29 S.W.2d 603 | Ky. Ct. App. | 1930
Lead Opinion
[EDITORS' NOTE: THIS PAGE CONTAINS HEADNOTES. HEADNOTES ARE NOT AN OFFICIAL PRODUCT OF THE COURT, THEREFORE THEY ARE NOT DISPLAYED.] *145 Reversing.
John Fuss, a citizen and taxpayer of Frankfort, brought this action in April, 1928, against the city, alleging in his petition these facts: Frankfort is a city of the third class, having a population of more than 10,000 but less than 15,000; the assessed value of the property in the city is $7,753,151. The city has an outstanding, legally incurred bonded indebtedness of $290,000, of which $215,000 was incurred before the adoption of the present Constitution. In addition to this, the city had an outstanding floating indebtedness of approximately $121,000 legally incurred. The city for many years made no provision to create a sinking fund to pay the interest or retire the bonded indebtedness of the city, but every year, since the adoption of the Constitution, took from the revenues derived from the regular levy a sum sufficient to pay the interest on the bonded indebtedness, thereby depriving the city of funds sufficient to pay the current expenses of the city, although the city did not in any year create an indebtedness in excess of revenues of that year. On April 9, 1928, the council enacted an ordinance providing for the issuing of $120,000 of bonds to fund a like amount of the floating indebtedness of the city, providing by the ordinance when the bonds should be payable and providing for a levy each year to provide a sinking fund and pay the interest on the bonds. A purchaser had offered to take the bonds at par, bearing interest at 4 3/4 per cent. per annum. He alleged that the ordinance created an indebtedness of the city beyond the current revenues for the year and prayed that the council be enjoined from issuing and selling the bonds. Other taxpayers intervened and filed pleadings, charging that the indebtedness of $120,000 had not been lawfully created, also that the city had not a population of 10,000 and that the council was without authority to issue the bonds. Proof was taken, and on final hearing the circuit *146 court granted the plaintiffs an injunction as prayed. The city appeals.
The proof wholly fails to show that any part of the indebtedness was illegally created. The presumption is that the officers did their duty. The burden of proof to show the illegality of the indebtedness was upon the party alleging that the indebtedness was illegal. Bradford v. City of Glasgow,
Section 158 of the Constitution, after providing that the cities and towns, etc., shall not be authorized to incur indebtedness exceeding a certain percentage of the taxable property therein, concludes with these words: "Provided, Any city, town, county, taxing district, or other municipality may contract an indebtedness in excess of such limitations when the same has been authorized under laws in force prior to the adoption of this Constitution, or when necessary for the completion of and payment for a public improvement undertaken and not completed and paid for at the time of the adoption of this Constitution: And provided further, If, at the time of the adoption of this Constitution, the aggregate indebtedness, bonded or floating, of any, town, county, taxing district or other municipality, including that which it has been or may be authorized to contract as herein provided, shall exceed the limit herein prescribed, then no such city or town shall be authorized or permitted to increase its indebtedness in an amount exceeding two per centum (2%), and no such county, taxing district or other municipality, in an amount exceeding one per centum (1%), in the aggregate upon the value of the taxable property therein, to be ascertained as herein provided, until the aggregate of its indebtedness shall have *147 been reduced below the limit herein fixed, and thereafter it shall not exceed the limit, unless in case of emergency, the public health or safety should so require. Nothing herein shall prevent the issue of renewal bonds, or bonds to fund the floating indebtedness of any city, town, county, taxing district or other municipality."
In the City of Winchester v. Nelson,
In Vaughn v. Corbin,
"The issuing of bonds to fund a floating debt adds nothing to the indebtedness of the city. It merely changes the form of the existing debt. The power to fund a floating indebtedness is as broad as the power to incur such indebtedness."
To same effect, see City of Covington v. O. F. Moore Co.,
The record indicates that the debt of $120,000 has been gradually created by reason of unusual expenses falling upon the city. To illustrate, the bridge over the Kentucky river, connecting the south side and the State Capitol with the main business portion of the city, became in a dangerous condition, and the public safety required that it be repaired at once, and this cost a large sum. Two of the main sewers fell in and the outfall sewer was not properly performing. The public needs required that these be put in order, and there were other like unusual expenses, in all amounting to a large sum. In addition, no proper levy was made to pay interest on the bond issues and provide a sinking fund. The record does not show that the debt was illegally created or that the city funds have been improperly expended. The debt is now largely represented by outstanding city warrants, bearing interest at 6 per cent. The bonds sold at par will lessen the interest on the debt, which cannot be paid by a levy made in one year. The council therefore did not exceed its authority in passing the ordinance providing for the bond issue and the injunction prayed should not have been granted.
Section 159 of the Constitution provides: "Whenever any city, town, county, taxing district or other municipality is authorized to contract an indebtedness, it shall be required, at the same time, to provide for the collection of an annual tax sufficient to pay the interest on said indebtedness, and to create a sinking fund for the payment of the principal thereof, within not more than forty years from the time of contracting the same."
Section 180 also provides: "Every act enacted by the general assembly, and every ordinance and resolution passed by any county, city, town, or municipal board or local legislative body, levying a tax, shall specify distinctly the purpose for which said tax is levied, and no tax levied and collected for one purpose shall ever be devoted to another purpose."
Under these provisions the council should annually make a separate levy sufficient to provide for the interest and sinking fund of each of its bond issues made since the adoption of the Constitution, and the money in each fund should be kept separate and not used for any other purpose. A separate levy to cover the general expenses of the city should be made annually, and this fund should only be expended for the purposes for which it was levied. A separate levy to pay the interest on the *149 bonds issued before the adoption of the Constitution should also be made and this fund should be kept separate and only used for that purpose. If new bonds are issued, then a levy to pay the interest and provide a sinking fund should be made annually and the fund should only be so applied.
By section 157 of the Constitution the tax rate for Frankfort may not be over $1 on each $100 of the taxable property therein if it has a population of 10,000, and it may not be over 75 cents on each $100 of taxable property if the population is under 10,000 "unless it should be necessary to enable such city . . . to pay the interest on, and provide a sinking fund for the extinction of indebtedness contracted before the adoption of this Constitution." By the terms of the section, the tax limit there provided does not include the levy necessary to pay the interest on and provide a sinking fund for the payment of any indebtedness contracted before the adoption of the Constitution. The city may make the necessary levy for this purpose, and in addition may make the necessary levy for other purposes, not exceeding the constitutional limit; for the city must maintain its existence and protect life and property and to this end may levy up to the constitutional limit when necessary. An issue is made as to whether the population is under or over 10,000; but no levy has been made; and the propriety of any levy when it is made will depend on whether it is warranted by the rule above indicated. This question was not presented in Moss v. Frankfort,
"The word 'indebtedness,' as used in Const. sec. 157, refers to indebtedness created by contract." O'Bryan v. Owensboro,
It does not include a liability imposed by law for what is done without right. German Bank v. Covington,
It was not the purpose of the Constitution to disable a municipality to perform its civic duties imposed on it by law and necessary to its existence.
By section 158 of the Constitution Frankfort could not incur indebtedness, including existing indebtedness, exceeding in the aggregate 5 per cent. "on the value of the taxable property therein;" but this is followed by the proviso that it at the time of the adoption of the Constitution, its indebtedness exceeded the limit prescribed, then it should not increase its indebtedness in an amount exceeding 2 per cent. of the taxable property therein. It is shown that Frankfort then had a bonded indebtedness of $308,000. It is also shown that in 1920 the taxable property of the city was about $6,000,000. This shows that the bonded indebtedness at the adoption of the Constitution was more than 5 per cent. of the taxable property, for the proof shows that Frankfort has grown steadily. So under the facts shown it must be presumed that $308,000 was more than 5 per cent. of the city's taxable property when the Constitution was adopted nearly forty years ago. This gave the city the right to the 7 per cent. limit at the time the Constitution was adopted. As the taxable property in the city is now $7,622,157, the bonded indebtedness $290,000, when added to the $120,000 here in controversy, will make the total within the limits provided by the Constitution as things then stood. The fact is, as shown by the record, that the city has not really on the whole increased its indebtedness. It has only changed the form of it by not observing the constitutional direction to keep the funds separate and apply each fund only to the purposes for which it was levied. The concluding words of section 158 were inserted to maintain municipal credit and aptly cover the situation presented here. Five per cent. of $7,622,157 is $381,107.85. This would make $18,892.15 of the proposed bond issue in excess of the 5 per cent. limit; but from the record it is clear that more than this much of the present indebtedness has been in existence since the Constitution was adopted and is the result of the city's then financial condition.
These rules are well settled and must be kept in mind:
1. The ordinance levying taxes must distinctly specify the purpose for which it is levied, and the money may not be applied to any other, leaving unpaid the purpose so specified. The provision of the Constitution is *151 self-executing, and any officer so knowingly misapplying the money is personally liable therefor.
2. The city may not become indebted in any year in excess of the revenue provided for the year, and any indebtedness so incurred is void.
3. The city may not become indebted more than 5 per cent. of the value of the taxable property therein; and though it was indebted more than 5 per cent. of the value of its taxable property when the Constitution was adopted, when part of this indebtedness is paid and the amount left is less than 5 per cent. it may not thereafter increase its indebtedness above 5 per cent., unless in an emergency the public health or safety should so require.
4. The tax levy limit in section 157 does not include a tax levied to pay interest and provide a sinking fund for the payment of bonds issued on a vote of the people since the adoption of the Constitution or on bonds then in existence or bonds issued in renewal thereof, but it does include a tax levied to pay interest or provide a sinking fund for such bonds as here are in controversy issued to fund a floating debt.
The judgment is reversed, and the cause is remanded for a judgment dismissing the petition and intervening petition with costs.
Whole court sitting.
Chief Justice THOMAS and Judges REES and DIETZMAN dissent.
Dissenting Opinion
In view of the importance of the question involved in this case, and since the majority opinion is rested upon some recent opinions of this court which, I believe, have placed an erroneous construction on sections 157 and 158 of the Constitution, I deem it necessary and proper to set forth the reasons for my dissent.
After fixing the maximum tax rate that may be levied by a municipality, section 157 of the Constitution provides that: "No county, city, town, taxing district, or other municipality, shall be authorized or permitted to become indebted, in any manner or for any purpose, to an amount exceeding, in any year, the income and revenue provided for such year, without the assent of two-thirds of the voters thereof, voting at an election to be held for that purpose; and any indebtedness contracted *152 in violation of this section shall be void. Nor shall such contract be enforceable by the person with whom made; nor shall such municipality ever be authorized to assume the same." Section 158 limits the aggregate indebtedness that may be incurred by a municipality.
The city of Frankfort has incurred a floating indebtedness of approximately $120,000, which the city council proposes to fund by issuing bonds extending over a period of 30 years. The city now has a bonded indebtedness of $290,000, $215,000 of which was created prior to the adoption of the present Constitution but which has been refunded. The assessed valuation of property in the city is $7,622,157, and under the 5 per cent. limitation contained in section 158 of the Constitution, the city may incur a bonded indebtedness of $381,107.
The principal question here involved is whether or not the city can issue any bonds to fund a floating indebtedness without a vote of the people. The majority opinion holds that it can, and further that the 5 per cent. limitation provided by section 158 of the Constitution does not apply to a floating indebtedness which was valid when created. The majority opinion is supported by some recent opinions hereinafter noticed, but is in direct conflict with a long line of decisions that have never been expressly overruled. The concluding words of section 158 of the Constitution are as follows: "Nothing herein shall prevent the issue of renewal bonds, or bonds to fund the floating indebtedness of any city, town, county, taxing district or other municipality." Does this provision apply to floating indebtedness incurred subsequent to the adoption of the Constitution, or does it apply only to floating indebtedness incurred prior thereto?
Section 3284, Kentucky Statutes, governing cities of the third class, provides: "Subject to the limitations imposed by the Constitution and this act, the council shall have the power to contract debts and to borrow money, and to issue the bonds of the city therefor, and to control the finances and the property of the city. The common council shall also have the power to issue bonds in renewal of any bonds theretofore lawfully issued, and to fund any floating indebtedness of the city lawfully contracted. No bonds of the city shall be sold below par." I do not find a similar provision in the charters of cities of other classes. There is a section of the statutes somewhat similar which applies to counties, being *153 section 1857 of the Statutes. That section reads, in part: "Power and authority is hereby granted to the court of claims of fiscal court of the several counties of this Commonwealth owing money or debts contracted in the construction, repair or building or remodeling of any courthouse, jail or other public building, or bridges or turnpikes, to fund such debt or any part of it, and to issue the bonds of such county for the purpose of taking up and cancelling such debts."
In McCrocklin v. Nelson County Fiscal Court,
Section 3284, quoted above, which authorizes councils of third class cities to issue bonds to fund any floating indebtedness of the city lawfully contracted, was also enacted in its present form a few months after the adoption of the present Constitution.
McCrocklin v. Nelson County Fiscal Court, supra, was before Judge Settle on a motion to reinstate an injunction. All members of the court sat with him on the hearing of the case and concurred in the conclusions expressed in the opinion, and the opinion was ordered to be officially reported. In Nelson County Fiscal Court v. McCrocklin,
In Buford v. Jessamine County,
The first McCrocklin case was decided on February 27, 1917, and the construction placed upon sections 157 and 158 of the Constitution and section 1857 of the Statutes remained undisturbed until the case of Vaughan v. City of Corbin,
In Wilson v. City of Covington,
In Wilson v. City of Covington,
In Davis v. City of Newport,
In Wilson v. Board of Education of City of Russellville,
In Rowland v. City of Paris,
All of the above cases cite Vaughn v. City of Corbin, but neither of the McCrocklin cases is referred to, either in the opinion in the Vaughn case or in the opinion in any case that has followed it.
In Baker v. Rockcastle County Court,
In King v. Christian County Board of Education,
The majority opinion is probably correct if the rule announced in. Vaughn v. City of Corbin is adhered to. However, I am of the opinion that that rule will lead to serious abuses which the framers of the Constitution clearly intended to prevent and should be repudiated, and the earlier rule announced in McCrocklin v. Nelson County Fiscal Court and approved in numerous later opinions, which I deem to be eminently sound, should be followed. Vested rights acquired subsequent to the decision in the Vaughn case would not be affected. "The general principle is that a decision of a court of supreme jurisdiction overruling a former decision is retrospective in its operation, *158 and the effect is not that the former decision is bad law, but that it never was the law. To this the courts have established the exception that where a constitutional or statute law has received a given construction by the courts of last resort, and contracts have been made and rights acquired under and in accordance with such construction, such contracts may not be invalidated nor vested rights acquired under them impaired by a change of construction made by a subsequent decision. . . . The true rule in such cases is held to be to give a change of judicial construction in respect to a statute the same effect in its operation on contracts and existing contract rights that would be given to a legislative repeal or amendment; that is to say, making it prospective but not retroactive." 7 Rawle C. L. 1010.
Section 157 of the Constitution plainly prohibits any indebtedness for any purpose beyond the revenues of the year, without a vote of the people. Section 158 places a limitation on the creation of indebtedness in the aggregate. The object of the first section was to protect the people from the improvidence of their officers, and of the second section to protect them from their own improvidence. Under the rule of Vaughn v. City of Corbin, followed in the majority opinion, the protection intended to be afforded by these two sections of the Constitution vanishes into thin air. A floating indebtedness in any amount may be created and then funded over a long period of years. Public officers desiring to curry favor with the public can levy a low rate of taxation and expend each year the full amount that could have been raised by the highest permitted rate, and not being required to carry, as debt to the next year, the debt created in the preceding year in excess of what is collected, they can, after a period of years, fund the debt thus accumulated and then renew the process, and so ad infinitum. Eventually the taxpayers will find themselves burdened with a huge bonded debt in the creation of which they had no voice The evils that will result are thus pictured in the opinion in McCrocklin v Nelson County Fiscal Court, supra:
"If, however, in good faith, a county does, in anticipation of its proper revenue, create debts in excess of what it collects, this surplus debt must be carried as a debt to the next year, and succeeding years until paid, and must be taken account of as an *159 indebtedness of that year, and succeeding years, until paid in exactly the same manner as if the carried-over debt was created in the year to which it was carried. This is clearly the meaning of section 157, Constitution, and is so declared in Southern Bitulithic Co. v. De Treville et al. (
156 Ky. 513 ,161 S.W. 560 ) and County Board of Education v. Board of Trustees Hopkinsville Public School (154 Ky. 309 ,157 S.W. 697 ), supra; nor has there been decided in this jurisdiction any case that will be found in conflict with these. It is also true that if a county has a surplus left at the end of any year, after paying all of its debts, it becomes in the next year an asset and may be counted as a part of the county's revenue of the next year."Under this constitutional rule there is no authority for fiscal courts to issue bonds payable in 2, 10, or 20 years, because a debt created in one year must be paid in that year, or if not, in the next year. Fiscal courts are not empowered to issue or sell bonds except in obedience to a vote of the people obtained in the manner provided by section 157, Constitution, or to fund outstanding debts by the issue or sale of bonds, without a vote by the people as provided by that section. The case of Bardstown Louisville Turnpike Co. v. Nelson County (
117 Ky. 674 ,78 S.W. 851 , 25 Ky. Law Rep. 1900), supra, in no sense supports defendants' contention that the fiscal court had the power to issue the bonds it sold Williams, to the extent, at least, of the $34,000 left of the indebtedness incurred by Nelson county in purchasing the turnpikes, for a reading of the opinion will show that this is a mistake. Indeed, the opinion holds to the contrary, for it expressly declares that the issue and sale of bonds by the county to meet or carry the indebtedness incurred in acquiring the turnpikes would not be authorized, in view of the defeat at the election of the proposition submitting that question to the vote of the people. To permit the fiscal court to issue bonds would be to substitute that court for the people and give the fiscal court authority that is confided to the people alone. The fiscal court has no more power to issue bonds in the manner here attempted than has the Legislature; and in Stanley v. Townsend,170 Ky. 833 *160186 S.W. 941 , it was held that the Legislature was without such power. If a fiscal court may issue bonds to take care of a deficit in one year, it can do the same the next year and so on, as long as it may choose, without limit. The result would be that, in the course of a few years, counties would have large bonded debts, perhaps as much as $50,000 or $100,000 without the sanction of a vote of the people. It follows from what has been said that the fiscal court of Nelson county county was without authority to issue the $55,000 of bonds sold Williams. Section 1857, Kentucky Statutes, is practically obsolete. Being enacted in March, 1892, only six months after the present Constitution of the state was adopted, its only object was to permit counties to issue bonds to take care of floating debts created before the adoption of the Constitution. Section 1852 confers authority on the fiscal court now to issue bonds or refund a bonded debt voted by the people. The construction of the statute contended for by defendant's counsel would permit the fiscal court and not the people to create a bonded debt, in plain violation of the Constitution. If the sections of the statute, supra, were capable of any other construction, they would have to be held unconstitutional, because violative of section 157 of the Constitution."
If this court continues to follow the rule announced in the Vaughn case, the taxpayers of municipalities will have no protection from the creation of bonded debts in huge amounts. As aptly expressed in appellees' brief: "Then there is no remedy against the rolling up of annual deficits into large debts to be later transmuted into securities payable perhaps a generation hence. Then, by their negligence or wilfulness in failing to live within their income, taxing bodies can do that which they can not openly do without the consent of those taxed. Then, our current expenditures — not cost of permanent improvements but of today's living — can by the few, be loaded on the backs of the children and the children's children of the many. Like the prophet, they will lament: 'Our fathers have sinned and are not; and we have borne their iniquities.' " In the lament of another prophet, "The fathers have eaten sour grapes, and the children's teeth are set on edge." *161
I am of the opinion that the judgment of the lower court should be affirmed. I am authorized to state that Chief Justice THOMAS and Judge DIETZMAN concur in this dissent.