Allardice v. Adams County

• Decision Date: 16 November 1970
• Docket Number: No. 24601,24601
• Citation: 173 Colo. 133,476 P.2d 982
• Parties: John F. ALLARDICE, Dr. Dalrie Berg, Lee F. Carlson, Arthur Karas, and Harold W. Peterson, Plaintiffs in Error, v. ADAMS COUNTY, a political subdivision of the State of Colorado, E. G. Waymire, Glen Lancaster, and Jerry Yost, as Commissioners of Adams County, and Ralston Purina Company, a Missouri corporation, Defendants in Error.
• Court: Colorado Supreme Court

Page 982

476 P.2d 982

173 Colo. 133

John F. ALLARDICE, Dr. Dalrie Berg, Lee F. Carlson, Arthur Karas, and Harold W. Peterson, Plaintiffs in Error, v. ADAMS COUNTY, a political subdivision of the State of Colorado, E. G. Waymire, Glen Lancaster, and Jerry Yost, as Commissioners of Adams County, and Ralston Purina Company, a Missouri corporation, Defendants in Error.

No. 24601.

Supreme Court of Colorado, En Banc.

Nov. 16, 1970.

Calkins, Kramer, Grimshaw & Harring, Brooke Wunnicke, Denver, for plaintiffs in error.

Dawson, Nagel, Sherman & Howard, Thomas B. Faxon, Denver, for Ralston Purina Co.

David Berger, Commerce City, for Adams County, E. G. Waymire, Glen Lancaster and Jerry Yost.

KELLEY, Justice.

Allardice, Berg, Carlson, Karas and Peterson, taxpayers of Adams County, filed this lawsuit against Adams County, its commissioners and Ralston Purina Company, a Missouri corporation, to test the validity of revenue bonds which the county proposes to issue pursuant to the terms of the Colorado Economic Development Revenue Bond Act of 1967, Cum.Supp., 1967, C.R.S.1963, 36--24--1, et seq. It is conceded that the bond proceedings comply in all respects with the provisions of the Act. The questions to be resolved, therefore, relate to the validity of certain provisions of the Act when tested primarily by provisions of the state constitution, and additionally, as to one point, by the Fourteenth Amendment to the Federal Constitution.

Adams County, pursuant to the Act, adopted a resolution which authorized and approved: (1) the issuance of bonds in the aggregate principal amount of $2,000,000; (2) use of the bond proceeds to acquire an agricultural feed plant (Ralston Purina Project); (3) the execution of a Lease and Agreement with Ralston Purina Company providing that the lessee pay rent sufficient to pay all bond obligations as they become due, maintenance of and insurance on the project, and an amount in lieu of, but equal to, taxes on the project; and lessee having the option, after the bonds are paid, of buying the project for $1,000; and (4) a mortgage and indenture of trust, naming a private out-of-state trustee, covering all Project properties, revenues, and the lease, to be executed by the county as mortgagor to secure payment of the bonds.

Further, in conformity with a requirement of the Act, Section 7 of the Resolution states that neither the bonds nor the interest thereon shall impose any pecuniary liability on the county, nor be a charge against its general credit or taxing powers but shall be payable Only out of project revenues.

In addition to asking the court to declare clare the Act and the proceedings invalid, the Taxpayers sought to enjoin the county and its commissioners from issuing the bonds to acquire the project, and to enjoin Ralston Purina Company from executing the documents essential to carry out the proposed financing of the project.

The trial court entered its judgment in favor of the county, its commissioners and Ralston Purina Company, holding that the Economic Development Revenue Bond Act is constitutional. We agree with the trial court and therefore affirm.

The Act authorizes cities and counties to issue revenue bonds to finance the acquisition of real and personal properties for manufacturing or industrial enterprises; to lease, with option to purchase, such properties to private lessees for operation as projects; and, to secure payment of the revenue bonds by mortgage of the project property and by pledge of project revenues and the lease.

The Taxpayers present seven basic questions for our resolution. We will consider them in the order of their significance.

This is the initial challenge to reach this court as to the validity of the Economic Development Revenue Bond Act. Similar enactments have been challenged in our sister states. The employment of public revenue bonds to foster the promotion of local industry is not a new concept. See Uhls v. State ex rel. City of Cheyenne, 429 P.2d 74 (Wyo., 1967), for an analysis of cases on the subject. The weight of authority sustains the validity of such laws. DeArmond v. Alaska State Development Corporation, 376 P.2d 717 (Alaska 1962); Wayland v. Snapp, 232 Ark. 57, 334 S.W.2d 633 (1960); Green v. City of Mt. Pleasant, 256 Iowa 1184, 131 N.W.2d 5 (1964); Norvell v. City of Danville, 355 S.W.2d 689 (Ky.1962); City of Frostburg v. Jenkins, 215 Md. 9, 136 A.2d 852 (1957); Opinion of the Justices, 161 Me. 182, 210 A.2d 683, 696 (1965); City of Gaylord v. Beckett, 378 Mich. 273, 144 N.W.2d 460 (1966); Albritton v. City of Winona, 181 Miss. 75, 178 So. 799 (1938); Village of Deming v. Hosdreg Co., 62 N.M. 18, 303 P.2d 920 (1956); Gripentrog v. City of Wahpeton, 126 N.W.2d 230 (N.D.1964); Elliott v. McNair, 250 S.C. 75, 156 S.E.2d 421 (1967); Clem v. City of Yankton, 160 N.W.2d 125 (S.D.1968); Holly v. City of Elizabethton, 193 Tenn. 46, 241 S.W.2d 1001 (1951); Allen v. Tooele County, 21 Utah 2d 383, 445 P.2d 994 (1968); State ex rel. County Court of Marion County v. Demus, 148 W.Va. 398, 135 S.E.2d 352 (1964); Uhls v. State ex rel. City of Cheyenne, Supra.

I.

The key issue is: Does the Act contravene Article XI, Section 1 of the Colorado constitution? We hold that it does not.

Article XI, Section 1 provides:

'Neither the state, nor any county, city, town, township or school district shall lend or pledge the credit or faith thereof, directly or indirectly, in any manner to, or in aid of, any person, company or corporation, public or private, for any amount, or for any purpose whatever; or become responsible for any debt, contract or liability of any person, company or corporation, public or private, in or out of the state.'

The argument is that revenue bond financing, as authorized by the Act, constitutes the pledging of credit for a private corporation, and subjects the county to the debt, contract and liability of a private corporation in contravention of Article XI, Section 1.

The Taxpayers concede that 'under Colorado law, public revenue bonds do not create debt, if there is no pledge of public property. Davis v. pueblo, 158 Colo. 319, 406 P.2d 671; Ginsberg v. City and County of Denver, 164 Colo. 572, 436 P.2d 685.' The 'if' is created by certain language in McNichols v. City and County of Denver, 123 Colo. 132, 230 P.2d 591.

In Davis v. Pueblo, Supra, and in McNichols, the bond resolutions, both authorized the respective city councils not only to pledge the revenue from the parking facilities which were to be acquired from bond funds, but, also, to pledge the revenue derived from parking meters, which, but for the bond resolution, would go into the general fund of the cities. The court in those cases did not hold that such a pledge contravened the constitutional proscription against the pledging of the city's credit.

The use, as part of the security mechanism, of a mortgage of the parking facility to be erected with the bond funds, prompted the court in McNichols to use this language in invalidating the bonds:

'If the bonds in question were solely revenue bonds Shields v. City of Loveland, Supra, is authority to the effect that they could be considered Not to have increased the indebtedness of the city. But when the city consents to mortgage its assets to secure the payment of its debt, The bonds become more than mere revenue bonds and, for the reasons stated, must be deemed to have increased the outstanding indebtedness of the city. Their payment can be enforced not merely by applying revenues thereto, but by the appointment of a receiver and the foreclosure of the city's capital assets.' (Emphasis added.)

The italicized portion of the quote, plus additional language which we will subsequently refer to, shows clearly that the McNichols court was not relating the pledge problem to Article XI, Section 1, but to a constitutional provision Limiting the amount of municipal indebtedness. Article XI, Section 8. The court made this clear at the beginning of its discussion of the issue when, after conceding that where the bonds are payable from the operating revenues they are valid, it said:

'When, however, the offstreet parking properties, after being acquired by the city, are mortgaged under a trust indenture to secure payment of the bonds, then the bonds by that very act become more than revenue bonds--they become mortgage bonds; and When the city mortgages its property to secure a bonded indebtedness, it follows that a debt has been created within the meaning of a constitutional provision limiting the amount of municipal indebtedness.' (Emphasis supplied.)

Again, to emphasize the point, the court subsequently in its opinion noted:

'In oral argument counsel for the city stated that the indebtedness of the City and County of Denver had so nearly reached its legal limit that the offstreet parking bonds were made revenue bonds so as to avoid any question of their causing the city to exceed its debt limit. * * * What we here emphasize is that the offstreet parking bonds, unlike bonds relying Solely upon revenues for their payment, do in fact increase the outstanding indebtedness of the City and County of Denver.'

As will appear from a further analysis of the transaction under attack here, no issue exists as to 'debt limits.'

The court in McNichols, continued:

'The distinction can be seen by what happens in the event of default. The recourse of the holder of the revenue bonds continues to be the right to the revenue from the facility; the holder of the mortgage bond, however, can foreclose on the physical assets under the mortgage and to that extent render the city that much poorer by becoming possessed of its property that has been mortgaged.'

As already noted, the Taxpayers concede that revenue bonds Per se do not violate Article XI, Section 1. We have demonstrated that the issue here was not before this court in McNichols. McNichols, therefore, does not stand for the proposition contended for by the Taxpayers.

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