Case Title: State Ex Rel. Ward v. Anderson

Citation: 491 P.2d 868

Docket Number: 

State: montana

Court: Montana Supreme Court

Date: 1971-11-23T00:00:00Z

Document:
491 P.2d 868 (1971) STATE of Montana ex rel. Joseph T. WARD, Plaintiff and Relator, v. Forrest H. ANDERSON et al., Defendants and Respondents. No. 12132. Supreme Court of Montana. Submitted October 4, 1971. Decided November 23, 1971. *869 Donald Garrity (argued), Helena, for relator. Robert L. Woodahl, Atty. Gen., Helena, Walter S. Murfitt, Special Asst. Atty. Gen. (argued), Helena, for respondent. CASTLES, Justice. Relator has filed an original proceeding in this Court seeking to permanently enjoin the State Board of Examiners from issuing certain "limited" obligation state bonds in the total principal amount of 13.2 million dollars. Issuance of these bonds was authorized by two measures enacted by the Forty-second Legislative Assembly of the state of Montana. By order dated September 8, 1971, this Court ordered defendants to appear and show cause why they should not be so enjoined. House Bill No. 286, Chap. 222, Laws of 1971, authorized the State Board of Examiners to issue and sell long range building program bonds in an amount not exceeding $5,500,000 over and above the amount of said bonds outstanding January 1, 1971 (Section 3, Chap. 222, Laws of 1971, codified as section 79-2205, R.C.M. 1947). No general election to approve the issuance of these bonds is required or contemplated by this legislation. Repayment of these bonds is to be made from a special fund composed of eleven percent of the state income and corporation license tax collections and a portion of the state cigarette taxes. Section 79-2203, R.C.M. 1947. House Bill No. 610, Chap. 356, Laws of 1971, authorized the State Board of Examiners to issue and sell bonds in a sum not exceeding $7,710,442 for the purpose of acquiring land for erecting and equipping a state highway commission headquarters building and complex. This bill also did not require an election to approve the issuance of these bonds. Repayment of these bonds is to be made from a special fund made up of the net proceeds from the collection of the license tax imposed on gasoline distributors by section 84-1847, R.C.M. 1947. This Court accepted jurisdiction. The defendants appeared by answer. The Court permitted Neil J. Lynch to appear amicus curiae. Oral argument was had. Sections 79-2201 through 79-2205, R.C.M. 1947, were first enacted in 1965 to provide for the issuance of long range building program bonds by the Board of Examiners. Pursuant to this legislation, the state of Montana has issued bonds the proceeds of which have been used to fund the state long range building program. The amount outstanding is approximately $33,000,000. The principal and interest on the bonds is payable from the sinking fund account to which is pledged a percentage of collections of the income tax and corporation license tax and a percentage of the collection of the excise tax on cigarettes and other tobacco products. House Bills No. 286 and No. 610 were passed making the 13.2 million dollar authorization, in addition to those outstanding. Each bill contained the statement: Pursuant to the above laws, the Board of Examiners, on September 8, 1971, adopted resolutions providing for the issuance and sale of long range building program bonds and highway bonds. The issues presented are: 1. Does defendants' proposed issuance of 5.5 million dollars in long range building program bonds, which are to be repaid from the state corporation license taxes, income taxes, and tobacco taxes, constitute the creation of a debt or liability within the meaning of Article XIII, Section 2, of the Montana Constitution? 2. Does defendants' proposed issuance of 7.7 million dollars in highway bonds, which are to be repaid from state gasoline taxes, constitute a debt or liability within the meaning of Article XIII, Section 2, of the Montana Constitution? 3. Is the use of gasoline tax monies to finance the construction of a state highway commission headquarters and complex prohibited by Article XII, Section 1b of the Montana Constitution? As shall be developed hereinafter, Article IX, Section 2, of the Montana Constitution also comes into focus. In the general election of 1932, the people of the state of Montana amended Article IX, Section 2, of the Montana Constitution to include the following language: In 1970, in City of Phoenix, Arizona v. Kolodziejski, 399 U.S. 204, 90 S. Ct. 1990, 26 L. Ed. 2d 523, the United States Supreme Court held that the provisions of the Arizona constitution and statutes excluding nonproperty owners from elections for the approval of the issuance of general obligation bonds violated the equal protection clause of the Fourteenth Amendment of the United States Constitution. Earlier, in Cipriano v. City of Houma, 395 U.S. 701, 89 S. Ct. 1897, 23 L. Ed. 2d 647, the Court held that a state may not restrict the right to vote in revenue bond elections to property taxpayers. These decisions make it clear that that portion of Article IX, Section 2, of the Montana Constitution, quoted above, is invalid. The Montana Legislature recognized this by enacting Chapter 234, Laws of 1971, which allows all qualified electors to vote on local bond issues, and by voting to submit a proposed amendment to Article IX, Section 2, which will, if approved by the voters, delete the invalid requirement. Chapter 159, Laws of 1971. As of now, that portion of Article IX, Section 2, of the Montana Constitution which restricts the franchise in certain elections to taxpayers is invalid. Our view on Article IX, Section 2, becomes important only in considering the effect of Article XIII, Section 2, as will appear later. Article XIII, Section 2, of the Montana Constitution provides: The history of revenue bonds, although in a different context, was discussed by this Court in Fickes v. Missoula County, 155 Mont. 258, 264, 470 P.2d 287. There it was said in part: We reviewed some of the revenue bond cases of this Court culminating in the Cottingham case (Cottingham v. St. Bd. of Exam., 134 Mont. 1, 328 P.2d 907) upholding the Korean War Bonus Act. The reasoning in Cottingham is based strictly on the amendment to Article IX, Section 2, which we found effectively amended the words "debt or liability" as they appear in Article XIII, Section 2, by confining them to debts or liabilities which must be retired out of ad valorem taxes. As we have shown heretofore, all that is changed by the United States Supreme Court rulings finding Article IX, Section 2, invalid as to the restrictive clause of the 1932 amendment. Therefore we re-examine the meaning of the terms "debt or liability". Prior to Cottingham, this Court had ruled in State ex rel. Diederichs v. State Highway Commission, 89 Mont. 205, 296 P. 1033 (1931), that any state indebtedness in excess of $100,000 which is to be repaid from any of the constitutional methods of raising public revenue (specifically gasoline license taxes in that case) is a debt or liability requiring the approval of the people at a general election. Cottingham did not overrule Diederichs, but distinguished it on the basis of the 1932 amendment to Article IX, Section 2. The reason for the distinction in Cottingham having now been abolished by the United States Supreme Court in Cipriano, Cottingham is no longer valid law. Much of what this Court said in Diederichs is applicable today and to this case. There we said in part, after reviewing general rules of presumptions in favor of constitutionality, at page 210 of 89 Mont., page 1035 of 296 P.: The foregoing reasoning in Diederichs is valid, and our duty is equally clear. Where provisions for payment of *874 principal and interest on bonds impair the state's constitutional tax sources, it is at least a liability, if not a debt. In the instant case, House Bill No. 286 obligates eleven percent of the income and corporation license tax collections and a portion of the state cigarette taxes. House Bill No. 610 obligates gasoline license taxes. They both affect the liability of the state without approval of the electorate and are unconstitutional. To further demonstrate in a practical as well as a legal way that a liability of the state is effected, we point out the effect of the legislature's creating a special fund obligating eleven percent of the income tax collections, the corporation license tax collections and a portion of the state cigarette taxes. Under Title 75 of the Revised Codes of Montana, 1947, the school foundation program is set up. It is provided that "when required, moneys from an additional county levy for a state deficiency" shall be made. Thus, any impairment of the state's tax sources, such as here with eleven percent of income and corporation license taxes in addition to a portion of the state cigarette tax, directly results in higher ad valorem property taxes. Can it be any clearer why a "liability" is created by this means of deficit financing? We think not. And, to make our rationale even more appropriate, we refer to Article XII, Section 1a, of the Montana Constitution, which was adopted by a vote of the people in 1934. That section reads: Thus, the Constitution itself provides that income taxes and corporation license taxes, those pledged in House Bill 286, are not only constitutional sources of tax revenue but are for the "purpose of replacing property taxes." The "liability" of the state is clear. Previously herein, we quoted from Fickes where this Court reviewed some of the revenue bond cases culminating in Cottingham. In each of the cases reviewed, the pledged funds were funds from a proprietary function of government such as room rentals, student fees, water charges, and rents. Examples in other states of funds pledged are tolls, liquor profits as distinguished from taxes, profits from sales of electrical power, gas, sewer charges, etc. What we say here with regard to constitutional revenue sources does not affect bonds payable by revenue from the project created. As we did in Cottingham, we have examined cases from other jurisdictions. In an annotation appearing in 100 A.L.R. 900, a collection of cases is discussed on debt limitation payment from special fund. The annotation is a limited one and does not include cases where the anticipated income is from special assessments on property for local improvements; income from or sale of property; or, fees such as university student union buildings. The annotation states at p. 901: Our Diederichs case is listed as a contrary conclusion to what has been generally held. While there are differences in our constitutional provision from some of the states listed, in some of them there are no significant differences. The states of Washington, *875 Oregon, Kansas, Alabama, New Mexico, Texas and South Carolina have gone one way, while Colorado, Montana, Kentucky and Oklahoma are listed the other way. Subsequently, we find four more states listed. Arizona in 1969, held that highway right of way acquisition bonds to be paid from gasoline taxes did not violate Arizona's constitutional debt limitation because it was payable from a special fund, the highway fund which was pledged as security and which could not be expended for any other purpose, under an anti-diversion amendment similar to our Article XII, Section 1b. The Arizona court quoted from the Washington case of State ex rel. Washington State Finance Committee v. Martin, 62 Wash. 2d 645, 384 P.2d 833, concerning the "special fund" doctrine. Florida, in State v. Board of Public Instruction, Okaloosa Co., Fla., 214 So. 2d 723, found county limitations not applicable to school bonds pledged by motor vehicle license tax funds, race track funds, and receipts of state forest funds, as not violative of the provisions because they were not payable from ad valorem taxes. Nebraska, in State ex rel. Meyer v. Steen, 183 Neb. 297, 160 N.W.2d 164, 167, held unconstitutional bonds for a game and parks commission headquarters, payable from the state game fund. The Nebraska court rejected the special fund doctrine citing Boe v. Foss, 76 S.D. 295, 77 N.W.2d 1, for the principle that: South Carolina in Mims v. McNair, 252 S.C. 64, 165 S.E.2d 355, reaffirmed its previous rulings that bonds pledged by income taxes were not violative of its constitution. That court used the special fund doctrine and held that so long as no resort is made to real property taxes, no "debt" is involved. Utah in Allen v. Tooele County, 21 Utah 2d 383, 445 P.2d 994, held constitutional industrial development bonds in a case similar to our Fickes case. It also used the special fund doctrine. Thus, Florida can be added to states limiting "debt" to property taxes. Nebraska and probably Utah can be added to states giving a meaning to "debt or liability" as any diminishing of state's taxing power. Arizona has a somewhat new twist, that is where the people have voted to create a "special fund" as in the anti-diversion amendment, no debt is created. This does not recognize a "liability". In all of the cases from other jurisdictions cited above, in 100 A.L.R., and in Cottingham it is not possible to harmonize the results. However, the limitations on amounts of debts or liabilities would be held meaningless if "special funds" created from excise or license taxes could be obligated against future generations in untold amounts. The Court in Diederichs in 1931, agonized with its conscience in declaring the highway bonding act unconstitutional. Here, we do likewise, fully realizing that the state's building program will be most seriously affected. As we said in Diederichs, there are two ways to handle the problem, one by amendment to the Constitution; the other by a vote of the people on bonding programs. Another method now may arise in the coming Constitutional Convention. Since Cottingham is invalid, the language appearing in Fickes and other cases should be restricted to what we have said here. Heretofore, we have alluded to other Montana cases where revenue bonds were held not to violate the $100,000 debt limitation. In most of those, except Diederichs and Cottingham, nontax or nonrevenue obligating sources were looked to. However, we have also alluded to the $33,000,000 in revenue bonds outstanding. The long range *876 building program bonds were issued as follows: This total amount has been reduced to an amount in excess of $33,000,000. It is clear that these bonds were issued in the good faith assumption that the restriction of the franchise in bond elections was not prohibited by the federal constitution and that the rule in Cottingham would be applicable. It is equally clear that we should not give our decision retroactive effect. The United States Supreme Court in Phoenix, Arizona v. Kolodziejski, 399 U.S. 204, 214, 90 S. Ct. 1990, 26 L. Ed. 2d 523, 530, handled the matter of retroactivity in this manner: Accordingly, here the ruling of unconstitutionality does not affect the validity of bonds previously issued but does affect those proposed to be issued under House Bills No. 286 and No. 610. Having ruled on issues 1 and 2, it is not necessary to rule on issue 3, that is, the so-called anti-diversion amendment's application to the highway complex proposal. It follows that the injunction prayed for must issue, to be in force unless the law be submitted to, and receive the approbation of, the people. JAMES T. HARRISON, C.J., and HASWELL, DALY and JOHN C. HARRISON, JJ., concur.