Fulton County Fiscal Court v. Southern Bell Tel. & Tel. Co.
| Decision Date | 26 November 1940 |
| Citation | 285 Ky. 17,146 S.W.2d 15 |
| Parties | FULTON COUNTY FISCAL COURT v. SOUTHERN BELL TELEPHONE & TELEGRAPH CO. et al. |
| Court | Kentucky Court of Appeals |
As Modified December 20, 1940.
Appeal from Circuit Court, Fulton County; L. L. Hindman, Judge.
Suit by the Fulton County Fiscal Court against the Southern Bell Telephone & Telegraph Company and others for approval of the issuance of bonds of such county to fund its floating debt in which defendants filed counterclaims for amounts owing to them. From a judgment approving issuance of bonds to fund debts in a certain amount and invalidating warrants and notes in specified amount, plaintiff appeals.
Affirmed in part, and reversed and remanded in part.
H. H Lovett, of Benton, W. B. Amberg, of Hickman, B. B. Morris, of Wickliffe, and E. J. Stahr and W. C. Tipton, both of Hickman for appellant.
Webb & Webb, of Mayfield, W. B. Harris and E. R. Morton, both of Morganfield, H. T. Smith, Frank Carr, and Steve Wiley, all of Fulton, M. C. Anderson, of Wickliffe, Aubrey Hester, of Mayfield, Jess F. Nichols, of Fulton, and W. J. McMurry, D. L. McNeill, C. P. Mabry, and C. K. Davis, all of Hickman, for appellees.
STANLEY Commissioner.
Judicial validation of bonds proposed to be issued by Fulton County to fund its floating debt is the subject of our review. The trial court held valid debts to the amount of $80,755.09 and approved the issuance of bonds for that sum. Warrants and notes to the amount of about $8,000 were held invalid as having been obligations created in excess of constitutional limitations. It appears that although the debt of Fulton County, valid and invalid, aggregates perhaps more than $520,000 the assessed valuation of property for the year 1933 (the basis of calculation for the bonds involved) was only $7,775,000. According to the report of the State Director of Post Audits made as of July 1, 1937, the fiscal court spent an average of $20,000 a year for a period of fifteen years in excess of the annual revenues of the county. The deplorable disregard of the law and elementary economics prior to January, 1934, with the resulting chaotic condition of the county's finances, is adverted to in Jones v. Fiscal Court of Fulton County, 275 Ky. 619, 122 S.W.2d 510. In Hale v. Fiscal Court of Fulton County, 282 Ky. 475, 138 S.W.2d 937; second appeal, 283 Ky. 599, 142 S.W.2d 115, we considered refunding of Road and Bridge Bonds. In this suit the county made defendants of 130 or more creditors or claimants and they were permitted to defend for all others. The petition set forth in detail the county's financial condition and the nature and amounts owing or claimed by the defendants. The defendants were duly served with processes and severally filed answers and counterclaims. Questions of validity and invalidity of each of many items were raised. Expert accountants made a complete audit of the county's fiscal affairs back to 1928 and prepared exhaustive reports. The case was submitted to a special commissioner, who reported the specific conditions. Based upon different theories of good or bad debts, he showed for each year the date upon which current revenues had been exhausted, with the consequent invalidation of obligations subsequently incurred. The case has been prepared in accordance with both the letter and the intent of Section 186c-7, Kentucky Statutes. It has been well practiced and ably briefed so as to present the legal questions both in relation to the constitutional limitations and their particular application. To avoid possibility of confusion, it may be said that the case is to be determined by the interpretation of Section 157 of the Constitution in respect of "the income and revenue provided" each year before the decision in Payne v. City of Covington, 276 Ky. 380, 123 S.W.2d 1045, 122 A.L.R. 321.
Included in the aggregate debt of $520,000 above stated is $258,000 outstanding of an issue of $284,000 of road and bridge bonds voted under the terms of Section 157a of the Constitution, which, as has been many times held, are excluded from the debt limitations of Section 157 and Section 158 of the Constitution. It is conceded by all parties that these road and bridge bonds have no bearing upon questions pertaining to the validity of obligations incurred for other purposes, and are, therefore, eliminated from the consideration of the case at bar. Stratton v. Pike County, 269 Ky. 273, 106 S.W.2d 1014; Jones v. Fiscal Court of Fulton County, supra.
In 1922, the people of Fulton County voted to issue $100,000 of 5% bonds to fund its floating debt. Nothing was paid in liquidation of these bonds after 1932. In Jones v. Fiscal Court of Fulton County, supra, we approved the issuance of 2% bonds to the amount of $70,000 to refund the principal and unpaid interest of these voted bonds, and the originals were so converted.
In 1928, the fiscal court, without a vote of the people, issued 5 1/4 bonds to the amount of $115,000 to fund the floating debt created subsequent to 1922. They mature September 1, 1948. The validity of this issue was assumed in the Jones case, and it will be so presumed now. Whitley County v. Hermann, 263 Ky. 440, 92 S.W.2d 797. It appears that through subterfuge or otherwise the proceeds of these bonds were not wholly applied to the purposes for which they were issued. On January 1, 1929, the county had $100,000 cash from the sale of these bonds, and borrowed over $20,000 in anticipation of that year's revenue. The year was closed with a floating debt of $132,000 and no cash on hand. It is suggested that that was the year of the election of county officers. It further appears that no sinking fund has been provided for these bonds and the interest has been only partially paid.
On December 31, 1933, there were outstanding notes and warrants to the amount of $88,805.91, which it is proposed to fund by the present issue of bonds.
Basic of all considerations and calculations are two questions, namely, whether on December 31, 1933, or on any particular date when an obligation was incurred, (a) the debt limitation of 2% on the value of taxable property in the county prescribed by Section 158 of the Constitution had been reached, or (b) the current debt limitation measured by the anticipated revenue from the levy of the maximum tax rate of 50 cents prescribed by Section 157, the poll tax authorized by Sec. 180, and that permitted or required by Section 159 of the Constitution, plus miscellaneous income, had been exceeded.
1. The circuit court ruled that both the voted bonds of 1922 and the funding bond of 1928 were outside or excluded from the limitation of Section 158 of the Constitution. The effect of the ruling was to remove that limitation from the case since the floating debt alone was well within the permission of Section 158. But it and the bonded debt combined exceeded the limitation. Apparently the excess ranged from $48,000 on January 1, 1929, to a high of $168,700 on January 1, 1933.
There is authority for the court's ruling although it is opposed to the general current of our opinions. The discord and confusion that exists leads to a review and reconsideration of the interpretation not only of Section 158 but also of 157 of the Constitution, as they affect the point of maximum indebtedness, in the aggregate and current during the fiscal year.
Section 158 of the Constitution explicitly declares that no county shall be "authorized or permitted to incur indebtedness to an amount, including existing indebtedness, in the aggregate exceeding" the maximum of two percentum (2%) "on the value of the taxable property therein, to be estimated by the assessment next before the last assessment previous to the incurring of the indebtedness." There is a proviso, not material here, concerning debts contracted before the adoption of the constitution or for an emergency. Following that is the provision: "Nothing herein shall prevent the issue of renewal bonds, or bonds to fund the floating indebtedness of any city, town, county, taxing district or other municipality."
Different views, reflected in many opinions, have existed among the members of the court as to whether this last quoted provision is confined to debts created before the adoption of the Constitution, or is authority for funding debts subsequently incurred. The reasons for the latter view, which has prevailed as the ruling of the court, are summarized in Hall v. Fiscal Court of Fleming County, 239 Ky. 425, 39 S.W.2d 656. And the finality of that interpretation is recognized in Hill v. City of Covington, 264 Ky. 618, 95 S.W.2d 278.
In Vaughn v. City of Corbin, 217 Ky. 521, 289 S.W. 1104 (overruled in part in Payne v. City of Covington, supra) there was involved the question of power of the city to issue $75,000 of bonds to fund a floating debt which had accumulated through the failure of the council to levy a sufficient tax. Voted bonds to the amount of $84,000 were outstanding in excess of the sinking fund on hand. The power of the city to issue the funding bonds was recognized. This carried the city's debt beyond the limitations prescribed by Section 158 of the Constitution. But the court held that the last provision of that section, above quoted, excepted funding bonds from the operation of the limitation of debt therein declared, and that the new bonds could be issued. That conclusion was expressed in the face of the explicit language of that section. Its fallacy is revealed by the observation in the opinion that the issuance of bonds to fund a floating debt merely changes the form. Carried further, it would have to be held that by a mere resolution of the legislative body of a taxing district transmuting warrants or notes into bonds, the entire section of the constitution could be avoided,...
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