Allison v. City of Phoenix

• Decision Date: 25 June 1934
• Docket Number: Civil 3510
• Citation: Allison v. City of Phoenix, 44 Ariz. 66, 33 P.2d 927 (Ariz. 1934)
• Parties: W. L. ALLISON, Appellant, v. CITY OF PHOENIX, a Municipal Corporation, FRED J. PADDOCK, R. E. PATTON, CHESTER A. SIPES, J. B. GUESS and LESTER DeMUND, City Commissioners of the City of Phoenix, OLIVER H. LOCH, City Treasurer of the City of Phoenix, and L. W. ROWLES, City Clerk of the City of Phoenix, Appellees
• Court: Arizona Supreme Court

33 P.2d 927

44 Ariz. 66

W. L. ALLISON, Appellant, v. CITY OF PHOENIX, a Municipal Corporation, FRED J. PADDOCK, R. E. PATTON, CHESTER A. SIPES, J. B. GUESS and LESTER DeMUND, City Commissioners of the City of Phoenix, OLIVER H. LOCH, City Treasurer of the City of Phoenix, and L. W. ROWLES, City Clerk of the City of Phoenix, Appellees

Civil No. 3510

Supreme Court of Arizona

June 25, 1934

APPEAL from a judgment of the Superior Court of the County of Maricopa.J. C. Niles, Judge.Judgment affirmed.

Mr. W L. Barnum, for Appellant.

Mr Frank H. Lyman, City Attorney, for Appellees.

OPINION

LOCKWOOD, J.

This is a proceeding by W. L. Allison, hereinafter called plaintiff, as a real property taxpayer and elector of the city of Phoenix to enjoin the city and its proper authorities from issuing selling or delivering any of certain bonds authorized by Ordinance 1874 of that city.

The complaint was filed in the superior court of Maricopa county and a demurrer interposed, which was by the court sustained, and plaintiff electing to stand on his complaint, judgment was rendered in favor of the defendants, whereupon this appeal was taken.

There were four separate bond issues provided for by the ordinance, and separate suits were filed in the superior court to test the validity of each issue; but since the cases were by stipulation briefed as one, we shall discuss in this case every objection raised to any of the bonds, and the views we express in this case will in effect determine the result of the other three appeals.

We must take the facts stated by the complaint as true for the purpose of the appeal, and therefore briefly summarize them as follows: Pursuant to the program instituted by the United States of America to relieve distress and unemployment in the United States, the city commission of the city of Phoenix, endeavoring to co-operate with such program, decided to submit to the properly qualified electors of said city, who were also real property taxpayers therein, the question as to whether the city should issue bonds for certain purposes.These purposes were: (a) To develop within and without the territorial limits of the city a system of parks, playgrounds, and recreational areas; (b) to construct extensions to the sanitary sewer system of the city of Phoenix; (c) to construct a municipal storm sewer; and (d) to construct extensions to the municipal water system of Phoenix.These questions were submitted at an election held on December 9, 1933, in such manner that they might either approve or reject each of the proposed bond issues separately.The ordinance authorizing such election provided that the bonds should be paid as provided by article 5, chapter 60 of the Revised Code of 1928(section 2657 et seq.), and any amendment thereto, but that in addition thereto all of the net revenue to be derived by the city from certain property owned and to be owned by it should be put into a special fund and used for the purpose of paying the interest and principal of the park bonds, and the property tax required by article 5, supra, to be levied for the payment of such bonds should be reduced by the amount of money so placed in the special fund, as aforesaid.It further provided that the city had an agreement with the United States of America whereby the latter would purchase said bonds, on condition that the city would pass an ordinance appropriating the surplus net revenues derived from the operation of the sanitary sewer and water extensions, above referred to, for the repayment of said bonds.All these provisions in regard to the special funds aforesaid were by the ordinance required to be shown upon the face of the proper bonds, if, as, and when issued.The bonds were all approved by a small but sufficient majority.Thereafter these suits were brought.

While in form they are by an objecting taxpayer who desires to have the bonds declared invalid, it is obvious from the record, and the manner in which it has been presented, that it is in reality, as we said in Re Verde etc. Irr. Dist.,37 Ariz. 580, 296 P. 804, a friendly suit in which all of the parties are desirous of having this court declare that the bonds will be valid obligations of the city of Phoenix if, as, and when issued.The plaintiff in his brief has set up five matters which he alleges show that the bonds are invalid, but apparently in fear that the court may inadvertently fail to realize the fallacy of his objections, he has carefully pointed out in his brief the reasons why these objections are untenable, and cited authorities to that effect, without presenting either argument or authority in support of the objections.The situation is similar to that which has almost invariably occurred when bond validation suits have been before us in the past, and we have therefore been forced, in order that the questions raised should be fairly considered, to act as counsel for the plaintiff, to the extent of making an independent investigation to determine whether there is reason or authority to sustain the formal objections made by him.

We shall consider the five objections in the order in which they are stated in the brief.The first is that the issuance of the $720,000 of park bonds would increase the indebtedness of the city of Phoenix in excess of 4 per cent. of its assessed valuation.Section 8, article 9, Constitution of Arizona, reads as follows:

"Section 8.No county, city, town, school district, or other municipal corporation shall for any purpose become indebted in any manner to an amount exceeding four per centum of the taxable property in such county, city, town, school district, or other municipal corporation, without the assent of a majority of the property taxpayers, who must also in all respects be qualified electors, therein voting at an election provided by law to be held for that purpose, the value of the taxable property therein to be ascertained by the last assessment for State and county purposes, previous to incurring such indebtedness; except, that in incorporated cities and towns assessments shall be taken from the last assessment for city or town purposes; 'Provided, that under no circumstances shall any county or school district become indebted to an amount exceeding ten per centum of such taxable property, as shown by the last assessment roll thereof;' and provided, further, 'that any incorporated city or town, with such assent, may be allowed to become indebted to a larger amount, but not exceeding fifteen per centum additional, for supplying such city or town with water, artificial light, or sewers, when the works for supplying such water, light or sewers are or shall be owned and controlled by the municipality.'"

We have held in the case of Buntman v. City of Phoenix,32 Ariz. 18, 255 P. 490, that, under this provision, indebtedness for water, light or sewer purposes is in a separate class from that incurred for any other purpose, and that in determining the total amount of indebtedness allowed, the two classes must be considered separately.The total valuation of the city of Phoenix, as shown by the last assessment before the bond election, was $65,879,213.This would permit a total indebtedness, other than that for water, light and sewer purposes, of $2,635,168.The actual indebtedness already incurred at the time of the election, excluding the three purposes last named, was $1,679,051, leaving a margin of $956,117, for which new indebtedness for purposes other than water, light and sewer might, under the constitutional provision, be incurred.The city, in addition to the indebtedness already outstanding, as aforesaid, had from time to time issued bonds in large sums for the construction of waterworks, and at times when some of these bonds fell due it was unable to pay the principal, and had therefore issued a total of $278,000 of bonds to refund such indebtedness.It is contended that this $278,000 of refunding bonds is in reality an indebtedness which must be charged against the 4 per cent. limit for general purposes, and not against the 15 per cent. limit for water, light and sewer, against which last limit the bonds which the $278,000 of refunding bonds replaced were originally charged.If this must be charged against the $956,117 above referred to, obviously there is not a sufficient margin left to take care of the $720,000 park bonds which, of course, must be charged against the 4 per cent. limit.If, on the other hand, the refunding bonds are to be charged against the 15 per cent. limit in the same manner as the bonds in lieu of which they were originally issued, sufficient margin still remains under which the 4 per cent. limit will care for the park bonds, with a considerable amount over.

A similar situation has arisen in many cities which have the unfortunate habit of issuing bonds which all mature at the end of a fixed period, and are presumably, although almost never actually, to be cared for by a sinking fund, instead of serial bonds on which a certain percentage of the principal must be paid year by year; the bonds thus being fully paid by the time of maturity.It is almost universally held that an issuance of refunding bonds in this manner does not create any debt or increase the debt of the municipality which issues them.They merely change the form of an existing indebtedness.

In the case of Citrus G. D. Assn. v. Water Users' Assn.,34 Ariz. 105, 268 P. 773, 780, a similar question arose.It was urged in that case that the refunding bonds issued by the Water Users were an increased indebtedness within the meaning of a charter provision limiting the amount of indebtedness, as does our constitutional provision.Therein we said:

" It is the universal rule that where a municipality issues new securities...