Lakeside Special School Dist. v. Gaines

• Decision Date: 30 June 1941
• Docket Number: No. 4-6449.,4-6449.
• Citation: 153 S.W.2d 149
• Parties: LAKESIDE SPECIAL SCHOOL DIST. OF CHICOT COUNTY v. GAINES.
• Court: Arkansas Supreme Court

Page 149

153 S.W.2d 149

LAKESIDE SPECIAL SCHOOL DIST. OF CHICOT COUNTY v. GAINES.

No. 4-6449.

Supreme Court of Arkansas.

June 30, 1941.

Dissenting Opinion July 7, 1941.

As Amended on Rehearing July 14, 1941.

Appeal from Chicot Chancery Court; E. G. Hammock, Chancellor.

Actions for injunction by Ben P. Gaines against Lakeside Special School District of Chicot County, Ark. From an adverse decree, defendant appeals.

Decree reversed and cause remanded with directions.

Wallace Townsend, of Little Rock, for appellant.

Ed Trice, of Lake Village, for appellee.

McHANEY, Justice.

Appellee, a citizen and taxpayer, brought this action against appellant to enjoin it from funding its outstanding non-bonded indebtedness, incurred prior to the enactment of Act 194 of 1939, approved March 9, 1939, but effective June 8, 1939, for operation and maintenance of its schools, by the issuance and sale of $42,715 of 4% bonds, dated April 1, 1941 and maturing serially on January 1, 1943 to 1966, inclusive. Appellant made application to the State Board of Education under and in accordance with the provisions of Section 11495 of Pope's Digest for authority to issue said bonds and its application was approved March 17, 1941 and it was authorized to advertise the bonds for sale. Prior thereto it had petitioned the county court to include in the questions to be submitted to the electors of appellant district, at the annual school election on March 15, 1941, the question of a two mill building fund tax, to be collected annually on the assessed valuation of the taxable property in the district, beginning with the taxes collected in the year 1942, to pay the principal and interest of said proposed funding bond issue, with the provision that the surplus in any year, over and above the amount necessary to pay bonds and interest maturing in that year and the next six months interest on the bonds, may be used for other school purposes. The court granted the petition, ordered the question included and that notice be given as provided by law, all of which was done. The question was placed on the ballot, carrying the same information as contained in the order of the county court and in the published notice, proof of publication of which was duly made. The court canvassed the returns of said election, made an order declaring the result, and found that 47 votes were cast in the election, all of which voted for the tax and none against. The board of directors of appellant district, acting under the authority of Section 2 of Act 91 of 1941, on March 20, 1941, adopted a resolution, and entered same upon its records, declaring the total amount of the valid outstanding non-bonded indebtedness of the district, as of February 25, 1941, the effective date of said Act 91 of 1941, to be $42,715, which resolution was published for the time and in the manner provided in said Act, and no suit was brought within 30 days from the date of the publication to review the correctness of said finding.

Thereafter bonds were duly advertised for sale as required by Section 11496 of Pope's Digest and were sold to the highest bidder with the right to convert same to bonds bearing a lower rate of interest, subject to the approval of the Commissioner of Education, and on condition that by conversion the district should receive no less and pay no more than it would if the bonds were not converted.

Appellant district has an assessed valuation of $1,641,290 as shown by the last county assessment. It is permitted by said Act 91 to issue bonds not to exceed 8% of this valuation which is $131,303.20, and it has outstanding bonds in the sum of $85,500, so it is authorized to issue bonds in the additional sum of $45,803.20, or approximately $3,000 more than it proposes to issue. The buyer of the bonds proposes to convert the $42,715 of 4% bonds to $48,100 of 3% bonds, which is $2,296.80 in excess of the permissible $45,803.20, but by such conversion, there will be a net savings to the district of $484.45.

The complaint challenged the constitutionality of said Act 91 of 1941 on the alleged ground that it attempts to permit the voting of school taxes for a purpose not authorized by Amendment No. 11, that is, "the payment of bonds to fund outstanding warrants on February 25, 1941," and also that said Act is so uncertain in its terms that the indebtedness to be funded cannot be ascertained with certainty. Also that said Act makes no provision for a pledge of the two mill building fund tax voted as above stated, or for voting a continuing levy, and that the attempt to do so is void. Also that the proposed converted bond issue of $48,100, together with the outstanding bonds of $85,500 exceeds the 8% permissible maximum for bonds. Appellant answered admitting appellee's status, that it proposes to issue said amount of 4% bonds under said Act 91, converted to 3% bonds and that the converted bonds exceed the 8% maximum, and denied all other allegations. After setting out the matters heretofore stated, the answer in paragraph 8 continued: "Defendant states that it has at this time $42,715 in warrants outstanding, which it is not able to pay; that it is operating under the budget law (Act 194 of 1939) and is not increasing its debt, yet it is not decreasing the debt; that a warrant issued now cannot be cashed in varying periods of time from 12 to 18 months after its date, with the result that at this time defendant district's warrants are being discounted at the rate of eight per cent of the face value, and at other times the rate of discount has been much higher; that it is having trouble in getting its warrants handled at all and is having to pay additional costs of operation because it is not on a cash basis. The district states that the effect of permitting it to issue these bonds will be to establish it immediately upon a cash basis, and under the budget law it must remain that way, with the result that the actual saving that the district will make in operation will be enough to retire the bond issue over the period of time that the bonds have to run; and that the proposed funding is highly beneficial to the district."

Appellee demurred to the answer. The court sustained the demurrer and entered an order restraining appellant from issuing said bonds, and it has appealed. We agree with appellant that the court erred in so holding and in not overruling the demurrer, except in the respect hereinafter mentioned.

We cannot agree with appellee that said Act 91 of 1941 is unconstitutional because, as alleged, it attempts to permit the voting of school taxes for purposes not authorized by Amendment No. 11 to the Constitution which authorizes the electors of school districts to vote a tax not to exceed 18 mills in any one year for "the maintenance of schools, the erection and equipment of school buildings and the retirement of existing indebtedness for buildings. Provided, further, that no such tax shall be appropriated for any other purpose nor to any other district than that for which it is levied." Section 1 of said Act 91 provides that any school district that has valid outstanding non-bonded indebtedness at the time of approval of the Act is "authorized and empowered to issue and sell, in the manner provided by statute for the sale of school bonds, for the purpose of funding said indebtedness, negotiable coupon bonds with the right to convert said bonds into bonds bearing a lower rate of interest, subject to the approval of the Commissioner of Education, upon such terms that by the conversion the district shall receive no loss and pay no more than it would receive and pay if the bonds were not converted; * * * and provided further, that any district with an assessed value of over one million dollars may issue bonds as authorized herein in an amount that, with its outstanding bonds, will make its bonded indebtedness not more than eight per centum of its assessed value; * * *." Section 2 of said Act relates to the duty of the board of directors in determining the total valid non-bonded debt of the district and the procedure to question the finding of the board. Section 3 is the emergency clause and is as follows: "Because of the depression and the low assessed values that have become general throughout the State of Arkansas, it is hereby ascertained and declared that many of the school districts of the State have become badly indebted, with the result that they do not have sufficient funds to pay the operating expenses of their respective schools to the end of the present school year, their costs of operation are being increased because they are not on a cash basis, and many of said schools will be compelled to close, thus depriving a large number of children of the State of schools, an emergency is hereby ascertained and declared, and this act, being necessary for the preservation of public peace, health and safety, shall take effect and be in full force from and after its passage."

The answer alleges and the demurrer admits that the debt sought to be funded was incurred for maintenance. Amendment No. 11 authorizes a tax for three purposes: (1) "the maintenance of schools," (2) "the erection and equipment of school buildings" and (3) "the retirement of existing indebtedness for buildings," and it is insisted that "maintenance of schools," as used in the amendment, means future maintenance and not a valid existing indebtedness for maintenance that has been incurred prior to Act 194 of 1939, for which no separate tax may be voted. We cannot agree with any such narrow construction, for, if that is true, then the 12 mill tax heretofore voted for maintenance and operation of its schools (six mills being voted for bonds) would have to be devoted entirely to the payment of future maintenance and operations and would result in a repudiation of the existing valid warrants issued and outstanding for maintenance. In other words, if no part of the maintenance tax voted may be used to pay...