*1 Graham v. al. *2 March 1939.
Argued Before C. J., Kephart, Schaffer, Maxey, Stern Drew, Linn, JJ. Barnes, & of Coham Schumacher, Lloyd Schumacher, J. plaintiff. N. Hermam with him Solicitor,
Joseph Sharfsin, As- Ernest Lowengrund, Coe Farrier and G. Schwarts, for defendants. sistant Solicitors, T. Robert McCrachen, Morris inter- Wolf venors. *3 & for Hepburn
Edward B. and Hodge, Norris, Jr., Rule 61. intervenor, 1939: March 24,
Per Curiam, in In order to the of its effort Philadelphia aid too long delayed, the has been budget, to balance which later by the following order, we make followed on the various questions our views opinion giving an was said We wish to what propounded. emphasize not responsible at oral that this court is argument in to the be employed the wisdom of the or plan policy Our the for the fiscal 1939. sole balancing budget year questions on the pass legal involved, is to duty do. we now to sell as- has the power
We hold that the City under the contract operating the rentals payable sign Company; Gas Works Philadelphia or lease with of does not constitute increase that the transaction sections IX, Article debt in contravention of that is not nec- Pennsylvania; it of the Constitution Public Com- Utility to secure the essary approval or the contract proposed the lease contract mission to Philadelphia Corporation; to sell to current revenues to from to contract pay has power in occasioned assigned the rentals so sold deficit any act rates by any Assembly regulating gas Such either a commission. current directly through be to such deficits obtained pay may by spe- revenues City. cial tax be levied future councils of the of the trans- empowered apply all the specified action now before us to purposes the record before court. now
The City does not this transaction it and cannot under assume direct indirect li- ability the nature of a debt that might assessed either against or the of the revenues property, than the deficit other result possible might future from current legislation, paid revenues raised tax. by the special
theAs above answers all questions necessary constitutional legal validity trans- we do not deem action, necessary to decide whether the rates for City-owned from the gas are Works subject to regulation by Pennsylvania Public Utility or whether the General Commission, Assembly Commonwealth Pennsylvania during period can, of itself assignment, regulate gov- appoint ernmental these agency regulate rates.
Bill dismissed. *4 by
Opinion May Mr. 8, 1939: Chief Justice Kephart, owner in of City Philadelphia of fee the Gas free clear of encumbrances. In Works, 1897, the Works leased for a of years were term thirty United Gas Improvement Company under an operating On a agreement. January 1, 1928, lease new with the same became corporation subject effective, to termina- on certain on December conditions, 31, tion, 1937, any ten-year at thereafter. lease period This was as- United signed by the Gas Improvement to Company the Philadelphia Gas Works Company with the consent of City. the The lease for provided an annual rental to to City the paid to $4,200,000, subject the terms to January 1, A lease from contract. new the same containing agreed on, December was 31, 1947, rental provision. City for the budget time of its
At the preparing “floating accrued as an $39,000,000 approximately owed outstanding capital was $5,625,428 of which deficit,” this about Of sum interest thereon. mandamuses with well within capital charges represents $5,000,000 bemay authority, under valid which created debt limit, the limitation notwithstanding bonds, refunded City (Common- borrowing capacity. City’s general on the To retire 321.) wealth ex rel. v. Cannon, budget, the current balance floating deficit, it from received by rentals to be proposes assign to Gas Works lease. the 1938 gas Council amended On February 27, 1939, lease fix the termination so lease-agreement as to the rentals would term for of the end of the December 1958. On later than or no be assigned, submitted Corporation March 13th, assign- for the offering $50,000,000 modified proposal, covering period approximately ment of the rentals nec- March longer if years seventeen $73,500,000 return of produce aggregate essary due interest at on rentals with Corporation, 4% of the City All the rights unpaid any year. and the is to the lease are to be assigned, encumber Gas Works lease, not agree of, to dispose insurance received Any time. during applied improvement are to be the. months, period paid
Gas Works within six security as additional for the Philadelphia Corporation return. aggregate if, “by legislative modified states proposal rates,” the amount received regulation gas shall be August on 1, 1955, Philadelphia Corporation *5 shall special less than $73,500,000, levy tax, City 518 payment therefrom to the all the revenue
appropriating deficiency. $39,000,000, must appropriate approximately of the necessary, or as much thereof may of the accrued City’s of the to current ex- applied deficit. balance is for budgetary for the penses year 1939, purposes in 1940. it
While is the ulti- this, substance, proposal, may modified mately be within the confines of the structure above indicated. As the is about to accept gen- for the erally, parties responsible performance of the assignment, lease consented to it is de- having all sirous that raised be settled. legal questions taxpayer, invoking original juris- Petitioner, diction of this enjoin seeks to Court, as- on constitutional signment and other grounds, princi- transaction pally would effect an increase municipal indebtedness beyond limitation of sec- tion and in violation of section Article IX. The Philadelphia Citizens obtained Committee, having leave intervene, supported constitutionality as- signment in part and opposed it On March part. this Court dismissed 24, 1939, petitioner’s bill for the reasons which will now more discussed. fully
The Philadelphia Gas Works owned munici pality in proprietary business capacity: Philadel phia Gas Works Co. 331 Pa. Philadelphia, 321, 344; Baily Wheeler Philadelphia, et al. v. Philadelphia et Pa. al., Western 338, 355; Saving Fund Society, Philadelphia et etc., Pa. al., Ibid. 185. The Act of March 2 Sm. L. 11, 1789, sec tion 11, provides may “grant, bargain, alien and sell, convey, mortgage, and en pledge, charge or demise and cumber, dispose of” its goods, chattels, tenements and lands, hereditaments. The Act is still in force. Wentz v.
citing Philadelphia v. Brabender, 201 Pa. 574; Com-
*6
in Williams
And
Pa. 373.
monwealth v. Walton,
held that
it was
276-277,
Petitioner
contends,
constitu-
City’s
the
beyond
indebtedness
create an
will
also
the same
urge
The intervenors
limitation.
tional
as any part
far
the
transaction
so
result as to
current expenses.
applied
of the proceeds is
to
future rentals
selling
the
argued
City by
It is
it
entitled,
to
is now
future
which
income
disposing
cre-
thereby
on futures
borrowing
and is,
effect,
of the Constitu-
meaning
debt. A debt within the
a
ating
pay
undertaken “to
an
obligation
tion is created when
received in the present”:
in the
consideration
future for
It
imports
present
Keller v.
In v. Earle et 325 Pa. considered Kelley al., 337, we entered the State for a term by long lease into alleged implication create debt was either pres- or in future. We held that transaction ently in- nor was indebtedness debt, did not create a State,, where the creditors the trustee. curred not take could Authority the bondholders look State, Authority property the of the State for fund other assets general Au Allegheny County in Tranter v. bonds. And, it said at 84: “We was p. thority the debt of the obligation cannot county, consider county agreed pay debt which has unless is a *7 out at can It pointed page or be was required pay.” the upon 85: “The bondholders cannot call treas public or municipal property uries to contribute; county no for the can be taken the because bondholders have debt, payment to look to fund for raised agreed special in the manner A provided.” debt, within the therefore, constitutional definition does not contemplate possible Act or obligations of God accruing by possible laws to in the future. It an passed does exist contemplate presently enforceable the obligation against ing prop erty of the funds an ob municipality generally, enforceable in the ligation presently existing future. In the event aof default of the payment any rentals, of of no the real or property City, can be personal, taken and interest. principal The default of the the Gas Company, Works not the lessee, munci and the pality, City assumes obligation no liability therefor. Under the paragraph 3(e), assignee has right to recover of such any part defaulted sums from general the funds or property of the from its gen eral tax attachment levy, or sale of city any prop the erty, including Gas Works. Nor is the City required out pay of any special tax, any deficit arising this manner.1 1 Paragraph 3(e) proposal expressly of states: right Corporation “The of to receive the aforesaid sum of
$73,300,000, plus Interest, solely shall pro- be restricted to the operation ceeds proceeds of the Gas Works and the of insurance thereon or condemnation thereof and the of special provided tax paragraph 3(d); the aforesaid Corporation right pari will have no to recover said of above, stated definitely, noted must be It rentals, of gas an transaction indebtedness increase of constitute not does of 8 and 10, Sections Article IN, of in contravention Yet the proposed Pennsylvania. the Constitution to re- assignee of the right evidence contract does the terms under year $4,200,000 per ceive sum of the City between agreement lease and conditions Com- Works Philadelphia and the obligation of Philadelphia and the City pany, required as shall be its part such acts on to perform of such for the payment provide under that contract in no But, assignee. annual rentals sum aggregate for the a guarantor sense $73,500,000. as follows: reads 3(d) proposal, Section reg- reason legislative If on August 1, 1955, by “(d) received amounts theretofore ulation gas rates, *8 Gas Works from the Corporation the by from the opera- from the City Company and/or and/or under the aforesaid paragraph tion of the Gas Works from the the entitled received plus amounts 3(c), said sources twelve months shall during succeeding, the the less than the aggregate $73,500,000, plus Interest, tax to City (1) levy special provide will forthwith of such out Corporation deficiency the payment irrevocably the (2) of current revenues of revenues, by all received appropriate payment the from such tax.” City
The
this subsection does not
its
pledge
gen-
City by
obliga-
to meet this contingent
eral funds or property
tax
The
and there-
City promises
levy special
tion.
deficiency.
create a
fund for the
of the
special
payment
by
against
of action
expressly
right
has
Corporation
clearly
or
of the
This
property
City.
position
funds
any
City
general
property
or
sums
of
from
funds
general
any property
levy
attachment or sale
tax
of
of
Oity, including Works.
Lesser
case from
v. Warren
present
distinguishes
et
237 Pa.
Brown et al. v.
501;
Boro.,
Corry
al.,
of
Mc
175 Pa.
McKinnon v.
225 Pa.
528;
Mertz,
85;
523 annum, of $4,200,000 per rental normal theAt entirely realized should assignee by sum required period. prescribed within the 3(d) mind, subsection considerations in these
Bearing
to a present
rise
give
to
be construed
possibly
cannot
existing
create a presently
to
liability
If
observation:
force of this
To illustrate
debt.
con-
within
were solvent
Philadelphia
in-
incur a bonded
and wished to
meaning,
stitutional
li-
of its assets
a statement
making
debtedness,
any figure represent-
unable
list
would be
it
abilities,
relating
proposal
clause of the
its
under this
liability
ing
liability
The mere
of future
possibility
a deficit.
legislation
enacted,
may
arise
reason
a
does not create
contingent,
pres-
so remote and
that it
otherwise,
This
for if
were
ent debt.
is apparent,
municipality
indebtedness of a
every authorized
future
subject
possibility
to be considered
have
from the municipality a
enactment,
taking
legislative
a
of its
diverting
prop-
its
part
property,
portion
This
lowering
to uses not
assessments.
erty
taxable,
that such
cannot affect
contingencies
Court has held
Duane v.
of bonds issued or authorized:
validity
et
out
of
meaning
indebtedness
the Constitution.
within
v.
325 Pa.
Tranter v.
337;
See Kelley
Earle,
Allegheny
316
Nat’l Bank v.
65;
Pa.
Athens
County Authority,
303 Pa.
Jackson v. Conneautville
Ridgebury Twp.,
479;
Pa.
Wade
Boro Sch.
280
et al. Oakmont
v.
Dist.,
165 Pa.
Borough
Erie’s
91
479; City
Appeal,
Pa. 398. The
under subsection
undertaking
City
incurring
of an
distinguished
3(d)
fixed
in the
obligation to
sum
future
pay
an
not
until
though
payable
create
immediate
debt,
future
Here there
at all
obligation
date.
will
no
until
the remote
it
never oc
may
contingency occurs;
cur. A comparison of this situation
with
situations
involved
Lesser Warren
The case of Keller v. Scranton, likewise distinguishable. There it held was that assump- tion municipality of an obligation to pay unliqui- dated damages owners property abutting a was a debt in the proposed viaduct, constitutional sense. In that case the court found as that below a fact pe- cuniary damage would result, approxi- was able with mate amount to hold that certainty consti- tutional limitation would be exceeded. In the present case there is not only no that certainty obligation will but on the it arise, contrary, highly improbable arise. will
Petitioner concedes that if the transaction does not create debt, may apply proceeds beneficial to use, whatsoever, its inhabitants. The inter- contend venors, however, part of the assignment may current applied expenses. is the This on principal ground their attack the modi- fied proposal. *11 Charter Act of June
Intervenors that the suggest P. L. use of 581, implication, prevents 1919, 25, for current intimating require- proceeds expenses, of a pay-as-you-go policy. ment municipality The Charter Act not contain to limit provision does from restrict the sale application receipts corporate property by municipality.
As this Court in said Woodward Philadelphia, XVIII Article of the Charter com- 80, supplies Act all the considerations for a com- prehensively necessary plete of the are municipal budget. Receipts placed in three categories: from “(a) receipts taxation; (b) money proposed be borrowed and (c) receipts from other sources than taxation and loans, hereinafter designated as miscellaneous It receipts.” is clear this Article makes the the sale of municipal assets fall into the category of receipts.” “miscellaneous The use of the word “current receipts” the last sen- tence of the first of Section 1 paragraph of the Article that (providing Mayor’s statement shall indicate “which liabilities expenditures should be met from current receipts be met should from loan funds,”) not will support construction contended for that the legislature intended current only from receipts taxation be available for current ex- penses. It is also contended that this Court Wood- ward v. used Philadelphia, supra, the words “receipts” and “revenue” synonymously therefore “mis- cellaneous receipts” means “miscellaneous revenues” receipts from taxation. If “miscellaneous re- receipts” fers to receipts from taxation,-there would but two classes of receipts available for budget purposes. The legislature separated “miscellaneous receipts” from “re- ceipts taxation.” in the Furthermore, passage quoted by intervenors from the Woodward case, term “revenue” used was only with reference to receipts from taxation. etc. Widows, Corporation case of Relief purchase holding Pa. Philadelphia, applied not be could Bridge River Delaware of the
price here. controlling not expenses current outstanding to repay obligated was There erection for the incurred bonded indebtedness its sale. the proceeds with capital asset, bridge, of May Act here presented. such situation No of May 28, the Act amended L. P. not apply. does L. 1010, P. barrier legal other legislative There is *12 and there expenses, current these use of be applied. so they may that holding authority regarded been always Works have from the Gas rentals for current expenses. available receipts, as miscellaneous Pa. held 313 we 158, 173, City, In v. Lancaster Shirk from the apply receipts opera- may a municipality that legitimate purpose. If, to any tion of its water works for cur- be used may rentals themselves therefore, from the which assignment, the proceeds rent expenses, for the same purpose. are available represent the rentals, urged by petitioner Another objection 3(d) proposal purports that Section levy spe- future Councils of to bind referred cial upon happening contingency tax that taxation is a argued governmental to above. It proprietary capacity function in a governmental itself to validly perform cannot bind cites cases future. Petitioner from other act in the taxing that future cannot jurisdictions,2 holding power to bind successors. legislative be exercised so as presently in other Whatever be the rule it has been states, may jurisdiction in legisla- established this positively enter transactions or agreements tive bodies may into 2 Westminster, Westminster Water Co. 98 Md. 56 Atl. Commission, Wiley Highway Billeter Ky. 15, & State 203 261 Court, Wayne County S. W. Davis 38 18 W. Va. S. E. 373. may require which their successors
binding upon future.3 of a tax levying in is acting Works, in with Gas dealing
The City, relating thereto and its contracts capacity a business v. Phila- Baily future Councils: upon are binding illustrations many 594. There are so Pa. delphia, enumerate them cases that of this rule reported is unques- But Works superfluous. held that ex- and we have public enterprise tionably such business municipal on or about penditures Lan- (see can be met taxation Shirk v. improvements therefrom 158, 169) just receipts caster governmental can devoted to current purposes. electric works, sewerage systems, water
gas works, other a munici- business light plants enterprises if the self-sustaining. need not be Therefore pality tax monies validly appropriate expenses may enter the effect may into contracts enterprises, rise tax give be to may necessity levy future Councils. question remaining
The last the State Pub- whether lic Commission must the lease and the Utility approve The Act of P. L. Sec- assignment. May 28, 1937, *13 tion 911, provides:
“No contract or agreement any between public utility and shall municipal corporation be valid unless any filed with the Commission at least thirty days prior to its effective date: That notice Provided, upon 3 Allegheny County Authority, See Tranter v. 65; 316 Pa. Kelley Earle, 337; v. and see Commonwealth ex rel. v. 325 Pa. Pittsburgh, 496, 507, 510; Select and Common Councils 34 Pa. Ohlinger Twp. al., et al. v. Maiden Creek et 289, 293; 312 Pa. Allegheny County, ex rel. v. Commonwealth Commr’s 32 Pa. Lehigh Navigation Company’s Appeal, 218; Coal & 360; 112 Pa. Realty Harrisburg, Investors Co. v. Superior 26, 40; 82 Pa. Ct. Douglas McLean, v. Superior 9, 12; Commonwealth ex 25 Pa. Ct. Allegheny, rel. Commr’s 277, 290; Commonwealth ex 37 Pa. al., 400; Morgan Commonwealth, v. Perkins rel. et 43 Pa. Pa. 456. concerned, utility and public authorities,
municipal effective date to the prior may, the Commission to deter- proceedings institute agreement, contract or other or matter any legality, reasonableness, mine the the institution of Upon thereof. affecting validity shall not agreement such contract such proceedings, its grants approval until the Commission be effective thereof ...”
Section 920 provides: authority shall
“The Commission
have power
revise, upon
fair, reasonable, andi
vary, reform,
or conditions
any obligations,
terms,
equitable basis,
hereafter
entered into
contract heretofore or
of any
.
.
any
.
cor-
utility
municipal
between
public
embrace or concern a
bene-
public right,
poration,
franchise,
grant
thereof,
fit, privilege, duty,
affected or concerned
in-
or are otherwise
with a public
terest and the
well
Commonwealth.”
general
being
The
lease and contract of
are
not within these sections.
lease is
operating
(Phila,.
Works v. Phila. et
agreement
al.,
and the
is a
of rent
proposed assignment
321, 344),
sale
als therefrom.
did not
intend
legislature
every
contract
municipality
public
between
utility
subjected
approval
Commission. The
of the Commission to revise such'
power
contracts
limited to matters
Pas
jurisdiction:
within
Citizens
Co. v. Public Service
senger Ry.
271 Pa.
Commission,
New Street
Co. v. Public Service
39;
Bridge
Commis
include right could not revise March P. L. section 1), par- these agreements lease in- may subsequently ticulars. far the legislature How ex- we limitations, vade this under constitutional field, leave pressly open. our previous
For the reasons reaffirm stated, above we filed March the bill. dismissing order, 24,1939, Vrlinic al.
Raynovic, Appellant,