized to make loans to mortgagors "whether nonprofit or organized for profit" and may

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set its interest rates and charges. See Section 5 (c). The Act, Section 5 (c) and (d), contains provisions to limit the profit received by mortgagors. Prior to making a loan commitment, see Section 5 (g), MHFA must make the findings described in the margin. [Note 10] By Section 6 (b) it is provided that in "each project financed . . . not less than twenty-five per cent of the units . . . shall be rented at all times to low income . . . families at the adjusted rental. [See fn. 5.] The remaining units . . . shall be made available at rentals not lower than the below-market rental for the unit and sufficiently high as determined by MHFA to achieve and maintain a fiscally sound project." Section 6 (c) directs that "rentals received . . . in excess of the below-market rental . . . shall be applied, pursuant to . . . [MHFA] regulations . . . to reduce rentals from the below-market rental [see fn. 5] to achieve and reduce adjusted rentals" for low income persons.

Section 8 of the Act permits MHFA to issue negotiable bonds and notes to carry out its corporate purposes upon terms and conditions which need not be stated in detail. By Section 12 it is stated that MHFA "will be performing an essential governmental function" and that the Commonwealth "covenants with . . . holders . . . of the notes and bonds . . . that the [MHFA] notes and bonds . . . and the income therefrom shall at all times be free from taxation." Later in this opinion (see part 3) there is discussion of Section 9 of the Act which provides that the credit of the Commonwealth and its subdivisions shall not be deemed to be pledged.

The banks contend that the Act is invalid, and hence that

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the conditions precedent (see fn. 7) to their obligation to purchase the MHFA notes have not been met, for three principal reasons, viz. (1) that the Act is not supported by any proper public purpose within Part II, c. 1, Section 1, art. 4, of the Constitution of the Commonwealth, at least to the extent that the Act affords rental benefits to families of moderate income; (2) that unduly broad legislative powers have been delegated to MHFA without the provision of proper standards to govern their exercise; and (3) that Section 9B (c) of the Act (see fn. 13, infra) improperly requires the Legislature to make appropriations in future years in certain specified circumstances. We discuss below each of these contentions.

We recognize, of course, that the Act resembles the bill (1966 House Bill No. 3696; see 1965 House Doc. No. 4040) considered by the Justices in Opinion of the Justices, 351 Mass. 716. See 1966 Ann. Surv. Mass. Law, Section 15.38; note, 80 Harv. L. Rev. 1811. A majority of the Justices there advised (p. 728) that, "[S]o far as the purpose of . . . [that] bill is to provide housing for families of moderate income, the bill does not appear to be confined to a public purpose. The possibility that the rents paid by moderate income families, possibly up to seventy-five per cent in a project, will subsidize lower rents paid by low income families is too indirect and uncertain to enable us to say that expenditures of tax money under this bill will be for a public purpose."

When called upon, as we are now sitting as a court, to deal again with questions once considered in our advisory capacity, we regard it as our duty to consider the issues anew and to guard against any influence which might arise from the prior advisory consideration of the same questions. See Perkins v. Westwood, 226 Mass. 268, 271-272; Dodge v. Prudential Ins. Co. 343 Mass. 375, 379-380. Our advisory opinions, as the Perkins case indicates, are not "binding authorities," but are "open to reconsideration and revision" (see also Lowell Co-op. Bank v. Co-operative Cent. Bank, 287 Mass. 338, 345), particularly when (as in the present instance)

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the legislative proposals, once considered in an advisory capacity, have been subsequently modified and clarified.

1. The intention of the complex statutory provisions of the Act is to make available mortgage financing at favorable interest rates to housing projects in which, in general, one quarter of the tenants will be in the "low income" category and the other tenants will be of moderate income. The lower interest rates will be achieved (a) by having MHFA borrow on a favorable basis by giving its bonds or notes, which are to be exempt from all Massachusetts property and income taxes and presumably also from current Federal income taxes, thus (b) permitting MHFA to lend to a borrower from it at interest lower than those which would be charged if the borrower were to obtain funds in the general mortgage market. The saving in interest is to be applied in part (but not entirely [Note 11]) to making possible lower rentals to "low income" tenants, who may also receive the benefit of rent subsidies from a program conducted under Section 236 of the Federal Housing and Urban Development Act of 1968, 12 U. S. C. Section 1715 z-1, added by Pub. L. 90-448, Title II, Section 201 (a), 82 Stat. 498.

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If the present projects (see fn. 11) are fair examples of the savings in interest available to a project owner from MHFA financing, most of that saving will be applied to the reduction of rents payable by low income families, although there may be also smaller reduction, below general market levels, of rents for moderate income tenants. The rent for any moderate income tenant, however, will not be allowed, under Section 7 (b) of the Act already quoted in part, to fall below one sixth of the tenant's net annual income for the time being (or the fair market rental, whichever is lower). Thus the Act itself provides for upward rent adjustments for moderate income tenants to prevent their receiving any undue part of the benefit of MHFA financing.

Despite the precautions taken in the Act to minimize benefits to tenants of moderate income, the question inevitably arises whether MHFA's lending (at lower than market interest rates) of money borrowed on tax exempt notes is for other than a public purpose because part of the housing and rent saving accrues to persons of moderate income not within the low income group usually regarded as suitable objects of public support. Also, Section 9A (b) of the Act appropriated to MHFA a sum, repayable by MHFA, to provide for initial expenses and by Section 9B (c), see fn. 13, infra, continuing legislative appropriations to the Capital Reserve Fund are at least contemplated.

The use of public funds "in a rational manner toward the elimination of slums" by the provision of "low-rent housing for families of low income (not paupers)" was held permissible in Allydonn Realty Corp. v. Holyoke Housing Authy. 304 Mass. 288, 292-296, where (at pp. 292-293) Qua, J. suggested various factors to be considered in determining whether an expenditure was proper or improper. Slum clearance or the clearance of blighted areas has been a factor supporting urban renewal laws and urban redevelopment. See Papadinis v. Somerville, 331 Mass. 627, 630-632; Bowker v. Worcester, 334 Mass. 422, 428-430; Opinion of the Justices, 341 Mass. 760, 776-777; Dodge v. Prudential Ins. Co. 343 Mass. 375, 383. See also Opinion of the Justices,

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334 Mass. 760, 763-764; Moskow v. Boston Redevelopment Authy. 349 Mass. 553, 561; Opinion of the Justices, 354 Mass. 779, 785-786. We assume (without deciding) that some of the constitutional difficulties mentioned in Opinion of the Justices, 211 Mass. 624, 626, 629-630, may have been obviated by art. 43 of the Amendments to the Constitution of the Commonwealth.

The use of public funds to provide housing for veterans (Opinion of the Justices, 320 Mass. 773, 781) and for needy, elderly persons (Opinion of the Justices, 331 Mass. 771, 776-777) has been sustained. We stated in Opinion of the Justices, 351 Mass. 716, 727, that the provision of proper housing available at low rentals to persons of low income "could be for a public purpose." As we then read the proposed legislation, however, we concluded that the bill was not confined to such a purpose because (p. 728) "as many as seventy-five per cent of the apartment units in each project could be given to persons not of low income."

It is urged upon us by MHFA, in effect, that the Act is intended (see Section 2 and fn. 9, supra) to accomplish slum clearance more effectively and more permanently than in earlier subsidized public housing by avoiding undue concentration of low income tenants and by achieving for such tenants "exposure to and close contact in as many areas as possible with more successful members of society." The Legislature, so MHFA contends, has made a "determination to proceed with . . . housing . . . low income families in projects also inhabited by those somewhat more affluent." It is also argued by MHFA that "families with middle class property standards are more likely to . . . assist in maintaining reasonable standards of . . . property upkeep which will . . . instruct low income families . . . in how to take care of housing and . . . insure that the project's basic value will not be radically lowered by tenant abuse."

After stating that the upward adjustment of "rentals . . . on three units . . . to obtain a sufficient `subsidy' . . . enable[s] the fourth unit to be made available for low income persons," MHFA makes the following contentions

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"To the extent that the higher rental in these units will be below what the free market would charge, a necessary inducement will be provided to families not of low income to live together with low income . . . families in the project. . . . [T]his inducement . . . [may] counteract the fact that people do not normally choose to live in projects or neighborhoods with people of substantially lower incomes . . . [or] to `subsidize' lesser rents charged in other units to make this possible. It is this mixing of families of varied economic means which will provide for the prevention and hence `permanent elimination' of slum conditions in the project, which was expected in . . . [earlier] days . . . to occur simply through the construction of low-rent housing." Some of these contentions were made in substance in 1965 House Doc. No. 4040, pp. 37-41, upon which was based the bill considered in the 1966 advisory opinion ( 351 Mass. 716).

It is not for this court to consider whether these contentions are sound as a matter of economics and public policy. That is a legislative matter. Our duty is merely to consider whether the Legislature reasonably could consider them to be valid and could rationally regard the provisions of proper housing for low income families as the fundamental purpose of the Act and any benefits to persons of moderate income as only incidental to the primary objective, although contributing to its achievement. We are of opinion that the Legislature may properly enact legislation which proceeds on the basis of the considerations for which MHFA contends.

We have taken into account the changes in the 1966 bill which were made after our advisory opinion concerning it ( 351 Mass. 716). Although more precise standards for, and more effective limitation of, MHFA loans appropriately could have been imposed, material improvement of the original 1966 bill has been achieved. We mention some improvements in the margin. [Note 12] The most important change

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for present purposes is the insertion of new Section 5 (g) requiring findings by MHFA. See fn. 10, supra. This provision we interpret as designed to ensure, among other things, that low income families will obtain substantial benefit from each project and that (with stated exceptions) each project will be matched within a reasonable time by public agency elimination of an equal number of substandard units. To this extent slum clearance and elimination is thus added to the other objectives of the Act.

The Act appropriately might have provided specifically that rents for tenants other than low income persons or families should not be fixed below the market rent level for comparable property by more than the minimum amount found by MHFA to be necessary to induce suitable persons of moderate income to occupy apartments in a project where the mixture of tenants may be extremely diverse. We, however, regard such a requirement as reasonably implied in the general provisions and structure of Sections 5, 6, and 7 of the Act. See e.g. Section 6 (c), already quoted in part. The existence of this implied requirement in some degree is confirmed by MHFA's own application of the standards of these sections in approving the four projects for which commitments have been made. We thus conclude that the standards, expressly stated or implied in the Act, effectively require MHFA (a) to restrict loans under the Act to such projects as are of substantial benefit to low income persons

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and families; and (b) to make sure that any benefit to tenants not within the low income category will be at most incidental to, and no greater than is necessary for, achieving the Act's primary objective of proper housing in appropriate surroundings of persons of low income.

2. What has been said largely disposes of the banks' contention that there has been improper delegation of authority with respect to tenant selection and determination of what constitutes low income. Section 1 (d) of the Act lays down a reasonable standard. That standard may not properly be defeated by any unwarranted MHFA determination under Section 1 (e) of "reasonable allowances for dependents . . . and for medical expenses." The Act obviously intends that each such determination shall be consistent with similar allowances by other public agencies, with general current standards of expenditure in the community, and with the apparent objective to restrict the term "low income persons or families" to persons genuinely requiring assistance in obtaining proper housing because of poverty.

The standards for arranging the terms of MHFA loans to projects might have been stated with greater definiteness. Nevertheless, it is reasonably apparent from the Act what those standards are. See Massachusetts Bay Transp. Authy. v. Boston Safe Deposit & Trust Co. 348 Mass. 538, 544-553. Loan terms are to be set on a basis which will tend to achieve as fully as possible the objectives of the Act in providing low cost housing for low income families. Obviously too burdensome terms to project borrowers will tend to defeat those objectives by keeping rents high. If terms are too favorable to such borrowers, however, any excess profits must be applied to rent reductions in accordance with Section 6 (c), dividends will be restricted under Section 5 (d), and by Section 5 (e) the use of nondistributed profits will be regulated. The structure and general provisions of the Act make it plain that MHFA must so subject borrowers to regulation by the terms of loan agreements and by appropriate regulations under Section 4 (p) as to ensure that project expenses are appropriately restricted, that accounting is accurate and informative,

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and that each project realizes no more in profit and earnings than is contemplated by the Act and is so conducted as to achieve the Act's objectives for the benefit of low income families. It may be significant that Section 15 of the Act requires an annual audit of MHFA by the State Auditor.

3. The second condition precedent to the banks' obligation to accept the MHFA notes (see fn. 7, supra) includes the requirement that Section 9B (c) of the Act (see fn. 13, infra) be "a constitutionally permissible statement of intention on the part of the Commonwealth . . . to augment the Capital Reserve Fund, if necessary, by . . . assistance" from appropriations. Whether this aspect of the second condition has been satisfied depends upon consideration of the provisions of Section 9 and Section 9B (c) of the Act.

At a first reading these sections appear to be in conflict with each other. Section 9 provides that MHFA's bonds and notes "shall not . . . constitute a debt of the commonwealth or of any political subdivision thereof i\or a pledge of the faith and credit of the commonwealth or of any such political subdivision, but such bonds and notes shall be payable solely from the proceeds of mortgage loans made under this act, reserve funds created therefor by the MHFA , and any mortgage insurance contracts pertaining thereto" (emphasis supplied). Section 9B (c), set out in the margin [Note 13] was inserted by St. 1968, c. 709, Section 4. The question thus is presented

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whether Section 9B (c), especially the italicized language (a) imposes on the Legislature any binding obligation to make appropriation of funds as therein provided or (b) is merely a legislative statement of intention, not amounting to a legal obligation, as the parties and one of the amici curiae suggest in their briefs. If the latter meaning is correct, there is no inconsistency between Section 9 and Section 9B (c).

Borrowing by MHFA, an independent authority, does not involve a pledge of the Commonwealth's credit. See Massachusetts Bay Transp. Authy. v. Boston Safe Deposit & Trust Co. 348 Mass. 538, 556; Opinion of the Justices, 354 Mass. 779, 784-785. We interpret Section 9 as precluding MHFA from giving any assurance that the Commonwealth is bound to, or will in fact, contribute by appropriation to the MHFA capital reserve fund in later years. The declarations in Section 9 indicate to us that Section 9B (c) was not intended to constitute any form of legislative commitment to make an appropriation to the capital reserve fund in any later year, even if one Legislature could make such a commitment for another, a matter which we have not considered and do not discuss. The section does not make any present appropriation. At most, Section 9B (c), read with Section 9 and as a matter of statutory interpretation, constitutes only an expression of a future intention or expectation which has no legally binding effect. It is also significant that a portion of Section 9 of the Act, not quoted above, expressly directs that all MHFA's "bonds and notes shall contain on . . . [their] face . . . a statement . . . that neither . . . MHFA nor the commonwealth . . . shall be obligated to pay the same or the interest thereon except from . . . proceeds [of mortgage loans made under the Act], reserve fund or mortgage insurance contracts and that neither the faith and credit nor the taxing power of the commonwealth or any . . . subdivision thereof is pledged to the payment of the principal or the interest on such bonds." [Note 14]

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In view of our interpretation of Sections 9 and 9B (c) no purchaser or holder of MHFA's bonds or notes has any basis whatsoever for relying to any extent on any appropriation under Section 9B (c) by the present or any subsequent Legislature, despite the amorphous legislative declaration of intention to make appropriations found in that section. Cf. Maryland Indus. Dev. Fin. Authy. v. Meadow-Croft, 243 Md. 515, 521-526; Maryland Indus. Dev. Fin. Authy. v. Helfrich, 250 Md. 602, 609-621. We see no likelihood of special circumstances which would create for the benefit of any bondholder or noteholder [Note 15] anything in the nature of a "moral obligation" upon the Legislature to appropriate any funds at all pursuant to its statement of intention in Section 9B (c). The situation seems plainly distinguishable from that considered in Williamsburgh Sav. Bank v. State, 243 N. Y. 231, 244-249. There is no occasion to consider whether, upon the precise facts of that case, we would be guided by it. Because MHFA's bondholders would not have the slightest claim to enforce, or to rely upon, any appropriation under Section 9B (c), any appropriation in fact made would necessarily have some aspects of a "gratuity" to them. See Eisenstadt v. County of Suffolk, 331 Mass. 570, 572-574; Paddock v. Brookline, 347 Mass. 230. See also James v. Mayor of New Bedford, 319 Mass. 74, 76. Cf. Opinion of the Justices, 320 Mass. 773, 780-781; Opinion of the Justices, 354 Mass. 799.

That bondholders may receive a benefit which they cannot enforce does not mean that the Legislature lacks power to make an appropriation. If any Legislature should see fit to make appropriations under Section 9B (c), such appropriations,

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indirectly at least, will be in aid of the public purpose underlying housing projects for which, under the safeguards in the Act, appropriations lawfully may be made. If there were to be a default under MHFA's bonds, and a legislative failure to carry out the expressed (but not binding) intention set forth in Section 9B (c), the credit of the Commonwealth and its political subdivisions conceivably might be injured in some degree. The ability of MHFA to effect later borrowings for proper public purposes might well be adversely affected, thus making its subsequent operations more difficult. Although we hold that no obligation or duty whatsoever exists to make any appropriation in accordance with Section 9B (c), we think that such an appropriation, if made, will be valid and "constitutionally permissible." We think also that it was "constitutionally permissible" for the 1968 Legislature to make the statement of intention contained in Section 9B (c) although its members knew, or should have known, that the statement had and was intended to have no binding effect and said just that in Section 9 of the Act.

4. For the reasons stated, the first and second conditions precedent to the banks' obligation to purchase MHFA's note have been satisfied. None of the matters argued indicates any sound ground upon which the banks may refuse to make the purchase.

5. A final decree is to be entered declaring that the banks are bound to purchase MHFA's notes in accordance with their agreement.

So ordered.