Switzer v. City of Phoenix

• Court: Arizona Supreme Court
• Writing for the Court: STRUCKMEYER; PHELPS
• Citation: Switzer v. City of Phoenix, 86 Ariz. 121, 341 P.2d 427 (Ariz. 1959)
• Decision Date: 01 July 1959
• Docket Number: No. 6770,6770
• Parties: Walter E. SWITZER, Jr., Appellant, v. CITY OF PHOENIX, Jack Williams, Mayor of the City of Phoenix, David P. Jones, Wesley Johnson, Faith I. North, V. A. Cordova, Dr. Joseph Madison Greer, and Clarence H. Shivvers, Members of the Phoenix City Council, John E. Burke, Phoenix City Clerk, Appellees.

Page 427

341 P.2d 427

86 Ariz. 121

Walter E. SWITZER, Jr., Appellant, v. CITY OF PHOENIX, Jack Williams, Mayor of the City of Phoenix, David P. Jones, Wesley Johnson, Faith I. North, V. A. Cordova, Dr. Joseph Madison Greer, and Clarence H. Shivvers, Members of the Phoenix City Council, John E. Burke, Phoenix City Clerk, Appellees.

No. 6770.

Supreme Court of Arizona.

July 1, 1959.

Gust, Rosenfeld, Divilbess & Robinette, Phoenix, for appellant.

William C. Eliot, City Atty., Merle L. Hanson, Anis Mitchell and Leven B. Ferrin, Asst. City Attys., Phoenix, for appllees.

STRUCKMEYER, Justice.

This is an action wherein appellant, an elector and real property taxpayer of the City of Phoenix, seeks a declaratory judgment and injunctive relief to prevent the issuance of certain street improvement bonds. The court below entered a summary judgment in favor of appellees, declaring that the ordinance of the City of Phoenix under which the bonds were issued did not violate the state constitution and was not otherwise unlawful.

On May 7, 1957, the city held a bond election at which the duly qualified electors authorized the issuance of certain street and highway improvement bonds; thereafter, on September 27, 1957, the city adopted its Ordinance No. S-1186, by which there was authorized the issuance of street and highway improvement bonds in the amount of $2,500,000, the principal and interest thereon to be paid from the city's share of the funds received from the Motor Vehicle Fuel and Gasoline Tax receipts collected by the State and distributed to the city pursuant to the applicable statutes.

Appellant first urges that the issuance of the bonds would increase the total indebtedness of the city above the four per cent limit set by the constitution of Arizona, Art. IX, § 8, A.R.S. Both the proposition submitted to the voters on May 7, 1957 and the Ordinance recite:

'* * * This bond and the issue of which it is a part are payable solely, as to both principal and interest, from the proceeds of revenues to be derived by said City from taxes collected by the State of Arizona and returned to the city for street and highway purposes. * * *'

It is the settled law of this state that bonds issued to finance public improvements, if made payable solely from the revenues to be derived from the operation of the improvement, do not constitute an indebtedness within the meaning of the limitation clauses of the constitution. Guthrie v. City of Mesa, 47 Ariz. 336, 56 P.2d 665; Crandall v. Town of Safford, 47 Ariz. 402, 56 P.2d 660; Humphrey v. City of Phoenix, 55 Ariz. 374, 102 P.2d 82; Board of Regents of University of Arizona v. Sullivan, 45 Ariz. 245, 42 P.2d 619.

Appellant argues, however, that the same rule should not apply when the obligations are to be paid out of the fund created by the collection of a special excise tax. The authorities dealing with this problem are not entirely in accord, but the weight generally is to the effect that an obligation payable from a special fund created by the imposition of fees, penalties, or excise taxes and for the payment of which the general credit of the taxing authority is not pledged is not a debt within the meaning of constitutional debt limitations. See Stone v. City of Hobbs, 54 N.M. 237, 220 P.2d 704, and Annotation 100 A.L.R. 878; Gruen v. Tax Commission, 35 Wash.2d 1, 211 P.2d 651. We will follow the weight of authority at least to the extent where, as here, the fund from which the obligations are to be paid is created by voluntary contributions of the state to the city.

Appellant next urges that a municipality may not, under the existing law, pledge all the revenues to be received from the Motor Vehicle and Gasoline taxes to the repayment of highway improvement bonds. We notice that section 7 of the Ordinance is a pledge of revenues in the alternative. The city pledges all 'or so much thereof as may be necessary.' Consequently, the question presented is academic and does not pertain to an actual controversy. It is not subject to resolution by this court. Podol v. Jacobs, 65 Ariz. 50, 173 P.2d 758.

The city's Ordinance S-1186, among other things, promises the bond purchaser:

'* * * that no decrease in the proportion thereof [the Motor Vehicle Fuel Tax] payable to the City of Phoenix may be made while any of such bonds so remain outstanding and there is hereby vested in the holders of such bonds and the interest coupons thereto attached a contract right in the continuation of such tax and its allocation as above set forth.'

And further,

'* * * The contract rights herein vested in the holders of such bonds shall extend to the imposition, collection and proper application of the street revenues [meaning the taxes collected by the State of Arizona and returned to the City for street and highway purposes] until such bonds shall have been paid in full as to principal and interest and shall not be subject to repeal, impairment or modification either by the city or by the Legislature or people of the State of Arizona.'

Appellant contends that the quoted language is an attempt by the city to bind the legislature and the state of Arizona not to decrease the state Motor Vehicle Fuel Tax nor to decrease the portion of the proceeds payable to the City of Phoenix until the bonds issued by the City of Phoenix are all paid and that as such it is invalid. In part we agree. To the extent that the language of the resolution purports to require the continuance of all laws without modification of the amount of the Motor Vehicle fuel Tax or the proportion payable to the city, it is clearly a usurpation of the legislative function of the people of the State.

There can be no doubt that the legislature, in permitting the Motor Vehicle Fuel Tax to be used for the retirement of the bonds has, by clear implication, promised that it would do nothing to impair the obligation arising in consideration of the existing law. But a modification of the constitution and the statutes which does not lessen the likelihood of payment or delay payment of the bonds will not impair the obligation of the contract. Scougale v. Page, 194 Ark. 280, 106 S.W.2d 1023; Flint v. Duval County, 126 Fla. 18, 170 So. 587; State ex rel. Freeling v. Howard, 67 Okl. 296, 171 P. 41. The bondholders cannot be injured by modification of the statute, such as a decrease in the proportion payable to the city, so long as they receive their quid pro quo, and the legislature and the people of the state may make any changes in the law, organic and otherwise, save those which will impair the obligation of the contract. We therefore hold that the broad language alluded to, in so far as it purports to restrict any changes in the existing law, is ultra vires and ineffective to transfer to the bondholders the right to a continuation without modification.

There is an implication from the appellant's argument that a construction of the statutes committing the legislature and the State of Arizona to the continuation of a law imposing a tax, since of necessity the law must be continued in order to retire the contemplated bonds, violates that portion of Art. IX, § 1 of the constitution which provides:

'The power of taxation shall never be surrendered, suspended, or contracted away.'

Appellant directs the attention of this court to Gruen v. Tex Commission, supra. There, with four judges dissenting, the Washington Supreme Court, in construing an identical provision,...