Hink v. Board of Directors of Beaver Water Dist.

• Decision Date: 21 May 1962
• Docket Number: No. 5-2794,5-2794
• Citation: 357 S.W.2d 271,235 Ark. 107
• Parties: Dr. Henry HINK et al., Appellants, v. BOARD OF DIRECTORS OF BEAVER WATER DISTRICT et al., Appellees.
• Court: Arkansas Supreme Court

Page 271

357 S.W.2d 271

235 Ark. 107

Dr. Henry HINK et al., Appellants, v. BOARD OF DIRECTORS OF BEAVER WATER DISTRICT et al., Appellees.

No. 5-2794.

Supreme Court of Arkansas.

May 21, 1962.

Jeff R. Rice, Bentonville, and Walter R. Niblock, Fayetteville, for appellants.

Little & Enfield, Bentonville, Leflar & Croxton, Rogers, Mehaffy, Smith & Williams, by Herschel H. Friday, Jr., James E. Westbrook, Little Rock, for appellees.

GEORGE ROSE SMITH, Justice.

By this proceeding, which is apparently a test suit, the appellants as citizens and taxpayers seek to obtain a declaratory judgment and an injunction preventing the appellees from carrying out a proposed arrangement by which four cities in northwest Arkansas are undertaking to obtain a supplementary water supply. The chancellor found the proposal to be valid in all respects, sustained a demurrer to the complaint, and dismissed the suit.

For some years it has been the policy of the federal government to permit some part of the water impounded in federally owned lakes and reservoirs to be reserved for municipal and industrial use. The most recent statute, 43 U.S.C.A. § 390b, permits the Corps of Engineers to include a provision for such municipal or industrial use in its plans for a new reservoir if state or local interests agreed to pay all additional construction costs that result from the inclusion of this provision in the plans.

In order to take advantage of this federal policy our legislature adopted Act 114 of 1957, which appears as Ark.Stats.1947, § 21-1401 et seq. This statute provides for the creation of regional water distribution districts as nonprofit public corporations. Such a district is authorized to contract with the Corps of Engineers for the acquisition of water rights in federal impoundments and to make contracts with consumers, including municipalities, for the sale of such water. In order to finance its operations the district is authorized to borrow money and to issue bonds to be secured by a pledge of its assets and revenues.

Pursuant to the above statute the Beaver Water District was organized by an order of the Benton circuit court on July 17, 1959. The district proposes to enter into a contract with the Corps of Engineers for the acquisition of water rights in the reservoir that is to be impounded by the construction of Beaver Dam. The district also proposes to enter into contracts for the sale of water to the cities of Bentonville, Fayetteville, Rogers and Springdale. To obtain money for its operations the district will issue bonds to be secured by a pledge of its assets and revenues.

In attacking this proposal the appellants rely upon seven grounds for questioning its validity.

I. It is first contended that the four cities do not have the authority to enter into an agreement such as the one now proposed. The principal case relied upon is Yancey v. City of Searcy, 213 Ark. 673, 212 S.W.2d 546, where we held that the city of Searcy could not purchase an extensive intercity water distribution system and go into the public utility business by undertaking to serve three other municipalities.

That decision is not controlling in the case at bar. Here the four municipalities do not propose to sell water to one another or to enter into the business of acting as public utilities. All that each city seeks is a dependable source of water for its own municipal waterworks. In McGehee v. Williams, 191 Ark. 643, 87 S.W.2d 46, we held that a city is authorized to purchase a water supply for distribution to its own inhabitants and that the purchase may be made from another municipality. Upon that reasoning there is no valid objection in the present case to the four cities' obtaining a water supply from the Beaver Water District.

II. It is next contended that Amendment 10 to the state constitution prevents the cities from executing two proposed contracts with the Beaver Water District. Amendment 10 requires the fiscal affairs of all cities to be conducted on a sound financial basis and prohibits any city from entering into any contract or incurring any obligation in excess of its revenues for the current fiscal year. By one of the contracts now in question, attached as Exhibit C to the complaint, the city would pledge only its net waterworks revenues to secure the performance of its contract with the Beaver Water District. This contract is valid, for it is well settled that Amendment 10 does not prohibit the creation of a debt exceeding current annual revenues if the debt is secured by and payable solely out of the income or assets of a special and separable activity such as a municipal waterworks. Williams v. Harris, 215 Ark. 928, 224 S.W.2d 9.

On the other hand, the contract appearing as Exhibit B to the complaint does not contain any restriction upon the source from which the city's obligations must be paid. By the language of this contract the city would bind itself to purchase water from the Beaver Water District for a period of fifty years. The complaint alleges, and the demurrer admits, that the total purchases under this contract would exceed the current revenues of each city. Under many decisions of this court it must be held that the contract in question is contrary to the provisions of Amendment 10. Luter v. Pulaski County Hospital Association, 182 Ark. 1099, 34 S.W.2d 770, and Williams v. Harris, supra. For this contract to be valid the city's obligation would have to be payable only from the revenues from its municipal waterworks. To this extent the trial court's declaratory judgment upholding the entire proposal must be modified.

III. At least one of the participating cities, Fayetteville, has an outstanding municipal waterworks bond issue. The ordinance creating this bond issue pledged the revenues from the...