Guthrie v. City of Mesa
| Decision Date | 23 March 1936 |
| Docket Number | Civil 3730 |
| Citation | 47 Ariz. 336,56 P.2d 655 |
| Parties | L. V. GUTHRIE, Appellant, v. CITY OF MESA, a Municipal Corporation, et al., Appellees |
| Court | Arizona Supreme Court |
APPEAL from a judgment of the Superior Court of the County of Maricopa. G. A. Rodgers, Judge. Judgment affirmed.
Messrs Beer, Walsh & Wilmer, for Appellant.
Mr. M J. Dougherty, City Attorney of Mesa, for Appellees.
This is an appeal by L. V. Guthrie from a judgment dismissing a complaint filed by him against the city of Mesa and its officers in which he sought to restrain and enjoin them from making certain improvements, from issuing its revenue bonds as security for the funds to be borrowed for this purpose and from calling an election to authorize them to take such action.
According to the record before us, the city decided in the summer of 1935 to extend its water and sewer systems, both of which were municipally owned and managed, and to do this it was necessary that it obtain funds in the sum of $75,000. The only avenue then open to it as a source of revenue was one of the agencies of the federal government, particularly the Federal Emergency Administration of Public Works, which was established by order of the President pursuant to an Act of Congress (40 U.S.C.A., § 401 et seq.), for the purpose of advancing to cities, municipalities, school districts, drainage districts, etc., funds to be used for public enterprises that are beneficial to the particular unit involved and at the same time helpful in reducing unemployment and restoring the purchasing power of the people. The conditions upon which such loans are made are that 55 per cent. of the amount advanced shall be returned to the government and its repayment secured by the general obligation, revenue or special assessment bonds of the political subdivision receiving them, the remaining 45 per cent. constituting a strainght-out gift or grant.
To take advantage of this offer of the government, the mayor and common council of the city of Mesa, on the 19th day of July, 1935, adopted Resolution No. 440, declaring its intention to call a bond election for the purpose of submitting to its qualified electors the question whether the city should borrow from the Federal Emergency Administration of Public Works the sum of $75,000 for financing the construction of its sewer and water extensions and secure the repayment of 55 per cent. thereof, or $41,250, 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 upon the amount of the revenue from the water system thus pledged to their payment. The remaining $33,750 or 45 per cent., being a gift or grant, will not be evidenced by bonds.
Soon after the passage of this resolution, L. V. Guthrie, a qualified elector and real property taxpayer of the city of Mesa, filed an action in the superior court to restrain it and its officers from proceeding further with the improvements designated therein, and in his complaint alleged that the assessed valuation of the city as shown by its last assessment roll was $1,855,793, and its outstanding general obligation bonds $528,500, a part of which were issued and sold when the assessed valuation of the city was in excess of $4,500,000 for the purchase and construction of municipally owned waterworks and sewer, gas and electrical distributing systems. The plaintiff alleged further that because of these facts the defendants were without power to issue the revenue bonds of the city, even if authorized to do so by a majority vote of its qualified electors, for these reasons: First, it is already bonded to the extent of its general obligation bonding capacity and has no authority to issue additional bonds in excess of 15 per centum of its present assessment as shown by its last assessment roll; second, it has no authority to divide the income from its waterworks system in separate funds and pledge a portion thereof for the payment of the proposed water and sewer extension revenue bonds; third, it is without right or authority to direct and apply any portion of the income from the waterworks to a payment of a loan obtained for the purpose of extending its present waterworks and sewer systems.
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 from it the plaintiff appeals.
The first and principal contention is that to carry out the proposed improvements will constitute a violation of the provisions of section 8, article 9, of the Constitution of this state, reading as follows:
"No county, city, town, school district, or other municipal corporation shall for any purpose become indebted in any manner to an amount exceeding four per centum of the taxable property in such county, city, town, school district, or other municipal corporation, without the assent of a majority of the property taxpayers, who must also in all respects be qualified electors, therein voting at an election provided by law to be held for that purpose, the value of the taxable property therein to be ascertained by the last assessment for State and county purposes, previous to incurring such indebtedness; except, that in incorporated cities and towns assessments shall be taken from the last assessment for city or town purposes; 'Provided, that under no circumstances shall any county or school district become indebted to an amount exceeding ten per centum of such taxable property, as shown by the last assessment roll thereof'; and provided, further, 'that any incorporated city or town, with such assent, may be allowed to become indebted to a larger amount, but not exceeding fifteen per centum additional, for supplying such city or town with water, artificial light, or sewers, when the works for supplying such water, light or sewers are or shall be owned and controlled by the municipality."
If the obligation the city seeks to incur is an indebtedness within the meaning of this section, the contention of the plaintiff is correct and must be upheld, because the bonds the city has outstanding do exceed the sum for which this section permits it to become indebted under its present assessed valuation. However, appellees contend and are proceeding upon the theory that the indebtedness they desire to create is not one within the purpose of this provision, for the reason that the city does not propose to issue general obligation bonds payable from a general tax levied on the taxable property of the city, but intends to issue revenue bonds and pledge a portion of the funds derived from the operation of its waterworks in payment of them. In other words, since the proposed bonds are not to be satisfied from taxes levied on the assessed property within the city limits, but only from the receipts of one of its public utilities, namely, its waterworks, they do not constitute an indebtedness within the meaning of this constitutional provision. The fact, they say, that the resolution of intention and the bonds themselves provide specifically that there shall be set aside as a special fund a sufficient portion of the city's income from its water system to take care of the bonds as they mature and that the holder of them shall look solely to these revenues for their satisfaction and at no time have the right to other funds, or to compel any exercise of the taxing power of the city of Mesa to pay them or the interest on them, removes them from the class of debts to which reference is had in this provision of the Constitution. If the revenue the city derives from the operation of its utilities, as well as that received from the levying of a tax for that specific purpose, were legally pledged for the payment of its present bonded obligation, it is clear that the indebtedness it now has in mind for the extension of its water and sewer systems could not be incurred, but such is not the case. The income from its waterworks is in no way pledged for the payment of any of its obligations, but is free of all levies and may be used as security for funds obtained for the improvement or enlargement of this system. In taking the course they have, appellees are in line with the great weight of authority. For instance, in 19 R.C.L. 985, section 281, is found this statement of the rule:
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