Clem v. City of Yankton, 10511

• Decision Date: 16 July 1968
• Docket Number: No. 10511,10511
• Citation: 160 N.W.2d 125,83 S.D. 386
• Parties: Ronald D. CLEM, on behalf of himself and all other persons similarly situated, who may come and join in a class action, Plaintiff and Appellant, v. The CITY OF YANKTON, South Dakota, Defendant and Respondent.
• Court: South Dakota Supreme Court

Page 125

160 N.W.2d 125

83 S.D. 386

Ronald D. CLEM, on behalf of himself and all other persons similarly situated, who may come and join in a class action, Plaintiff and Appellant, v. The CITY OF YANKTON, South Dakota, Defendant and Respondent.

No. 10511.

Supreme Court of South Dakota.

July 16, 1968.

Bogue & Weeks, by Everett A. Bogue, Vermillion, for plaintiff and appellant.

Goetz, Hirsch & Haar, James T. Goetz, City Atty., and Robert W. Hirsch, Yankton, for defendant and respondent.

RENTTO, Judge.

The plaintiff a resident and taxpayer of the defendant city in this proceeding seeks a judgment declaring that Ch. 148, Laws of 1964, which authorizes our cities to issue revenue bonds to acquire, equip and rent facilities to promote the economic welfare of our state, is unconstitutional. He further requests that the action of the city taken thereunder relative to a contract with Morgen Manufacturing Company be declared illegal and its officers and agents enjoined from doing anything more therewith until this litigation is determined.

The facts on which the cause was submitted to the trial court were stipulated. The court concluded that the act was constitutional and that the actions taken by the city thereunder concerning its contract with Morgen were valid. A judgment to this effect was entered dismissing plaintiff's complaint upon its merits. From the judgment plaintiff appeals.

The act under attack is as follows:

'Section 1. Purpose of Act. It is hereby declared that the purpose of this act shall be to promote, stimulate and develop the general economic welfare and prosperity of the State of South Dakota through the promotion and advancement of industrial, commercial, agricultural, natural resources and recreational development in the state; to encourage and assist in the location of new business and incustry in this state and the expansion of existing business development; and to promote the economic stability of the state by providing greater employment opportunities and diversification of industry thus promoting the general welfare of the citizens of this state by authorizing all municipalities of the state to issue revenue bonds, the proceeds of which shall be used only to purchase or construct, maintain and equip buildings and acquire sites therefor and to enlarge or remodel buildings and equip the same for agricultural, commercial, industrial and manufacturing facilities and to enter into lease-purchase agreements with any person, firm or corporation for said facilities.

'Section 2. Construction of facilities and lease-purchaser agreements for facilities constructed for agricultural, commercial, industrial, natural resources, recreational development and manufacturing enterprises. Any municipality shall have power to issue revenue bonds, the proceeds of which shall be used only to purchase, construct, reconstruct, equip, maintain or repair buildings and to acquire sites therefor, and to enlarge or remodel said buildings and equip the same for agricultural, commercial, industrial, natural resources, recreational development and manufacturing facilities with power to enter into lease-purchase agreements not to exceed 20 years, by ordinance with any person, firm or corporation for said facilities, said facilities to be constructed in any municipality or its environs without limitations as to distance, providing the governing body of said municipality declares that said facility, if in being, would promote the welfare of the municipality.

'Section 3. Conditions of agreement. Such agreements shall provide for contractual payments sufficient to amortize the cost of facilities to be constructed and equipment, plus the fair market value, on the date of the agreement, of the site, if it is necessary to purchase a site. Such agreements shall also provide for a reasonable rate of interest on the outstanding principal and reimburse the municipality for the cost of any other obligation assumed by it under the contract.

'Section 4. Obligations payable solely from contractual payments; bonds, requirements. Nothing in this act shall be so construed as to authorize or permit any municipality to make any contract or to incur any obligation of any kind or nature except such as shall be payable solely out of the contractual payments from such facilities. Such municipalities may issue bonds payable solely and only from the revenues derived from such facilities. Such bonds may be issued in such amounts as may be necessary to provide sufficient funds to pay all the costs of purchase or construction of such facility, including site, engineering and other expenses, together with interest. Bonds issued under the provisions of this act are declared to be negotiable instruments, shall be executed by the mayor and clerk of the municipality, and shall be sealed with the corporate seal of the municipality. The principal and interest of said bonds shall be payable solely and only from the special fund herein provided for such payments, and said bonds shall not in any respect be a general obligation of such municipality, nor shall they be payable in any manner by taxation. All details pertaining to the issuance of such bonds and the terms and conditions thereof shall be determined by ordinance of the municipality.

'Section 5. Pledge of facility and earnings. The governing body of the municipality by ordinance may pledge the facility purchased or constructed and the net earnings therefrom to the payment of said bonds and the interest thereon, and provide that the net earnings thereof shall be set apart as a sinking fund for that purpose.

'Section 6. Amount of revenue bonds. In no case in which revenue bonds are issued, under and by virtue of this act, shall any revenue bonds be issued for an amount in excess of the actual cost of the facility, including the site therefor.

'Section 7. Revenue bonds, defined, recitals. Revenue bonds, as the term is used in this act, are defined to be bonds issued by any such municipality to be paid exclusively from the revenue produced by the property and facilities improved, constructed, reconstructed, repaired or otherwise improved by the use of the proceeds of said bonds.

'Section 8. Form of Bonds. Such revenue bonds shall not be general obligations of the municipality. Such revenue bonds shall contain the following recitals, viz: Such bonds shall recite the authority under which such revenue bonds are issued, and that they are issued in conformity with the provisions, restrictions and limitations thereof, and that such bonds and the interest thereon are to be paid from the money and revenue received from the fees charged and rental received for the use of the property and facilities improved, constructed, reconstructed, repaired and otherwise improved by the proceeds, in whole or in part, of such revenue bonds when issued and sold.'

Ordinance No. 307, being the one here involved, authorized the city to enter into a contract with Morgen requiring the city to purchase an indicated site in the city from Morgen, and to construct thereon a building suitable for the conduct of a described manufacturing operation and equip it for that purpose, and to issue bonds to finance such project. This facility the city was authorized to lease to Morgen for an initial term of 10 years with an option to purchase it or renew the lease. The rentals during the initial terms of the lease were to be sufficient in amount to amortize the revenue bonds in the principal sum of $85,000 issued to finance it, and to pay all expenses of operation and maintenance of the project, including insurance, paying agents fees, taxes and special assessments.

In supporting his claim of unconstitutionality plaintiff directs our attention to Art. XIII, Section 1 of our State Constitution. Among other things that section provides that for improving the economic facilities of South Dakota the state may engage in works of internal improvement, may own and conduct proper business enterprises, may loan or give credit to, or in aid of, any association or corporation organized for such purposes. Since our constitution contains no similar grant of power to municipalities he suggests that the legislature was without authority to enact Ch. 148, Laws of 1964.

Originally this section provided that neither the state, nor any county, township or municipality shall loan or give its credit in aid of an individual, association or corporation. Plaintiff argues that the elimination of counties, townships and municipalities from this provision discloses an intent and purpose to limit the grant of such powers to only the state. Ch. 233, Laws of 1915; Ch. 163, Laws of 1917; Ch. 139, Laws of 1935. In this connection it should be noted that the electors of this state decisively defeated the amendment of this section proposed in Ch. 127, Laws of 1933, which would have reinstated the section substantially as it was originally. In asserting this position he views the constitution as a source of legislative power rather than as a limitation thereof. That is not our rule.

The most recent statement of our rule appears in Kramar v. Bon Homme County, S.D., 155 N.W.2d 777:

'The constitution is not a grant but a limitation upon the lawmaking power of the state legislature and it may enact any law not expressly or inferentially prohibited by state and federal constitutions.'

This has long been the law of this state. In re Watson, 17 S.D. 486, 97 N.W. 463; 2 Ann.Cas. 321; State ex rel. Longstaff v. Anderson, 33 S.D. 574, 146 N.W. 703; State ex rel. McMaster v. Reeves, 44 S.D. 612, 184 N.W. 1007; Peterson Oil Co. v. Frary, 46 S.D. 258, 192 N.W. 366; 264 U.S. 570, 44 S.Ct. 333, 68 L.Ed. 854; State v. Board of Commissioners of Beadle County, 53 S.D. 609, 222 N.W. 583; Acker v. Adamson, 67 S.D. 341, 293 N.W. 83. Consequently, in determining whether an act is unconstitutional we search the state and federal constitutions for provisions which prohibit its enactmen...