Pace v. City of Hannibal, 65725
| Decision Date | 20 November 1984 |
| Docket Number | No. 65725,65725 |
| Parties | George H. PACE, et. al., Respondents-Appellants, v. CITY OF HANNIBAL, Missouri, a Municipal Corporation, Appellant-Respondent. |
| Court | Missouri Supreme Court |
J. Patrick Wheeler, Canton, for respondents-appellants.
Rhonda C. Thomas, St. Louis, Fredrich J. Cruse, Hannibal, for appellant-respondent.
James J. Wilson, Edward J. Hanlon, St. Louis, for amicus curiae, City of St. Louis (in support of appellant-respondent).
William Patrick Cronan, Fayette, for amicus curiae, Mo. Mun. League.
William H. Dahman, James W. Whitney, Jr., Terry Burnet, St. Louis, for amicus curiae, City of Hermann (in support of respondents-appellants).
Robert B. Hoemeke, Peter T. Wendel, St. Louis, for amicus curiae, Mo. Ass'n of Mun. Utilities (in support of appellant-respondent).
Richard S. Steinberg, St. Joseph, for amicus curiae, City of St. Joseph.
John P. Brown, Columbia, for amicus curiae, City of Columbia.
Karen E. Marty, Springfield, for amicus curiae, City of Springfield.
The basic question presented by this appeal is whether an increase in the gross amount of funds transferred by the Hannibal Board of Public Works to the general revenue fund of the City of Hannibal as a payment "in lieu of franchise tax" is violative of the so-called Hancock Amendment (Art. X, § 22(a) of the Missouri Constitution).
Since 1914 the City of Hannibal has provided certain utility services to its residents. The city currently owns and operates a water and sewer system and also distributes electricity. These utility systems are expressly authorized by statute. 1
In 1957 Hannibal adopted a charter, and is now a home rule constitutional charter city. See Art. VI, § 19 of the Missouri Constitution. Under Section 12.07 of the charter, the citizens of the city have vested the Hannibal Board of Public Works with "the exclusive power and duty to establish rates and provide for the assessment and collection of charges" for municipally operated utilities. 2 The board is composed of citizens appointed by the City Council for staggered terms. The record does not demonstrate any guiding standards for the establishment of rates, and, as a municipal utility operation, the board is not subject to the supervision of the Missouri Public Service Commission.
The board, from the inception of the utility operation, has paid annually a percentage of its gross receipts into the general revenue fund of the city. These payments are said to be made "in lieu of a franchise tax," such as is ordinarily levied upon investor-owned utilities. 3 Our attention has not been directed to anything in the charter, statutes or ordinances which mandates such payments by the board. So far as the record shows, the payments are voluntary on the part of the board, and the board could reduce or eliminate them if so disposed. Since 1963 the payments in lieu of franchise tax have been established at 5 1/2 percent of gross revenues from the utility operation.
This litigation is the result of an increase in the rates for water and sewer services decreed by the board in 1981. 4 Application of the 5 1/2 percent factor to the increased utility revenues created a net increase in the amount transferred into the general revenue fund of the city of Hannibal. 5 The plaintiffs, on behalf of a class composed of the utility ratepayers of the City of Hannibal, allege that the 5 1/2 percent factor must be reduced in proportion to the increase in rates, so that the city does not derive additional revenue by reason of the increased rates.
It should be emphasized that the propriety of the rate increase is not placed in issue. It is specifically not asserted that the board lacked the authority to order an increase in utility rates, or that the increase required a vote of the electorate under the terms of the Hancock Amendment. 6 Nor do the plaintiffs challenge the authority of the board to make payments to the city in lieu of franchise taxes.
The petition asserted four claims, as follows: (1) that no statute, ordinance or charter provision established adequate guiding standards for the setting of utility rates by the board; (2) that the board, under the provisions of the Hancock Amendment, 7 had the duty of reducing the percentage factor for the payment in lieu of franchise taxes in proportion to the increase of rates; (3) that the ratepayers were entitled to a refund, on account of the rollback provision as described in point (2); and (4) that the plaintiffs were entitled to attorneys' fees in accordance with the provisions of the Hancock Amendment.
The trial court sustained contentions (2) and (4) of the plaintiff's petition, holding that the board was required to reduce the 5 1/2 percentage factor, and awarding attorneys' fees. It denied the claim for refund as set forth in contention (3), on the ground that there was no express authority for ordering a refund as prayed, and also rejected contention (1) finding that there was no unlawful delegation of legislative authority. Both parties have appealed from the portions of the decree adverse to them. The plaintiffs also ask for an additional allowance of attorneys fees on appeal.
We are met at the outset with a question of jurisdiction. The essential test is whether the validity of the amendment is challenged, 8 and such is not the case here. The jurisdictional provisions of the Hancock Amendment 9 are not appropriate either, because the state is not involved in this case. Nor is the Hancock Amendment a "revenue law" in the constitutional sense. Inasmuch, however, as the point is fairly arguable, and the parties have come here in good faith to brief and argue the case, we elect to assume jurisdiction. 10
Having considered the case, we conclude that the grant of authority to fix utility rates is not invalid as an improper delegation of legislative power, and affirm the judgment of the trial court on plaintiffs' contention (1). We conclude that the Hancock Amendment does not require a rollback, and therefore reverse the decree of the trial court on contention (2). Since we find no violation of the provisions of the Hancock Amendment, plaintiffs' contentions (3) and (4) fall out of the case.
It is the plaintiffs' contention that the blanket authority vested in the board to fix utility rates 11 constitutes an invalid delegation of legislative power. Although plaintiffs cite several cases about unlawful delegation of legislative power, none is a utility case. No authority has been cited which supports the claim made here nor do the plaintiffs question the reasonableness of the rates set by the board in 1981.
Moreover, the purpose in making this argument is difficult to perceive. The claim, carried to its logical extreme, would invalidate the entire utility system, for utilities cannot operate without charging their patrons for the services furnished. The authority to operate a municipal utility connotes the authority to operate it on a sound basis. Oswald v. City of Blue Springs, 635 S.W.2d 332, 333-34 (Mo. banc 1982). Were this not so, the utilities would either cease to operate or else they would constitute a permanent drain on the city treasury and on taxpayers in general. Such obviously was not the intention of the legislature in authorizing municipal utilities. It should not be difficult to determine how much the utilities must charge in order to maintain their operations on a sound basis and to provide for reasonable returns.
The plaintiffs argue that there must be some restraints on the power of the board to prescribe rates, because rates for municipal utilities, in contrast to those of investor-owned utilities, are not subject to regulation by the Missouri Public Service Commission. The argument is not persuasive because there is a vital distinction between municipal utilities and investor-owned utilities. 12 The latter have as their ultimate purpose the realization of a profit for the shareholders. The legislature, in its wisdom, might well have concluded that investor-owned utilitites, endowed with natural monopoly, should not be allowed complete discretion as to rates charged, because they would be tempted to maximize profits free from competitive inhibition. The legislature might also conclude that normal political pressures would be sufficient to keep rates of municipal utilities in line. 13 There is no particular motive for turning a profit. We need not speculate as to whether some sort of lawsuit might be filed to prevent a municipality from charging unreasonable rates for utility service. No such claim has been presented here.
The claim of unlawful delegation of legislative power, for whatever purpose advanced, is not meritorious. The trial judge did not err in refusing the relief sought.
The trial court upheld the plaintiffs' assertion that there was a violation of Art. X, § 22(a) of the Missouri Constitution, finding that the payments in lieu of franchise tax came within the language "tax, license, or fees." The pertinent provisions are as follows:
Counties and other political subdivisions are hereby prohibited from levying any tax, license or fees, not authorized by law, charter or self-enforcing provisions of the constitution when this section is adopted or from increasing the current levy of an existing tax, license or fees, above that current levy authorized by law or charter when this section is adopted without the approval of the required majority of the qualified voters of that county or other political subdivision voting thereon. If the definition of the base of an existing tax, license or fees, is broadened, the maximum authorized current levy of taxation on the new base in each county or other political subdivision shall be reduced to yield the same estimated gross revenue as on the prior base. If the assessed valuation of property as finally...
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