Arizona State Highway Commission v. Nelson, 9650

• Decision Date: 08 October 1969
• Docket Number: No. 9650,9650
• Citation: 105 Ariz. 76,459 P.2d 509
• Parties: ARIZONA STATE HIGHWAY COMMISSION, Petitioner, v. Gary K. NELSON, Attorney General of the State of Arizona, and Theodore Hawkins, Commissioner of Finance of the State of Arizona, Respondents.
• Court: Arizona Supreme Court

Page 509

459 P.2d 509

105 Ariz. 76

ARIZONA STATE HIGHWAY COMMISSION, Petitioner, v. Gary K. NELSON, Attorney General of the State of Arizona, and Theodore Hawkins, Commissioner of Finance of the State of Arizona, Respondents.

No. 9650.

Supreme Court of Arizona, In Banc.

Oct. 8, 1969.

John T. Amey, Phoenix, for petitioner.

Gary K. Nelson, Atty. Gen., for respondents.

HAYS, Justice.

The Arizona Highway Commission, petitioner, has invoked the original jurisdiction of this court by filing a petition for a writ of mandamus seeking to compel the Attorney General and the Commissioner of Finance, respondents, to execute their approval of a $2,000,000 issuance of Arizona Highway Commission Right of Way Bonds. Respondents have refused to approve the bonds.

In 1968, the state legislature adopted legislation (A.R.S. Title 18, Chapter 6, Article 1, §§ 18--601 to 18--612) authorizing the Arizona Highway Commission to issue bonds for the purpose of financing the acquisition of real property for future highway needs. The enactment provides that the bonds are to be secured by a frist lien on all or part of the monies paid into the State Highway Fund from various motor vehicle licenses and fees and the Highway Commissioner's share of the motor vehicle fuel tax. ¹ Pursuant to this statutory authorization, the Highway Commission, on March 24, 1969, adopted a resolution authorizing the issuance and sale of $2,000,000 of 'Arizona State Highway Commission Right of Way Bonds' and irrevocable pledging as security for repayment of the bonds the monies paid into the State Highway Fund from the sources enumerated in Article 9, § 14 of the Arizona Constitution, A.R.S. The bond form accompanying the Commission's resolution cites: 'The principal of and interest on this bond are payable solely from the revenues above recited and no holder hereof shall have the right to compel any exercise of any other taxing power of the State of Arizona to pay this bond or the interest hereon. This bond is not a debt of the State of Arizona or the State Highway Department within the meaning of any constitutional or statutory limitation.' (Emphasis supplied.)

The bond form also provides: 'The Arizona State Highway Commission as agent for the State of Arizona does hereby pledge to the holder of this bond That the State of Arizona will not limit or alter the rights vested in the State Highway Commission of the State of Arizona to collect such fees, excises and taxes as may be necessary to produce sufficient revenue to meet the expense of the state highway system and fulfill the terms of the Resolution providing for the issuance of this bond Or to in any way impair the rights and remedies of the holders of these bonds.' Before sale of the bonds can take place, the bond form, by its own terms, requires approval by the Attorney General and the State Commissioner of Finance.

The bonds were presented to the respondents for their certification, but both officers refused to sign the bonds. In answer to the Highway Commission's petition for writ of mandamus, respondents urge three objections which they allege prevent their approval: (1) That the bonds violate the constitutional debt limitation of Article 9, § 5 of the Arizona Constitution; (2) that the bond issue violates Article 7, § 13 of the Arizona Constitution in that it was not approved by a statewide referendum; and (3) that the Commissioner of Finance is not required to give prior approval to the bond issue, but that the Commissioner must approve, at the time the bonds are surrendered at maturity, all payments out of the state treasury to the bondholders.

We hold that the Highway Right of Way Bond Issue is in conformity with both the constitution and laws of the State of Arizona. Further, we find no requirement that the bonds receive the approval of the Commissioner of Finance either prior to their issuance or at the time the matured bonds are redeemed. A writ of mandamus will issue to the Attorney General to compel his written approval of the bonds.

I. DOES THE HIGHWAY RIGHT OF WAY BOND ISSUE VIOLATE THE ARIZONA CONSTITUTIONAL DEBT LIMITATION?

Article 9, § 5 of the Arizona Constitution permits the state to 'contract debts to supply the casual deficits or failures in revenues, or to meet expenses not otherwise provided for,' but limits such indebtedness to a maximum aggregate amount at any one time of $350,000. Under the provision, the state has unlimited borrowing authority only 'to repel invasion, suppress insurrection, or defend the State in time of war.' Respondents argue that the Highway Right of Way Bonds constitute a general obligation of the state, and hence are violative of the constitutional debt limitation.

This Court has previously held that the constitutional debt limitation does not apply to revenue bonds payable solely from revenues generated by proprietory projects. Board of Regents of University of Arizona v. Sullivan, 45 Ariz. 245, 42 P.2d 619 (1935). At issue in Sullivan was whether the University of Arizona could pledge various university fees and charges to the repayment of construction bonds and of loans from various federal agencies. We held that the bonds did not violate the constitutional debt limitation because they were 'not payable from taxes, but solely from the revenues of the University.' The Act authorizing such indebtness had provided that the state would in no way be held liable for payment, which immunized the bonds from the limitations of Article 9, § 5.

Article 9 of our Constitution relates to 'Public Debt, Revenue and Taxation.' Section 5 sets forth the debt limitation. Article 9 was amended in 1952 by a vote of the people, in which § 14 was added as follows:

'No moneys derived from fees, excises, or license taxes relating to registration, operation, or use of vehicles on the public highways, or to fuels used for the propulsion of such vehicles, shall be expended for other than cost of administering such laws, statutory refunds and adjustments provided therein, payment of highway obligations, cost of construction, reconstruction, maintenance and repair of public highways and bridges, county, city and town roads and streets, and for distribution to counties, incorporated cities and towns in an amount not less than as provided by law on July 1, 1952, to be used by them only for the purposes permitted by law on that date, expense of state enforcement of traffic laws, and payment of costs for publication and distribution of Arizona Highway Magazine, provided, however, that this section shall not apply to moneys derived from the automobile license tax imposed under section 11 of Article IX of the Constitution of Arizona.' Arizona Constitution, Article 9, § 14.

It is the monies contributed to this fund, monies which cannot be expended for any other purpose than that set forth in Article 9, § 14, which are pledged as security for the Highway Right of Way Bonds in question. One of the purposes set forth in this amendment is 'payment of highway obligations.' The bonds to be issued here will be 'highway obligations.'

Tis court has held that highway fund revenues received by a city as its share of the state motor vehicle and gasoline tax receipts may be pledged as security for the issuance of highway improvement bonds by the city. Switzer v. City of Phoenix, 86 Ariz. 121, 341 P.2d 427 (1959). In Switzer, a city ordinance authorized the issuance of $2,500,000 of such bonds. In holding that such an obligation did not violate the constitutional provision limiting the indebtedness of counties, cities, towns, school districts or other municipalities (Arizona Constitution, Article 9, § 8), we discussed the application of the 'special fund' doctrine and stated, '(w)e will follow the weight of authority at least to the extent where, as here, the fund from which the obligations are to be paid is created by voluntary contributions of the state to the city.' The only material difference between Switzer and our present case is that Switzer involved the local government debt limitation rather than the state debt restrictions of constitution Article 9, § 5. We think that the Switzer rationale is solid authority for the conclusions which we reach today.

Several other jurisdictions have held that highway construction and right of way bonds secured by pledged motor vehicle and license taxes contributed to a special highway fund, under constitutional authority, are not obligations subject to the various states' constitutional debt limitations. State ex rel. State Road Commission v. O'Brien, 140 W.Va. 114, 82 S.E.2d 903 (1954); State ex rel. Bugge v. Martin, 38 Wash.2d 834, 232 P.2d 833 (1951); Johnson v. McDonald, 97 Colo. 324, 49 P.2d 1017 (1935); State ex rel. Boynton v. Kansas State Highway Commission, 138 Kan. 913, 28 P.2d 770 (1934).

Respondents, in criticizing the 'special fund' method of deficit financing, cite the overwhelming rejection in 1965 by the Arizona electorate of a proposed constitutional amendment authorizing the state to incur general indebtedness of $100,000,000 as evidence that the public policy of this state is opposed to any form of substantial public debt. However, it is important to emphasize that it was the voters themselves who created the State Highway Fund in 1952, irrevocably earmarking certain motor vehicle taxes and fees for highway uses only and specifically providing for their expenditure for 'highway obligations.' The State Highway Fund is not available for general state appropriations. Since the state legislature has authorized the Highway Commission to pledge Only the revenues of the State Highway Fund as security, the Highway Right of Way Bonds are not debts within the meaning of the constitutional debt limitation. The gasoline and license taxes constitute a fund which may be reasonably expected to meet the matured obligations. But even in the doubtful event that the revenues of the State Highway Fund prove insufficient, the general...