Thе plaintiff appeals from a judgment of the Clay County Circuit Court dismissing his bill for an injunction after a demurrer thereto had been sustained and he had declined to plead further. Owing to the public importance of -the questions involved and the necessity for an early decision thereof,-the appeal has been advanced -on our docket and the parties have waived oral argument and submitted the cause on briefs. The respondent is a public water supply district organized under Laws 1935, page 327, and proposes to issue certain bonds as authorized thereby. The appellant, a landowner in the district, seeks to enjoin the issuance of the bonds on the grounds: that the act is unconstitutional in several particulars; that the resolution of the board of directors providing for.the issuance of the bonds violates the Constitution;.and that said resolution is invalid because it conflicts with-the act.
The act is long and we shall not attempt to state its provisions here, but will review them as.necessary in.the.course of the opinion. Suffice it to say it provides for the organization and incorporation of Public Water Supply Districts-in counties now or hereafter having a population of 25,000 inhabitants or more, by proceedings in the circuit court (much like the proceedings for the organization of drainage and sewer districts) for the purpose of furnishing to the public pure and wholesome water for all needful purposes from common sources of supply.
*348 I. The first assignment in the appellant’s brief is that the aet violatеs Section 28, Article IY of the Constitution of Missouri because it contains more than one subject, and the subject matter thereof is not clearly expressed in the title. The title is as follows:' “An Act to provide for the incorporation, organization and management of public corporations in counties which now have, or may hereafter have, a population of twenty-five thousand inhabitants or more to be known as public water supply districts; for the acquisition or construction by said districts of waterworks for public and private use; for the enlargement, improvement, and maintenance of said works; for the acquisition of all property necessary therefor; for the raising of funds to carry into effect purposes of this act; for providing for fire hydrants; and for distribution of water by said districts.”
The parts of the act which it is claimed are not germane to the general subject of the legislation and which range outside the field foreshown by the title, are as follows: Section 3 provides public water supply districts may include contiguous territory in one or more counties, and may take in school districts, or parts thereof, and cities that do not have a waterworks system. Sections 4 and 6, taken together, require the decree of incorporation to divide the district into five subdistriets and provide that one member of the board of directors shall be chosen from each subdistriet.
Appellant’s contention that these provisions make the aet double and that they are smuggled in under a masked title is wholly untenable. Discussion is not needed to show that a provision specifying what territory may be included in such districts not only has a natural relation to the legislative project, but is necessary to its accomplishment,’ or at least to the clarity of the law. The same is true of the provision fixing the number of directors and the parts of the district from which they shall come. And while the title of the act does not specifically cover these details, that could hardly have been done without making the title as long as the act itself if the same course were followed throughout. The title does announce the act provides for the incorporation, organization and management of public water supply districts in counties now or hereafter having at least 25,000 population, and that is sufficient to comprehend the provisions here brought into question. [State ex rel. Webster Groves Sanitary Sewer District v. Smith,
II. Preliminary to stating appellant’s next assignment of error, we must sketch further provisions of the. act. Sections 5 and 13 thereof authorize public water supply districts to contract indebtedness for certain purposes and to issue general or special obligation bonds, or both, therefor. In this instance the respondent district *349 proposes to issue $205,000 in general obligation bonds and a like amount of special obligation bonds.
Special-obligation bonds, as defined by Sections 13 of the act, are “bonds payable, both as to principal and interest, wholly and only out of the net income and revenues arising from the operatiоn of the waterworks system of any such district, after providing for costs of operation, maintenance, depreciation and necessary extensions and enlargements.” The section further requires that “before or at the time of issuing any such- special obligation bonds, the board of directors shall pledge such net income and revenues to the payment of such bonds, both principal and interest, and shall covenant to fix, ■maintain and collect rates for water and water service supplied by such district so as to assure that such net income and revenues will be sufficient for the purposes herein required:”
Section 11 of the act provides that: “the rates or charges to be so fixed shall, at all times, be reasonable, but- in determining the reasonableness of rates or charges, the board shall, taire into consideration the sum or sums required to retire outstanding special obligation bonded indebtedness of the district and the interest accruing thereon, the need for'extensions of'mains, repairs, depreciation, enlargement of plant, adequate service, obsolescence, overhead charges, operating expenses, and the need of an operating fund out of which the district may protect itself in emergencies and out of which the incidental expenses of the district may readily be met.”
Note that the effect of these provisions is to require the establishment and collection of rates for water service which shall be adequate to meet not only the district’s indebtedness on its special obligation bonds, but also operating expenses and outlays for maintenance, depreciation, necessary extensions and enlargements; and the income and revenue arising from the operation of the waterworks system are allocated first to the payment of the latter. -In other words Section 13 says the bonds are payable only out of net income and revenue after these other expenses and outlays have been met.
Appellant’s contention in his second assignment of error-is that the resolution of the board of directors authorizing the issuance of the special obligation bonds is invalid because it . conflicts-with the foregoing provisions of the statute in that Section 16 of the resolution limits the amount of funds which may be set aside for depreciation, extensions аnd' enlargements to five per cent of the monthly operating révenues'; and Section 20 requires funds sufficient to pay. the-bonds, always to be set aside; whereas ■ the statute subordinates the bonds to expenses'for operation, maintenance, depreciation, extensions and enlargements, and primarily pledges the entire revenues from operation to the latter.
To understand these contentions it'will be necessary ■ to refer to several sections of the resolution. Section 15 thereof requires that *350 “the entire revenues derived from the-operation of the water supply system of said District shall be set aside in a separate and special fund designated the ‘Water Revenue-Fund,’ which shall be used only in paying the cost of. operatiоn, maintenance, depreciation and the necessary extensions and enlargements of said water supply system, and for the payment of the principal .of and the interest on said Special Obligation Bonds of said District which are made payable by their terms only from such revenues.” ■
Then Section 16, relied on by respondent, establishes three.separate accounts in the aforesaid Water Revenue Fund, to be designated severally, “Operation and Maintenance Account,” “Depreciation, Extension and Enlargement Account” (which, for convenience we-shall hereafter call the “Depreciation Account’.’), and “Bond Account;” and provides" that-into these three accounts shall be paid on the first business day of eaсh month all monies held in the Water Revenue Fund, in-the'following order: “(a) Into the Operation and Maintenance Account-an .amount sufficient to. defray the reasonable expense of operating and maintaining the said water supply system for ¿period of one month; (b) into the Depreciation .Account a sum not exceeding five per centum (5.%) of the' amount of revenues received during the 'preceding, month, which shall be held and used for a depreciation reserve and for the making of necessary extensions and enlargements to said system; (c) into the Bond Account an amount not less than one-sixth of the amount, of interest becoming due on said Special Obligation Bonds on the next succeeding interest payment date, plus an amount -at .least equal to one-twelfth of the principal of said bonds due on the next preceding bond. maturity date.” This subsection c is-designed to take care of the semi-annual interest and the bonds maturing annually.
Section 17 provides that until the money in the Bond Account equals' the aggregate interest and principal requirements of the bonds for the next year, there shall also be.paid on the first business day of each month from the Water Revenue Fund into the Bond Account an additional twenty per cent above the amount required by subsection c of Section 16 to create a reserve for contingencies in the payment of the principal-and interest of the bonds.. ,
Section 18 says that any surplus in the Operation and Maintenance Account maybe transferred either to. the Bond Account or to the Depreciation Account, as the board, of directors may direct; and any monies in the Depreciation Account in" excess of the amount necessary for the purposes above set out during, the next year, as determined by the board of directors, may be transferred from said Depreciation Account to "the. Bond Account. - .
Section 19 of the resolution provides that if at the beginning .of any month the amount in the Water Revenue Fund is insufficient, to provided for all of the required.payments into the Bond Account, the *351 amount of such deficiency shall be included in the sum requisitioned for tbe nest month. But that whenever the amount in the bond account equals the whole amount of principal and interest on the special obligation bonds thеn remaining outstanding, no further payments shall be made into the Bond Account. •
Section 20, cited and relied on by .respondent, requires that the funds set aside and credited to the Bond Account in accordance with the resolution shall in no event be less' than the amount necessary to pay the principal and interest of the. bonds as they accrue.
By Section- 23 of the resolution the district pledges itself and covenants with the holders of its authorized issue of bonds, both general and-special, that it will fix, maintain and collect rates for water and water service so as -to assure that the net income and revenue of the water supply, system of the district will be sufficient for the purpose’s declared in the resolution. Section 25 of the resolution, as we read it, рrovides that while any of the issue of special obligation bonds authorized thereby remain outstanding and unpaid, no additional special obligation bonds shall be issued unless the revenues on hand from the water system are sufficient to take care of all costs of operation, maintenance, depreciation, extensions and enlargements for the next year, leaving-a balance of 120 per cent of the principal and interest requirements for the next year on the outstanding special obligation bonds of the present proposed issue, and 120 per cent of the principal and interest requirements for. the next year on the new issue, treating an equal portion of the whole new issue as coming due each year of the periоd until, all are matured.
Section 26 of the resolution covenants and agrees with the holders of the special obligation bonds that the district will punctually perform all duties with reference to the water supply system required by the Constitution-and laws-of the State, including the -fixing, maintaining and collection of rates for water and water service, and the segregation of the revenues from the water system and the application of the respective funds created by the resolution.
By the foregoing provisions, it' will be seen, the entire operating revenues each month must be. paid into the three accounts set up .for the Water Revenue Fund. .The Operation and Maintenance Account comes first. The amount going into it is. not fixed, but is required to be a sum sufficient to dеfray operating expenses for the month. The amount put into the Bond Account likewise is not fixed but is required to be not less than one-sixth of the interest due on the bonds at the next interest pay day plus an amount at least equal to one-twelfth of the principal of the-bonds due on the next maturity date, with an additional twenty per cent to be added in certain contingencies. But the amount to be paid into the Depreciation Account is fixed by subsection b of Section 16 at a sum not exceeding five per cent of the revenue from operations during the preceding month. *352 Under Section 25 no further funds can be made available for depreciation, extensions and enlargements by means of a new issue of special obligation bonds unless there be in the Bond Account a balance of 120 per cent of the principal and interest requirements on the outstanding bonds and the new bond issue for the next year; and by Section 26 of the resolution the district covenants with the bondholders that the revenues from the water system will be segregated and the three funds applied as provided above in the resolution.
If the case stood on these provisions of the resolution alone we should feel constrained to hold the bond issue failed to comply with the law. Section 13 of the act -explicitly says the special obligation bonds shall be paid only out of the net income and revenues from the operation of the waterworks system after providing for costs of operation, maintenance, depreciation and necessary extensions and enlargements. A legislative intent is plainly disclosеd that the system shall be properly operated and maintained and that necessary extensions and enlargements shall be made. These demands cannot be ignored and the system starved to pay the bondholders. Section 11 of the act requires the rates or charges for water and water service to be fixed and maintained with a view to the need for extensions of mains, repairs, depreciation, enlargement of plant, adequate service, obsolescence, overhead charges, operating expenses, and a proper operating fund for emergencies and incidental expenses.
The respondent argues these latter are all matters resting in the discretion of the board of directors of the district and that whеn by subsection b of Section 16' of the resolution they fixed the amount of the Depreciation Fund at a sum not exceeding five per cent of the revenue derived from the operation of the water supply system, they exercised that discretion and. the same is not now open to judicial review, citing Selecman v. Matthews,
It is true a discretion is by the statute lodged in the board of directors of public water supply districts in relation to the above matters; but that discretion is to be exercised from time to time as conditions arise calling it into exercise. It is not a mere matter of setting up a reserve for depreciation. The amount needed for extensions and enlargements cannot be determined twenty years in advance (which is the life of the latest maturing special obligation bonds involved in this case). And the board of directors cannot contract away its power to exercise its discretion in the proper manner and at the proper time, 46 Corpus Juris, section 296, page 1034. On an analogous question see City of Moberly v. Hogan,
But there are other sections of the resolution which we think save the bonds from invalidity. Section 18 says any surplus in the Operation and Maintenance Account may be transferred to the De *353 preciation Account as tbe board of directors may. direct. Section 23 pledges tbe district to fix, maintain and collect adequate rates so as to assure an income sufficient for tbe purposes declared in tbe resolution. And Section 26 covenants that tbe district will punсtually perform all duties with reference to tbe water supply • system required by tbe Constitution and laws of tbe State. Construing all tbe sections of tbe resolution together it must be concluded subsection c of Section 16 provides only for tbe routine level and method of maintaining tbe Depreciation Aueount, and that through tbe maintenance of adequate rates sufficient money will be put in tbe Depreciation Account to meet the needs thereof, either directly or by transfer from tbe Operation and Maintenance Account.
We are fortified in this view by tbe fact that Section 15' of the resolution requires tbe entire revenue from tbe operation of tbe water supply system to go into tbe Water Revenue Fund and thence into the three accounts speсified. Tbe Operation and Maintenance Account has first claim on tbe funds' and must get an amount sufficient to defray reasonable expenses for operation and maintenance during tbe month. Next tbe Depreciation Account is to receive not exceeding five per cent of tbe preceding month’s revenues. Then there is allocated to the Bond Account an amount not less than tbe preceding month’s share of the principal and interest requirements for tbe current year. Section 17 calls for an additional twenty per cent to create a reserve for contingencies until the money on band reaches a certain level. But there is no residuary clause. ''Nothing is said about what shall be done if tbe monthly revenues overrun tbe аggregate requisitioned by Section >16 for tbe three accounts. We must construe the resolution as valid and conforming to law, if we can, and we think the construction we have given it above, permissible.
Closely akin to tbe assignment just discussed is tbe one made by appellant-based on Section -20 of the resolution. As will be recalled that section says that in no event shall the funds set aside and credited to the Bond Account be less than the amount necessary to pay the principal and interest of the bonds as they accrue. Appellant asserts this provision likewise conflicts with the terms of the act which make the special obligation bonds payable only out of net revenues after operating, depreciation and betterment expenses are paid. But Sections' 23 and 25 of the resolution also .covenant that rates will be fixed, maintained and collected sufficient to meet the bonds and interest, and we think the provisions of Section 20 are to be construed therewith, and to be taken to mean that the required amount must be credited to the Bond Account each month, if available.
That the resolution does not contemplate the Bond Account must be credited with the amount necessary to meet the bond requirements in any event, 'is shown by the provisions of Section 16 thereof, which make the Operation and Maintenance' Account come first in the order *354 of payment; the Depreciation Account second, and the Bond Account third. Also, Section 19 says that if at the beginning of any month the amount in the Water Revenue Fund is insufficient to provide for all required payments into the Bond Account, the amount of such deficiency shall be included in the requisition for the next month. So we rule this assignment' also against the appellant.
III. The last assignment is that the issuance of the general and special obligation bonds provided for in the resolution would violate Section Í2, Article X of the Constitution of Missouri which limits the indebtedness of the respondent and other like political corporations'to an amount not exceeding five per cent on the value of the taxable property therein, as ascertained by the assessment next before the last assessment for State and county purposes. The applicable assessed valuation of property in the district is $4,191,234. The $205,000 of general obligation bonds admittedly would be an indebtedness of the district within the meaning of the Constitution, but they alone would be within the five per cent limitation. If the.$205,000 of special obligation bonds also would be a debt in the constitutional sense the whole would amount, to $410,000, far exceeding the limit set by Section 12, Article X. But Section 13, of the statute says these special obligation bonds “shall not be deemed to be indebtedness of any such district within the meaning of any .constitutional or statutory limitation upon the incurring of, indebtedness. ” Appellant maintains, however, that they must be so regarded, the statute to the contrary notwithstanding, because the net revenues of the whole waterworks system, -including the part financed by the general obligation bonds, are pledged to their payment. In other words the contention is that where a political corporation, as here, provides by taxation a fund or-property the income from, which is contractually devoted to the payment of so-called “special obligation” bonds, it is an indirect and evasive way of paying the latter by taxation, and the bonds are a debt under the above,section of the Constitution.-
It has been held repeatedly in this State that the constitutional limitation imposed by Section 12, Article X of the Missouri Constitution on the indebtedness a political corporation may incur, contemplates a debt which must be paid directly or indirectly by resort to taxation. [State ex rel. Smith v. City of Neosho,
It is likewise well established that the - “special fund doctrine” prevails in Missouri, and that an indebtedness of a city or other like political corporation payable only out of income derived from the
*355
property purchased is not a debt within the meaning of the above provision of the Constitution. [State ex rel. Excelsior Springs v. Smith,
The exact question presented by counsel in this case' is one which has not been decided before in Missouri except as it has been touched on by two eases to which we shall presently refer. The decisions here and elsewhere will be found to fall in two classes. One group consists of casеs where'the municipality or other political corporation already owned a public utility or similar property with an established income, and sought to improve or enlarge it by issuing so-called “special obligation” bonds, or ‘“revenue” bonds or “pledge orders” payable only out of the income from th'e whole property as improved or enlarged, thus, including the revenues theretofore received from the original property instead of segregating the earnings of the added new part and making them aloné pay its cost. The other group of cases are those in which the political corporation built or purchased a utility, having had none before, and as in this case, paid for it in part by general obligation bonds payablе by taxation, and ,ih part by special obligation bonds to the payment of which the revenues of the whole property were pledged.
Of this latter class is State ex rel. Smith.v. City of Neosho,
Bell v. City of Fayette,
Several. other cases have come before this court during the last five years in which the question of “segregation of earnings” was raised and the Fayette case, the Campbell ease and the Rock Island case from Illinois, or some of them, were cited, but the point was not decided. These recent decisions are: Hight v. City of Harrisonville,
In State ex rel. City of Hannibal v. Smith,
Such seems to be the state of the law in Missouri. But investigation discloses that the Illinois case of Schnell v. City of Rock Island on which the “segregation of earnings” theory of our Fayette case was based, had been overruled by the plainest implication by the Supreme Court of Illinois in Maffit v. City of Decatur,
Similarly in Ward v. City of Chicago,
Illinois Power and Light Corp. v. City of Centralia, 11 Fed. Supp. 874, decided by the United States District Court for the Eastеrn District of Illinois in 1935 contains some observations apparently at odds with the Ward and Decatur eases, supra, and more in line with the holding in the older Rock Island case. This decision, however, was based on an Illinois statute requiring certificates of indebtedness to be paid solely out of the revenue of the utility property for the acquisition of which they were issued. ■
In some recent cases in other jurisdictions the “segregation of earnings” theory has been followed, and the Rock Island case, the Fayette case and the Campbell case cited in some instances. [In re Opinion of the Justices,
*358
From an early day it has been held in the State of Washington that a city may contract for additions to a utility plant owned by it and pay therefor out of the receipts of the whole plant, Winston v. Spokane,
Colorado does not .recognize the segregation of earnings doctrine. Shields v. Loveland,
Barnes v. Lehi City,
In Hesse v. City of Watertown, 57 S. D. 325,
In Lang v. City of Cavalier,
Other cases from other jurisdictions upholding special Obligation bonds or pledges such as are involved in this case and in the Neosho case are City of Bowling Green v. Kirby,
From the foregoing scattering review of the most recent cases, it will be seen the law on the question before us here has been the subject of much controversy in other states. The argument underlying the segregation of earnings doctrine, which forbids the pledging of the existing revenue of an established plant as a part of the whole revenue of the improved plant, is that the established income from the original plant is the property of the city (or other political corporation) as much as any other money in its treasury; that it can be put in the general revenue fund and used for general municipal expenses. And if it is diverted from these- purposes and pledged to the city’s obligation for enlarging the plant it must be replaced by money raised by taxes, thereby making the obligation a general debt. [Garrett v. Swanton, 216 Cal. l. c. 230, 13 Pac. (2d) l. c. 729. See, also, Hight v. City of Harrisonville, 328 Mo. l. c. 559, 41 S. W. (2d) l. c. 159.] On the other hand cases taking the contrary view say that if the city has been abstracting money from the earnings of its utility plant to pay general municipal exрenses, it amounts to the plant’s being milked to feed the general fund, and that the utility patrons are being made to carry a burden that the taxpayers ought to carry; see dissenting opinion in Hesse v. City of Watertown, 57 S. D. l. c. 353, 232 N. W. l. c. 66, and Fjeldsted v. Ogden City, 83 Utah, l. c. 313, 28 Pac. (2d) l. c. 158.
It is noticeable that a number of the cases stress the fact that the improvement or extension of an existing plant was necessary; and that the original plant would have been worthless or inadequate without them. As stated in the above quotation from the New Mexico case, supra, .there is good ground for drawing a distinction between an independent -extension or enlargement of a municipal utility, and extensions or betterments which are necessary to make the original function as intended. We think that without any doubt in the latter instаnce the plant should be treated as a unit in paying the bills.
*360 That is as far as we need go in this case. Here it is proposed to bnild a waterworks system in the respondent district one-half the cost being paid by general obligation bonds, and the other half by the special obligation bonds in controversy. It is obvions that the half of the plant built with the general obligation bonds would be worthless if it were not completed from the proceeds of the special obligation bonds. Both propositions were voted on at the same election. The voters did not expect the revenues from the plant to pay off the general obligation bonds and relieve them from taxation. These bonds were voted with the understanding that taxes would be levied to pay both the principal and interest thereof. The taxes will be due whether the waterworks system earns any money or not. The special obligation bonds were voted as a charge on the revenues of the system. To say that they are an indebtedness in a constitutional sense because they are to be paid from earnings of a water system partly financed by general obligation bonds p'ayable by taxation, is to charge up both bond issues to the taxes which were levied only to pay the one issue.'
We therefore conclude that the special obligation bonds are not a debt of the district within the meaning of Section-12, Article X of the Constitution of Missouri and accordingly rule this assignment in fávor of the respondent.
This disposes of' all the questions raised, and the judgment of the circuit court is affirmed.