IN THE SUPREME COURT OF THE STATE OF OREGON

INTERNATIONAL LONGSHORE AND WAREHOUSE UNION,Plaintiff-Appellant,

v.

PORT OF PORTLAND; COMMISSIONERS OF THE PORT OFPORTLAND, in their individual and official capacities; BILL WYATT, in his

individual and official capacity; and BRUCE A. HOLTE,Defendants-Respondents.

United States Court of Appeals for the Ninth CircuitCase No. 1435376

Oregon Supreme Court Case No.: S064608

APPELLANT’S OPENING BRIEF

Certification Order from the United States Court of Appeals for the NinthCircuit filed December 27, 2016.

The Honorable Circuit Judges Richard R. Clifton,Mary H. Murguia, and Jacqueline H. Nguyen

March/2017

Robert H. Lavitt (OSB #40083)lavitt@workerlaw.comSCHWERIN, CAMPBELL, BARNARD,IGLITZIN AND LAVITT, LLP18 West Mercer Street, Suite 400Seattle, WA 98119-3871 | T: (206) 257-6004

Emily M. Maglio (Cal. SB #267190)emaglio@leonardcarder.comAndrew J. Ziaja (Cal. SB #262283)aziaja@leonardcarder.comLEONARD CARDER, LLP1188 Franklin Street, Suite 201San Francisco, CA 94109 | T: (415) 771-6400Attorneys for Appellant

Randolph C. Foster (OSB #784340)rcfoster@stoel.comJeremy D. Sacks (OSB #994262)jeremy.sacks@stoel.comSTOEL RIVES LLP760 SW Ninth Avenue, Ste. 3000Portland, OR 97205 | T: (503) 224-3380Attorneys for Appellees Port of Portland,et al.

Gregory J. Miner (OSB #86247)gminer@batesmanseidel.comBATEMAN SEIDEL MINERBLOMGREN CHELLIS & GRAM, PC888 SW Fifth Avenue, Suite 1250Portland, OR 97204 | T: (503) 972-9932Attorney for Defendant Bruce A. Holte

April 7, 2017 03:30 PM

ii

TABLE OF CONTENTS

Nature of Action ......................................................................................................1

Nature of Judgment to be Reviewed.......................................................................1

Statutory Basis for Jurisdiction ...............................................................................1

Question Presented ..................................................................................................2

Summary of the Arguments ....................................................................................2

Statement of the Facts..............................................................................................5

I. Carrier Programs ............................................................................................7

2012 Terminal 6 Carrier Retention Program.........................................8A.

2013 Container Carrier Incentive Program............................................9B.

II. ICTSI Programs ..........................................................................................9

2012 Cost Sharing Program..................................................................10A.

2013 Rent Rebate Program...................................................................13B.

III. Undisputed Facts From the Port’s Financial Records and Port Deposition

Testimony ....................................................................................................14

Argument ................................................................................................................15

I. Article XI, Section 9 of the Oregon Constitution Prohibits the Investment

of Public Financial Resources in Private Enterprise, And Carruthers

Remains the Appropriate Standard for Evaluating the Port’s Subsidy

Programs. ......................................................................................................17

II. Because Their Design From the Outset Failed to Comply With

Carruthers, the Port’s Subsidy Programs Violated Article XI, Section

9………………………………………………………………………… 24

III. The Port’s After-the-Fact Implementation of Certification or Waiver

Language Could Not Have Cured the Subsidy Programs’ Violation of

Article XI. .....................................................................................................29

iii

Absent Statutory Preauthorization, Certifications Do Not SufficientlyA.

Guard Against a Charge Being Made Upon Tax Revenue, and Thereby

Fail to Guard Against Violation of Article XI, Section 9.........................30

Waivers of the Right to Claim Against Tax Revenue Do Not AdequatelyB.

Guard Against Violation of Article XI, Section 9, Whether by

Themselves or in Combination With Certifications. ................................33

IV. The Lack of Legislative Preauthorizations for the Port’s Subsidy

Programs Further Invalidate Them Under Article XI, Section 9, as it

Frustrates Judicial Review..........................................................................36

V. The Port’s Carrier and ICTSI Subsidy Programs Additionally Violated

Article XI, Section 9 Because They Actually Drew on Tax Revenue.....39

The Port’s Subsidy Programs Drew on its General Fund, Which IncludedA.

Tax Revenue. ...............................................................................................40

Assuming Arguendo That the Port Adequately Segregated its PropertyB.

Tax Revenues, the Port’s Operating Income is Nonetheless Insufficient to

Offset its Operating Expenses and, Thus, the Port Must Have Used Other

General Fund Monies, Which Included Commingled Taxes, to Pay for

thePrograms……………………………………………………………. 44

1. Operating Income Statements are the Proper Documents for

Determining Whether or Not the Port Could Fund the Programs

Completely From its Non-Tax Operating Revenues. ..........................44

2. Operating Expenses Exceeded Operating Revenue in All Relevant

Levels of Analysis Identified by the Port: (1) the Port’s Marine

Division, (2) the Port’s Container Business Line, and (3) the Port’s T6

Business Units. ......................................................................................46

3. The Port’s T6 Fund Did Not Represent a Source of Funding for the

Programs Separate From Property Taxes.............................................48

4. The Port Could Have Drawn on Further Tax Revenues to Fund the

Programs. ...............................................................................................49

Conclusion..............................................................................................................51

iv

TABLE OF AUTHORITIES

Cases

Adams v. Bargaining Unit Benefits Bd.,

103 Or. App. 288 (1990) ....................................................................................18

Carruthers v. Port of Astoria,

249 Or. 329 (1968) ... 2, 3, 4, 16, 17, 18, 19, 20, 21, 22, 24, 25, 26, 27, 28, 29,

31, 32, 33, 35, 36, 38, 39, 51

DeFazio v. Wash. Pub. Power Supply Sys.,

296 Or. 550 (1984) .............................................................................................18

Holder v. Humanitarian Law Project,

561 U.S. 1 (2010) ...............................................................................................37

Homebuilders Ass’n of Metropolitan Portland v. Tualatin Hills Park and

Recreation District,

185 Or.App. 729, 741 (2003).............................................................................37

Humanitarian Law Project v. U.S. Treasury Dept.,

578 F.3d 1133 (9th Cir. 2009) ...........................................................................37

Hunter v. City of Roseburg,

80 Or. 588 (1916) ................................................ 2, 3, 18, 22, 23, 24, 31, 33, 36

ILWU v. Port of Portland,

No. 14-35376 (9th Cir., December 27, 2016) ................................. 1, 3, 5, 7, 21

Johnson v. Sch. Dist. No. 1,

128 Or. 9 (1929) .................................................................................................18

Lane Cnty. v. Paulus,

57 Or. App. 297 (1982) ................................................................................36, 41

Lucas v. Department of Revenue,

Or. Tax Magistrate Div., 2001 WL 1735066 (2001)........................................38

Mattel, Inc. v. Walking Mountain Prods.,

v

353 F.3d 792 (9th Cir. 2003) .............................................................................43

Miles v. City of Eugene,

252 Or. 528 (1969) .................................2, 3, 18, 20, 21, 22, 23, 24, 31, 33, 36

Poole v. Textron, Inc.,

192 F.R.D. 494, 504 (D. Md. 2000) ..................................................................44

Ransom v. FIA Card Services, N.A.,

562 U.S. __ (2011) .............................................................................................37

State ex rel. Kane v. Goldschmidt,

308 Or. 573 (1989) .............................................................................................17

Turner Constr. Co. v. Nat’l Am. Ins. Co., Inc.,

2004 WL 6066675, at *4 (N.D. Cal. Sept. 20, 2004).......................................43

United States v. Garcia,

37 F.3d 1359 (9th Cir. 1994) .............................................................................37

United States v. Sperry Corp.,

493 U.S. 52, 62 n.9 (1989)................................................................................36

United States v. Ward,

197 F.3d 1076 (11th Cir. 1999) .........................................................................37

Statutes

Or. Const. Art. XI

§ 9 ........................................................................................................ 5, 17,18, 19

29 U.S.C. § 152........................................................................................................6

Or. Rev. Stat.

§ 174.116(2)(hh) ...................................................................................................5

§ 198.605...............................................................................................................5

§ 778.101...............................................................................................................5

vi

Rules

Fed. R. Civ. P. 30(b)(6) ...................................................................................42, 43

1

NATURE OF ACTION

This is a civil action for declaratory relief, injunctive relief, damages, and

attorney fees and costs under Article XI, section 9 of the Oregon Constitution.1

NATURE OF JUDGMENT TO BE REVIEWED

The United States Court of Appeal for the Ninth Circuit certified a

question of Oregon law to this Court on an appeal from a grant of summary

judgment before the United States District Court for the District of Oregon.

ILWU v. Port of Portland, No. 14-35376, slip op. (9th Cir., December 27, 2016)

(ER 1856-67).

STATUTORY BASIS FOR JURISDICTION

On certification from a Court of Appeal of the United States,

[t]he Supreme Court may answer questions of law [. . .], whenrequested by the certifying court if there are involved in anyproceedings before it questions of law of this state which may bedeterminative of the cause then pending in the certifying court andas to which it appears to the certifying court there is no controllingprecedent in the decisions of the Supreme Court and theintermediate appellate courts of this state.

ORS 28.200. In this case, the Ninth Circuit Court of Appeals concluded that

“this court has been unable able to find, and the parties have not identified, any

Oregon Case law that discusses whether [the Port’s] accounting methods may

1 Appellant’s Opening Brief was filed on March 17, 2017 and is being refiledon April 6, 2017 per the Court’s March 24, 2017 directive.

2

allow the Programs to survive Section 9 scrutiny.” ILWU, No. 14-35376, slip

op. at *4 (ER 1866-67).

QUESTION PRESENTED

The United States Court of Appeals for the Ninth Circuit certified the

following question to the Oregon Supreme Court:

Does a municipal corporation that holds its tax and non-taxrevenues in the same bank account but that segregates the revenuesthrough financial management and accounting techniques violatearticle XI, section 9, of the Oregon Constitution when themunicipal corporation uses its funds to finance programs thatbenefit private enterprise if the programs contain neither, one, orboth of the following two contractual provisions: (1) the municipalcorporation certifies that it will not use tax revenue to fund theprograms; (2) the program beneficiaries waive any right to make aclaim against the municipal corporation’s tax revenue to satisfy themunicipal corporation’s program obligations?

ILWU, slip op. at *11. The issue before this Court, therefore, is whether the

measures taken by the Port after it implemented its subsidy programs for the

benefit of private enterprise would be sufficient to remedy a violation of article

XI, section 9, of the Oregon Constitution. See id.

SUMMARY OF THE ARGUMENTS

Article XI, section 9 of the Oregon Constitution prohibits the investment

of public financial resources in private enterprise. In Carruthers v. Port of

Astoria, 249 Or. 329 (1968), Miles v. City of Eugene, 252 Or. 528 (1969), and

Hunter v. City of Roseburg, 80 Or. 588 (1916), this Court set out its framework

3

for compliance with Article XI, section 9. To satisfy Article XI, section 9, local

governmental entities must act in accordance with authorizing legislation and

then implement specific provisions to insulate tax revenue from expenditures

for private benefit. Although those cases involved revenue bonds for

infrastructure development, the principles they establish are equally applicable

when, as here, the purpose of public spending is to subsidize a private company

that contracted to operate public infrastructure at the Port of Portland and other

private companies that do business with that company. The principles set out in

Carruthers and its sibling cases invalidate the Port’s Subsidy Programs, and

answer the question certified to this Court by the Ninth Circuit Court of

Appeals.

From the outset due to their design, which failed to comply with

Carruthers, the Port’s Subsidy Programs violated Article XI, section 9.

Whether Article XI, section 9 is violated where neither certifications nor

waivers are in place essentially asks whether a public entity’s own internal

accounting and financial management mechanisms suffice to guard against

violation of the Oregon Constitution. Nothing in Carruthers, Miles, or Hunter

supports the view that a public entity may self-assess whether it has complied

with Article XI, section 9 based purely on its internal accounting and financial

management practices. Accounting and financial management mechanisms are

only one of four requirements of public-private investment programs under

4

Article XI, section 9 and Carruthers. They do not adequately protect public

revenues.

Where certifications, waivers, or both were in place, the Port’s Subsidy

Programs also violated Article XI, section 9 because they are expenditures for

private benefit amounting to “a general obligation of the [local governmental

entity], [or] a charge upon the tax revenue of such [entity] . . . .” Carruthers,

249 Or. at 337. Carruthers accordingly requires inter alia that a constraint on

the public entity’s ability to draw on tax revenue be written into the spending

program’s design from the outset, before the public entity spends a single dollar

for private benefit. Id. at 339 (requiring four safeguards to be expressly written

into the design of public expenditure programs for private benefit). Carruthers

also requires the presence of pre-authorizing legislation as a check against a

local governmental entity’s ability to “charge upon tax revenue.” 249 Or. at

337, 339. The question certified by the Ninth Circuit Court of Appeals asks

whether the use of certifications, waivers, or both are adequate constraints on

the Port’s subsidy programs. See also id. The Port’s use of certifications and

waivers nevertheless failed to cure a violation of Article XI, section 9, because

the Port introduced such language into the Programs’ design only after they had

been implemented, and because there was no legislation in place to constrain

the Port’s ability to “charge upon tax revenue.” See 249 Or. at 337.

5

Additional considerations, discussed below, also urge the conclusion that

the Port’s Programs failed under Article XI, section 9. The absence of

authorizing legislation frustrates judicial review of public financial management

practices due to inherent difficulties in reviewing the movement of fungible

assets. Undisputed facts, furthermore, demonstrate that the Port actually did

draw upon tax revenue to fund the Subsidy Programs at issue in this case.

STATEMENT OF THE FACTS

Appellant ILWU represents longshoremen and marine clerks employed

by waterfront companies who are members of a multiemployer association, the

Pacific Maritime Association (“PMA”), at all West Coast ports including

Portland, Oregon. ILWU has hundreds of members who reside and work in

Oregon, and whose interests are affected by the Port’s conduct described herein.

(ER 3, para. 4).

Appellee Port of Portland is, and at all times herein mentioned was, a

port district in the State of Oregon, which owns marine terminals located on the

Columbia River, including Terminal 6. The Port is, and at all times mentioned

herein has been, “a political subdivision” of the State of Oregon and a

municipal corporation under Oregon law. Or. Const. Art. XI, § 9; Or. Rev. Stat.

§§ 778.101; 174.116(2)(hh), 198.605; (ER 1820-21; ER 3, para. 5).

6

The ILWU and PMA are parties to a single, coastwise, collective

bargaining agreement covering all commercial ports along the West Coast of

the United States from San Diego, California to Bellingham, Washington. The

collective bargaining agreement is known as the “Pacific Coast Longshore and

Clerks Agreement” (“PCL&CA”), which is set forth in two documents, (1) the

Pacific Coast Clerks Contract Document, which governs the wages, hours, and

terms and conditions of employment for marine clerks employed by PMA

member companies, and (2) the Pacific Coast Longshore Contract Document

(“PCLCD”), which governs the terms and conditions of employment of all

longshoremen, including longshore mechanics, employed by PMA member

companies, including ICTSI Oregon, Inc. (“ICTSI”). ICTSI is an Oregon

corporation and wholly owned subsidiary of International Container Terminal

Services Inc., a private company or corporation based in the Philippines. PMA

and ICTSI are, and at all times mentioned herein have been, each an employer

within the meaning Section 2(2) of the NLRA, 29 U.S.C. § 152(2). (ER 4, para.

8).

In 2012 and 2013, the Port implemented programs to provide substantial

tax dollars to certain private companies due to a labor dispute at Terminal 6.

One set of programs provided millions of dollars to shipping companies Hanjin

Shipping Co. Ltd., Hamburg-Sud, Hapag-Lloyd (America), Inc., and Westwood

Shipping Lines (together “Carriers”). (ER 636-666). The other set of programs

7

provided millions of dollars to Terminal 6’s operator, ICTSI, who leases

Terminal 6 from the Port. (Id. at 577-635). ICTSI is the “fourth-largest

independent marine terminal operating company in the world.” (Id. at 589-600).

The Port explained its motivation to provide millions of dollars to these

companies as follows:

The cost sharing [ICTSI] program was developed in 2012 and itwas essentially an effort by the Port to share in what were theconsiderable losses being incurred by ICTSI as a result of theintentional slowdown and the resulting productivity creating atremendous loss for ICTSI. (ER 158-59).

The current carrier program is a – is similar intent, basically, but itwas created to help induce the carriers to continue calling atTerminal 6 and, you know, the – in essence, it represents a subsidyof $10 per container to the calling carriers at Terminal 6. (Id. at179).

Together the programs benefiting both ICTSI and the Carriers will be referred

to as the “Programs” or “Subsidy Programs.” The 2012 and 2013 programs

benefiting the Carriers will be referred to as the “Carrier Programs.” The 2012

and 2013 programs benefiting ICTSI will be referred to as the “ICTSI

Programs.”

I. CARRIER PROGRAMS

The Port implemented two subsidy programs for the benefit of carrier

lines calling at the Port of Portland. The 2012 Terminal 6 Carrier Retention

Program paid carriers a flat incentive fee for one call per week. The 2013

8

Container Carrier Incentive Program paid carriers $10 per container moved

through Terminal 6.

2012 Terminal 6 Carrier Retention ProgramA.

On June 26, 2012, the Port implemented its first program to “provide

temporary assistance to” Carriers calling on Terminal 6, called the “Terminal 6

Carrier Retention Program.” (ER 1982-89). This program was not approved by

the Commissioners of the Port because the Port Director claimed that he could

enter the agreement without Commissioner approval where the total

expenditures of the program were under $500,000. (Id. at 1514). This initial

program was in effect from June 21, 2012 through July 24, 2012. During this

period, the Port agreed to pay Hanjin $70,000 per call, Hamburg-Sud and

Hapag-Lloyd $35,000 per call, and Westwood $20,000 per call, with a

maximum of one incentivized call per week.2 (Id. at 1982-89). This program

was also in effect during the same fiscal year of the initial ICTSI cost sharing

program, which would not exceed the total amount of ICTSI’s annual rent.

Neither the agreements with the Carriers nor the Commission minutes where

Mr. Wyatt reported to the Commissioners about the expenditures provided any

2 The maximum total expenditures under the first Carrier Program was$640,000, suggesting that the Port Director lacked the authority to implementthe program without Commissioner approval.

9

information as to the source of these payments or any steps taken to shield use

of tax monies. (Id. at 636-55).

2013 Container Carrier Incentive ProgramB.

On January 9, 2013, the Port approved a second subsidy program

targeting carriers called the “Container Carrier Incentive Program” in an

amount not to exceed $1,000,000. (Id. at 656-666). Under this program, which

lasted throughout 2013, the Port paid Carriers $10 per container moved through

Terminal 6. (Id.; see also id. at 482-548). Again, the documentation of this

program contains no reference to the source of funds for the Port’s payments to

the Carriers nor to any steps taken to shield tax monies from use. (Id. at 656-

666).

II. ICTSI PROGRAMS

The Port implemented its ICTSI Programs under different names in 2012

and 2013. In 2012, the Port implemented the first ICTSI Program, which it

called a “Cost Sharing Program.” In 2013, the Port implemented a revised

ICTSI Program, entitled a “Rent Rebate Program.” Although they bore different

names, both ICTSI Programs provided subsidies to the Port’s private-sector

tenant, ICTSI.

10

2012 Cost Sharing ProgramA.

On August 8, 2012, the Port approved a “Cost Sharing Program” with

ICTSI. (Id. at 572-88, 601-06). The stated purpose of the Cost Sharing

Agreement was for the Port to share in purported costs of an on-going labor

dispute involving ICTSI. (Id. at 601). The Cost Sharing Program provided that

“the Port will reimburse ICTSI [. . .] a ‘Labor Dispute Recovery Amount’ or

‘LRDA’. The LDRA shall be in the amount of fifty percent (50%) of Shared

Costs incurred by ICTSI during the period between June 1, 2013, and

[December 31, 2012],” unless ICTSI defaulted on its lease, and up to a

maximum of approximately $4,664,356. (Id. at 601). The “Shared Costs” were

defined as pertaining to ICTSI labor relations and operations. (Id. at 602).

Although it purported to constitute a “legal, valid and binding obligation” on

each party, the only obligation imposed by the Shared Cost Agreement on

ICTSI was to reimburse the Port in the event it was able to recover the Port’s

portion of the “Shared Costs” from any third party. (ER 603). The Shared Cost

Agreement also specified that nothing in it “shall be deemed a waiver of any

rights or obligations of the parties under the Lease.” (Id. at 605).

The Shared Costs Agreement did not in any way address the funding

source for the Shared Cost Program. (See id. at 601-06.) The Port

Commissioners’ Meeting Agenda describing the program clarified, however,

11

that “[t]he source of funds for this financial commitment will come from the

Port’s General Fund.” (Id. at 588). At the August 8, 2012, Port Commission

meeting at which the Port approved this program, the sole argument made as to

whether tax revenues would be used to fund the Programs is that, of the Port’s

$260-270 million General Fund revenues, only about $9.1 million derive from

property tax collections. (Id. at 595). However, it is undisputed that this grossly

overstated the amount of the Port’s General Fund revenues as compared to tax

revenues. (Id. at 164). It is equally undisputed that the Port took no specific

steps to ensure tax monies were shielded or removed from the funding of the

Program.3 (Id. at 172-73).

On August 10, 2012, the Port and ICTSI signed a letter modifying

ICTSI’s rent obligations under its lease with the Port (“Rent Deferral Letter”).

(Id. at 607-08). The lease required ICTSI to remit an annual lump-sum rent

payment for Fiscal Year 2012/2013 (“FY 12/13”) on July 1, 2012, which ICTSI

had failed to do. (See id. at 607). Rather than requiring a lump-sum annual rent

payment, the Port agreed to an extension as well as a payment structure. (Id.)

ICTSI would pay the Port installments of $388,696.33 by August 31,

September 30, October 31, and November 30, 2012, before paying the

3 Bill Wyatt, Port Executive Director, asserted at his Rule 30(b)(6)deposition that property tax revenues were not used to fund the ICTSI Programbecause: (1) the ICTSI Program was funded solely with ICTSI’s rent revenueand (2) the Port’s policies limiting the use of property taxes. (ER 1494-95). Theundisputed facts, as detailed herein, show otherwise.

12

remaining $3,109,571 by December 31, 2012. (Id.) The Port further agreed to

waive interest charges it could claim under the terms of the lease. (Id.)

On September 28, 2012, the Port and ICTSI signed a First Amendment to

the Cost Sharing Agreement. (Id. at 1943-44). The First Amendment revised

and expanded certain elements of the definition of “Shared Costs”. (Id.). The

First Amendment to the Cost Sharing Agreement did not impose any additional

obligation on ICTSI. (See id. at 609-611).

On October 26, 2012, the Port and ICTSI entered into a Supplemental

Agreement, which referenced the August 8, 2012, Cost Sharing Agreement and

the August 10, 2012, rent deferral letter. (Id. at 612-14). The Supplemental

Agreement also purported to specify for the first time that “the intent of [the]

parties was for the reimbursement from the Port to ICTSI to effectively act as

an offset against annual rent payments for Fiscal Year 2012/2013 under the

Terminal 6 Lease Agreement . . . .” (Id. [parentheticals omitted]).

The Supplemental Agreement additionally sought to identify the funding

source for the Cost Sharing Program. (Id. at 613). Neither the August 8, 2012,

Cost Sharing Agreement, Rent Deferral Letter, nor the First Amendment to the

Cost Sharing Agreement had previously addressed the Cost Sharing Program’s

funding source. (See id. at 601-611). The Supplemental Agreement claimed that

///

13

ICTSI understands and agrees that (i) the Port’s tax revenues havenot been pledged or dedicated to support or finance the CostSharing Program and (ii) only FY 12/13 Annual Rent paymentswill be used to fund the payments or credits by the Port under theCost Sharing Program. ICTSI expressly waives any rights to makeany claim under the Cost Sharing Agreement against the Port’s taxrevenues.

(Id.). The Supplemental Agreement did not identify any constitutional or

statutory provision authorizing this funding arrangement. (See id.). By its terms,

the Cost Sharing Program terminated on December 31, 2012. (See id.).

2013 Rent Rebate ProgramB.

On February 13, 2013, the Port approved another, similar program to

provide money to ICTSI called the Rent Rebate Agreement for Calendar Year

2013 (“Rent Rebate Agreement”). (Id. at 1949-62, 1963-69). The Rent Rebate

Agreement provided that,

Pursuant to the Lease, ICTSI will make the regular Annual Rentpayment due to the Port on or before July 1, 2013 in the amountand as called for in the Lease. The Port will rebate to ICTSI aportion of Annual Rent in the amount of $308,333.00 per month(“Rebate Payment”), for each calendar month during 2013, subjectto the terms and conditions set forth in this Agreement.Notwithstanding anything to contrary under this Agreement, thetotal amount of Rebate Payments to ICTSI by the Port under thisAgreement will not exceed $3,700,000.

(Id. at 630). Further, the Rent Rebate Agreement contained new provisions that

were not included the 2012 Cost Sharing Agreement:

14

The sole source of funds for the Rebate Payments described abovewill be the Annual Rent payments paid to the Port from ICTSIunder the Lease. None of the Port’s tax revenues will be used tofund the Rebate Payments. ICTSI understands and agrees that (i)the Port’s tax revenues have not been pledged or dedicated tosupport or finance the Rebate Payments called for under thisAgreement; and (ii) that only ICTSI’s Annual Rent payment dueon July 1, 2012 (as extended to December 31. 2012 pursuant to theterms of that letter agreement between the parties dated August 10.2012), and ICTSI’s Annual Rent payment due on July 1, 2013 willbe used to fund the Rebate Payments to be provided under thisAgreement. ICTSI expressly waives any rights to make any claimunder this Agreement against the Port’s tax revenues.

(Id.) The Rent Rebate Agreement obligated ICTSI to maintain a level of

continuous container service during calendar year 2013 in order to be eligible

for monthly rent rebate payments. (Id. at 630-31). This “waiver,” however,

provided no actual protection from such usage of taxes because it left the Port

unrestricted to spend tax revenue at its election. As detailed below, the Rent

Rebate Agreement further failed, as a matter of undisputed fact, to prevent the

Port’s use of at least some tax monies to pay for the Programs.

III. UNDISPUTED FACTS FROM THE PORT’S FINANCIALRECORDS AND PORT DEPOSITION TESTIMONY

The Port’s financial documents and deposition testimony established the

following undisputed facts: (1) General Fund monies which include property

taxes were used to subsidize in part the cost of the Programs; (2) Even

assuming that the Port had properly segregated its property taxes in the General

15

Fund, the Port did not have sufficient operating income to conclude that non-tax

revenues provided a funding source for the Programs; (3) The disclaimer by

ICTSI that it could not recover from property tax monies affords the Port no

protection because property tax funds have already been expended in support of

operational expenses, including payments of the Programs; (4) The Port’s so-

called, “T6 Fund” does not represent a source of funding for the programs

separate from property taxes; and (5) To the extent that the Port has diverted

funds, which it had initially set aside in the T6 fund for future capital

expenditures, to cover the costs of the Program, it may have less money to

cover those future expenditures, and given that the Port’s policy calls for use of

property taxes to fund capital expenditures, the current use of T6 Funds for

Program costs could cause additional expenditures of property taxes in the

future.

ARGUMENT

The Ninth Circuit has asked this Court to analyze the Port’s subsidy

programs in view of four contexts with different sets of provisions in place. The

question is whether the Port’s subsidy programs violated Article XI, section 9

of the Oregon Constitution, (1) where neither the Port certified that it would not

use tax revenue, nor the private enterprises waived their rights to claim against

16

tax revenue (i.e. the 2012 and 2013 Carrier Programs and most of the 2012

ICTSI Cost Sharing Program; and (2) where the Port either certified that it

would not use tax revenue, or the private enterprises waived their rights to

claim against tax revenue, or there were both certifications and waivers in place

(i.e. at most part of the 2012 ICTSI Cost Sharing Program and 2013 ICTSI Rent

Rebate Program).

None of the originating documents for the Carrier Programs in 2012 or

2013 contain certifications as to the Port’s commitment not to spend tax

revenue or waivers of the Carriers’ ability to claim against tax revenue. (See ER

648-666). As for the ICTSI Programs, similarly, the Port implemented most if

not all of the 2012 Cost Sharing Program without any attempt at a tax-

protective certification or waiver in place. (Id. at 601-06). The October 26,

2012, Supplemental Agreement added provisions to the 2012 Cost Sharing

Program purporting to specify that the Program’s funding source was not tax

revenue, as well as to waive ICTSI’s right to claim against tax revenue. (Id. at

612-25). The 2013 Rent Rebate Program included similar language asserting

that tax revenue would not be a source of funds for the Program, and that ICTSI

waived its right to claim against tax revenue. (Id. at 630).

The Port’s Subsidy Programs violated Article XI, section 9 in all these

circumstances under Carruthers v. Port of Astoria, 249 Or. 329 (1968).

Carruthers required that the Port’s Subsidy Programs (1) prohibit the Port from

17

drawing on and the private companies from claiming against tax revenue; (2)

provide that only the Port’s enterprise revenue generated from stevedoring

operations would be used to fund the subsidies, (3) wholly and unconditionally

assume financial liability for third-party claims under the Subsidy Programs,

and (4) provide for accounting for payments through a “special fund” to

insulate Carrier-related revenue and subsidies. See id. at 337-39. Because the

design of the Port’s Subsidy Programs failed to comply with these

requirements, as well as for the additional reasons that follow, they violated

Article XI, section 9.

I. ARTICLE XI, SECTION 9 OF THE OREGON CONSTITUTIONPROHIBITS THE INVESTMENT OF PUBLIC FINANCIALRESOURCES IN PRIVATE ENTERPRISE, AND CARRUTHERSREMAINS THE APPROPRIATE STANDARD FOREVALUATING THE PORT’S SUBSIDY PROGRAMS.

Article XI, section 9 of the Oregon Constitution provides that the Port

shall not “raise money for, or loan its credit to, or in aid of, any [joint]

company, corporation or association.” Or. Const. Art. XI, s 9. “To ‘lend the

credit of the state’ is to invest or otherwise promise public funds for the benefit

of private persons or to promote private schemes.” State ex rel. Kane v.

Goldschmidt, 308 Or. 573, 591 (1989).

In the first major ruling on the matter, the Oregon Supreme Court

described the provision as follows:

18

The written Constitution of Oregon is the most solemn declarationof the people in regard to the powers of the state and its agencies ormunicipalities. It has their unqualified approval. The authorizedofficers in the state are required to take an oath to support it beforethey are qualified to enter upon their work. It is not a pleasurableduty to curb the action of the municipal officers of an enterprisingcity when they transcend the limits of their municipal charter or ofour organic law, yet the courts cannot shirk such duty when thecase demands. In determining a question under the Constitution,the scope and effect of an act or contract are proper forconsideration. The view of the court is never limited to the mereletter.

Hunter v. City of Roseburg, 80 Or. 588, 603 pet. rehearing denied, id. at 605-07

(1916) (invalidating contracts as “inimical to” Art. XI, § 9). Since then, Oregon

state courts have described Article XI, section 9, as being “the fundamental law

of the state to prevent the investment of public funds in private enterprises.”

Miles v. City of Eugene, 252 Or. 528, 535 (1969) (quoting Johnson v. Sch. Dist.

No. 1, 128 Or. 9, 12 (1929)); see also DeFazio v. Wash. Pub. Power Supply

Sys., 296 Or. 550, 578-79 (1984) (“No doubt those who drafted the prohibitions

had in mind the practice of aiding private enterprise . . . .”); also Adams v.

Bargaining Unit Benefits Bd., 103 Or. App. 288, 294 (1990), recons. & rev.

denied (legally plausible claim under Article XI, section 9 where challenged

public payments to private health care center, to offset cost of labor dispute,

were derived partially from taxes).

The parties and the Ninth Circuit Court of Appeals agree that Carruthers

v. Port of Astoria, 249 Or. 329 (1968) supplies the fundamental standard under

19

Article XI, section 9. Carruthers tested the constitutionality of the Port of

Astoria’s sale of revenue bonds to private investors in order to finance

construction of an aluminum ore refinery operated by a private company under

a port lease. 249 Or. at 330-32. The issuance of revenue bonds for that purpose

was enabled by an Oregon state statute, ORS 777.130. Id. at 331. In exchange

for the Port of Astoria’s sale of the bonds, the private company “committed

itself to lease and operate the entire plant for a period of 25 years, with an

option to purchase it for $50,000 at the end of that period. Consideration for the

lease would be rentals in a sum to insure repayment of the revenue bonds and

interest thereon over their life span, which also is to be 25 years.” Id. at 331.

The Carruthers Court upheld the revenue bond program and established the

foundational Article XI, section 9 standard: A commitment or expenditure to

benefit a private entity must risk “no possibility of involving an expenditure of

public funds.” Id. at 340 (emphasis added).

To satisfy this “no possibility” standard, the Carruthers court held that

four restrictions must be quoted in “the applicable ordinance and the revenue

bonds [. . .] in order not to run counter to § 9, Art. XI”. Id. at 339. First, no port

may issue bonds that amount to “a general obligation of the port issuing the

bonds, nor a charge upon the tax revenue of such port . . . .” Id. at 337. Second,

any such “bonds are to be paid solely from the rentals or other moneys derived

from [a] lease” between the port and a private company. Id. Third, the private

20

company’s obligation to pay rent must “be unconditional until the bonds are

paid in full or adequate provision has been made for such payment.” Id. at 338.

Fourth, accounting for such bonds must be done through “a special fund into

which rental and other payments will be made by [the private entity] and from

which the moneys to pay the principal of and interest on the bonds will be

drawn.” Id. Each of these restrictions must furthermore be set out in the

program’s design formally in explicit language. See id. The Court upheld the

disputed program in Carruthers, but only after it was satisfied that any

possibility that tax dollars would be used for the program would “be foreclosed

in the event of default of these bonds . . . .” Id. at 340.

Shortly after Carruthers, the Oregon Supreme Court returned to Article

XI, section 9 in Miles v. City of Eugene, 252 Or. 528 (1969). Miles considered a

partnership between a private utility and the Eugene Water & Electric Board

(“EWEB”), a department of the City of Eugene, to issue revenue bonds to fund

the development of a nuclear power plant. Id. at 529. This type of partnership

was expressly preauthorized by an act of the Oregon Legislature in 1967. Id. at

529 (citing ORS 225.450 et seq.). In accordance with that statute, the terms of

the revenue bonds specified:

///

///

21

That they do not in any manner constitute a general obligation ofthe Eugene Water & Electric Board, or of the City of Eugene, norcreate a charge upon the tax revenues of said city nor of anyrevenues or property of said city or property of said Board but arepayable solely from the general revenues of the electric utilitysystem of the city.

Id. at 531-32. Unlike the Port of Portland, furthermore, EWEB was not

empowered to spend tax revenue, but rather depended solely on its own

enterprise revenues. Id. at 530. Confronted with a claim that the revenue bond

program nevertheless violated Article XI, section 9, the Miles Court explained

part of its holding in Carruthers to have been, in the context of revenue bond

provisions that insulate tax revenue, “that the funds obtained from the sale of

revenue bonds are not public funds within the meaning of the prohibition.” Id.

at 532. The Miles Court also addressed Article XI, section 9’s bar against local

governmental entities becoming stockholders in private corporations, finding no

violation in the revenue bonds at issue. Id. at 534. In Miles, EWEB would

jointly own and operate the power plant to be built with revenue-bond

financing. Id. at 533-34. The Miles Court held that “[t]he omission of the phrase

‘joint owner’ from [Article XI, section 9] is another indication that [Article XI,

section 9] is intended only to prohibit a city from being a stockholder.” Id. at

537.

Carruthers and Miles thus together establish how tax revenue must be

insulated from a public expenditure under Article XI, section 9. Carruthers

22

involved the use of revenue bonds to finance the construction of port

infrastructure, payable on future rents earned from such infrastructure. 249 Or.

at 330-32. Miles similarly involved the use of revenue bonds to finance the

construction of a nuclear power plant, payable on future rate payments earned

from the power plant. Id. at 534-37. An essential feature of the revenue bond

programs in both cases was that no public monies of any kind were used up

front; instead, the revenue bonds, by their very nature, called for the solicitation

and use of monies solely from private investors purchasing the bonds. Rigorous

and pre-established financial instruments furthermore directed that the public

works’ future revenue streams alone would satisfy the bondholders, who could

not in turn make claims against tax revenue. The Miles Court recognized, by

contrast, that “[i]n this case and in [Carruthers] the parties attacking the

constitutionality of the proposals relied strongly upon Hunter v. Roseburg, 80

Or. 588 (1916).” Id. at 537. The Court distinguished Hunter, however “because

in that case the city was proposing to finance the construction of a railroad with

general obligation bonds payable from general tax levies.” Id.

Hunter, indeed, is instructive as a counterfactual: a bond issuance

violated Article XI, section 9 because it failed to comply with a preauthorizing

city charter amendment. In Hunter, the Oregon Supreme Court invalidated and

enjoined a contract between the City of Roseburg and a private railroad

company to issue $300,000 in bonds for the construction of a railroad to help

23

promote the local sawmill industry. 80 Or. at 599. Voters had approved an

amendment to the city charter preauthorizing the issuance of bonds to fund the

railroad, on the condition that the city would own the entire railroad once it was

constructed. Id. at 599-600. The bond program, however, provided that the

private railroad company could purchase the entire railroad from the city for

$300,000—the same amount invested by the city, without interest—at any time

during the following 60 years, despite the fact that “the interest on $300,000 at

5 per cent. [sic] per annum for 60 years would be treble that amount, or

$900,000.” Id. at 604. The bond program further authorized an annual tax levy

to pay the principal and interest on the bonds, while failing to ensure that the

bond principal and interest would be paid only out of future revenue from the

operation of the railroad. Id. at 599, 604. Taxpayers brought suit, challenging

the bond issuance under the city charter amendment and Article XI, section 9.

Id. at 598.

The Hunter Court saw it as “not a pleasurable duty to curb the action of

the municipal officers of an enterprising city when they transcend the limits of

their municipal charter or of our organic law, yet the courts cannot shirk such

duty when the case demands.” Id. at 603. The Oregon Supreme Court

nevertheless invalidated and enjoined the bond issuance, regardless of the

City’s public policy reasons for it, “inimical to article 11, § 9, and . . . so

declared.” Id. at 603; see also Miles, 252 Or. at 537 (explaining that the

24

constitutional infirmity in Hunter derived from the public entity “proposing to

finance the construction of a railroad with general obligation bonds payable

from general tax levies.”).

In Carruthers, Miles, and Hunter this Court set out its framework for

compliance with Article XI, section 9. To satisfy Article XI, section 9, local

governmental entities must act in accordance with authorizing legislation and

then implement specific provisions to insulate tax revenue from expenditures

for private benefit. Although those cases involved revenue bonds for

infrastructure development, the principles they establish are equally applicable

when, as here, the purpose of public spending is to subsidize private companies

that are contracted to operate public infrastructure like a marine terminal. As

discussed below Carruthers and its sibling cases invalidate the Port’s Subsidy

Programs, and answer the question certified to this Court by the Ninth Circuit.

II. BECAUSE THEIR DESIGN FROM THE OUTSET FAILED TOCOMPLY WITH CARRUTHERS, THE PORT’S SUBSIDYPROGRAMS VIOLATED ARTICLE XI, SECTION 9.

The question of whether Article XI, section 9 is violated where neither

certifications nor waivers are in place essentially asks whether a public entity’s

own internal accounting and financial management mechanisms suffice to

guard against violation of the Oregon Constitution. Nothing in Carruthers,

Miles, or Hunter supports the view that a public entity may self-assess whether

25

it has complied with Article XI, section 9 based purely on its internal

accounting and financial management practices. Accounting and financial

management mechanisms are only one of four requirements of public-private

investment programs under Article XI, section 9 and Carruthers. They do not

suffice to protect public revenues.

Carruthers imposes four requirements on public-private investment

partnerships. First, no expenditure for private benefit may amount to “a general

obligation of the [local governmental entity], nor a charge upon the tax revenue

of such [entity] . . . .” Id. at 337. Second, any payment of public funds for

private enterprise must come solely from the revenue generated by the public-

private investment project. See id. Third, the private beneficiary of the public-

private investment partnership must wholly and unconditionally assume

financial liability for claims by third parties relating to the investment program.

See id. at 338. Fourth, accounting for payments for the benefit of private

enterprise must be done solely through “a special fund” into which revenues

from the public-private project are received and from which payments to private

interests are made. See id. Each of these restrictions must furthermore be set out

in the program’s design formally in explicit language. See id.

Here, it is undisputed that the Port operated both 2012 and 2013 Carrier

Programs and much if not all of the 2012 ICTSI Cost Sharing Program without

any semblance of certifications or waivers in place that could arguably have

26

protected tax revenue. The Port’s own accounting and financial management

techniques were the only arguable safeguards in place during those times for

those programs. Under Carruthers, the Port’s accounting and financial

management techniques by themselves fail to satisfy Article XI, section 9.

Article XI, section 9 required formal language setting out the Port’s

Subsidy Programs that included all four Carruthers requirements. (ER 587-88,

594-609, 601-611, 648-55, 656-666). Far from complying with Article XI,

section 9, the 2012 Carrier Program language merely provided, e.g., “[u]nder

the Program, the Port will pay to Vessel Operator a ‘Program Payment’ in the

amount of $70,000 per call by Vessel Operator’s vessels calling at Terminal 6,

not to exceed one Vessel Call per week during the four-week period

commencing on June 21, 2012, and ending July 24, 2012.” (Id. at 648; see also

id. at 650, 652, 654). The 2012 Carrier Program language did not, as Carruthers

requires, (1) prohibit either the Port or the Carriers from drawing on or claiming

against tax revenue; (2) provide that only the Port’s enterprise revenue

generated from the Carriers would be used to fund the subsidies, (3) wholly and

unconditionally assume financial liability for third-party claims under the

Subsidy Programs, or (4) provide for accounting for payments through a

“special fund” to insulate Carrier-related revenue and subsidies. (See id.; also

249 Or. at 337-39). The 2013 Carrier Program meanwhile generated no formal

originating document, let alone one satisfying Carruthers. (See id. at 666).

27

The August, 8, 2012, agreement establishing the ICTSI Cost Sharing

Program also made no mention of any of the four Carruthers requirements. The

2012 ICTSI Cost Sharing Program was defined almost exclusively by the

provision that the Port would pay to ICTSI “fifty (50%) of Shared Costs

incurred by ICTSI during the period between June 1, 2012 and the End Date . . .

.” (Id. at 601). Neither the August 10, 2012, rent deferral agreement nor the

September 25, 2012, First Amendment to the Cost Sharing Agreement cured the

Cost Sharing Agreement’s deficiencies under Carruthers. (See id. at 607-11).

To the contrary, the rent deferral agreement actually documents a violation of

Carruthers by indicating that the Port agreed to pay Shared Costs to ICTSI

while simultaneously deferring rent payments. (See id.). By design, the Port

could not have paid ICTSI solely out of project revenues as required by

Carruthers for at least the months of July and August, 2012, since no annual

rent would have been paid for the 2012-2013 lease term until August 31, 2012.

(Id. at 607). Even if there were a “special fund” as required by Carruthers, it

would have run a negative balance during periods when the Port paid subsidies

to ICTSI while also deferring its rent.

The October 26, 2012, ICTSI Cost Sharing Supplemental Agreement,

entered into the same day the Port filed its motion for summary judgment

before the District Court, might appear to address the Carruthers requirements,

though it was still inadequate on its face to save the Cost Sharing Program

28

under Article XI, section 9. (Id. at 612-13). The Supplemental Agreement

provided that “the intent of parties was for the reimbursement from the Port to

ICTSI to effectively act as an offset against annual rent payments for Fiscal

Year 2012/2013 under the Terminal 6 Lease Agreement dated May 12, 2010.”

(Id. at 612 [parentheticals omitted]). It provided that “the Port’s tax revenues

have not been pledged or dedicated to support or finance the Cost Sharing

Program” and “ICTSI expressly waives any rights to make any claim under the

Cost Sharing Agreement against the Port’s tax revenues.” (Id.)

The Supplemental Agreement further recognized, though, that “the Port

has paid ICTSI amounts under the Cost Sharing Program that are advances

against rent installment payments ICTSI is obliged to make no later than

October 31, 2012 and November 30, 2012 under the Rent Deferral Agreement.”

(Id. at 612). The Port and ICTSI thus acknowledged by contract that the Port

had already paid substantial sums to ICTSI without any certification or waiver

as to tax revenue in place. (Id. at 612-13). Carruthers does not allow constraints

on public spending to be imposed retroactively; the restrictions must be explicit

in the program’s design prior to any expenditure being made. See 249 Or. at

337-38.

Ultimately, whatever accounting and financial management mechanisms

the Port implemented for the 2012 and 2013 Carrier Programs and the 2012

ICTSI Cost Sharing Program, it is undisputed that those techniques were not

29

explicitly set out, by design, in any authorizing legislation or resulting program

document. Neither were such mechanisms sufficient in the absence of the other

three Carruthers requirements. See id. at 337-38. The Port’s accounting and

financial management mechanisms furthermore did not conform with the

Carruthers requirement that they demonstrate that payments for private

investment be made from a “special fund,” whose sole purpose would have

been to fund such investment with a segregated revenue stream. 249 Or. at 338.

The Port’s subsidy programs therefore violated Article XI, section 9,

where neither certifications nor waivers as to tax revenue were in place.

III. THE PORT’S AFTER-THE-FACT IMPLEMENTATION OFCERTIFICATION OR WAIVER LANGUAGE COULD NOTHAVE CURED THE SUBSIDY PROGRAMS’ VIOLATION OFARTICLE XI, SECTION 9.

Article XI, section 9 is violated when any expenditure for private benefit

amounts to “a general obligation of the [local governmental entity], [or] a

charge upon the tax revenue of such [entity] . . . .” Carruthers, 249 Or. at 337.

Carruthers accordingly requires that this constraint, among three others, be

written into the spending program’s design from the outset, before the public

entity spends a single dollar for private benefit. Id. at 339 (requiring that four

safeguards be expressly written into the design of public expenditure programs

for private benefit). The question certified by the Ninth Circuit essentially asks

30

whether the Port’s after-the-fact implementation of certifications, waivers, or

both adequately integrated these two constraints into the design of the Port’s

subsidy programs. See also id. Only the 2012 ICTSI Supplemental Agreement

and the 2013 ICTSI Rent Rebate Agreement arguably included any certification

or waiver.

Absent Statutory Preauthorization, Certifications Do NotA.Sufficiently Guard Against a Charge Being Made Upon TaxRevenue, and Thereby Fail to Guard Against Violation of Article XI,Section 9.

By its terms, Article XI, section 9 imposes symmetrical prohibitions on

private and public entities: an expenditure must neither constitute a general

obligation, nor a charge upon tax revenue. Id. A private recipient of a public

expenditure conceivably could waive its right to assert a general obligation

claim against a local governmental entity as a condition of that expenditure, as

discussed below. See id. It is not apparent, by contrast, that a private recipient

could contractually bind a local governmental entity to not elect to “charge

upon tax revenue” in order to fund such an expenditure. Even if a private

recipient could bind a public entity to that effect, there is no case law under

Article XI, section 9 holding that such a contractual provision would provide

taxpayers with sufficient constitutional safeguards. There is likewise no support

31

for the view that a public entity can self-certify that it will not “charge upon tax

revenue.” See id.

Instead, the bar against charging upon tax revenue came from statutory

law in Carruthers and its related cases Miles and Hunter. A common

requirement in Carruthers, Miles, and Hunter is the presence of statutory pre-

authorizations setting limits on specific uses of public funds. In Carruthers, an

Oregon statute authorized ports within the state to issue revenue bonds to

develop infrastructure projects in partnership with private entities. 249 Or. at

331 (quoting ORS 777.130). The statute prohibited such bonds from being “a

general obligation of the port issuing the bonds, [or] a charge upon the tax

revenues of such port, nor a charge upon any other revenues or property not

specifically pledged thereto.” Id. (marks omitted). In Miles, the enabling act

was also an Oregon statute, requiring that any bonds issued under its

authorization include a statement on their face:

That they do not in any manner constitute a general obligation ofthe [EWEB] or of the City of Eugene, nor create a charge upon thetax revenues of said city nor of any revenues or property of saidBoard but are payable solely from the general revenues of theelectric utility system of the city.

Id. at 531-32 (quoting ORS 225.450). In Hunter, the authorizing legislation was

a city charter amendment permitting the issuance of municipal bonds for

railroad development, provided that the city owned the entire railroad once

constructed. 80 Or. at 599-600. Oregon law thus unambiguously requires

32

specific external statutory constraints on the investment of public funds for

private enterprise as a precondition. Carruthers, 249 Or. at 339 (holding that

“the applicable ordinance and the revenue bonds [must] quote each of these

restrictions [. . .] in order not to run counter to” Article XI, section 9).

Here, it is undisputed that there was never any legislative

preauthorization. The first attempt to impose any sort of constraint on the Port’s

use of tax revenue came in the October 26, 2012, Supplemental Agreement,

which stated merely that “ICTSI understands and agrees that (i) the Port’s tax

revenues have not been pledged or dedicated to support or finance the Cost

Sharing Program and (ii) only FY 12/13 Annual Rent payments will be used to

fund the payments or credits by the Port under the Cost Sharing Program.” (ER

613). By its own terms, this is not even a self-certification by the Port, but

rather an expression of ICTSI’s understanding. (See id.) Yet even to the extent

it reflects any sort of binding agreement between the Port and ICTSI, it is silent

as to taxpayers’ constitutional rights under Article XI, section 9. (Id.)

The Port’s 2013 ICTSI Rent Rebate Program adopted similar language,

which suffers similar flaws. The Rent Rebate Agreement claimed to provide

that “[t]he sole source of funds for the Rebate Payments [. . .] will be the

Annual Rent payments paid to the Port from ICTSI under the Lease. None of

the Port’s tax revenues will be used to fund the Rebate Payments.” (ER 630).

Although this language purports to specify that the funding source for the Rent

33

Rebate Program would be ICTSI’s annual rent payments in 2012 and 2013,

Carruthers, Miles, and Hunter do not support the view that the Port may satisfy

Article XI, section 9 by contract with a private entity. To the contrary,

Carruthers requires that specific contractual restrictions be paralleled in

preexisting authorizing legislation. 249 Or. at 339.

Neither the 2012 Supplemental Agreement nor the 2013 Rent Rebate

Agreement contain certifications that could satisfy Article XI, section 9 because

their language is not paralleled in any enabling legislation, as Carruthers

requires. 249 Or. at 339-40. There is furthermore no support for the notion that

the Port could certify by way of contract with a private entity or otherwise that

it had complied or would comply with Article XI, section 9.

Waivers of the Right to Claim Against Tax Revenue Do NotB.Adequately Guard Against Violation of Article XI, Section 9,Whether by Themselves or in Combination With Certifications.

Accompanying the requirement that no public expenditure for private

benefit may “charge upon tax revenue” is the requirement that it also not

amount to a general obligation of the public entity’s finances. Carruthers, 249

Or. at 337. As mentioned above, it is conceivable that a private recipient of

public funds could waive its right to assert a general obligation claim, given that

“[a]ny claim or right arising out of an alleged breach can be discharged in

34

whole or in part without consideration by a written waiver or renunciation

signed and delivered by the aggrieved party.” ORS 71.1070.

The 2012 Supplemental Agreement and 2013 Rent Rebate Agreement

appear to include language that ostensibly could waive ICTSI’s ability to claim

against tax revenue. The 2012 Supplemental Agreement provided:

ICTSI understands and agrees that (i) the Port’s tax revenues havenot been pledged or dedicated to support or finance the CostSharing Program and (ii) only FY 12/13 Annual Rent paymentswill be used to fund the payments or credits by the Port under theCost Sharing Programs. ICTSI expressly waives any rights to makeany claim under the Cost Sharing Agreement against the Port’s taxrevenues.

(ER 612-13). The 2013 Rent Rebate Agreement similarly provided:

ICTSI understands and agrees that (i) the Port’s tax revenues havenot been pledged or dedicated to support or finance the RebatePayments called for under this Agreement; and (ii) that onlyICTSI’s Annual Rent payment due on July 1, 2012 (as extended toDecember 31, 2012 pursuant to the terms of that letter agreementbetween the parties dated August 10, 2012) and ICTSI’s AnnualRent payment due on July 1, 2013 will be used to fund the RebatePayments to be provided under this Agreement. ICTSI expresslywaives any rights to make any claim under this Agreement againstthe Port’s tax revenues.

(ER 630). The Supplemental Agreement further indicated, however, “that the

Port has paid ICTSI amounts under the Cost Sharing Program that are advances

against rent installment payments ICTSI is obliged to make no later than

October 31, 2012 and November, 30 2012 under the Rent Deferral Agreement.”

(ER 612-613.) Any such advance payment necessarily could not have been

35

made out of rent the Port had not yet received, thus the soonest the ICTSI

waiver could have entered into effect was November 30, 2012. (See id.)

Even if the ICTSI waiver in the 2012 Supplemental Agreement and 2013

Rent Rebate Agreement wholly foreclosed ICTSI’s ability to claim against Port

tax revenue, that alone would not satisfy the Oregon Constitution. As discussed

above, Article XI, section 9 requires symmetrically that private beneficiaries

not be able to claim against tax revenue and that public entities not be able to

“charge upon tax revenue.” Carruthers, 249 Or. at 337-39. The ICTSI waivers

in the 2012 Supplemental Agreement and 2013 Rent Rebate Agreement are

only half of one requirement under Carruthers. Pairing the ICTSI waivers with

the purported certifications in those agreements that the Port would not “charge

upon tax revenue” would not, nevertheless, satisfy Article XI, section 9 either.

As discussed above, the Port’s certifications are inadequate as they were not

paralleled by any statutory authorization, as required under Carruthers. 249 Or.

at 339. Additionally, as discussed above, the Port’s subsidy programs failed to

satisfy the other three Carruthers requirements.

The ICTSI waivers in the 2012 Supplemental Agreement and 2013 Rent

Rebate Agreement therefore are not adequate under Article XI, section 9,

whether on their own or paired with the certifications in those same agreements.

36

IV. THE LACK OF LEGISLATIVE PREAUTHORIZATIONS FORTHE PORT’S SUBSIDY PROGRAMS FURTHER INVALIDATETHEM UNDER ARTICLE XI, SECTION 9, AS IT FRUSTRATESJUDICIAL REVIEW.

The absence of external legal pre-authorizations for public-private

investment programs frustrates judicial enforcement of Article XI, section 9.

See Carruthers, 249 Or. at 330-32; Miles, 252 Or. at 534-37; Hunter, 80 Or. at

599-600. As the Oregon Legislature explained in an analysis of local

government finances:

[W]hen investments are made from a general pool of moniescomprised of many and various funds flowing in and out of thepool, remaining therein for different lengths of time and indiffering proportions, it becomes an obvious impossibility todetermine what part of which fund was invested for how long andat what rate of interest.

Lane Cnty. v. Paulus, 57 Or. App. 297, 301 n.4 (1982) (emphasis added)

(quoting minutes of the House Committee on Local Government for April 3,

1963). The Oregon Legislature’s discussion of local government general funds

echoes the judicial understanding of money as fungible: “Unlike real or

personal property, money is fungible.” United States v. Sperry Corp., 493 U.S.

52, 62 n.9 (1989).4

4 The Sperry Court made this observation in holding that the takingsclause does not apply to government user fees, whether imposed as a deductionfrom a monetary award or as a separate charge. Id.

37

The phrase “money is fungible” has guided a wide range of decisions

since the Supreme Court’s ruling in Sperry. The Supreme Court has applied it

to assessing entitlement to a car allowance under bankruptcy law. Ransom v.

FIA Card Services, N.A., 562 U.S. __, slip op. at *17 (2011) (“[m]oney is

fungible: The $14,000 that Ransom spent to purchase his Camry outright was

money he did not devote to paying down his credit card debt, and Congress did

not express a preference for one use of these funds over the other.”). It has also

been applied to criminal prohibitions against funding terrorist organizations.

Holder v. Humanitarian Law Project, 561 U.S. 1 (2010) (“[m]oney is fungible .

. . [t]hus funds raised ostensibly for charitable purposes have in the past been

redirected by some terrorist groups to fund the purchase of arms and

explosives.”) (internal quotation marks and citations omitted); also e.g.

Humanitarian Law Project v. U.S. Treasury Dept., 578 F.3d 1133 (9th Cir.

2009). In the context of money-laundering seizures, “money is fungible, the

government must prove only that the tainted proceeds were commingled with

other funds.” United States v. Ward, 197 F.3d 1076 (11th Cir. 1999) (citing

United States v. Garcia, 37 F.3d 1359, 1365 (9th Cir. 1994)).

Oregon courts have also adopted this concept in a range of contexts. E.g.,

Homebuilders Ass’n of Metropolitan Portland v. Tualatin Hills Park and

Recreation District, 185 Or.App. 729, 741 (2003) (quoting Sperry, 493 U.S. at

62 n.9, and upholding government user fees under takings analysis). Indeed,

38

this rule has been adopted in Oregon tax court. Lucas v. Department of

Revenue, Or. Tax Magistrate Div., 2001 WL 1735066 (2001).

In Lucas, the court examined whether a delinquent tax payer owed a

penalty for unpaid taxes in 1992, a year for which he instead later received an

erroneous tax refund. Id. at *2. Upon receiving the refund check in 1995, the

delinquent tax payer endorsed the check back to the state for payment against

subsequent tax liabilities, which the state did. Id. Once it became clear that he

would owe a penalty for tax-year 1992, however, the delinquent tax payer

attempted to have the state go back and apply the erroneous refund to his

liabilities for that tax-year. Id. The delinquent tax payer attempted to escape the

application of a state tax rule through an artificial accounting technique, arguing

that there had not been a tax refund for 1992 since his liabilities exceeded his

payments once they had been adjusted post-hoc. See id. The court rejected this

argument, ruling that “money is fungible, what Plaintiff did with the check after

he received it is largely irrelevant . . . .” Id.

Here, the judicial treatment of money as fungible underscores the need

for legislative preauthorization and all four Carruthers requirements, and also

argues against accepting the Port’s accounting and financial tracking techniques

by themselves as sufficient. Carruthers, 249 Or. at 337-38 (holding accounting

mechanisms to be only one of four requirements). The Port’s own position in

this case illustrates the problem: The Port claims that it can freely move tax

39

revenue from one spreadsheet fund to another. (ER 1834 [quoting Burket Dep.

102:3-20]; see also ER 49, n. 112). Rather than showing that this saves its

Subsidy Programs from violating Article XI, section 9, it shows that the Port is

unconstrained in maneuvering tax revenues. Carruthers requires four specific

rigorous legal restrictions to guard against such fiscal maneuvering. See 249 Or.

at 337-38. Carruthers ensures compliance with Article XI, section 9 by

providing clear guidelines for judicial review of government action.

V. THE PORT’S CARRIER AND ICTSI SUBSIDY PROGRAMSADDITIONALLY VIOLATED ARTICLE XI, SECTION 9BECAUSE THEY ACTUALLY DREW ON TAX REVENUE.

Not only were the Port’s Subsidy Programs flawed by design, but

undisputed facts demonstrate that the Port’s Programs also violated Article XI,

section 9 in practice by actually drawing on tax revenue. It is undisputed that

the Programs drew on the Port’s General Fund, which included property tax

dollars. As discussed below, the Port furthermore necessarily used this

percentage of tax monies to fund the ICTSI Program because its operating

expenses exceed its operating income, under any of the Port’s theories. The fact

that the Port drew on tax revenue is made further evident by including capital

depreciation in an assessment of the Port’s finances.

40

The Port’s Subsidy Programs Drew on its General Fund, WhichA.Included Tax Revenue.

It is undisputed that Program expenses were paid from the Port’s General

Fund and that property taxes commingled with other resources in the General

Fund. The Port took no specific action to actually implement the 2012

Supplemental Agreement certification and waiver language. As the Port

Executive Director explained:

Q Is there any reason why this document was executed on thesame day that the Port moved for summary judgment in thislawsuit?

A Well, I’m sure, you know, give yourself some credit. Byraising the issue, we wanted to be absolutely clear that taxrevenues were not going to be used in the execution of thisagreement and we felt and continue to feel that we havesufficient internal controls in place to avoid that, but just toavoid even the slightest appearance, this language wasincorporated.

. . .

Q . . . Did the Port implement any changes in how itadministered its -- the property tax revenues in itsaccounting funds as a result of this supplemental agreement?

A I don’t believe so.

Q And you didn’t instruct anybody to do so?

A No. We felt that we had already.

(ER 173). What the Port had “already” done was simply to have the monies

transferred from the General Fund, which includes commingled tax monies, to

41

ICTSI and the Carriers. (See, e.g., ER 1935-45, 1946-48, 1963-69, 1982-2000).

The Port’s certification language, therefore, failed to shield or screen out

property taxes, which made up a percentage of the General Fund, from being

used to make payments to the private companies under the programs.

While it may be “an obvious impossibility” to identify tax revenues as

separate from other sources, (Lane Cnty., 57 Or. App. at 301 n.4 (1982); ER

1445-45), the evidence allows for estimation of the portion or percentage of the

General Fund that came from taxes. Specifically, the evidence shows:

(1) The expenses of the Programs were paid from the General Fundand recorded in business units that are part of the Port’s GeneralFund. (ER 1351-1400, 2302). In fact, the Port adjusted its GeneralFund appropriations to pay for the Programs. (Id. at 2001-08).

(2) ICTSI’s “annual rent is in the General Fund.” (Id. 1497).

(3) The checks and wire transfers issued to make payments to theprivate companies under the Programs were drawn from the Port’smain cash account. (ER 1364-66, 1428-29).

(4) For fiscal year 2012, property taxes made up 14% of the totalrevenues for the General Fund. Consideration of the percentage ofGeneral Fund revenues is the appropriate matrix because propertytax revenues are part of the General Fund, which pays for thePrograms. (ER 1364-66; 1678-1746).

(5) Alternatively, under the cash approach—the percentage of net cashsources to the commingled cash account—expenditures from thePort’s main cash account were made up of 2.3% and 5.6% propertytaxes for the fiscal year 2012 and the first 9 months of fiscal year2013, respectively. (ER 1364-66).

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This undisputed evidence shows that the Port used the General Fund, a portion

of which derived from property tax revenues, in its payments to the private

companies under the Programs.

Despite the clarity and undisputed nature of these facts on the eve of trial,

the Port attempted to muddy the picture during litigation with after-the-fact

explanations. In July 2012, for instance, the Port purportedly budgeted its

property tax revenue into the Bond Construction Fund as opposed to the

General Fund. On this basis, it thus supposedly shielded its property tax

revenues from the Program payments. (ER 1834 [quoting Burket Dep. 102:3-

20]; see also ER 49, n. 112). In November 2012, the Port then revised its budget

appropriations to provide that property taxes are initially accounted for in the

Port’s Bond Construction Fund instead of the General Fund, backdated to the

start of its fiscal year, July 1, 2012. (ER 670-74.) During his Rule 30(b)(6)

deposition, however, the Port’s Controller explained how this change in

appropriations had no effect on whether property tax revenues were transferred

to the General Fund, but rather the change was, essentially, a change in the

“landing point” of the funds—previously the first landing point was the General

Fund, with some revenues going to the Bond Construction Fund—currently, the

first landing point is the Bond Construction Fund, with some revenues going to

the General Fund:

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The—moving the property taxes to record the revenue in the bondconstruction fund versus the—the General Fund essentiallychanges the landing point on the books where that goes to.Regardless of which one—which fund it goes into, we then have todo an allocation, because the debt service is paid in the GeneralFund, the capital is paid in the bond construction fund. Sodepending on what that allocation that the financial analysis andprojects folks do in the—in the coverage fund, they determinewhat that split is, so one way or another we have to make atransfer, either under the old system where it was recorded in theGeneral Fund, we had to transfer the capital piece over toCompany 150 [Bond Construction Fund], or now what we do is wecalculate the debt service piece and we can transfer that out of 150over into 100 [General Fund]. So we’re still doing a transfer andwe’re still paying for both types of costs, we’ve just changed thatlanding point, essentially.

(ER 1834 [quoting Burket Dep. 102:3-20]; see also ER 49, n. 112).

Despite this explicit disavowal of any significance to the budgeting of the

Port’s property tax revenues in his deposition, the Port and Mr. Burket came to

contend that the change in budgeting shields property tax revenues from

General Fund expenditures. Not only is this contrary to the Port’s prior Rule

30(b)(6) testimony, but it is also at odds with its other theory that the Port’s tax

revenues are somehow shielded within the Coverage Fund, an internal

management cash tracking fund within in the General Fund.

The Port is nevertheless bound by its Rule 30(b)(6) testimony and, thus,

its contrary arguments concerning the Bond Construction Fund fail as a matter

of law. See Mattel, Inc. v. Walking Mountain Prods., 353 F.3d 792, 798 n. 4

(9th Cir. 2003) (citing Fed. R. Civ. P. 30(b)(6)); Turner Constr. Co. v. Nat’l

44

Am. Ins. Co., Inc., 2004 WL 6066675, at *4 (N.D. Cal. Sept. 20, 2004) (quoting

Poole v. Textron, Inc., 192 F.R.D. 494, 504 (D. Md. 2000)). For this reason, the

Port has failed to refute in any way the essential, undisputed facts that the

Program payments were drawn from the General Fund, which contained

commingled property taxes.

Assuming Arguendo That the Port Adequately Segregated itsB.Property Tax Revenues, the Port’s Operating Income is NonethelessInsufficient to Offset its Operating Expenses and, Thus, the PortMust Have Used Other General Fund Monies, Which IncludedCommingled Taxes, to Pay for the Programs.

1. Operating Income Statements are the Proper Documents forDetermining Whether or Not the Port Could Fund thePrograms Completely From its Non-Tax OperatingRevenues.

The Port asserted at trial that the Programs have been or will be funded

completely from and expensed against the Port’s non-tax operating revenues.

(ER 1390). In determining the validity of this assertion, the principal evidence

to be examined includes the operating income statements produced by the Port

during discovery. (See id. 549-574, 341-54, 365-365). Operating income

statements measure “whether the proprietary fund is economically better off as

a result of the events and transactions that have occurred during the fiscal

period reported,” or, in other words, whether the Port made a profit or net

income, which is needed to have a source of money to fund the Programs. (Id.

45

40, 984-88). In considering whether an entity is better off, “transactions and

events that improve the economic position of proprietary funds are reported as

revenues or gains, and transactions and events that diminish the economic

position . . . are reported as expenses or losses.” (Id. 985) (emphasis original).

Thus, to determine whether the Port drew on other sources in its General

Fund, which includes commingled property taxes, the Port must generate

positive operating income (revenue minus expenses). (Id. 40). If operating

income is negative (an operating loss), the losses must be made up from the

Port’s other General Fund monies, which include property taxes and other non-

operating revenues. In other words, if net income or profit is insufficient to fund

an expense, then whatever cash source is used must ultimately be made up from

other monies in the General Fund. Accordingly, the Port needed to have proved,

to support its theory, that it had sufficient net income from its operating

activities in order to avoid the inevitable conclusion that it drew, will draw, and

could draw on its property tax dollars within the General Fund to pay for the

Programs. (See id. at 21). There was no evidence at trial for the Port to show

this.

46

2. Operating Expenses Exceeded Operating Revenue in AllRelevant Levels of Analysis Identified by the Port: (1) thePort’s Marine Division, (2) the Port’s Container BusinessLine, and (3) the Port’s T6 Business Units.

The Port’s stated claim of funding the Programs from non-tax operating

income flies in in the face of the financial data for the relevant three levels of

business operations in question: (1) Marine Division operating revenue, the

broadest level; (2) Container Business Line; and (3) T6 Business Units, the

most narrow level. It has produced Operating Income Statements for all three

levels. The Container Business Line includes the expenses and revenues

relating to the Terminal 6 leasehold with ICTSI as well as other expenses

relating to container operations at Terminal 6 that the Port contends do not

relate directly to the leasehold. (ER 201). The T6 Business Units include the

expenses and revenues the Port contends solely relate to the ICTSI leasehold.

(Id. at 967).

Regardless of which level is analyzed, however, the undisputed evidence

shows that the Port lacked sufficient operating revenue to cover its total

operating expenses, which include the disputed payments under the Programs,

and thus, the Port must draw on other General Fund monies, which include

commingled property taxes.

The Operating Income Statements for the Port’s Marine Division show a

negative operating income for 2010-2013. (Id. at 1375). Specifically, expenses

47

exceeded revenues by $13,758,605, $7,497,424, $6,014,817, and $7,566,082,

respectively for 2010, 2011, 2012, and 2013. (Id.). Thus, no operating income

was generated in the Marine Division from which the Port could expense all of

its payments under the Programs.

Similarly, the Operating Income Statements for the Port’s Container

Business Line, also show negative operating income for 2011-2013.5 (Id. at 41,

64). Expenses for this business line exceeded revenues by $8,574,250,

$3,584,268, and $8,651,862 respectively for 2011, 2012, and 2013. Likewise,

no operating income was generated in the Container Business Line from which

the Port could expense all of its payments under the Programs.

Finally, the Operating Income Statements for the Port’s T6 Business

Units, which assess “ongoing operating expenses directly related to the T6

container leasehold that are not reimbursed by ICTSI,” show negative operating

income for 2011-2013.6 (Id. at 41, 65). Expenses for the T6 Business Units

exceeded revenues by $1,379,554, $1,070,818, and $7,371,216, respectively,

for 2011, 2012, and 2013. (Id.). Because “the ICTSI leasehold generates less

revenue to the Port than the expenses the Port bears in connection with the

5 No data is available for 2010.6 No data is available for 2010.

48

lease, [] there is no operating income from the leasehold itself with which to

fund the Programs.”7 (Id. at 40).

For this reason, under any level of analysis, the Port lacked sufficient

income to fund the Programs without drawing upon its other General Fund

monies, which include property taxes.8

3. The Port’s T6 Fund Did Not Represent a Source of Fundingfor the Programs Separate From Property Taxes.

Late in the course of litigation, the Port began to assert that the Programs

are funded solely from non-tax, operating revenues from the so-called, “T-6

fund.” However, the following undisputed facts, (see generally ER 31-32),

establish that the Port’s T6 fund does not represent a source of funding for the

programs separate from property taxes:

(1) The T6 Fund is not an accounting record and not subject toaccounting rules or any other documented set of rules, guidelines,or conventions. (Id. at 43-48).

(2) The T6 Fund is an informal or “management tracking” fund not alegal fund. (Id.).

(3) The T6 Fund was set up to fund capital expenditures, not operatingcosts. (Id.).

7 Even the General Fund in the Port’s audited financial statementsreflects net losses for the period 2010 through 2012. (ER 66.) Because theGeneral Fund includes the property tax revenues, the Port’s operating expensesexceeded both its operating and non-operating revenues. (Id.)

8 A financial management fund, like the T6 Fund, only looks at cashflows and does not establish whether the source of the case was earnings fromoperating activities as opposed to property taxes. (ER 43-52).

49

(4) There is a lack of consistency in the mechanics that determine thesources and uses of the T6 Fund. (Id.).

(5) The $8 million initial deposit to the T6 Fund was from the sale ofcapital assets, which, according to the Port’s policy regarding theuse of property taxes, were likely funded at least in part withproperty tax monies. (Id. at 47-50).

(6) The T6 Fund tracks cash flows, not operating income, and istherefore not relevant to determining whether the Port hadsufficient revenues to fund the Programs. (Id. at 47-52).

In sum, the “T-6 Fund” does not exist in the audited accounting records of the

Port, does not represent a segregation of assets within the financial statements

of the Port, and does not represent operating revenues that the Port has

discretion to spend. It simply is whatever the Port wants it to be on any given

day, which changes as the Port chooses. Thus, the “T-6 fund” utterly fails to

serve as any meaningful protection or screen from the use of the portion of tax

revenues that comprise the General Fund.

4. The Port Could Have Drawn on Further Tax Revenues toFund the Programs.

Assuming the Port, as it claims, somehow used monies from the so-called

“T-6 Fund” to pay for the Programs, this would still necessarily have exposed

the Port to likely having to draw from tax revenues to back-fill such lost monies

given to the private companies. The Port’s stated policy is that it uses its

property taxes for capital expenditures, including the rolling stock sold to ICTSI

and the other assets it leases to ICTSI. (See, e.g., ER 675-77). The Port has

50

further stated that it initially set aside monies obtained from ICTSI transactions

and rent, the so-called “T-6 fund” to pay to replace or repair the rolling stock,

which it intends to purchase back from ICTSI at the end of the lease, and other

assets it leases to ICTSI. (Id. at 46-48, 50-51, 136, 137, 565, 678-685, 968-73).

It is these monies that the Port claims to be shifting from possible future capital

expenditures to current payments under the Program. (Id. at 47, 51). As Mr.

Wyatt explained:

Q Did you consider that the revenue from the lease itself may have—may need to be used for other purposes?

A Certainly. We would much prefer to have used those revenues forother purposes, but those other purposes are going to have to wait.

(Id. at 168).

The Programs have, therefore, prevented the Port from saving monies

earned from its ICTSI lease to cover these likely future expenses of repair and

replacements of its capital investments. In other words, for every dollar it takes

from savings for capital expenditures in order to cover the payments to the

private companies under the Programs, the Port will eventually have to

replenish the depleted savings for the eventual cost of replacement and repair of

the rolling stock and other assets. When the Port makes these expected capital

expenditures, it will then have to use other monies from the General Fund,

which include tax revenues, to cover the expenses. The potential of having to

draw on tax monies is heightened by the Port’s established policy of using tax

51

monies to fund capital expenditures. Thus, the Port was at risk of drawing on its

tax revenue as a consequence of it using T-6 capital expenditure savings for the

Programs.

CONCLUSION

For the foregoing reasons, the ILWU respectfully asks this court to

reaffirm the principles it established in Carruthers. Irrespective of whether

there are certifications or waivers in place, in whatever combination, all four

Carruthers requirements must be written into authorizing legislation and

contracts with private recipients of public monies. The Port’s Subsidy Programs

did not, as Carruthers requires, (1) prohibit both the Port and the private

companies from drawing on and claiming against tax revenue; (2) provide that

only the Port’s enterprise revenue generated from its business with the private

companies would be used to fund the subsidies, (3) wholly and unconditionally

assume financial liability for third-party claims under the Subsidy Programs,

and (4) provide for accounting for payments through a “special fund” to

insulate Carrier-related revenue and subsidies. 249 Or. at 337-40. All four

requirements must be satisfied to survive Article XI, section 9 scrutiny and to

provide adequate assurances to taxpayers that tax revenue is not exposed for

private benefit. None were met here, and, thus, the Port’s subsidy programs

violated the Oregon Constitution.

52

Respectfully Submitted,

Date: April 7, 2017 SCHWERIN, CAMPBELL, BARNARD,IGLITZIN AND LAVITT, LLP

By: s/Robert H. LavittRobert H. Lavitt (OSB No. 40083)18 West Mercer Street, Suite 400Seattle, WA 98119-3871T: (206) 257-6004F: (206) 257-6039lavitt@workerlaw.com

LEONARD CARDER, LLP

By: s/Andrew J. ZiajaAndrew J. Ziaja (Cal. SB 262283 )Emily M. Maglio (Cal. SB 267190)1330 Broadway, Suite 1450Oakland, CA 94612T: (510) 272-0169aziaja@leonardcarder.comemaglio@leonardcarder.com

53

COMBINED CERTIFICATE OF COMPLIANCE WITH BRIEF

LENGTH AND TYPE SIZE REQUIREMENTS, AND CERTIFICATES

OF FILING AND SERVICE

I certify that this brief complies with the word-count limitation in ORAP

5.05, which word count is 12,385, excluding the items listed in ORAP

5.05(1)(a).

I certify that the size of the type in this brief is not smaller than 14 point

for both the text of the brief and footnotes.

I certify that I filed this brief with the Appellate Court Administrator on

this date.

I certify that service of a copy of this brief will be accomplished on the

following participant(s) in this case, who is a registered user of the appellate

courts’ eFiling system, by the appellate courts’ eFiling system at the

participant’s email address as recorded this date in the appellate eFiling system:

Randolph C. Foster, OSB No. 784340rcfoster@stoel.comJeremy D. Sacks, OSB No. 994262jeremy.sacks@stoel.comSTOEL RIVES LLP760 SW Ninth Avenue, Suite 3000Portland, OR 97205T: (503) 224-3380

Attorneys for Defendants Port of Portland, Commissioners of the Port of

Portland and Bill Wyatt

///

///

54

Gregory J. Miner, OSB No. 86247gminer@batesmanseidel.comBATEMAN SEIDEL MINER BLOMGREN CHELLIS & GRAM, PC888 SW Fifth Avenue, Suite 1250Portland, OR 97204T: (503) 972-9932Attorneys for Defendant Bruce A. Holte, in his individual official capacity as a

commissioner for Defendant Port of Portland

Signed,

Date: April 7, 2017 SCHWERIN, CAMPBELL, BARNARD,IGLITZIN AND LAVITT, LLP

By: s/Robert H. LavittRobert H. Lavitt (OSB No. 40083)18 West Mercer Street, Suite 400Seattle, WA 98119-3871T: (206) 257-6004F: (206) 257-6039lavitt@workerlaw.com

LEONARD CARDER, LLP

By: s/Andrew J. ZiajaAndrew J. Ziaja (Cal. SB 262283 )Emily M. Maglio (Cal. SB 267190)1330 Broadway, Suite 1450Oakland, CA 94612T: (510) 272-0169aziaja@leonardcarder.comemaglio@leonardcarder.com