Protest of Reid

• Decision Date: 25 October 1932
• Docket Number: 22561.
• Citation: 15 P.2d 995,160 Okla. 3,1932 OK 711
• Parties: Protest of REID et al.
• Court: Oklahoma Supreme Court

15 P.2d 995

160 Okla. 3, 1932 OK 711

Protest of REID et al.

No. 22561.

Supreme Court of Oklahoma

Oct. 25, 1932

Syllabus by the Court.

1. Section 16, article 10 of the Constitution, is a part of the public policy of the state. By the provisions thereof money borrowed by a city may be used only for the purpose for which it was borrowed.

2. Section 27, article 10, of the Constitution, is a part of the public policy of the state. By the provisions thereof money borrowed pursuant thereto may be used only for the purpose of "* * * purchasing or constructing public utilities, or for repairing the same, to be owned exclusively by such city."

3. The provisions of sections 16 and 27, article 10, of the Constitution, are applicable, not only to the immediate use of the money borrowed, but to any subsequent use thereof. They apply as well to the proceeds of the sale of property purchased with money borrowed pursuant thereto as to the borrowed money with which the property was purchased.

4. When a municipal utility, which was purchased, constructed, or repaired with borrowed money, is converted into money by reason of a sale of the property, the proceeds of the sale are controlled by the provisions of sections 16 and 27 article 10, of the Constitution, and may be used only for the purpose for which the money was borrowed. When the proceeds of the sale are not used for the purpose for which the money was borrowed, they must be used to reimburse the taxpayers.

5. When a municipally owned public utility, which was purchased constructed, or repaired under the provisions of sections 16 and 27, article 10, of the Constitution, is sold by the municipality, the proceeds of the sale may be used for the purpose for which the money was borrowed, under the statutory provisions and the ordinances and charter provisions of the city with reference to the expenditure of public funds. If not so used, an amount equal in value to the amount of all of the indebtedness incurred by the municipality for the purchase, construction, or repair of the same, with all of the interest thereon, whether matured and paid or unmatured must be paid into the sinking fund, and the remainder thereof must be paid into the current expense fund to reimburse the ad valorem taxpayers of the city for the amount of taxes paid by them or chargeable against their property by reason of the incurring of the indebtedness.

6. The term "revenue," as used in section 12678, O. S 1931 (section 9699, C. O. S. 1921), means income from sources other than ad valorem taxation, and includes income derived from the sale of a municipally owned electric light and power plant.

7. Whether a municipal light and power plant is operated with or independent of the aid of ad valorem taxation, the money collected therefrom must be accounted for as required by the provisions of section 30, article 10, of the Constitution, section 12676, O. S. 1931 (section 9697, C. O. S. 1921), and section 12674, O. S. 1931 (section 9695, C. O. S. 1921).

8. By the provisions of section 30, article 10, of the Constitution, section 12676, O. S. 1931 (section 9697, C. O. S. 1921), and section 12674, O. S. 1931 (section 9695, C. O. S. 1921), municipal officers are required to make reports in writing showing by classes the earnings and costs of maintenance thereof and the true fiscal condition of the municipality as of the close of the fiscal year.

9. At the end of a fiscal year, the balance on hand from the sale of a municipal public utility unappropriated for any legal purpose is subject to the statutory provisions as to unappropriated balances of revenue, and must be used to reduce the rate of ad valorem taxation of the municipality for the ensuing fiscal year, the application thereof being to the sinking fund to the extent of the needs of that fund and the remainder, if any, to the current expense fund to the extent of the needs of that fund.

Appeal from Court of Tax Review; Porter Newman, Asa E. Walden, and O. C. Wybrant, Judges.

Proceeding in the matter of the protest of David Reid and others against illegal and excessive tax levies for the fiscal year beginning July 1, 1930, and ending June 30, 1931, made by the Excise Board of Woodward County. From the judgment of the Court of Tax Review, the protestants appeal.

Reversed, and cause remanded in accordance with opinion.

McNEILL and KORNEGAY, JJ., dissenting.

Rainey, Flynn, Green & Anderson, of Oklahoma City, Howard Patton, of Woodward, and Bleakmore, Barry, Farmer & Lee, of Oklahoma City, for protestants.

Jas. G. Young, Co. Atty., and C. W. Herod, City Atty., both of Woodward, and J. B. Dudley, of Oklahoma City, for protestee.

ANDREWS J.

This is an appeal from a judgment of the court of tax review as to certain tax levies of the city of Woodward for the fiscal year commencing July 1, 1930. David Reid, George Irwin, and others, and the Atchison, Topeka & Santa Fé Railway Company and the Missouri-Kansas-Texas Railway Company of Texas filed protests in that court. The three protests were consolidated and tried together. The court of tax review held "* * * that the sum of $332,046.25, cash on hand from the sale of the light plant, and now to the credit of the light fund, does not have to be paid into the sinking fund, and might be dealt with by the City Council in such ways as it may decide is the best interests of the city, but does hold the attempted appropriation on the part of the Mayor and City Council, appropriating for the building of additions to the city in the way of gas plants and light plants is void, and have to be appropriated by the County Excise Board." From that judgment the protestants appealed to this court.

The facts disclosed by the record are substantially as follows: The city of Woodward was the owner of a municipal light and power plant which it had constructed from the proceeds of the sale of a bond issue authorized by the voters of that city for that purpose, pursuant to the provisions of section 27, article 10, of the Constitution, to which plant additions, extensions, and repairs had been made from the proceeds of the sales of other bond issues authorized by the voters of that city pursuant to the same constitutional provision. It sold the plant under the provisions of chapter 94, Session Laws 1927. An attack upon the sale was made, and the legality of the sale was sustained by the decision of this court in Thomas et al. v. Reid et al., 142 Okl. 38, 285 P. 92. Thereafter, and about the 14th day of March, 1930, the city received $505,000 in cash as the proceeds of the sale. A portion of that sum was disbursed by the city in payment of indebtedness of the city for machinery and equipment used in the plant, and a portion thereof was transferred to the sinking fund. The balance, $326,503.07, was held in a special fund on the 30th day of June, 1930. On July 7, 1930, the governing body of the city, by resolution, attempted to appropriate that amount for various purposes, including construction of a light plant, gas plant, and sewer system.

On or about the 13th day of August, 1930, the city tendered into the federal District Court the sum of $326,000 for the use and benefit of the plaintiff in that action, who was the vendee of the purchaser from the city of the light and power plant, the tender being made in support of the claim of the city that the sale of the light and power plant was void and that it should be set aside and held for naught. The money was not paid into court.

The protestants contend that the entire amount of the proceeds of the sale, after the payment of the indebtedness of the city for machinery and appliances for the use of the plant, should be credited to the sinking fund of the city, and that the excise board should have considered that amount as a part of the sinking fund in fixing the rates of ad valorem tax levy for the fiscal year in question.

The city contends: "After the sale of a municipally owned utility, it is the plain duty of such municipality to devote from the proceeds of the sale a sum sufficient to retire the unmatured bonds which were issued for the purpose of constructing such utility. * * * However, when the municipality has made such provision for meeting all the future interest and accruals of the bonds against the utility which was sold, it has performed its duty to the sinking fund, and completely met all the requirements of law in that regard."

An issue is thereby presented. That issue is dependent upon the meaning of section 16, article 10, of the Constitution. By the provisions of that section, "all laws authorizing the borrowing of money by and on behalf of the State, county or other political subdivision of the State, shall specify the purpose for which the money is to be used, and the money so borrowed shall be used for no other purpose." That is a part of the public policy of the state. City Nat'l Bank v. Incorporated Town of Kiowa et al., 104 Okl. 161, 230 P. 894, 39 A. L. R. 206. The question is presented as to whether that constitutional limitation relates to subsequent uses of the borrowed money as well as to the first use thereof. That it relates to the first use thereof has been determined by this court in Re Bliss, 142 Okl. 1, 285 P. 73, and Aaronson v. Smiley, County Treas., 142 Okl. 29, 285 P. 59, wherein we held that accrued interest on bonds and the net premium derived from the sale of bonds should be credited to and held in the sinking fund for the purpose of reducing the rate of ad valorem tax levy necessary to pay the interest thereon and to create a sinking fund for the retirement thereof. That it relates to a subsequent use thereof has been held by this court in Gulf, C. & S. F. Ry. Co. v. Excise Board, 141 Okl. 34, 283 P. 1003, wherein we held: "Where a...