## Facts

- The West Virginia School Building Authority (SBA), a public body corporate, planned to issue over $338 million in “Capital Improvement Revenue Bonds” to finance public school capital improvements under the School Building Authority Act.
- The financing plan created a “School Building Capital Improvements Fund” in the state treasury to pay bond debt service and required a separate sinking fund to help retire the bonds.
- The trust indenture securing the bonds pledged “revenues” in the capital improvements fund, defined to include any monies annually appropriated by the Legislature.
- Bond repayment depended on dedicating a portion of the existing consumer sales tax, which otherwise flowed into the State’s general revenue fund, through ongoing legislative appropriations.
- The bond documents and statute included disclaimers stating the Legislature was not legally obligated to appropriate funds and that the bonds were not backed by the State’s full faith and credit.
- West Virginia taxpayers sued for declaratory and injunctive relief, asserting the plan violated constitutional limits on state debt and pledging state credit.
- The circuit court held the bond issue unconstitutional and enjoined issuance; the SBA and the trustee appealed, and the appeals were expedited.

## Issues

1. Whether bonds intended to be liquidated by dedicating a portion of an existing tax source that flows into the State’s general revenue fund constitute an unconstitutional “indebtedness of the State” under Article X, § 4 of the West Virginia Constitution.
2. Whether the financing structure impermissibly pledges or lends the State’s credit in violation of Article X, § 6.

## Decision

- The Supreme Court of Appeals of West Virginia affirmed the injunction and held the proposed bonds created unconstitutional state debt under Article X, § 4.
- The Court concluded that diverting an existing general-revenue tax stream (consumer sales tax) to service long-term bonds burdens the general revenue fund and therefore falls within the constitutional debt prohibition.
- The Court treated statutory and bond-form disclaimers as insufficient when the practical operation of the plan depended on continued appropriations from general revenues.
- Because the bonds were invalid under § 4, the Court did not rely extensively on § 6 to resolve the case.

## Legal Principles

- Courts evaluate state-bond financing under Article X, § 4 by its practical effect, not by labels such as “revenue bond” or disclaimers that appropriations are not legally required.
- Article X, § 4 permits revenue bonds redeemed from a true special fund, including certain obligations paid from lease rentals, necessary-service payments, or other segregated non-general-fund revenues.
- The Legislature may not liquidate a revenue bond issue from a current tax source that flows into the general revenue fund; doing so creates prohibited state debt by placing a long-term claim on existing general revenues.
- Consistent with the special-fund doctrine, revenue bonds may be supported by a new tax, an increase in an existing tax earmarked for the bonds, or existing special revenues that do not enter the general revenue fund.

## Conclusion

The Court held that the SBA’s proposed school construction bonds were unconstitutional because their repayment depended on diverting an existing general-revenue sales tax through continuing appropriations, which in substance created state debt barred by Article X, § 4, notwithstanding formal disclaimers in the bond documents.


Winkler v. W. Va. Sch. Bldg. Auth., 189 W. Va. 748, 434 S.E.2d 420 (W. Va. 1993)