State v. City of Sunrise, 51092
| Decision Date | 26 January 1978 |
| Docket Number | No. 51092,51092 |
| Citation | 354 So.2d 1206 |
| Parties | STATE of Florida, etc., et al., Appellants, v. CITY OF SUNRISE, a Municipal Corporation of Florida, Appellee. |
| Court | Florida Supreme Court |
This is a direct appeal from a final judgment entered in a bond validation proceeding. Jurisdiction vests pursuant to Article V, Section 3(b)(2), Florida Constitution. The question we must decide is whether or not a Florida municipal corporation is authorized by law to issue "double advance refunding" bonds? We answer this question in the affirmative.
Respondent, the City of Sunrise, is seeking the issuance of certain bonds which are to be used in part to refinance and refund money borrowed under bonds issued in 1973. The proceeds from the 1973 bonds were used to advance refund bonds issued in 1970. Both petitioner and respondent agree that "double advance refunding" presents a novel method of municipal financing within the State of Florida.
The growth of the City of Sunrise reflects the growth of the State of Florida during the past twenty years. In 1967 the City had a population of less than 3,200 people. By 1976 its population exceeded 32,000. The physical area of the City has increased 120 times. In order to accommodate such growth the City has had to establish, expand, and improve its water, gas and sewage systems. The development of these utilities has been facilitated by the issuance of municipal revenue bonds.
On November 9, 1976, the city council adopted an ordinance authorizing the issuance of water, gas and sewer refunding and improvement revenue bonds, Series 1976, in the principal amount of $80 million. They are to be issued in denominations of $5,000, maturing on October 1 of the years 1978 through 2016. A portion of the proceeds of these bonds will be used for the purpose of refunding the City's utility system revenue bonds, Series 1973, natural gas revenue bonds, Series 1973, utility system revenue bonds, Series 1976 and for making payments required under certain agreements entered into by the City for the purchase of various components for the systems. Eighteen percent of the $80 million will be devoted to the refunding of bonds previously issued, with 6 percent thereof for the refunding of bonds issued to refund earlier bonds. These bonds are payable only from revenue derived from the utility systems. The bonds do not involve the pledge of the City's full faith and credit nor do they impose any ad valorem tax on its residents. The 18 percent that will be used to refund earlier bond issues will be deposited in escrow with a bank for investment purposes. The earnings from the investment will be applied to the payment of bonds being refunded. These escrow funds, according to the City's expert witness, will be invested in obligations of the United States of America, peculiarly designed for this kind of financing scheme. It is the expert's opinion that the money derived from the escrow account will be sufficient to pay principal, interest, and redemption premiums on the bonds being refunded. All bonds will be paid from proceeds in the escrow account on the call date stated in the bonds.
Double advance refunding in this case has several advantages:
(1) bonds will be regarded in the market place as first lien bonds secured by the revenues of all three units of the utility system;
(2) the bonds will enable the city to take advantage of changed market conditions, thereby allowing their issuance at a lower rate than the rate of interest presently borne by the bonds being funded; and
(3) the proceeds from the new bonds will provide the funds necessary to acquire additional facilities for the combined system. 1
It is our responsibility to determine whether the laws of Florida allow this novel financing arrangement. The relevant constitutional provision is Article VIII, Section 2, Florida Constitution, which provides:
(b) POWERS. Municipalities shall have governmental, corporate and proprietary powers to enable them to conduct municipal government, perform municipal functions and render municipal services, and may exercise any power for municipal purposes except as otherwise provided by law. Each municipal legislative body shall be elective.
Authority to issue bonds is extended to municipalities by Chapter 166.111, Florida Statutes, which provides:
The governing body of every municipality may borrow money, contract loans, and issue bonds as defined in 166.101, Florida Statutes, from time to time to finance the undertaking of any capital or other project for the purposes permitted by the state constitution and may pledge the funds, credit, property, and taxing power of the municipality for the payment of such debts and bonds.
The types of bonds which may be issued are defined as follows:
166.101 Definitions. As used in this part, the following words and terms shall have the following meanings unless some other meaning is plainly indicated:
(6) The term "refunding bonds" means bonds issued to refinance outstanding bonds of any type and the interest and redemption premium thereon. Refunding bonds shall be issuable and payable in the same manner as the refinanced bonds, except that no approval by the electorate shall be required unless required by the state constitution.
(8) The term "project" means a governmental undertaking approved by the governing body and includes all property rights, easements, and franchises relating thereto and deemed necessary or convenient for the construction, acquisition or operation thereof, and embraces any capital expenditure which the governing body of the municipality shall deem to be made for a public purpose including the refunding of any bonded indebtedness which may be outstanding on any existing project which is to be improved by means of a new project. (Emphasis added.)
The constitutional and statutory scheme makes several matters clear. Municipalities may issue bonds to finance any capital or other project permitted by the state Constitution. A project may include the refunding of any outstanding indebtedness. Bonds which may be issued include "refunding bonds." Refunding bonds are those issued to "refinance outstanding bonds of any type and the interest and redemption premium thereon." There is no limitation on the type of bonds refunded or the purposes for which the bonds are to be refunded. State v. City of Melbourne, 93 So.2d 371 (Fla.1957). Simple "advance refunding" is now an acceptable method of financing municipal projects. We have so held in State v. City of Melbourne, supra; State v. City of Orlando, 82 So.2d 874 (Fla.1955); and State v. City of Miami, 155 Fla. 6, 19 So.2d 410 (1944).
In our original opinion in this case, we held that in order to be validated, the proposed bonds must meet the "lower net average interest cost" requirement found in Article VII, Section 12(b), Florida Constitution. 2 Section 166.111, Florida Statutes, authorizes municipalities to borrow money, but only for "purposes...
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