Wadsworth v. Santaquin City

• Citation: 28 P.2d 161,83 Utah 321
• Decision Date: 14 December 1933
• Docket Number: 5488
• Court: Supreme Court of Utah
• Parties: WADSWORTH et al. v. SANTAQUIN CITY et al

28 P.2d 161

83 Utah 321

WADSWORTH et al. v. SANTAQUIN CITY et al

No. 5488

Supreme Court of Utah

December 14, 1933

Original proceeding by T. J. Wadsworth and another for a writ of prohibition prayed to be directed to Santaquin City and others, to restrain the defendants from issuing and selling certain revenue bonds.

Alternative writ of prohibition previously issued made permanent.

Stephens Brayton & Lowe and Calvin Behle, all of Salt Lake City, for plaintiffs.

J Robert Robinson and Geo. S. Ballif, both of Provo, for defendants.

E. A. Walton, of Salt Lake City, and J. A. Howell, of Ogden, amici curiae.

FOLLAND, JUSTICE. ELIAS HANSEN and MOFFAT, JJ., concur. STRAUP, C. J., EPHRAIM HANSON, J., dissenting.

OPINION

FOLLAND, JUSTICE.

On petition of plaintiffs an alternative writ of prohibition was issued out of this court prohibiting and restraining the defendants from issuing and selling revenue bonds of the defendant city pursuant to an ordinance theretofore passed and adopted by the city council of Santaquin City. The issues are made by demurrer to the petition, which alleges that the petition does not set forth any cause of action or sufficient ground to warrant the making of the writ of prohibition permanent.

At the hearing of this case the court also heard arguments on the pending motion for rehearing in the case of Fjeldsted V. Ogden City, 28 P.2d 144, theretofore decided. All the issues in both cases were fully briefed and argued by respective counsel. We desire to acknowledge our appreciation of the services of Mr. E. A. Walton and Judge J. A. Howell, members of the bar of this court, who, at our request, appeared as amici curiae, and aided the court by their helpful suggestions and argument.

The petition shows that plaintiffs are taxpaying residents of Santaquin City, and that Santaquin City, hereinafter called the city, is a municipal corporation organized under general laws as a city of the third class. The other defendants are the mayor, city councilmen, treasurer, and recorder respectively of the city.

The city in 1911 constructed a waterworks system which it now owns and operates, the flow lines of which were largely of wood-stave pipe. By the year 1929 the wood-stave pipe had deteriorated to such an extent, causing great leakage of water, that replacement became necessary. Thereupon a portion of the flow lines were replaced with castiron pipe. The replacement program, so far as carried out, was financed by general obligation bonds of the city, which have all been paid, and the city is now free from debt. The annual gross revenue from the water system was about $ 1,500, with operating costs approximately $ 800, leaving a net annual revenue of about $ 700 which was diverted to the general fund of the city and used to pay current expenses. Because of the leaky condition of the remainder of the wood-stave pipe causing a loss of about 50 per cent of the water taken into the system, the city desired to continue its replacement program and make other improvements in its water system. A comprehensive survey and estimate was made by competent engineers, and their report was adopted by the city council. Therein it was shown that $ 30,584.35 was necessary in order to rehabilitate the system. While the city is free from debt, yet a borrowing in this amount, and issue of general obligation bonds therefor, which is in excess of the revenue for the year, would exceed the debt limit imposed by section 4, art. 14, of the Constitution. The city proposes to finance the project by a loan from the federal government under the terms of the National Industrial Recovery Act (section 203 [40 USCA § 403], which allows a grant by the government of 30 per cent of the cost of the labor and materials used on the work. An ordinance was thereupon, on August 28, 1933, passed by the city council authorizing the issuance of $ 22,000 of "Revenue Bonds," the principal and interest of which are payable over a period of 30 years solely out of a portion of the net revenues derived from the operation of the waterworks system. For its authority to pass the ordinance and issue the revenue bonds, the city relies on Laws of Utah 1933, c. 22 (2d Special Session) p. 41, commonly known as the Granger Act, and hereafter referred to as the act. The ordinance provides that 80 per cent of such net revenues, set at $ 1,500 a year, over a period of 30 years, shall be pledged to pay principal and interest on the revenue bonds. Such allocation is based on the appraised value of the betterments and improvements which are found and declared to be $ 47,950 as against an appraised value of $ 11,950 for the present system. It is further ordered and provided that the net revenues so apportioned and allocated to the payment of revenue bonds and coupons "shall be deemed to be revenues derived solely from the said improvements and betterments contemplated herein." The appraisement so found and declared is based on personal knowledge and investigation by the city council and the report of the engineers. It includes an item of $ 18,000 in the appraisement of betterments and improvements based on the appraised value of one-half a second foot of water to be saved from waste by the proposed rehabilitation of the service. The entire bond issue is to be paid within 30 years of date of issue. The first installment of principal of $ 400 becomes due in 1936 and the balance in equal installments of $ 800 each year for 27 years. Other provisions of the ordinance are that the city shall pay into the waterworks fund the reasonable value of all water used by it; that the fiscal year for the purpose of paying the revenue bonds shall be October 1st of one calendar year to September 30th of the succeeding year; that there shall be maintained a special account to be known as the waterworks fund, into which shall be paid all money received from sale of water; that the reasonable cost of operation and maintenance of the system is made a first lien upon the total revenues of the system; allotments for extensions and betterments and reserve for depreciation and repairs shall be set aside in a sinking fund; that the principal of and interest on the revenue bonds shall be paid from 80 per cent of the net revenues; a sinking fund to be set up out of the accumulated balance which may be disposed of by the city council as it sees fit, provided sufficient shall be kept in the sinking fund at all times to pay principal and interest on the bonds for the next ensuing year. All of the contemplated revenue is set out and allocated in an amortization table incorporated in the ordinance. The water rates are fixed by the ordinance on a somewhat higher schedule than heretofore, and the city council is required to maintain such rates or revise the same in order to provide sufficient net revenues to meet the revenue bond obligations. The city council is authorized to apply to the United States government through its proper officer for $ 35,548,35, including the grant of 30 per cent of the cost of labor and materials, and to sell the $ 22,000 issue of revenue bonds to the government in connection therewith.

The objections urged by plaintiffs to the issue of these bonds and the proceedings leading thereto are these: That the issue creates a "debt" of the city in violation of article 14, §§ 3 and 4, of the Constitution; that the budget requirements of section 15-11-1, Rev. Stats. Utah 1933, were not followed; that no provision is made for the levy of annual taxes to pay the bonds as required by section 15-7-9, Rev. Stats. Utah 1933; that the segregation and allocation of net revenues is arbitrary, illegal, and void; that the bonds are not payable in equal installments as required by the act of 1933; that the fixing of the fiscal year violates article 13, § 1, of the Constitution; and that the requirement of payment by the city for water used by it is illegal as creating a "debt."

Two decisive general questions are involved in this proceeding: (1) Are the act and the city ordinance enacted pursuant thereto unconstitutional as authorizing and creating a debt in violation of sections 3 and 4, art. 14, of the state Constitution? and (2) Do the city ordinance and other proceedings taken by the city, on which the issue of revenue bonds is taken, comply with the requirements of the act?

The Constitution, art. 14, § 3, provides that:

"No debt in excess of the taxes for the current year shall be created by any * * * city * * * unless the proposition to create such debt" shall be submitted to, and approved by, a majority of the qualified taxpaying electors. Section 4 limits the indebtedness of a city of the third class, when so authorized, to not to exceed 4 per cent of the value of the taxable property therein, for general purposes, and not to exceed an additional 8 per cent to supply such city with water, artificial lights, or sewers, when the works for supplying such services "shall be owned and controlled by the municipality."

In the case of Barnes v. Lehi City, 74 Utah 321, 279 P. 878, this court held these constitutional provisions not violated where the city undertook to purchase electric generating equipment and pay for same exclusively out of the proceeds earned thereby. In Fjeldsted v. Ogden City, 28 P.2d 144, the court decided that, notwithstanding the decision in the Barnes V. Lehi City Case, a city would become indebted in the constitutional sense where it undertook to issue revenue bonds, the principal and interest of which are payable out of future earnings of an existing waterworks system, yielding a substantial revenue to the city.

We have extended our discussion of these questions farther than necessary to decide the issues raised in the instant case but we have done so for...