City of Allegan v. CONSUMERS'POWER CO.

• Decision Date: 06 June 1934
• Docket Number: No. 6685.,6685.
• Parties: CITY OF ALLEGAN, MICH., v. CONSUMERS' POWER CO.
• Court: U.S. Court of Appeals — Sixth Circuit

71 F.2d 477 (1934)

CITY OF ALLEGAN, MICH., v. CONSUMERS' POWER CO.

No. 6685.

Circuit Court of Appeals, Sixth Circuit.

June 6, 1934.

J. C. Bills, of Detroit, Mich. (Clare E. Hoffman, Leo W. Hoffman, and Carl E. Hoffman, all of Allegan, Mich., on the brief), for appellants.

Edgar Johnson, of Grand Rapids, Mich., and B. J. Onen, of Battle Creek, Mich. (Travis, Merrick, Johnson & McCobb, of Grand Rapids, Mich., and Weadock & Whiting, of New York City, on the brief), for appellee.

Before MOORMAN, HICKS, and SIMONS, Circuit Judges.

SIMONS, Circuit Judge.

The controversy arises out of the effort of the city of Allegan to amend its charter in order to increase its bonding limit for the purpose of completing an electric light and power plant, and the opposition to such project of the appellee as a property owner and municipal taxpayer. The appeal is from an interlocutory injunction restraining the city from borrowing money and issuing bonds.

The questions presented involve the validity of the attempted charter amendment, under the Constitution and laws of Michigan, the authority of the Federal Emergency Administration of Public Works to loan money to the city for the purpose indicated, and the constitutionality of Title 2 of the National Industrial Recovery Act (40 USCA § 403), if applicable to the purchase of the proposed bonds. A number of subordinate questions are likewise involved.

The appellee, hereinafter called the "utility," is a Maine corporation, but a taxpayer in Allegan, owning property therein and supplying its inhabitants with electricity. The city is governed in many respects by the provisions of the so-called Fourth Class Cities Act, being Act No. 215, Pub. Acts 1895. On June 1, 1930, it issued general obligation bonds for the construction of an electric lighting plant in the sum of $185,000, of which $181,000 is still outstanding. It also voted to issue mortgage bonds totaling $300,000, to be secured by a franchise and mortgage upon the lighting plant. On April 6, 1931, the electors voted to borrow an additional $170,000 on general obligation bonds, which have not yet been issued. The Fourth Class Cities Act limits the city in borrowing for the purpose of erecting and maintaining a municipal dam and lighting works to a sum not exceeding 5 per cent. of the assessed value of the property in the city as shown by the last preceding tax roll. The total assessed valuation of the property in the city for the year 1931 was $3,649,315; for 1932, $3,518,090; and for 1933, $3,403,775.

The present Constitution of Michigan, ratified by the people in 1909, incorporates in article 8 certain so-called home rule provisions. They are:

"Sec. 20. The legislature shall provide by a general law for the incorporation of cities, and by a general law for the incorporation of villages; such general laws shall limit their rate of taxation for municipal purposes, and restrict their powers of borrowing money and contracting debts.

"Sec. 21. Under such general laws, the electors of each city and village shall have power and authority to frame, adopt and amend its charter and to amend an existing charter of the city or village heretofore granted or passed by the legislature for the government of the city or village and, through its regularly constituted authority, to pass all laws and ordinances relating to its municipal concerns, subject to the Constitution and general laws of this state."

Following the ratification of the Constitution of 1909, the Legislature passed the so-called Home Rule Act (Pub. Acts 1909, No. 279). This, as amended by section 2231, C. L. 1929, permits each city to provide by its charter for the borrowing of money on the credit of the city, and issuing bonds therefor for any purpose within the scope of its powers, provided that the net bonded indebtedness incurred for all public purposes shall not at any time exceed 10 per cent. of the assessed value of all real and personal property in the city. On April 6, 1931, a proposed amendment to the charter of the city was submitted to its electors and ratified, which purported to increase the total authorized indebtedness for the construction and maintenance of electric lighting works from 5 per cent. as limited by the Fourth Class Cities Act (Pub. Acts 1895, No. 215, c. 27, § 4) to 10 per cent. of the assessed value of the city's property, being an attempt to incorporate into the city's charter one of the "Permissible Charter Amendments" of the Home Rule Cities Act (section 2228 et seq.). The attempted enlargement by the city of its bonding limit is attacked as void, and the District Court so held it to be on the ground that the authority granted by the Constitution to the Legislature to limit the extent to which cities may incur indebtedness excludes the power of Home Rule Cities to legislate upon the same subject, citing as authority Harsha v. City of Detroit, 261 Mich. 586, 246 N. W. 849, 90 A. L. R. 853; City of Kalamazoo v. Titus, 208 Mich. 252, 175 N. W. 480; City Comm. of City of Jackson v. Vedder, 209 Mich. 291, 176 N. W. 557; Attorney General v. Lindsay, 178 Mich. 524, 145 N. W. 98. The city defends the validity of its charter amendment in reliance upon North Michigan Water Company v. Escanaba, 199 Mich. 286, 165 N. W. 847, and other cases.

We should be under the necessity at this point of analyzing the Michigan cases cited in an endeavor to ascertain the Michigan law were it not for the fact that on March 9, 1934, since the hearing below, the Legislature of Michigan passed and gave immediate effect as of March 13th to a so-called validating act, which provides: "Section 1. Whenever bonds for electric light and/or power, or other light and/or power purposes have heretofore been approved by the requisite majority of the qualified voters of any city having a population not to exceed four thousand five hundred according to the last federal census, as fixed by the several enabling acts under which the election was held, the said bonds issued or to be issued as so approved by the voters to the amount and for the purposes submitted to the voters are hereby confirmed and validated and declared to be legal and valid obligations of the city, if, as and when so issued or to be issued, notwithstanding the limitations fixed by any charter or statute as to the power of such city to borrow money to be used for the purpose of purchasing, constructing and/or maintaining such lighting and/or power works or projects and/or notwithstanding the total amount expended or to be expended therefor shall exceed the amount of the estimate of expense thereof." It is not disputed by the utility that the terms of the validating act are sufficiently broad to cover the bonds which the city proposes to issue, but the act is itself attacked as unconstitutional on the ground that it is in conflict with section 20, article 8, of the Michigan Constitution, which requires the Legislature to restrict the borrowing powers of cities; that it is a local act within section 30, of article 5, of the state Constitution, which provides that no local act may be passed where a general law can be made applicable; that whether a general act can be made applicable is a judicial question, and that no local or special act shall take effect until approved by a majority of the electors voting thereon in the district to be affected, and on the further ground that it violates the Fourteenth Amendment to the Constitution of the United States in that the classification therein made is not reasonable.

It is of course axiomatic that what the Legislature was empowered to do originally it can subsequently confirm, providing no vested interests have meanwhile arisen. It is claimed, however, by the utility that the validating act authorizes unlimited borrowing by the city, and since the constitutional mandate is that the Legislature restrict such borrowing, it cannot retroactively confirm that which it could not in the beginning authorize. The Constitution, however, is silent as to the kind and extent of the restriction which the Legislature must put upon cities. The borrowings which it now undertakes to validate are not those to be made in the future, whose extent cannot be ascertained, but are borrowings which have already been made or authorized, and whose extent and purpose were known to the Legislature when the act was passed. Moreover, the statute is not itself without restriction. The bonds validated are only those which have been issued or approved by the requisite majority of the qualified electors of the city. As was said by Mr. Justice Cooley in an early case, People ex rel. Drake v. Mahaney, 13 Mich. 481, 498, in construing an identical mandate of the Constitution of 1850, whereby the Legislature was directed to put a limitation upon taxation: "The constitution has not prescribed the character of the restriction which shall be imposed, and from the nature of the case it was impossible to do more than to make it the duty of the Legislature to set some bounds to a power so liable to abuse. A provision which, like the one complained of, limits the power of taxation to the actual expenses as estimated by the governing board, after first limiting the power of the board to incur expense within narrow limits, is as much a restriction as if it confined the power to a certain per centage upon taxable property, or to a sum proportioned to the number of inhabitants in the city. Whether the restriction fixed upon would as effectually guard the citizen against abuse as any other which might have been established, was a question for the legislative department of the government, and does not concern us on this inquiry." If this commentary on the character of the restrictions required is sound, and we are cited to no Michigan cases which challenge it, the validating act is not unconstitutional upon the first ground urged.

In determining whether statutes are local or general within the meaning of article...