6 A.2d 78 | Pa. | 1939
Lead Opinion
In order to aid the City of Philadelphia in its effort to balance the budget, which has been too long delayed, we make the following order, to be followed later by an opinion giving our views on the various questions propounded. We wish to emphasize what was said at oral argument that this court is not responsible for the wisdom of the plan or the policy to be employed in balancing the budget for the fiscal year 1939. Our sole duty is to pass on the legal questions involved, which we now do.
We hold that the City has the power to sell and assign the rentals payable under the operating contract or lease with the Philadelphia Gas Works Company; that the transaction does not constitute an increase of debt in contravention of Article IX, sections 8 and 10 of the Constitution of Pennsylvania; that it is not necessary to secure the approval of the Public Utility Commission to the lease contract or the proposed contract to sell to the Philadelphia Corporation; that the City has the power to contract to pay from current revenues any deficit in the rentals so sold or assigned occasioned *516 by any act of the Assembly regulating rates for gas either directly or through a commission. Such current revenues to pay such deficits may be obtained by a special tax to be levied by future councils of the City. The City is empowered to apply the proceeds of the transaction now before us to all the purposes specified in the record now before the court.
The City of Philadelphia does not by this transaction and cannot under it assume any direct or indirect liability in the nature of a debt that might be assessed against either the property, or the revenues of the City, other than the possible deficit that might result from future legislation, to be paid from current revenues raised by the special tax.
As the above answers all questions necessary to the constitutional and legal validity of the proposed transaction, we do not deem it necessary to decide whether the rates for gas from the City-owned Gas Works are subject to regulation by the Pennsylvania Public Utility Commission, or whether the General Assembly of the Commonwealth of Pennsylvania can, during the period of the assignment, of itself regulate or appoint a governmental agency to regulate these rates.
Bill dismissed.
Addendum
The City of Philadelphia is owner in fee of the Gas Works, free and clear of any encumbrances. In 1897, the Works were leased for a term of thirty years to the United Gas Improvement Company under an operating agreement. On January 1, 1928, a new lease with the same corporation became effective, subject to termination, on certain conditions, on December 31, 1937, or at any ten-year period thereafter. This lease was assigned by the United Gas Improvement Company to the Philadelphia Gas Works Company with the consent of the City. The lease provided for an annual rental to be paid to the City of $4,200,000, subject to the terms *517 of the contract. A new lease from January 1, 1938, to December 31, 1947, was agreed on, containing the same rental provision.
At the time of preparing its budget for 1939, the City owed approximately $39,000,000 as an accrued "floating deficit," of which $5,625,428 was for outstanding capital mandamuses with interest thereon. Of this sum about $5,000,000 represents capital charges well within the debt limit, created under valid authority, which may be refunded in City bonds, notwithstanding the limitation on the City's general borrowing capacity.(Commonwealth ex rel. v. Cannon,
On February 27, 1939, Council amended the 1938 gas lease-agreement so as to fix the termination of the lease as of the end of the term for which the rentals would be assigned, or no later than December 31, 1958. On March 13th, the Philadelphia Corporation submitted a modified proposal, offering $50,000,000 for the assignment of the rentals covering a period of approximately seventeen years from March 15, 1939, or longer if necessary to produce an aggregate return of $73,500,000 to the Corporation, with interest at 4% on rentals due and unpaid for any year. All the rights of the City under the lease are to be assigned, and the City is to agree not to dispose of, lease, or encumber the Gas Works during that time. Any insurance proceeds received by the City are to be applied to the improvement of the Gas Works within a period of six months, or paid to the Philadelphia Corporation as additional security for the payment of the aggregate return.
The modified proposal states that if, "by legislative regulation of gas rates," the amount received by the Philadelphia Corporation on August 1, 1955, shall be less than $73,500,000, the City shall levy a special tax, *518 appropriating all the revenue therefrom to the payment of the deficiency.
The City must appropriate approximately $39,000,000, or as much thereof as may be necessary, of the proceeds of the assignment to the payment of the City's accrued deficit. The balance is to be applied to current expenses for the year 1939, and for budgetary purposes in 1940.
While this, in substance, is the proposal, it may ultimately be modified within the confines of the structure above indicated. As the City is about to accept it generally, the parties responsible for the performance of the lease having consented to the assignment, it is desirous that all legal questions raised be settled.
Petitioner, a taxpayer, invoking the original jurisdiction of this Court, seeks to enjoin the proposed assignment on constitutional and other grounds, principally that the transaction would effect an increase of the municipal indebtedness beyond the limitation of section 8, and in violation of section 10, of Article IX. The Philadelphia Citizens Committee, having obtained leave to intervene, supported the constitutionality of the assignment in part and opposed it in part. On March 24, 1939, this Court dismissed petitioner's bill for the reasons which will be now more fully discussed.
The Philadelphia Gas Works is owned by the municipality in its proprietary or business capacity: Philadelphia Gas WorksCo. v. Philadelphia,
Petitioner contends, however, that the transaction will create an indebtedness beyond the City's constitutional limitation. The intervenors also urge the same result as to the proposed transaction in so far as any part of the proceeds is applied to current expenses.
It is argued that the City by selling the future rentals is disposing of future income to which it is now entitled, and is, in effect, borrowing on futures and thereby creating a debt. A debt within the meaning of the Constitution is created when an obligation is undertaken "to pay in the future for consideration received in the present": Keller v. Scranton,
In Kelley v. Earle et al.,
It must be noted definitely, as stated above, that the proposed transaction is an assignment of gas rentals, which does not constitute an increase of indebtedness in contravention of Article IX, Sections 8 and 10, of the Constitution of Pennsylvania. Yet the proposed contract does evidence the right of the assignee to receive the sum of $4,200,000 per year under the terms and conditions of the lease agreement between the City of Philadelphia and the Philadelphia Gas Works Company, and the City of Philadelphia is under obligation to perform such acts on its part as shall be required under that contract to provide for the payment of such annual rentals to the assignee. But, the City is in no sense a guarantor for the payment of the aggregate sum of $73,500,000.
Section 3(d) of the proposal, reads as follows: "(d) If on August 1, 1955, by reason of legislative regulation of gasrates, the amounts theretofore received by the Corporation from the Philadelphia Gas Works Company and/or from the City and/or from the operation of the Gas Works under the aforesaid paragraph 3(c), plus the amounts entitled to be received from the said sources during the succeeding twelve months shall aggregate less than $73,500,000, plus the Interest, the City will forthwith (1) levy a special tax to provide for the payment to the Corporation of such deficiency out of current revenues of the City, and (2) irrevocably appropriate to such payment all revenues received by the City from such tax."
The City by this subsection does not pledge its general funds or property to meet this contingent obligation. The City promises to levy a special tax and thereby create a special fund for the payment of the deficiency. The Corporation expressly has no right of action against any property or funds of the City. This position clearly *522
distinguishes the present case from Lesser v. Warren Boro.,
The liability of the City under paragraph 3(d) can arise only if there is a deficit, brought about by legislative regulation of the rates, thereby reducing the rentals to the City. The remoteness of the contingency is obvious. The legislature has never regulated the rates of this municipally-owned gas works; the Public Service Commission was expressly denied the right to do so under previously existing legislation, (Barnes LaundryCo. v. Pittsburgh et al.,
At the normal rental of $4,200,000 per annum, the sum required by the assignee should be realized entirely within the prescribed period.
Bearing these considerations in mind, subsection 3(d) cannot possibly be construed to give rise to a present liability of the City or to create a presently existing debt. To illustrate the force of this observation: If the City of Philadelphia were solvent within the constitutional meaning, and wished to incur a bonded indebtedness, in making a statement of its assets and liabilities, it would be unable to list any figure representing its liability under this clause of the proposal relating to a deficit. The mere possibility of future liability to arise by reason of legislation that may be enacted, is so remote and contingent, that it does not create a present debt. This is apparent, for if it were otherwise, every authorized indebtedness of a municipality would have to be considered subject to the possibility of future legislative enactment, taking from the municipality a part of its property, diverting a portion of its property to uses not taxable, or lowering assessments. This Court has held that such contingencies cannot affect the validity of bonds issued or authorized: Duane v.Philadelphia et al.,
The City has no present obligation under this clause. If the contingent deficiency thus explained exists on August 1, 1955, its payment is to be provided for by a special tax, — current revenue. This Court has repeatedly held that the incurring of an obligation to be paid *524
out of current revenues does not effect an increase in indebtedness within the meaning of the Constitution. SeeKelley v. Earle,
The case of Keller v. Scranton,
Petitioner concedes that if the transaction does not create a debt, the City may apply the proceeds to any use, whatsoever, beneficial to its inhabitants. The intervenors, however, contend that no part of the proceeds of the assignment may be applied to current expenses. This is the principal ground of their attack on the modified proposal. *525
Intervenors suggest that the City Charter Act of June 25, 1919, P. L. 581, by implication, prevents the use of the proceeds for current expenses, intimating a requirement for the municipality of a pay-as-you-go policy. The Charter Act does not contain any provision to limit or restrict the application of receipts from the sale of corporate property by a municipality.
As this Court said in Woodward v. Philadelphia,
The case of Corporation for the Relief of Widows, etc. v.Philadelphia,
There is no legislative or other legal barrier to the use of these proceeds for current expenses, and there is authority for holding that they may be so applied. The rentals from the Gas Works have always been regarded as miscellaneous receipts, available for current expenses. In Shirk v. Lancaster City,
Another objection urged by petitioner to the proposed assignment is that Section 3(d) of the proposal purports to bind future Councils of Philadelphia to levy a special tax upon the happening of the contingency referred to above. It is argued that taxation is a governmental function and that the City in its proprietary capacity cannot validly bind itself to perform a governmental act in the future. Petitioner cites cases from other jurisdictions,2 holding that future taxing power cannot be presently exercised so as to bind legislative successors.
Whatever may be the rule in other states, it has been positively established in this jurisdiction that legislative bodies may enter into transactions or agreements *527 binding upon their successors which may require the levying of a tax in the future.3
The City, in dealing with the Gas Works, is acting in a business capacity and its contracts relating thereto are binding upon future City Councils: Baily v. Philadelphia,
The last question remaining is whether the State Public Utility Commission must approve the lease and the assignment. The Act of May 28, 1937, P. L. 1053, Section 911, provides:
"No contract or agreement between any public utility and any municipal corporation shall be valid unless filed with the Commission at least thirty days prior to its effective date: Provided, That upon notice to the *528 municipal authorities, and the public utility concerned, the Commission may, prior to the effective date of such contract or agreement, institute proceedings to determine the reasonableness, legality, or any other matter affecting the validity thereof. Upon the institution of such proceedings, such contract or agreement shall not be effective until the Commission grants its approval thereof . . ."
Section 920 provides:
"The Commission shall have power and authority to vary, reform, or revise, upon a fair, reasonable, and equitable basis, any obligations, terms, or conditions of any contract heretofore or hereafter entered into between any public utility and any . . . municipal corporation, which embrace or concern a public right, benefit, privilege, duty, or franchise, or the grant thereof, or are otherwise affected or concerned with a public interest and the general well being of the Commonwealth."
The proposed lease and contract of assignment are not within these sections. The lease is an operating agreement (Phila. GasWorks v. Phila. et al.,
For the reasons above stated, we reaffirm our previous order, filed March 24, 1939, dismissing the bill.
"The right of the Corporation to receive the aforesaid sum of $73,500,000, plus the Interest, shall be restricted solely to the proceeds from the operation of the Gas Works and the proceeds of insurance thereon or condemnation thereof and the proceeds of the special tax provided for by the aforesaid paragraph 3(d); and the Corporation will have no right torecover any part of said sums from the general funds orproperty of the City or from its general tax levy or byattachment or sale of any property of the City, including theGas Works.