State ex rel. Morgan v. City of Portage

• Decision Date: 03 October 1921
• Parties: STATE EX REL. MORGAN, ATTY. GEN., v. CITY OF PORTAGE ET AL.
• Court: Wisconsin Supreme Court

174 Wis. 588

184 N.W. 376

STATE EX REL. MORGAN, ATTY. GEN.,

v.CITY OF PORTAGE ET AL.

Supreme Court of Wisconsin.

July 13, 1921.

Dissenting Opinion Oct. 3, 1921.

Mandamus by the State of Wisconsin, on the relation of William J. Morgan, Attorney General, against City of Portage and others. Petition dismissed, and alternative writ quashed.

An action of mandamus, commenced in this court by leave granted. The issues are presented to the court upon the petition, the alternative writ, and a motion to quash the alternative writ.

The action was brought to compel the city of Portage to comply with an order of the Railroad Commission directing the making of improvements in its waterworks system. The Railroad Commission issued to the city a certificate permitting it to issue mortgage certificates to pay for the improvements under the provisions of section 927--19b. It is conceded that the city was, at the time of the making of the order, and has been at all times since, indebted to substantially its full constitutional limitation. Petitioner alleges that the city can comply with the order by availing itself of either section 927--16 or 927--19b as a means of raising money. The city refused to issue any certificates either under section 927--19b or 927--16, claiming that to do so would be in violation of the constitutional prohibition of section 3, art. 11, of the state Constitution.

Eschweiler, J., dissenting in part.Ralph M. Hoyt, Deputy Atty. Gen., and Wm. J. Morgan, Atty. Gen., for plaintiff.

Harlan B. Rogers, of Portage, for defendants.

John C. Thomson, of New York City, and T. L. McIntosh and R. M. Rieser, both of Superior, amici curiæ.

SIEBECKER, C. J. (after stating the facts as above).

It is undisputed that, if the mortgage certificate the Railroad Commission authorized the city of Portage to issue for the purpose of securing funds for the improvement of its waterworks as directed by the Commission is added to the city's existing indebtedness, then the city's indebtedness will exceed the 5 per cent. limitation prescribed by section 3, art. 11, of the Constitution. It is the contention of the state that the city can comply with the order of the Railroad Commission in making the directed improvement of its waterworks by availing itself of the provisions of section 927--16 or 927--19b, Statutes, as a means of raising the necessary funds. This claim of the state is based on the ground that any funds raised by the city to make the contemplated waterworks improvement do not constitute an indebtedness of the city within the sense of the constitutional limitation under the provisions of these statutes. The question is therefore presented: Do the schemes prescribed by these statutes provide a means by which municipalities may “purchase, acquire or construct any public utility or utilities, * * * to provide for the payment thereof, and to provide for any extensions, additions and improvements that are necessary,” without thereby incurring a municipal indebtedness in the sense of the constitutional limitations forbidding municipalities to become indebted in any manner or for any purpose to any amount exceeding 5 per cent. of the assessed valuation of the taxable property therein. An examination of section 927--16, Statutes, discloses a legislative attempt to accomplish these purposes.

Subsection 1 declares, whenever the voters have determined by votes to purchase, acquire, or construct a public utility the governing authority “shall have power * * * to provide for the payment thereof, and to provide for any extensions, additions and improvements that are necessary,” in the manner provided; namely, by setting aside the income and revenue of such utility as a separate and special fund, which is to be applied to pay the expense of its maintenance and operation and the payment of the purchase or construction price. This revenue is divided into fixed proportions for (a) maintenance and operation, (b) an adequate depreciation account, and, (c) the payment of the principal and interest of the bonds authorized by this statute. Subsections 3, 4, 5, 6, and 7 specify in detail how these three proportions of the revenue shall be made up and expended. Subsection 8 provides for the issuance of bonds to secure means for the payment of the utility, and “for any extensions, additions and improvements thereof, * * * which bonds shall be payable only out of the said special redemption fund.” The obligations of such bonds for payment of the principal and interest “shall be a valid claim of the holders thereof only against the said special redemption fund and the fixed proportion or amount of the revenues pledged to such fund, and shall not constitute an indebtedness of such city, village or town within the meaning of the constitutional provisions and limitations.”

Subsection 9 relates to the cost and value of services rendered by the utility to the municipality, and the payment thereof as a current expense, and the costs of such services for the municipality must, under subsection 10, be just and reasonable. By subsection 11, all the moneys realized on a sale of bonds “shall be applied solely for purchasing * * * or constructing such utility, and in the payment of the cost of any necessary extensions, additions and improvements,” and “there shall be and there is hereby granted and created a statutory mortgage lien upon the public utility so purchased, constructed or acquired to and in favor of the holders of the said bonds * * * and the coupons of such bonds.” It is provided that in case of default in payment of the bonds this lien may be enforced by action, and in case of the sale of the utility to satisfy such lien the purchaser shall be vested with an indeterminate permit to operate the utility. The result of these provisions is to provide for the payment of the purchase price of a utility when acquired or constructed, including necessary improvements, additions, and extensions out of the earning of the utility. In substance, the statute provides for the creation of a purchase-money lien on the utility and the application of the revenue it produces for the payment of the expense of its operation, depreciation, and the cost of acquisition or construction. The effect of the scheme is to subject the utility to a purchase-money mortgage lien, which the city does not assume to pay by resorting to its taxing power or to its property or funds. The city assumes no financial obligation, but contracts to perform the duty of managing the revenues of the utility for the benefit of the purchase-money lienors, and if the utility pays for itself in the manner provided by the statute, then the municipality is to become the owner of the utility.

In speaking of the significance of the word “debt” as used in section 3, art. 11, of the Constitution, this court said in Burnham v. City of Milwaukee, 98 Wis. 128, 73 N. W. 1018:

“It means ‘something owed,’ ‘money due or to become due upon express or implied agreement.’ * * * It denotes, not only an obligation of the debtor to pay, but the right of the creditor to receive and enforce payment [citing]. Under the Constitution as...