Sanitation Dist. No. 1 OF JEFFERSON COUNTY v. City of Louisville

• Citation: 308 Ky. 368,213 S.W.2d 995
• Parties: SANITATION DIST. NO. 1 OF JEFFERSON COUNTY v. CITY OF LOUISVILLE.
• Decision Date: 15 June 1948
• Court: Court of Appeals of Kentucky

213 S.W.2d 995

308 Ky. 368

SANITATION DIST. NO. 1 OF JEFFERSON COUNTY v. CITY OF LOUISVILLE.

Court of Appeals of Kentucky

June 15, 1948

As Modified on Denial of Rehearing Oct. 1, 1948.

Appeal from Circuit Court, Jefferson County, Common Pleas Branch Third Division; William H. Field, Judge.

Suit by the City of Louisville against Sanitation District No. 1 of Jefferson County for a declaration of the unconstitutionality of an act declaring a city annexing a sanitation district liable for all debts and liabilities thereof. From a judgment declaring the act unconstitutional and void as applied to pending proceedings by plaintiff city to annex defendant district's territory, defendant appeals.

Affirmed.

Franklin P. Hays, Skaggs, Hays & Fahey, Will H Fulton, Woodward, Dawson, Hobson & Fulton, Arthur W. Grafton and Wyatt & Grafton, all of Louisville, for appellant.

Gilbert Burnett and John R. Moremen, both of Louisville, for appellee.

STANLEY Commissioner.

This case is a sequel of Sanitation District No. 1 v Louisville & Jefferson County Metropolitan Sewer District, 307 Ky. 422, 208 S.W.2d 751 and of Engle v. Bonnie, 305 Ky. 850, 204 S.W.2d 963. The latter related to an Act relative to the incorporation of cities. KRS 81.030 et seq. In the former case there was a declaration of powers and rights of the respective parties in relation to a proposed contract between the two sewer districts. The Sanitation District contemplated the construction of a sewer system and issuance of revenue bonds to cover the cost. The proposed contract provided that it should be connected with the sewer system of Louisville then and now being maintained by the Metropolitan Sewer District. The particular question in this court was whether either the City of Louisville or Metropolitan Sewer District would become responsible for the debts and liabilities of Sanitation District in the event of annexation of the territory by the City, and thereby relieve the users of the local system from the obligation of paying for its construction.

We held the Metropolitan Sewer District Act had impliedly repealed Ky.Rev.Sts. 220.530, which was a part of the Act of 1940 under which the Sanitation District was organized, and that the City upon annexation of the territory would not have to pay the bonds. We also held that Metropolitan District could not be required to assume such obligations although there appears to be no obstacle to its voluntarily doing so. Immediately afterward, a bill was introduced in the Legislature (H.B. 464) re-enacting KRS 220.530 with amendments making it more direct and specific. It was aimed directly at the St. Matthews situation, though general in characterization and specification. The bill was passed with an emergency provision which made it effective in ten days.

The City of Louisville instituted this suit challenging the constitutionality of the Act. The circuit court declared the Act unconstitutional and void 'in its attempted application to the pending annexation proceedings by the City of Louisville to annex the territory comprised in Sanitation District No. 1 of Jefferson County because, (1) it attempts to delay and prohibit those proceedings and (2) it would impose the debts and liabilities of the district upon the City.'

Section 1, paragraph (1) of the Act is as follows: 'Where a city annexes an entire sanitation district organized under this Chapter, the city shall be liable from and after the date of such annexation for all of the debts and liabilities of such district, including, but not by way of limitation, all revenue bonds and all debts and liabilities secured by revenues of the district, and all other bonded and floating debt of the district, and such debts and liabilities shall be payable out of the general funds of the city, and such city shall be the owner of all the property and rights of the district, and the users of sewers in the district shall be relieved from any further rentals and obligations, except that if the territory in the district becomes part of the territory in a metropolitan sewer district formed under Chapter 76 of the Kentucky Revised Statutes, such users shall pay the regular charges of such metropolitan sewer district, and the sanitation district shall thereupon be automatically dissolved.'

Paragraphs (2) and (3) provide that if only a portion of the territory embraced in a sanitation district should be annexed, the city would acquire proportionate rights and assume proportionate obligations.

Section 2 of the Act declares that it shall prevail over any existing law in conflict with it, and section 3 is a severance provision to the effect that if any part of the Act is held to be unconstitutional or invalid, no other part shall be affected by such decision.

The Sanitation District is authorized to levy a tax to raise funds for the expense of organization and preliminary work up to the time the money shall be received from the sale of revenue bonds and to borrow money in anticipation of the collection of the tax. KRS 220.360, 220.370. This is the extent of its taxing power. To defray the cost of such preliminary expenses and the construction of the sewers, the district may borrow money and issue negotiable bonds 'payable solely from the revenue funds derived from the rentals from services rendered by the district to the inhabitants thereof, as provided in KRS 220.510, and shall not constitute an indebtedness of the district within the meaning of the Constitution. It shall be plainly stated on the face of each bond that it has been issued under the provisions of KRS 220.010 to 220.520, and that it does not constitute an indebtedness of the district within the meaning of the Constitution.' KRS 220.400. A statutory mortgage lien is imposed upon all property of the sanitation district in favor of the holders of the bonds and coupons to secure their payment, and a lien will exist upon the works of the district and all extensions and appurtenances until the bonds shall have been paid in full. KRS 220.420. The section cited in foregoing quotation, KRS 220.510, authorizes the board of directors of the sanitary district to establish and collect rates from the users of the system for the payment of the bonds and the maintenance of the sewers. KRS 220.420 gives to the holders of bonds the right to enforce the liens and to compel the performance of the obligations to collect the revenues for their liquidation. KRS 220.510, as amended by House Bill 463 in the 1948 Legislature, Acts 1948, c. 117, likewise authorized the District to require any one furnishing water service to a sewer user's premises to cut off such water service in the event the user failed to pay his sewer service charges.

Sanitation District No. 1 has incurred preliminary expenses of more than $100,000 and has let contracts for the construction of a sewer system. The construction of a disposal plant is contemplated. The estimated total cost of the project is $2,000,000.

The City of Louisville enacted an ordinance on May 28, 1947, annexing territory which is practically coextensive with that embraced by Sanitation District No. 1. A remonstrance against annexation was filed and the case was pending in the Jefferson Circuit Court (KRS 81.100 et seq.) at the time the Act under consideration was passed and is still pending.

The gist and explicit purpose of the Act of 1948 is to impose the payment of the cost of a community public improvement upon the general revenues of the City, if it should be annexed. While the probable intent was that all of it should not be paid in cash at the time of the annexation, the legal effect is the same, for there would be an assumption of the entire debt though actual payment might be made as the coupons and bonds severally mature.

It is stipulated in the record that Louisville does not now have general revenues over and above its necessary governmental expenses sufficient to enable it to assume in one year any part of the debts and liabilities of the Sanitary District in the event of annexation of all or any part of the territory. Nor is it presently contemplated that the City will at any time in the foreseeable future have general revenues sufficient to permit it to assume in any one year the amount of expenditures which would be required to construct and complete the sewerage system of the Sanitary District in accordance with the contracts which it has made. The assumption of any such debts or obligations would result in the City becoming indebted in an amount exceeding the income and revenue provided for the year within which annexation might take place. This, of course, can not be legally done. As said in Sanitation District No. 1 v. Louisville and Jefferson County Metropolitan Sewer District, supra, 307 Ky. 422, 208 S.W.2d 751, 754, 'the parties could not contract, or the statute provide, or the courts lawfully adjudge a liability upon the city which is prohibited by Section 157 of the Constitution.' The financial condition of the City, as shown in the stipulation, would permit the valid issuance of voted tax-payable bonds within the limitations of Section 158 of the Constitution. But it is important to note that the 1948 Act does not authorize or contemplate the issuance of such bonds. It strictly confines the payment of the obligations out of the general funds.

The argument of the Sanitation District is, in brief, that the Act cannot be held constitutionally invalid or inapplicable because annexation is optional; that it is a 'take it or leave it' proposition, for if the City is unable financially to pay the bill, it must not take in the territory or any part of it. All of that is true except for the inescapable fact that the City really has no choice if the conditions cannot be met...