Grimm v. Moloney

• Decision Date: 22 June 1962
• Citation: 358 S.W.2d 496
• Parties: Bernard A. GRIMM, City Comptroller, City of Covington, Kentucky, Appellant, v. John J. MOLONEY, Mayor, et al., Appellees.
• Court: United States State Supreme Court — District of Kentucky

Page 496

358 S.W.2d 496

Bernard A. GRIMM, City Comptroller, City of Covington Kentucky, Appellant, v. John J. MOLONEY, Mayor, et al., Appellees.

Court of Appeals of Kentucky.

June 22, 1962.

John J. O'Hara, Blakely, Moore & O'Hara, Covington, for appellant.

Jo M. Ferguson, Grafton, Ferguson & Fleischer, Louisville, Edwin H. Henry, City Sol., Covington, for appellees.

STANLEY, Commissioner.

The suit tests the constitutional validity of Chapter 178, Acts of 1962, entitled, 'An Act relating to powers of cities of all Classes to induce governmental agencies to locate or relocate within their boundaries; and declaring an emergency.' Dependent are an implementing ordinance of Covington and a revenue bond issue.

The Act is very comprehensive. In broad outline, it authorizes any city to appropriate public funds to provide as an inducement to a 'governmental agency,' which expressly includes the United States to establish or locate within the city or its environs 'a governmental project which might, but for such inducement, be established elsewhere, or not at all.' Various methods of raising the money to be so appropriated are authorized. Among those methods is the issuance of revenue bonds.

Prior to and in anticipation of the statutory enactment, the City of Covington had devised a plan and made tentative or conditional proposals to the United States to have the government locate within the city a 'Data Processing Center for the Internal Revenue Service' which would employ 1,500 to 1,800 persons and have an estimated annual payroll of $6,000,000. There was sharp competition among Covington and other cities to obtain the Center. Subsequent to the Enabling Act, the city passed an appropriate ordinance with terms satisfactory to the government for the location and establishment of the Center.

Under the authority of the statute and the ordinance a site of 17.75 acres has been acquired as a part and incident of the Federal and State Urban Renewal and Redevelopment Statutes. 42 U.S.C.A. Sec. 1441 et seq.; Ch. 99 K.R.S.; Miller v. City of Louisville, Ky., 321 S.W.2d 237, 238. The land is to be leased to the federal government for a period of years with renewal options at an annual rental of $1.00. It appears that a contract or agreement has been entered into by the city and the General Service Administration of the federal government, conditioned or contingent upon the legal ability of the city to finance the purchase of the site. The government will cause buildings to be erected and those improvements will become the property of the city on the final expiration of the lease.

Additional material facts are that there are serious conditions of unemployment existing in the city and, as the ordinance declares, 'same will continue or increase in severity within the foreseeable future.' The objective of the statute and of the particular project is to serve the public purpose by creating jobs and relieving unemployment and to promote general welfare of the city by encouraging and increasing local industry. Cf. KRS 103.200-103.285; Faulconer v. City of Danville, 313 Ky. 468, 232 S.W.2d 80; City of Henderson v. Todd, Ky., 314 S.W.2d 948; Bennett v. City of Mayfield, Ky., 323 S.W.2d 573; and the Industrial Development Finance Act, KRS 154.001 et seq., which was held constitutional in Industrial Development Authority v. Eastern Ky. Reg. Pl. Comm., Ky., 332 S.W.2d 274.

To accomplish the purposes, the ordinance authorizes the issuance of $2,500,000 of revenue bonds. Two sources of revenue for the payment of the bonds are provided for. One source is to apply surplus revenues or service charges of the municipally owned combined and consolidated water and sewer systems. The other source is to set apart and allocate all revenues to be derived from occupational license taxes collected from employees of the Data Processing Center.

The City Controller, who is entrusted with the responsibility of dispensing the funds of the municipality under the enabling ordinance, having doubt as to the validity of the enactments and proposed action, joined with the mayor and other officials in submitting the facts to the court for adjudication of fifteen questions, as is authorized by KRS 418.020-418.030. The trial court declared there was a real controversy between the parties and that the proceeding had been instituted in good faith. In a learned review of the applicable law, the court answered the questions in the form of a Finding of Fact and Conclusions of Law, (CR 52.01) which, by reference, was incorporated in the judgment. It was adjudged that the act and the ordinance were constitutional and effectual and the bonds were valid.

The appellant concedes that the decisions of this court sustain the reasoning and the conclusions of the trial court as to all questions except three. We do not, therefore, have any controversy with respect to those twelve questions and have no need to consider them.

The determination of two related major questions is challenged.

One question is whether the provisions of the statute and the ordinance 'authorizing and providing for the issuance of revenue bonds for a project which is not in itself revenue producing, and the unrelated pledge of surplus revenues from the combined and consolidated water and sewer system of said city and certain occupational license taxes or fees, for the payment of said bonds, constitute the incurring of an indebtedness of the city without approval of the voters thereof in conflict with sections 157 and 158 of the Kentucky Constitution.'

The other question is 'Whether the provisions of the ordinance pledging surplus revenues of the combined water and sewer system of the City of Covington to the payment of the revenue bonds authorized by said ordinance constitute an impairment of the contract between the city and the holders of its presently outstanding and previously issued revenue bonds as represented by the bond ordinances pursuant to which the City of Covington has outstanding its revenue bonds payable from all or any portion of the revenues derived from the operation of said combined and consolidated system.'

I.

Section 157 of the Constitution limits the tax rates of the several cities and districts and prohibits the incurring of a debt in excess of the income and revenue provided for the current year without the assent of the voters thereof. Section 158 places a limitation upon an indebtedness, measured by percentages of the value of taxable property except in case of emergencies.

We are not concerned with the provisions of the Enabling Act of 1962, Sec. 4, which authorize a city to incur an indebtedness and issue its general obligation bonds therefor in order to provide 'all or any part of municipal inducements.' Our concern is Sec. 5 of the Act, which authorizes revenue bonds payable solely from a special fund set aside from 'permissible sources.' Such bonds are declared not to constitute an indebtedness of the city. Subsection (a) authorizes the pledge of direct revenues from the 'governmental agency,' but not exclusively, for the payment of the bonds. Subsection (b) provides that in the event the project does not produce any or sufficient direct revenue, then

'the city may pledge and covenant that it will cause to be deposited in said special fund, the revenues which it may derive from any municipally owned and operated water, electric, gas, sewer or other utility systems, or from any combination thereof, to the extent such revenues at the time may be or become surplus to the necessary costs of operating and maintaining such utility system or systems and surplus to any existing contractual commitments of the city to the holder or holders of outstanding revenue bonds payable from such revenues.'

The ordinance and form of the proposed bonds are in accord with this subsection.

This feature of the legislation, both state and municipal, deals with propritary functions of the city. Ordinarily, constitutional restrictions on municipal indebtedness are not applicable to obligations which are payable out of money derived from income and revenues of city owned and revenue producing public utilities. Klein v. City of Louisville, 224 Ky. 624, 6 S.W.2d 1104; City of Hazard v. Salyers, 311 Ky. 667, 224 S.W.2d 420; Burkholder v. City of Louisville, Ky., 276 S.W.2d 29; Skidmore v. City of Elizabethtown, Ky., 291 S.W.2d 3; 64 C.J.S. Municipal Corporations Sec. 1853b, p. 377, Sec. 1957d, p. 609.

With respect to the use of surplus revenues from the described utilities for a purpose not related to those utilities, this case is on the same footing as McKinney v. City of Owensboro, 305 Ky. 254, 203 S.W.2d 24; and Perkins v....