Fjeldsted v. Ogden City

Decision Date22 March 1933
Docket Number5381
Citation83 Utah 278,28 P.2d 144
CourtUtah Supreme Court
PartiesFJELDSTED v. OGDEN CITY et al
Dissenting Opinion December 14, 1933

On Rehearing December 14, 1933.

Original proceeding by Ezra J. Fjeldsted for a writ of prohibition prayed to be directed to Ogden City and others, to prevent the issuance of certain bonds.

Alternative writ of prohibition previously issued made permanent.

Thatcher & Young, of Ogden, for plaintiffs.

Stuart P. Dobbs, of Ogden, for defendants.

Joseph Chez, Attorney General, Fisher Harris, of Salt Lake City Raymond B. Holbrook and George S. Ballif, both of Provo, and J. M. Foster, of Cedar City, amici curiae.

FOLLAND Justice. ELIAS HANSEN, EPHRAIM HANSON, and MOFFAT, JJ., concur. STRAUP, Chief Justice, EPHRAIM HANSON, Justice, dissenting.

OPINION

FOLLAND, Justice.

This is an original proceeding in this court. On petition of plaintiff, a taxpaying resident citizen of Ogden, Utah, suing for himself and on behalf of others similarly situated, an alternative writ of prohibition was issued wherein the defendants were directed to desist further proceedings with reference to the issuance and sale of certain bonds in the sum of $ 645,000 until the further order of this court, and to show cause why the writ should not be made permanent. The defendant Ogden City is a municipal corporation of Utah, a city of the second class, and the individual defendants are the mayor, city commissioners, city treasurer, and city recorder, respectively, of such city. The defendants and each of them filed a general demurrer to the petition alleging that the petition does not set forth any cause of action or sufficient ground to warrant making the writ permanent. After the case was submitted, and after a tentative opinion was written, but not filed, the parties filed a stipulation adding to the petition certain allegations of fact which the parties considered might be material, and which made clear certain allegations which before were indefinite, and stipulated that the demurrers on file be deemed as running to the petition as amended. The following statement of facts covers the allegations of the petition as amended:

The facts alleged in the petition and admitted by demurrer are these: Ogden City is a municipal corporation of the second class. It owns, maintains, and operates an existing waterworks supply and distribution system which supplies water to approximately 45,000 people. The waterworks system consists of certain wells heretofore drilled by the city in an artesian basin lying about eight miles easterly from the city at the head of Ogden Canyon, together with certain water supplies from side streams entering the canyon between the wells and certain reservoirs constructed and owned by the city and situate on high land in the eastern portion of the city. The water from the side streams is so controlled that, when needed, it is diverted into the reservoirs and commingled with the water from the wells. From the reservoirs the water is distributed throughout the city and to some extent outside the city limits by means of a system of water mains, laterals, and pipe connections. The system cost approximately $ 450,000 when first acquired in 1907, and on which there has been spent approximately $ 1,500,000 additional for enlargement and betterment.

The valuation of the taxable property within the city as shown by the assessment for 1932 is $ 37,992,012, 8 per centum of which would fix the debt capacity of the city at $ 3,039,360, under the provisions of the state Constitution. There are now outstanding general obligation bonds in the sum of $ 2,714,500, to which must be added $ 70,000 of sewer bonds authorized by the voters and about to be sold. A bond issue of $ 250,000 was heretofore authorized by vote of the qualified electors for a joint city and county building, to be issued and sold when Weber county raises a like amount for construction of such building, but these bonds have not yet been issued.

Of the outstanding bonds $ 1,522,500 are water bonds, the proceeds of which have been expended on the waterworks system. To pay the principal and interest on such bonds, the city has obligated itself to levy an annual tax sufficient for that purpose. The total revenues of the city for the year 1932, exclusive of any surplus from the waterworks department, will not exceed $ 488,572.92. The amounts budgeted for expenditure for the year exceed the amount of such estimated revenue by $ 40,972.37, substantially the whole of such expenditures having heretofore been made or obligations for the payment thereof having been incurred. The net operating revenue of the waterworks fund for the year 1932 will not exceed the amount of such deficit arising in the other funds, and the city has incurred obligations equal to its full current revenue for the year from all sources.

During the 6 years next prior to the filing of the petition, the waterworks system has produced a gross revenue in excess of $ 1,000,000, with an operating expense of slightly more than $ 300,000, yielding a net operating profit of approximately $ 745,000. During this 6-years period all the revenue derived by the city from the sale of water has been covered into the waterworks fund, created by the ordinance, section 162, hereafter quoted in full, and from such fund there has been paid, first, the current operating and maintenance expense of the system, a small part of the cost of betterments and improvements; the major part of the cost of improvements and betterments being paid out of revenues obtained by sale of bonds. Out of this special fund has been paid the interest charges on outstanding waterworks bonds, and such principal of waterworks bonds as has been paid during that period. (The amount of such principal payments is not disclosed.) After making such payments, and retaining some amount as a surplus in the waterworks fund, there has been a net surplus of from $ 55,000 to $ 90,000 each year which has been covered from the waterworks fund into the general fund of the city. None of the water bonds heretofore issued and sold have by their terms been made a charge on the waterworks revenues, but expressly provide they are payable both as to principal and interest out of revenues raised by general taxation. During the 6-year period mentioned, the city has not levied any tax for the purpose of paying principal or interest on its waterworks bonds. In each of such years the maximum levy permitted by law of 2 mills on the dollar of assessed valuation for contingent expenses has been levied and the revenues received therefrom used for general fund purposes but not for payment of any service on waterworks bonds.

Some time prior to December 14, 1932, Ogden City made application to the Reconstruction Finance Corporation for a loan of $ 645,000 for which it would issue and deliver "Water Revenue Bonds" in the same amount, and in connection with such application prepared and presented a financial statement showing the revenues and expenditures of such city and of its waterworks department during the 6-year period referred to, together with estimates of the revenues and expenditures of the waterworks department for a period of 15 years commencing with the year 1933, based upon the actual receipts and expenditures over the period from 1927 to 1932, both inclusive. It is alleged:

"That during such past six year period the net obligations [revenues] in such Waterworks Fund remaining after payment of all charges thereunto, including interest and principal payments upon the Waterworks Bonds, was in excess of the annual charges for principal and interest under the proposed bond levy in any such period of six years. That such estimates disclose a probable net operating profit in the period of fifteen years, commencing with the year 1933 and ending with the year 1947, from the operations of such Waterworks System in excess of necessary current operating expense and cost of maintenance of $ 2,209,227.70; that the principal falling serially due upon the bonded indebtedness covered by outstanding Waterworks Bonds of Ogden City during such period would be $ 375,000.00; and the amount falling due under such proposed bond issue will be the whole thereof or $ 645,000.00, a total principal payment of $ 1,020,500.00, and the interest charges upon such outstanding obligations and proposed obligations during such period would be $ 887,875.50, leaving an estimated surplus of Waterworks revenue over expenses of maintenance and current operation, retirement of principal and payment of interest on the outstanding Waterworks Bonds and bonds represented by Exhibit 'A' of $ 300,852.20."

The matter is probably immaterial to a determination of any issue in the case, but we have quoted the above statement in full, and suggest that it would appear from other facts set out in the petition that no account is taken in such estimate of the sinking fund requirements for a portion at least of the outstanding waterworks bonds. The statement includes an item of $ 375,000 to cover estimated serial payments on outstanding waterworks bonds. Under the statute such bonds may be payable serially over a period of not more than 40 years. $ 375,000 paid over a period of 15 years would amount to $ 25,000 per year, which would meet the serial requirements of only $ 1,000,000 of 40-year bonds, and leave $ 522,500 of bonds without any provision, in the estimate, for serial payments or sinking fund requirements. The estimate does not therefore include all the city's obligations on its bonds during the 15-year period mentioned.

Before December 14, 1932, there was passed by the board of commissioners of Ogden City and published an ordinance, in effect on and prior to that date, known as ...

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