Eastern Mun. Water Dist. v. Scott

• Decision Date: 22 October 1969
• Citation: 1 Cal.App.3d 129,81 Cal.Rptr. 510
• Court: California Court of Appeals Court of Appeals
• Parties: EASTERN MUNICIPAL WATER DISTRICT, etc., Petitioner, v. Shirley J. SCOTT, etc., Respondent. Civ. 9802.

Page 510

81 Cal.Rptr. 510

1 Cal.App.3d 129

EASTERN MUNICIPAL WATER DISTRICT, etc., Petitioner, v. Shirley J. SCOTT, etc., Respondent.

Civ. 9802.

Court of Appeal, Fourth District, Division 2, California.

Oct. 22, 1969.

[1 Cal.App.3d 130] O'Melveny & Myers, James Warren Beebe, Urban J. Schreiner, Fredric P. Sutherland, and William G. Adams, Los Angeles, for petitioner.

Redwine & Sherrill and Maurice C. Sherrill, Riverside, for respondent.

OPINION

TAMURA, Associate Justice.

This is an original mandamus proceeding brought by the Eastern Municipal Water District (District) to test the validity of section 71960 of the Water Code authorizing municipal water districts organized and existing pursuant to the Municipal Water District Law of 1911 (Division 20, Water Code) to issue general obligation bonds without a vote of the electorate under the limited circumstances and conditions prescribed by the section.

Section 71960 was enacted as an urgency measure in 1968. It was designed to alleviate the financial problem faced by many municipal water districts because of current high interest rates and declining municipal bond market and the consequent inability of the districts to sell previously authorized bonds at the statutory maximum 5 percent interest rate which was in effect at the time the bonds were voted. (Stats. 1968, c. 1269.) The section provides:

'The board may, without a vote of the electors, provide for the issuance of, and issue, general obligation bonds of the district or for an improvement district thereof if:

'(a) The principal amount of such bonds do not exceed the then unissued balance of the principal amount of bonds authorized at an election held in the district, or in such improvement district, prior to May 9, 1967;

'(b) The bonds are issued for the same purpose as that for which said unissued bonds were authorized; and

'(c) The bonds are issued in accordance with the provisions of this article, except for the requirement of a bond election.

'Bonds issued pursuant to this section may bear interest at a rate or rates not to exceed 6 1/2 percent per year, payable semiannually, except that interest for the first year may be payable at the end of that year. When bonds are issued pursuant to this section, unissued bonds as referred to in (a) and (b) above in a principal amount at least equal to the principal amount of bonds issued pursuant to this section, shall be canceled by order of the board and shall not be issued.'

Petitioner-district is seeking to avail itself of the benefit of section 71960. The following facts are uncontroverted:

In 1956 the District initiated proceedings for the acquisition and construction of certain water distribution facilities beneficial to a portion of the District, the formation of an improvement district comprising the territory to be benefitted, and the issuance of bonds to finance the proposed improvement. In accordance with the procedure prescribed by statute, the board of directors adopted a resolution of intention to form the improvement district and to incur a bonded indebtedness of $100,000 for the purpose of acquiring and constructing the improvements. Following a hearing, it fixed the boundaries of the improvement district and ordered a special election to be held in the improvement district for the purpose of submitting to the voters the proposition of incurring a bonded indebtedness of $100,000. The order calling the election specified that the maximum interest rate on the bonds shall not exceed 5 percent per annum, that being the maximum then permitted under the Municipal Water District Law of 1911. ¹ The election carried by more than the required two-thirds vote.

In January 1957 the board of directors issued and sold bonds in the principal amount of $75,000 leaving $25,000 authorized but unissued. Because of the recent decline in the municipal bond market, the unissued bonds cannot be sold for their par value at an interest rate within the maximum 5 percent permitted by law at the time the bonds were voted. The final phase of the planned improvements for the improvement district has never been completed.

On April 16, 1969, pursuant to the provisions of section 71960, the board of directors adopted a resolution providing for the issuance and sale of new bonds in the principal sum of $25,000 at an interest rate not to exceed 6 1/2 percent and for cancellation of the unissued bonds, and directed its secretary, respondent herein, to publish notice inviting bids for the sale of the new bonds. Respondent refused to comply with the board's order on the ground that new bonds bearing an interest rate in excess of 5 percent would be invalid. Petitioner prays for a judgment decreeing that bonds issued pursuant to section 71960 and the resolution of April 16, 1969, will be valid obligations of the District for the improvement district, and for a peremptory writ of mandate directing respondent to fix a date and time for receipt of bids and to publish notice inviting bids.

Respondent has filed an answer admitting all of the allegations of the petition except for the allegation that the new bonds, if sold, would be valid obligations of the district.

A sufficient showing has been made to justify an original proceeding in this court. In compliance with Rule 56A of the Rules on Appeal, petitioner alleges that it is proper for a reviewing court to originally entertain the petition because a determination respecting the validity of section 71960 is a matter of statewide public concern, that many municipal water districts in the state have evidenced a desire to utilize section 71960, and that the present proceeding will avoid a multiplicity of lawsuits. Original proceedings have been entertained for the purpose of considering validity of municipal bonds under like circumstances. (Golden Gate Bridge Etc. Dist. v. Felt, 214 Cal. 308, 317, 5 P.2d 585; City of Los Angeles v. Dannenbrink, 234 Cal.App.2d 642, 645, 44 Cal.Rptr. 624; Sacramento Municipal Util. Dist. v. Spink, 145 Cal.App.2d 568, 572, 303 P.2d 46; County Sanitation Dist. No. 1 v. Humeston, 103 Cal.App.2d 301, 229 P.2d 438.) We proceed to a consideration of the merits.

Petitioner contends that inasmuch as the Legislature could have authorized municipal water districts to issue general obligation bonds without a vote of the electorate and without restriction as to amount or interest rate, it necessarily had the power to confer on the district directors the authority to issue bonds without voter approval subject to the limitations prescribed by section 71960.

It is settled law that the Legislature may authorize special districts of the class in which petitioner fails to incur bonded indebtedness without prior voter approval. While section 18 of article XI of the Constitution prohibits counties, cities and school districts from incurring an indebtedness in any year that exceeds current revenues provided for such year without a two-thirds vote of the electorate, ² the constitutional restriction applies only to the enumerated local governmental entities and not to public corporations not named. ³ (Joint Highway Dist. No. 13 v. Hinman, 220 Cal. 578, 587, 32 P.2d 144; Bliss v. Hamilton, 171 Cal. 123, 132--133, 152 P. 303; Robertson v. Board of Library Trustees, 136 Cal. 403, 405, 63 P. 88; In re Madera Irr. Dist., 92 Cal. 296, 342, 28 P. 272, 675, 14 L.R.A. 755; Trumbo v. Crestline Lake Arrowhead Water Agency, 250 Cal.App.2d 320, 324, 58 Cal.Rptr. 538; Strain v. East Bay Mun. Util. Dist., 21 Cal.App.2d 281, 284, 69 P.2d 191; General Engineering etc. Co. v. East Bay M.U. Dist., 126 Cal.App. 349, 356, 14 P.2d 828.) Consequently, the Supreme Court has consistently reiterated the proposition that the Legislature may authorize public corporations which are not subject to the provisions of section 18, article XI, of the Constitution to issue general obligation bonds without a vote of the electorate. (Joint Highway Dist. No. 13 v. Hinman, Supra, 220 Cal. 578, 587, 32 P.2d 144; El Dorado Irr. Dist. v. Browne, 216 Cal. 269, 272, 13 P.2d 921; Los Angeles Co. F.C. Dist. v. Hamilton, 177 Cal. 119, 131, 169 P. 1028; In re Bonds of the South San Joaquin Irr. Dist., 161 Cal. 345, 346, 119 P. 198; In re Madera Irr. Dist., Supra, 92 Cal. 296, 342, 28 P. 272, 675, 14 L.R.A. 755.) The Legislature's plenary power over such public corporations has been summarized as follows:

'In considering the authority of the district and its directors, it should be remembered that the legislative power over such districts is plenary, and that they might be formed and permitted to issue bonds without any vote of the electorate at all. There is no constitutional right of residents of such a district to vote on bond issues.' (El Dorado Irr. Dist v. Browne, Supra, 216 Cal. 269, 272, 13 P.2d 921, 923.)

A similar pronouncement was made in Los Angeles Co. F.C. Dist. v. Hamilton, Supra, 177 Cal. 119, 169 P. 1028, where the court held that a validating act effectively cured alleged irregularities in a bond election proceeding of a flood control district. The court declared at p. 131, 169 P. at p. 1033:

'* * * It is said by the intervenors that the holding of the election is, by the terms of the flood control act, made jurisdictional. But it is not a step required by any constitutional provision. No election need have been authorized in the first instance. The Legislature might have provided for the issuance of the bonds without giving any voice in the matter to the residents of the district. * * *'

Respondent does not quarrel with the proposition that the Legislature could have authorized the board of directors of municipal water districts in the first instance, to issue bonds without submitting the question to the voters. However, she contends that section 71960, while purporting to authorize issuance of 'new bonds,' is in fact but an attempted authorization to sell previously voted bonds at an interest rate higher than the former statutory...