Gary ASSON and LeRae Asson, husband and wife, citizens of the City of Burley; Ransom H. Brown and Betty Brown, husband and wife, citizens of the City of Heyburn; and J.R. Simplot Company, Petitioners, v. CITY OF BURLEY; Charles Shadduck, Mayor of the City of Burley; James Parker, J. Garth Payne, Frances McDonald, Dale Doman, Walter Petersen, and Truman Bradley, as members of the City Council of Burley; City of Heyburn, Harold R. Hurst, Mayor of the City of Heyburn; and Wilford Wilcox, Dean Baker, David Mayes, and Larry McComb, as members of the City Council of Heyburn, Respondents. Richard H. BOHLE and Paula L. Bohle, husband and wife; Blaine Jensen and Lillian D. Jensen, husband and wife; Charles B. Park and Billie F. Park, husband and wife; Clarence F. Bellem and Lillian B. Bellem, husband and wife; Magic Valley Foods, Inc., an Idaho corporation; Cameron Sales, Inc., an Idaho corporation, Petitioners, v. CITY OF RUPERT, William F. Whittom, Mayor of the City of Rupert, Clark Cameron, Dwinelle E. Allred, June Dombeck and Ronald E. Klebe, as members of the City Council of Rupert, Respondents.
Nos. 14719, 14809
Supreme Court of Idaho
Sept. 26, 1983
Rehearing Denied Nov. 4, 1983
670 P.2d 839
Roger D. Ling, Rupert, for petitioners Bohle, et al.
William Parsons, Burley, for respondent City of Burley.
Donald J. Chisholm, Burley, for respondent City of Rupert.
A.L. Smith, Idaho Falls, for intervenor City of Idaho Falls.
Peter B. Wilson, Bonners Ferry, for intervenor City of Bonners Ferry.
R.B. Kading, Jr., and R.M. Turnbow, Boise, for intervenor Washington Public Power Supply System.
Howard Humphrey, and Stanley Welsh, Boise, for intervenor Chemical Bank.
HUNTLEY, Justice.
In 1976, five Idaho cities1 (parties to this action) entered into an agreement with the Washington Public Power Supply System (WPPSS) for future supplies of electrical energy to be generated by two planned nuclear power plants. Although the plant projects were later terminated, under the terms of the agreement the cities were nevertheless required to continue to pay their percentage shares of the bond obligations incurred, amounting to millions of dollars. Residents and purchasers of electricity of three of the five cities brought this petition for a writ of prohibition, pursuant to this Court‘s authority under
The record shows that each of the five Idaho cities owns and operates an electrical distribution system that carries electricity within the city and to nearby areas.2 However, only two of the cities have generating facilities (Idaho Falls and Bonners Ferry), and these facilities do not supply all of their power needs. Thus, each of the five cities relies on outside electrical power supplies. Since 1963 (and before, for several cities) the outside supplier has been the federal government, through its agency the Bonneville Power Administration (BPA). The BPA provides the Pacific Northwest region with comparatively inexpensive hydroelectric power generated at facilities along the Columbia River system.
In the late 1950‘s and early 1960‘s, Pacific Northwest cities were receiving forecasts of greatly increased future energy demands. It was expected that the Northwest‘s hydroelectric resources would soon be inadequate to meet the needs of the region‘s power users. During this period, and through the late 1960‘s and into the 1970‘s, cooperative efforts were made by electricity purchasers such as municipalities and utility districts to predict the region‘s future energy needs and to make plans to meet them. Organizations such as the Public Power Council and the Pacific Northwest Utilities Conference Committee involved utilities in the region in energy forecasting and planning activities.3 Another organization, the Joint Power Planning Council, including BPA and many of its power customers, made a study of future energy requirements and concluded that new electrical generating plants would have to be built to keep pace with increasing power demands. A plan was developed which called for the construction of several thermal power plants.
In January 1971 and 1973, and September 1973, the five Idaho cities, together with other Pacific Northwest utilities, entered into agreements with WPPSS to purchase electrical “project capability” from three nuclear power plants to be constructed by
Each city entered into the agreement with respect to these first three plants (referred to as Projects 1, 2, and 3) after passage by its city council of a resolution authorizing execution of the agreement. Each city also represented, in the form of an opinion letter from its counsel, that it had authority to enter into the agreements.6 The cities had specified statutory authorization, by means of a provision enacted in 1971, to participate in a net-billing arrangement and purchase electrical power to be resold to BPA:
“I.C. § 50-342 . Electric Power—Purchase or disposal.—In addition to the powers otherwise conferred on cities of this state, a city owning and operating an electric distribution system shall have the authority to purchase electric power and energy for the purpose of disposing of such power and energy to the United States of America, department of the interior, acting by and through the Bonneville power administrator, through exchange, net billing or any arrangement which is used for supplying the needs of the city for electric power or energy, and such authority shall not be subject to the requirements, limitations, or procedures contained in sections 50-325 and 50-327, Idaho Code.”7
The net-billing financing plan made it possible for BPA to assist in insuring future supplies for its electricity customers. Each participating utility pays WPPSS its share of the costs of developing the projects, and BPA gives the participant a credit in the amount of such payment on the BPA bill for power purchased by the participant.
In December 1973 the Public Power Council investigated the possibility of two additional power plants to be designed, financed and built by WPPSS. For various reasons (one of which was a 1973 Treasury Department ruling denying tax exempt status for bonds to finance additional thermal plants from which BPA would receive more than 25% of the energy output), the two newest plants (Projects 4 and 5) could not be financed under the same arrangements as Projects 1, 2 and 3, which had BPA involvement. During 1974 and the first half of 1975, the Public Power Council, BPA, WPPSS and various utilities discussed possible financing plans for Projects 4 and 5.
Although three nuclear plants were already being built, many Northwest utilities were still convinced that the future would bring energy demands well beyond the out-
The proposed additional nuclear plants were to be located at the same sites as Projects 1 and 3 to reduce costs. Costs were projected to be low in comparison to other alternative power facilities. Impelled by the region‘s forecasts of energy shortages and the apparent advantageous circumstances of pairing two new plants with projects already under construction, the cities entered into a second set of agreements with WPPSS in July 1976.
The agreements, in summary form, provided that WPPSS would use its best efforts to arrange financing for the two plants, to obtain regulatory permits, to issue and sell bonds, and to complete planning and engineering studies, arrange for construction and timely completion of the plants, and thereafter maintain the plants. Project 4 was to be completed in March 1982, and Project 5 in April 1984. If WPPSS failed to secure financing, or if the plants were not completed as planned, the participating cities were nevertheless bound to pay their obligations. The agreement provided:
“The Participant shall make the payments to be made to Supply System [WPPSS] under this Agreement whether or not any of the Projects are completed, operable or operating and notwithstanding the suspension, interruption, interference, reduction or curtailment of the output of either Project for any reason whatsoever in whole or in part. Such payments shall not be subject to any reduction, whether by offset or otherwise, and shall not be conditioned upon performance or nonperformance by Supply System or by any other Participant or entity under this or any other agreement or instrument, the remedy for any nonperformance being limited to mandamus, specific performance or other [sic] legal or equitable remedy.”9
The payment obligation of each city was based on its percentage share of the project capability purchased. The city pays its percentage of the projects’ annual budget and fuel costs, including all of WPPSS’ cost of ownership, debt service on bonds, and all other costs. The cities’ obligation to pay was to begin on the earliest of three dates: (1) continuous operation of any plant; (2) July 1, 1988; or (3) one year after termination of any project.
Projects 4 and 5 were terminated in January 1982 when WPPSS was unable to secure sufficient financing to complete the plants. At the time, Project 4 was approximately 20% complete and Project 5 was approximately 16% complete.10 Bonds had
Under the agreement, the cities’ payment obligations are limited to revenues derived from the operation of their utility systems. Each participant agrees to establish, maintain and collect electrical charges adequate to cover its payment obligations. In the event a participant defaults, provision is made for the non-defaulting participants to assume payment of the defaulter‘s obligation, up to a maximum of 25% of their own obligations.
As they had done with Projects 1, 2 and 3, the cities submitted opinion letters stating they were authorized by law to enter into the Project 4 and 5 agreements. Although the two sets of agreements were essentially the same (both involved the purchase of project capability, under the same terms, and both contained the so-called “dry-hole liability” provision), the financing arrangements were different in one important aspect—involvement of BPA. In the Project 4 and 5 agreements, the cities are ultimately liable for the “dry-hole” risk, whereas in the earlier agreements the cities incur no expense for which they do not obtain electrical power in like amount from BPA. In that sense, the Project 1, 2 and 3 agreements were similar to power purchase contracts. The cities received electricity in proportion to their payments to WPPSS.
Petitioners allege the cities acted in violation of the Idaho Constitution,
”Limitations on county and municipal indebtedness.—No county, city, board of education, or school district, or other subdivision of the state, shall incur any indebtedness, or liability, in any manner, or for any purpose, exceeding in that year, the income and revenue provided for it for such year, without the assent of two thirds (2/3) of the qualified electors thereof voting at an election to be held for that purpose, nor unless, before or at the time of incurring such indebtedness, provisions shall be made for the collection of an annual tax sufficient to pay the interest on such indebtedness as it falls due, and also to constitute a sinking fund for the payment of the principal thereof, within thirty (30) years from the time of contracting the same. Any indebtedness or liability incurred contrary to this provision shall be void: Provided, that this section shall not be construed to apply to the ordinary and necessary expenses authorized by the general laws of the state and provided further that any city may own, purchase, construct, extend, or equip, within and without the corporate limits of such city, off street parking facilities, public recreation facilities, and air navigation facilities, and for the purpose of paying the cost thereof may, without regard to any limitation herein imposed, with the assent of two thirds (2/3) of the qualified electors voting at an election to be held for that purpose, issue revenue bonds therefor, the principal and interest of which to be paid solely from revenue derived from rates and charges for the use of, and the service rendered by, such facilities as may be prescribed by law, and provided further, that any city or other political subdivision of the state may own, purchase, construct, extend, or equip, within and without the corporate limits of such city or political subdivision, water systems, sewage collection systems, water treatment plants, sewage treatment plants, and may rehabilitate existing electrical generating facilities, and for the purpose of paying the cost thereof, may, without regard to any limitation herein imposed, with the assent of a majority of the qualified electors voting at an election to be held for that purpose, issue revenue bonds therefor, the princi-
pal and interest of which to be paid solely from revenue derived from rates and charges for the use of, and the service rendered by such systems, plants and facilities, as may be prescribed by law; and provided further that any port district, for the purpose of carrying into effect all or any of the powers now or hereafter granted to port districts by the laws of this state, may contract indebtedness and issue revenue bonds evidencing such indebtedness, without the necessity of the voters of the port district authorizing the same, such revenue bonds to be payable solely from all or such part of the revenues of the port district derived from any source whatsoever excepting only those revenues derived from ad valorem taxes, as the port commission thereof may determine, and such revenue bonds not to be in any manner or to any extent a general obligation of the port district issuing the same, nor a charge upon the ad valorem tax revenue of such port district.” (Emphasis added.)
Since it is admitted that no election was held by any of the five cities to obtain approval of the electorate prior to entering into the agreements in question, petitioners contend the cities contracted indebtedness in violation of the Idaho Constitution, and their indebtedness or liability is therefore void. Respondent City of Heyburn, and intervenors WPPSS and Chemical Bank12 argue, however, that
Such an interpretation, however, would ignore the plain language of the constitutional provision, which states that “[n]o ... city ... shall incur any indebtedness, or liability, in any manner, or for any purpose, exceeding in that year, the income and revenue provided for it for such year, without the assent of two thirds (2/3) of the qualified electors thereof....” While it is true that the provision goes on to add another requirement, relating to the collection of an annual tax to pay interest on the debt and a sinking fund to pay the principal, the latter requirement is simply sound fiscal policy and does not relate to the primary constitutional mandate of electorate approval of substantial and far-reaching municipal indebtedness. A financing plan which provides for amortization of the indebtedness by some means other than assessment of taxes might be held to satisfy that part of
City of Heyburn, WPPSS and Chemical Bank also contend that
It is urged that we overrule Feil v. City of Coeur d‘Alene, 23 Idaho 32, 129 P. 643 (1912), and apply the “special fund” doctrine in this case. That doctrine, accepted by a great majority of cases,13 holds that a municipality does not contract indebtedness or incur liability, within the constitutional limitation, by undertaking an obligation which is to be paid out of a special fund consisting entirely of revenue or income from the property purchased or constructed. Feil dealt with a decision by the city of Coeur d‘Alene to purchase a municipal water system, to be financed by bonds which would be repaid out of a fund containing only the revenues derived from operation of the water works. It was argued that since no indebtedness was contracted by the city itself—but rather only by the bond fund—the expenditure did not come under
However, Feil and its quite extensive succession of authority no longer prevent application of the special fund exception because that exception has been made a part of Idaho law by way of amendments to
The intent of the framers of the constitutional amendments, and the electorate through their ratification, is clear that approval of a municipality‘s qualified voters is necessary whether its
It might be argued that since
The better view is that the constitutional provision requires a city to obtain only a simple “majority” voter approval where the indebtedness undertaken is only for the rehabilitation of existing facilities (a purpose more similar to the “ordinary and necessary expenses” exception), whereas if the indebtedness is for the construction of wholly new facilities (obviously a much more extensive undertaking), then the “two thirds (2/3)” majority approval within the general application of the article would apply. This interpretation is substantiated by the 1972 amendment which divided the special fund exceptions into two groups: those requiring two-thirds voter approval and those requiring only a simple majority.15 When the provision covering the rehabilitation of existing electrical generating facilities was
Reasoning a fortiori, we cannot conceive of an interpretation of
Thus, were we to accept the argument that the cities’ liability comes under the special fund doctrine, the indebtedness would still be without constitutional authority because
Early cases interpreted the “ordinary and necessary” language very narrowly. The court often looked to the amount of the expense in proportion to the city or county‘s revenue for that year. In County of Ada v. Bullen Bridge Co., 5 Idaho 79, 47 P. 818 (1896), the court stated,
“If it is claimed that this expenditure comes within the proviso of section 3, article 8, of the constitution, we answer that a construction of that proviso, as well as of the entire section, was given by this court in Bannock Co. v. Bunting, 4 Idaho 156, 37 Pac. 277, and we would suggest that an improvement involving an expenditure of nearly $40,000, where the revenue of the county for the year was only about $70,000, would not readily be classed as an ‘ordinary and necessary expense.’ It would be difficult, we apprehend, to name an expense under such a construction that would not be ‘ordinary and necessary.’ If a necessity existed for the bridge, there was no conceivable excuse for not complying with the plainly expressed provisions of the constitution and the statutes. If these provisions of law are to be ignored or defeated upon flimsy technicalities, it is difficult to see what protection the people will have.” Id. at 90, 47 P. at 823.19
See also, Ball v. Bannock Co., 5 Idaho 602, 51 P. 454 (1897). Expenditures held not to be ordinary and necessary include: the construction of bridges, Bullen Bridge, Dunbar v. Board of Commrs., 5 Idaho 407, 49 P. 409 (1897); construction of a wagon road, McNutt v. Lemhi Co., 12 Idaho 63, 84 P. 1054 (1906); purchase of a water system, Woodward v. City of Grangeville, 13 Idaho 652, 92 P. 840 (1907); construction of a schoolhouse addition, Petrie v. Common School Dist., 44 Idaho 92, 255 P. 318 (1927); purchase of a street sprinkler, Williams v. City of Emmett, 51 Idaho 500, 6 P.2d 475 (1931). Expenditures held to be within the ordinary and necessary exception include: salaries of city officers and employees, Butler v. Lewiston, 11 Idaho 393, 83 P. 234 (1905); repair of city waterworks, Hickey v. City of Nampa, 22 Idaho 41, 124 P. 280 (1912); construction of a jail in a newly created county, Jones v. Power Co., 27 Idaho 656, 150 P. 35 (1915); maintenance of streets, Thomas v. Glindeman, 33 Idaho 394, 195 P. 92 (1921); cost of employing school teachers, Corum v. Common School Dist., 55 Idaho 725, 47 P.2d 889 (1935).
Comparison of these earlier cases reveals one clear distinction between those expenses held to be ordinary and necessary and those held not to be: new construction or the purchase of new equipment or facilities as opposed to repair, partial replace-
While it is true that recent cases dealing with application of
In City of Pocatello v. Peterson, 93 Idaho 774, 473 P.2d 644 (1970), the court held that while repair and renovation of a municipal airport were not “inherently ‘ordinary and necessary expenses‘” the particular facts of that case brought them within the constitutional category. In its opinion the court stressed the upkeep and maintenance aspect of the city‘s expenditure. The court noted that the passenger terminal was an “unsound structure.” Thus, while construction of a “wholly new terminal building” (see dissent of McFadden, J., Id. at 779, 473 P.2d at 649) might be viewed as an expenditure not traditionally considered ordinary and necessary, the court‘s emphasis on the obsolescence and unsafe condition of the twenty-year-old facility places it within the “repair or maintenance” line of case authority. The court may have considered the expenditure in light of the city‘s obligation to maintain a safe, sound structure and the concomitant potential legal liability for failure to do so, which liability might itself create an ordinary and necessary expense. See, Butler v. City of Lewiston, supra.
The question is whether the cities’ belief that there would be inadequate power supplies several years in the future is sufficiently analogous to the cases which hold that repair or reconditioning of existing facilities is an ordinary and necessary expense. It is argued that the expenditure was certainly necessary in light of BPA‘s notice of insufficient power supplies by
We turn now to the second requirement of the constitutional proviso: that the expenditure be authorized by the general laws of the state. While an Idaho municipality is authorized to “acquire, own, maintain and operate electric power plants, purchase electric power, and provide for distribution to the residents of the city“,
We note that we have had at issue before us only the agreement relating to Projects 4 and 5. The cities’ authorization to enter into Project 1, 2 and 3 agreements is not at issue, and as we have pointed out, the two sets of agreements are sufficiently different to make much of our holding not applicable even by analogy to the earlier agreements, which we perceive to be in the nature of power purchase contracts more than long-term debt obligations. Since we hold that the cities’ agreements as to Projects 4 and 5 are void, it follows that the alternative writ of prohibition in these consolidated cases is hereby made permanent.
DONALDSON, C.J., and SHEPARD and BISTLINE, JJ., concur.
BAKES, Justice, dissenting:
I cannot join in the majority opinion. If viewed at the time of inception, instead of with hindsight, the contracts under analysis here should withstand any constitutional attack the petitioners could muster. It is only because, through hindsight, the majority can see what a “bad deal” the cities have made that they now attempt to extricate these cities from their precarious position through a unique interpretation of our constitution as applied to the facts of this case. Clearly, the contracts under consideration comply with any constitutional requirement. Analysis under
This is not to say that the cities are liable on these contracts. Our only concern in this case is the constitutionality of the cities’ actions in entering into these contracts. This opinion would not preclude the cities from asserting any defenses to formation of these contracts that they might bring in another forum. In fact, it appears from the record that these cities have been discharged by a Washington trial court because of the action of the Washington Supreme Court in invalidating the contracts as to the Washington defendants. We should not bend our own Constitution in an effort to release from liability public entities who have improvidently, but constitutionally, entered into contracts from which they may also be relieved because of contractual defenses.
I
A
The obligation “incurred” by the cities under these agreements is not the type of “indebtedness or liability” contemplated by
B
Another reason exists that should validate the Participants’ Agreements under
This Court has recognized that the “ordinary and necessary” exception shall be applied on a case by case basis. The cases considered by this Court have defined “ordinary and necessary” in various ways.
“‘Ordinary’ means ‘regular; usual; normal; common; often recurring ...’ ‘Necessary’ means ‘indispensable.’ ... An expenditure, although not of a frequently recurring nature, may nonetheless be ‘ordinary and necessary.‘” City of Pocatello v. Peterson, 93 Idaho 774, 778, 473 P.2d 644, 648 (1970).
This Court later defined “ordinary and necessary” as follows:
“An expense is ordinary if in the ordinary course of the transaction of municipal business, or the maintenance of municipal property, it may be and is likely to become necessary.” (Emphasis added.) Thomas v. Glindeman, 33 Idaho 394, 195 P. 92 (1921).
In City of Pocatello v. Peterson, 93 Idaho 774, 473 P.2d 644 (1970), we considered the question of whether a contract for the expansion of an airport facility was a contract for “ordinary and necessary” expenses within the exception to
“Furthermore the repair and improvement of the Pocatello airport facility is essential for the proper growth and development of the area. This is especially so since the railroads, upon which public travel and communication were heavily dependent in yesteryear, are discontinuing passenger service to many cities.” 93 Idaho at 779, 473 P.2d 644.
The factors noted in City of Pocatello in finding those expenses to be ordinary and necessary are also applicable in the contextual framework involved here. The cities here are authorized by law to operate electrical power plants and purchase electrical power for distribution to residents of the city. See
II
A
The majority opinion does not discuss
“[Art. 8] § 4. County, etc., not to loan or give its credit.—No county, city, town, township, board of education, or school district, or other subdivision of the state, shall lend, or pledge the credit or faith thereof directly or indirectly, in any manner, to, or in aid of any individual association or corporation, for any amount or for any purpose whatever, or become responsible for any debt, contract or liability of any individual, association or corporation in or out of this state.” (Emphasis added.)
“[Art. 12] § 4. Municipal corporations not to loan credit.—No county, town, city or other municipal corporation, by vote of its citizens or otherwise, shall ever become a stockholder in any joint stock company, corporation or association whatever, or raise money for, or make donation or loan its credit to, or in aid of, any such company or association: provided, that cities and towns may contract indebtedness for school, water sanitary and illuminating purposes: provided, that any city or town contracting such indebted-
ness shall own its just proportion of the property thus created and receive from any income arising therefrom its proportion to the whole amount so invested.” (Emphasis added.)
These two constitutional provisions have been interpreted in numerous Idaho cases. This Court has interpreted these provisions as prohibitions upon the lending of credit in aid of “private” associations or corporations. See Board of County Comm‘rs v. Idaho Health Facilities Authority, 96 Idaho 498, 531 P.2d 588 (1975); Village of Moyie Springs v. Aurora Mfg. Co., supra; School Dist. No. 8 v. Twin Falls County Mutual Fire Ins. Co., 30 Idaho 400, 164 P. 1174 (1917). As we stated in Boise Redevelopment Agency v. Yick Kong, 94 Idaho 876, 499 P.2d 575 (1972):
“The purpose of such a prohibition is clear. Favored status should not be given any private enterprise or individual in the application of public funds. The proceedings and debates of the Idaho Constitutional Convention indicate a consistent theme running through the consideration of the constitutional sections in question. It was feared that private interests would gain advantages at the expense of the taxpayers. This fear appeared to relate particularly to railroads and a few other large businesses who had succeeded in gaining the ability to impose taxes, at least indirectly, upon municipal residents in western states at the time of the drafting of our constitution. We are led to the firm conviction that only private interests were intended to fall within the strictures of those sections relating to ‘association,’ ‘corporation’ and ‘joint stock company.‘” Id. at 883-84, 499 P.2d 575.
In Yick Kong we were considering the constitutionality of the creation of a redevelopment agency intended to rehabilitate the downtown area of the City of Boise. We held that the redevelopment agency, being a public and not a private enterprise, did not fall within the strictures of
“A review of the proceedings at the constitutional convention, the history of the west, and a similar statute that was in effect at the time the constitution was adopted, show that the delegates only sought to prevent private interests from gaining advantage at the expense of the taxpayer.” 102 Idaho at 842, 642 P.2d 553.
In the present case WPPSS is not a private entity. Rather, it is a public corporation established by nineteen public utility districts in the State of Washington and the cities of Seattle, Tacoma, Richland and Ellensburg, and incorporated under the laws of the State of Washington. Thus, the evil sought to be avoided in
Thus, under any analysis of these agreements and our Constitution, they should withstand scrutiny and should be enforced.
ROBERT E. BAKES
JUSTICE