State ex rel. Mitchell v. City of Sikeston

• Decision Date: 12 September 1977
• Docket Number: No. 59963,59963
• Citation: 555 S.W.2d 281
• Parties: STATE ex rel. Charles M. MITCHELL and Don C. Diven, Relators, v. CITY OF SIKESTON, Missouri, a Municipal Corporation, and City of Trenton, Missouri, a Municipal Corporation, Respondents.
• Court: Missouri Supreme Court

Page 281

555 S.W.2d 281

STATE ex rel. Charles M. MITCHELL and Don C. Diven, Relators, v. CITY OF SIKESTON, Missouri, a Municipal Corporation, and City of Trenton, Missouri, a Municipal Corporation, Respondents.

No. 59963.

Supreme Court of Missouri, En Banc.

Sept. 12, 1977.

George W. Gilmore, Jr., Sikeston, Allan D. Seidel, Trenton, for relators.

Manuel Drumm, Sikeston, Lawrence M. Berkowitz, Kansas City, for respondents.

James C. Swearengen, Jefferson City, amicus curiae.

BARDGETT, Judge.

This is an original proceeding in the nature of quo warranto brought by the relators, Charles M. Mitchell and Don C. Diven, resident taxpayers and ratepaying users of the municipal electric systems of Sikeston and Trenton, Missouri, respectively. They were authorized to bring this action on behalf of the state by the attorney general. Relators instituted this action against respondents city of Sikeston and city of Trenton, both municipal corporations organized and existing as cities of the third class under the laws of the state of Missouri. Jurisdiction is in this court pursuant to art. V, sec. 4, Mo.Const.

The facts in this case have been stipulated by the parties. Sikeston in the past has purchased most of its electric power and energy needs from the Southwestern Power Administration (SPA) of the U. S. Department of Interior. SPA has informed Sikeston that the present supply contracts will not be renewed as they expire. This means that by 1986 the SPA's supply of power to Sikeston will be practically terminated.

In order to determine what it should do to provide for its future energy needs, Sikeston employed Phelps & Hogland Engineering Co. of Raytown, Missouri, to advise the city of available alternatives. Phelps & Hogland prepared a "Feasibility Study" which stated its findings and recommendations. They found that Sikeston presently has an electric power requirement of approximately 40,000 kilowatts (kw), and this requirement has been increasing at over 9% per year. The present generating capacity is 15,000 kw which, according to Phelps & Hogland, is inadequate to meet the present and future needs of Sikeston. Furthermore, because of the reduction in the supply of power from the SPA, and the expected continued growth of Sikeston's energy needs, it is necessary to find a new source of power for immediate and future requirements. The "Feasibility Study" concluded that the most economical and reliable means of supplying the increasing electrical needs of Sikeston was to build a large coal-fired steam generating plant and sell the surplus electric power and energy to other municipalities until Sikeston can utilize the entire output of the plant. It is projected that Sikeston will be utilizing the plant's capacity in approximately 20 years.

Pursuant to the recommendations of the "Feasibility Study", Sikeston has proposed to issue and sell up to $250,000,000 of Electric System Revenue Bonds (bonds) to pay the cost of purchasing and constructing a 235,000 kw coal-fired steam-electric generating plant to be owned exclusively by Sikeston. The proposition to authorize the bonds was passed by the voters of Sikeston at the general election of November 2, 1976.

The plan for construction of this generating plant calls for it to be completed and put into operation by June 1, 1981. Recognizing that it will not be using the plant's entire output immediately, Sikeston plans to sell the surplus power during the 20-year period to eight other municipalities in Missouri, one of which is respondent city of Trenton, and to the Associated Electric Cooperative, Inc. (AEC).

Sikeston has entered into a cooperation agreement with the purchasing municipalities for the purpose of providing electric service to these cities and their inhabitants. This agreement provides that Sikeston will finance, construct, own, and operate the project and will provide and sell surplus electric power to the purchasing municipalities which will purchase the same. In furtherance of the cooperation agreement, Sikeston and the city of Trenton have entered into a "power sales contract" dated December 1, 1976, which calls for the city of Trenton to purchase power from the city of Sikeston over a term of years. Substantially identical contracts were entered into with each of the other purchasing municipalities and the city of Sikeston. The length of each contract and the amount of power to be purchased vary with each purchasing municipality. All of the contracts are on a "take-or-pay" basis, meaning the purchasing municipalities would be obligated to pay for the power they have contracted to purchase regardless of whether they actually take and use the power and regardless of whether the power is available from the project. The obligations of the purchasing municipalities would be payable only from the revenues of their respective municipal electric systems and not from any tax revenues or general revenues of the municipalities.

Sikeston and AEC have executed a "letter of intent" in which they propose to enter into a "power sales, interconnection and operating agreement". This agreement provides that AEC will purchase from Sikeston on a "take-or-pay" basis a portion of the temporary surplus output of the project. AEC also agreed to provide transmission services for the purchasing municipalities and standby power at such times as the project is out of service.

The aggregate revenues under the contracts with the municipalities and AEC are projected to be sufficient to pay the principal and interest on the bonds over the life of the bond issue. In addition Sikeston intends to set aside, out of the bond proceeds, reserve funds to provide for start-up operating expenses, acquisition of initial fuel inventory, initial debt service reserve requirements, and a reserve for renewals, replacements, and contingencies.

The relators challenge the authority of Sikeston and the purchasing municipalities to proceed with this project. The relators raise the following issues: (1) the construction of a power plant greatly in excess of the current needs of Sikeston violates the requirement that a city act only in furtherance of proper "public municipal purposes" because it only incidentally serves the residents of Sikeston, (a) Sikeston has exceeded the scope of its statutory authority to supply the city and its inhabitants with electric power, (b) a project of this size is not a proper area for municipal action in the absence of specific legislative authority, (c) the project is a venture into a field of private business which is not a proper municipal purpose; (2) the issuance of the bonds and the sale and purchase of a portion of the output of the project violates secs. 23 and 25, art. VI, Missouri Constitution, which prohibit cities from lending their credit or granting public money or property to any private individual, association, or corporation; (3) the funding of reserves and start-up expenses for the project is an unauthorized use of bond proceeds; (4) the "power sales contracts" create an "indebtedness" of the purchasing municipalities in violation of art. VI, sec. 26(a), Missouri Constitution; and (5) the purchasing municipalities have violated art. VI, sec. 27, Missouri Constitution, because they entered the "power sales contracts" without first securing voter approval.

The first issue raised by relators is whether Sikeston's act of constructing a power plant greatly in excess of its present needs is a proper public municipal purpose. It is a basic principle of municipal law that public funds may be expended only for proper public municipal purposes. Dysart v. City of St. Louis, 321 Mo. 514, 11 S.W.2d 1045 (Mo. banc 1928); State ex rel. City of Jefferson v. Smith, 348 Mo. 554, 154 S.W.2d 101 (Mo. banc 1941). The test of whether a public purpose is being served was stated in Dysart at 1047:

"But, though the principle that taxes may be levied for public purposes only is one of universal acceptance, its application is often difficult. What constitutes a public use is not easy to define. State v. Orear, 277 Mo. 303, 210 S.W. 392; Halbruegger v. St. Louis, 302 Mo. 573, 262 S.W. 379. It is said: 'In deciding whether, in a given case, the object for which the taxes are assessed falls on the one side or the other of this line, the courts must be governed mainly be the course and usage of the government, the objects for which taxes have been customarily and by long course of legislation levied, what objects or purposes have been considered necessary to the support and for the proper use of the government, whether state or municipal. Whatever lawfully pertains to this and is sanctioned by time and the acquiescence of the people may well be held to belong to the public use, and proper for the maintenance of good government, though this may not be the only criterion of rightful taxation. * * * Perhaps the best test of rightful taxation is that the proceeds of the tax must be used for the support of the government or for some of the recognized objects of government, or directly to promote the welfare of the community. It may also be conceded that that is a public purpose from the attainment of which will flow some benefit or convenience to the public. In this latter case, however, the benefit or convenience must be direct and immediate from the purpose, and not collateral, remote or consequential. It must be a benefit or convenience which each citizen of the community affected may lay his own hand to in his own right, and take unto his own use at his own option, upon the same reasonable terms and conditions as any other citizen thereof.' 26 R.C.L. 46."

"It is well settled that the legislature where not forbidden by the constitution, has power to authorize a municipal corporation to own and operate any public utility such as is generally owned and operated in a city by public service corporations, for the purpose of supplying not only its needs (government's) but also...