Crandall v. Town of Safford

Citation47 Ariz. 402,56 P.2d 660
Decision Date01 April 1936
Docket NumberCivil 3692
PartiesSTAN CRANDALL, Appellant, v. TOWN OF SAFFORD, a Municipal Corporation, et al., Appellees
CourtSupreme Court of Arizona

APPEAL from a judgment of the Superior Court of the County of Graham. Lee N. Stratton, Judge. Judgment affirmed.

Messrs Dougherty & Dougherty, for Appellant.

Mr Jesse A. Udall, for Appellees.



This is an appeal by Stan Crandall from a judgment dismissing a complaint filed by him against the town of Safford and its officers in which he sought an order restraining and enjoining them from proceeding with certain contemplated municipal improvements, from issuing the revenue bonds of the city as security for the funds it proposed to borrow from the federal government for this purpose, and from calling a municipal election to authorize the city and its governing body to take such action.

It appears from the record that in the summer of 1935 the town of Safford, desiring to own and operate its own water system decided that it could do so by taking advantage of the federal government's offer to advance to cities municipalities, school districts, drainage districts, etc., funds to be used for public enterprises that were beneficial to the political subdivision concerned and at the same time helpful in reducing unemployment and in restoring purchasing power of the people so greatly impaired at that time as a result of the depressed economic condition of the country. The water plant then supplying the town of Safford was owned by the Arizona Edison Company, a public service corporation. To purchase it and make the enlargements and improvements needed required funds in the sum of $400,000, and the only source of revenue in this amount then available to it was one of the agencies of the federal government, particularly the Federal Emergency Administration of Public Works, which was created by the President of the United States, pursuant to an Act of Congress (40 U.S.C.A., § 401 et seq.). The condition upon which the government offers to cities or other political units funds for such enterprises is that 55 per cent. of the amount advanced be returned and its repayment secured by the general obligation, revenue or special assessment bonds of the political unit involved, the remaining 45 per cent. constituting a direct gift or grant to the recipient.

To comply with the requirements of this federal agency for the purpose of procuring the funds with which to carry out the contemplated improvements, the mayor and common council of the town of Safford on June 15, 1935, adopted Resolution No. 18, declaring it to be the intention of the town to call a bond election for the purpose of submitting to its qualified electors the question whether it should borrow from the Federal Emergency Administration of Public Works the sum of $400,000 for financing the purchase, enlargement and improvements of the water system then serving it and secure the repayment of 55 per cent. thereof, or $220,000, by issuing its revenue bonds in that sum, payable wholly and exclusively out of a fixed amount of the revenue derived from its water plant and system, the bonds to constitute a first and paramount lien of the amount of the revenue from the water system thus pleaded to their payment. The remaining $180,000, or 45 per cent. of the loan, being a gift or grant, is not to be repaid or evidenced by bonds.

The resolution of intention discloses that the assessed valuation of the property situated within the corporate limits of the town of Safford in 1935 was $979,388 and that the town has no issued or outstanding bonds, warrants or other indebtedness except some improvement bonds; that it contemplates purchasing for $100,000 the Arizona Edison Company's entire water supply system, consisting of a reservoir on Mt. Graham, adjacent to Safford, a pipe line leading from there to said town, the distributing system within the corporate limits of Safford, as well as that outside such limits which includes a pipe line to the adjoining town of Thatcher and the distributing system located therein; that it proposes to use the other $300,000 for these purposes: To construct and install an underground water collecting system of Bonita Creek outside the limits of Safford and install a pipe line from there to Safford; to repair, improve, extend and reconstruct the water plant and distributing system both in and outside the town of Safford, as well as that both in and outside the corporate limits of the town of Thatcher.

Within a short time after the adoption of Resolution No. 18, Stan Crandall, a qualified elector and real property taxpayer of the town of Safford, filed in the superior court of Graham county an action seeking to restrain the town and its officers from proceeding further with the proposed purchase of the water plant in question and the improvements designated therein, and as ground therefor alleged that the defendants were without power or authority in the premises and that the proposals, as set forth in Resolution No. 18, are illegal, void, and unconstitutional for these reasons:

(1) That, even though the town of Safford has no outstanding bonds, warrants or other indebtedness, the assessed valuation of the property within its corporate limits, as shown by its assessment roll for 1935, is only $979,388, and the $220,000 it seeks to borrow exceeds by over $33,000 the 4 per cent. plus 15 per cent. of its assessed valuation, or $186,083.72, for which it can, under section 8, article 9, become indebted.

(2) That the town of Safford has no power or authority to make the principal or interest upon revenue bonds issued by it payable exclusively from the net revenue arising from the operation of the water system instead of from gross revenue arising therefrom.

(3) That the town of Safford has no power or authority to construct and operate a public utility for distribution purposes outside its corporate limits, and especially within the corporate limits of the town of Thatcher, another municipality. (4) That chapter 11, Third Special Session of the Eleventh Legislature, approved December 14, 1934, pursuant to which appellees are acting in thier effort to purchase the water works and make the improvements contemplated, is illegal, void and in conflict with section 8, article 9, and section 6, article 13, of the Constitution of the state of Arizona, the former limiting the amount for which a city, town, county, school district or other municipal corporation may become indebted, and the latter providing that neither the state nor any of its subdivisions shall ever be divested of the control or use of the streets of any municipality and that their power to regulate the charges for public servicesshall never be surrendered.

To this complaint the defendants filed a general demurrer which was sustained, and the court, following plaintiff's announcement that he would stand on his complaint, entered judgment in favor of defendants, and the plaintiff appeals therefrom.

The proposition upon which appellant chiefly relies is that by issuing revenue bonds for $220,000, when its assessed valuation was only $979,388, the town of Safford is incurring an indebtedness exceeding by over $33,000 the 4 per cent. plus 15 per cent. of the assessed value of the taxable property within its boundaries, and that in taking such action it is violating section 8, article 9, of the Constitution of Arizona which limits to these percentages the indebtedness it may incur. If money borrowed for the purpose of financing the enterprise in question were payable from the general funds of the town, or from taxes levied on the taxable property therein, the contention of appellant would be correct, but, inasmuch as the bonds are payable solely from the revenue to be derived from the operation of the water system and the right to look elsewhere or to compel the exercise of the taxing power for their satisfaction is specifically prohibited, the $220,000 does not constitute an indebtedness of the town of Safford within the meaning of the limitation clause of section 8, article 9, of the Constitution. This precise question was passed on only a few days ago in the case of Guthrie v. City of Mesa, ante, p. 336, 56 P.2d 655. It was there pointed out that this view is upheld by the great weight of authority, a number of decisions on the question being cited.

The next proposition contended for, namely, that the town of Safford has no power or authority to make the revenue bonds issued by it payable exclusively from the net as distinguished from the gross income arising from the operation of its water system, is likewise without merit, as was pointed out in Guthrie v. City of Mesa, supra.

Several contentions are made in this case, however, that were not suggested in Guthrie v. City of Mesa supra, and one of these is that municipalities organized under a general charter, as was the town of Safford, have no power under the Constitution and statutes of this state to construct, operate or control public utilities for distribution purposes outside of their corporate limits. There is, appellant urges, no specific constitutional or statutory authorization for such action, and since municipalities cannot exercise a governmental function except within their own limits, and, under section 5 of article 13 of the Constitution, can only engage in a business for which they may grant a franchise, that is, one within their own boundaries, they cannot themselves own or operate an enterprise beyond their borders. While, he admits, the Constitution was amended in 1912 in such a way as to provide that municipal corporations may engage in industrial pursuits, section 34, article 2, of the state Constitution, and the legislature...

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