Scott v. City of Tacoma

• Citation: 81 Wash. 178,142 P. 467
• Decision Date: 12 August 1914
• Docket Number: 12002.
• Parties: SCOTT et ux. v. CITY OF TACOMA.
• Court: United States State Supreme Court of Washington

142 P. 467

81 Wash. 178

SCOTT et ux. v. CITY OF TACOMA.

No. 12002.

Supreme Court of Washington

August 12, 1914

Department 1. Appeal from Superior Court, Pierce County; M. L. Clifford Judge.

Suit by Stanley T. Scott and wife against the City of Tacoma. Judgment for defendant, and complainants appeal. Affirmed.

C. M Riddell and Hayden, Langhorne & Metzger, all of Tacoma, for appellants.

T. L Stiles and Frank M. Carnahan, both of Tacoma, for respondent.

W. V. Tanner and L. L. Thompson, both of Olympia, amicus curiae.

GOSE J.

This is an action by taxpayers to enjoin the issuance of certain municipal bonds. There was a judgment in favor of the defendant on the pleadings. The plaintiffs have appealed.

The essential facts disclosed by the pleadings are these: The city of Tacoma, in pursuance of a power conferred by the public utilities act (Rem. & Bal. Code, § 8005 et seq.), in April, 1913, passed an ordinance providing for the construction, equipment, and operation of a municipally owned street railway on South Eleventh street between Pacific avenue and the easterly limits of the city. At an election called for that purpose, the ordinance was approved by the majority of the electors voting thereat. Thereafter the city council adopted an ordinance providing for the creation of the Tacoma street railway fund No. 1, and for the issuance of bonds and warrants thereon in the sum of $35,000, with which to construct such street railway line, and authorizing the sale or other disposition of the bonds or warrants. Sections 2 and 3 of the ordinance are as follows:

'Sec. 2. Beginning with the operation of said street railway and thereafter while any of the obligations hereinafter mentioned are outstanding and unpaid, the city treasurer shall set aside and pay into said Tacoma street railway fund No. 1 the gross revenues derived from the operation of said street railway, or so much thereof as shall be necessary to pay the principal of the outstanding obligations hereinafter mentioned and the semiannual interest thereon in seven years from August 1, 1914, as hereinafter provided. All the moneys so set aside and placed in said fund shall be applied solely to the payment of the obligations issued against the same, with interest thereon, and the city of Tacoma hereby irrevocably binds itself not to sell said street railway until the said obligations, with the interest thereon, shall be fully paid; or, in case it shall sell said street railway before such payment, it binds itself to pay all of said obligations and interest thereon out of any moneys derived from such sale, and that in any event it will not sell said street railway for a sum less than enough to pay said obligations and interest.

'Sec. 3. Should the gross revenues from the operation of said street railway not be sufficient to pay the principal or interest upon any of said obligations when the same, or either of them, become due and payable, there shall be transferred into and loaned to said fund, out of the moneys received by the city of Tacoma from percentages paid by street railway corporations as franchise taxes, such sum or sums as may be necessary to make up the deficiency, which sums so loaned shall be repaid out of the gross revenues of said street railway as the same shall accrue.'

Section 6 of the ordinance limits the liability of the city to the special fund. It is conceded that the city of Tacoma is indebted in a sum in excess of 1 1/2 per cent. of the assessed value of the property therein subject to assessment, according to the last assessment roll for municipal purposes. It is also conceded that the electors have not authorized the construction of a street railway upon credit. The city has entered into an agreement with the Tacoma Railway & Power Company, which owns and operates all the present street railway lines in the city, whereby that company agrees to equip the proposed railway, and operate it with full transfer privileges, and pay to the city 4 per cent. on the cost of the line and one-half of the net earnings. The agreement runs for 7 1/2 years. The income from the system during the life of the contract will more than pay the interest on the bonds. The pleadings allege that, at the expiration of the agreement, there is every reason to believe that it can be extended if the city desires. Upon the basis of the agreement, the bonds would be retired within 24 years.

It is contended that the proposed transfer of a portion of the franchise tax will create a debt, the argument being that a transfer of the franchise tax will necessitate the levying of a general tax to meet the sum withdrawn. Under the terms of its franchise, the Tacoma Railway & Power Company pays to the city 5 per cent. of its gross freight earnings and 2 per cent. of its gross passenger earnings, aggregating more than $20,000 a year, and it is a portion of these revenues that the city proposes to loan to the street railway fund.

We think the case is controlled by Griffin v. Tacoma, 49 Wash. 524, 95 P. 1107. In that case the city was enlarging and extending its water system in pursuance of an ordinance authorizing it so to do. The ordinance created a special fund by setting aside at least 50 per cent. of the gross revenues of the water system, and provided that all moneys so set aside and placed in such special fund should be applied solely to the expenses of enlarging the system. On the same day the city passed another ordinance, by the terms of which it transferred from the general fund of the city to the special fund the sum of $100,000, as a temporary loan from the general fund to the special fund. The income from the water system was about $20,000 a month. In holding that the proposed plan did not create a debt, the court said:

'It is next suggested that the proposed pledging of the water receipts and the transfer from the general to the special fund will obligate the city for new indebtedness which it cannot incur by reason of the constitutional limitation upon that subject. This court has already held that the mere pledge of the water receipts as a special fund does not create a debt against the municipality, within the meaning of the constitutional inhibition. Winston v. Spokane, 12 Wash. 524, 41 P. 888; Faulkner v. Seattle, 19 Wash. 320, 53 P. 365; Dean v. Walla Walla, 48 Wash. 75 . We have also seen, from what has already been said, that the transfer from one fund to the other creates no indebtedness against the city. It is a mere temporary loan to a fund, with an assured income, whose sources of supply are entirely under the control of the city. The city's general funds are not thereby in fact reduced, inasmuch as the credit of the general fund for the temporary transfer is the equivalent of cash as a working asset, and no new debt of the city arises.'

The appellants seek to distinguish the Griffin Case upon the ground that in that case the special fund had an assured and certain income from an existing plant, whilst in this case the railway is not yet constructed, and it is argued that the income of the system is uncertain. The point actually decided in the Griffin Case was that the...