Title: BURLINGTON NORTHERN v FLATHEAD COU

State: montana

Issuer: Montana Supreme Court

Document:

No. 12263 I N T H E S U P R E M E C O U R T O F T H E STATE O F MONTANA BURLINGTON N O R T H E R N I N C , , successor t o Great Northern Railway Company, a corporation, P l a i n t i f f and Appellant, E T A T H E A D COUNTY, a p o l i t i c a l subdivision of the S t a t e of Montana e t a l . , Defendants and Respondents. Appeal from: D i s t r i c t Court of the Eleventh J u d i c i a l D i s t r i c t , Honorable Robert Sykes, Judge presiding. Counsel of Record: For Appellant : Gough, Booth, Shanahan and Johnson, Helena, Montana. Ward Shanahan argued, Helena, Montana . For Respondents : Baldwin and J e l l i s o n , Kalispell, Montana. M. Dean J e l l i s o n argued, Kalispell, Montana. Submitted: April 24, 1973 Filed :JfR 1 3 1973 4 Decided : 3 v ~ IJI ri5 Mr. Justice John Conway Harrison delivered the Opinion of the Court. This is an appeal from a summary judgment entered in the district court of the eleventh judicial district, Flathead County, in an action challenging a 1968 county airport levy. The trial court held for the county and plaintiff railroad company appeals. The Board of County Commissioners of Flathead County in its 1968-69 budget adopted the following budget for the county airport fund: "Taxable Valuation $41,987,688 ' "#215 Airport Fund t t Total Expenditures last year $29,833 Last Yeark budget $67,942 Receipts Last Year from Taxes Estimated Expenditures this year $41,035 Capital Outlay $29,000 Less 119.13 OW Total $70,035 Cash in Fund $42,226.03 Estimated Receipts $ 6,701 Total $48,808 Tax Levy -51 Mills required to raise balance $21,227", At the time the budget was considered there was an estimated expenditure of $41,035 and a capital outlay expenditure of $29,000. When the budget was adopted and the levy fixed, there was cash on hand in the amount of $42,226.03 less an outstanding warrant of $119.13, and estimated receipts of $6,701. The tax requirements for the following year were set at a levy of .51 mills ( 2 mills being the maximum) which raised the necessary $21,227 for the budget. The proposed capital outlay expenditure of some $21,227 was to be used in that fiscal year to remodel an already existing airport building which,appellane argues, created a debt or liability exceeding the sum of $10,000 in violation of Art. XXZI, Sec. 5, Montana Constitution, and sections 16-807 and 16-1904, R.C,M. 1947. Appellant paid its taxes under protest. Respondent county argues it makes no difference whether the capital outlay expenditure relates t o an existing f a c i l i t y (as the t r i a l court found) or a new f a c i l i t y . Further, i t makes no dif- ference whether a part of the money proposed t o be expended i n the 1968-69 budget was money l e f t over from the previous year o r money t o be raised by taxes during the current year, i f the t o t a l amount proposed t o be spent was less than the amount that would be raised by the permissible m i l l levy during the current year. The only issue on appeal i s whether or not the t r i a l court erred i n determining that a capital outlay expenditure for an existing f a c i l i t y could be discharged by the county by applying "cash on hand" f i r s t t o the expenditure, and then by using the available m i l l levy t o r a i s e the balance needed for the Flathead County airport operation for the f i s c a l year ending June 30, 1969, W e find the t r i a l court erred i n reaching i t s conclusion that the financing procedure followed by respondent county was proper. Clearly t h i s type of budget procedure violates sections 16- 1901 through 16-1911, R.C.M, 1947, (County Budget System) enacted t o give the taxpayer notice a s t o how h i s taxes w e r e t o be spent and protection from the improper use of tax monies. Section 16- 1904(2) clearly provides that the cash balance i n any fund must be applied f i r s t against ordinary expenses i n the budget. "Funds on hand" a t the end of a f i s c a l year a r e t o be used t o reduce the tax requirements of the next f i s c a l year. Capital outlay items must be singled out for taxpayers' consideration. Section 16-1902, R,C.M. 1947, requires: "* * * Expenditures for capital outlay shall set forth and describe each object of expenditure separately. * * *" The procedure also violates A r t . XIIL, Sec. 5, Montana Constitution, which provides i n pertinent part: I1 N o county s h a l l incur any indebtedness o r l i a - b i l i t y for any single purpose t o an amount ex- ceeding ten thousand dollars ($10,000) without the approval of a majority of the electors thereof, voting a t an election t o be provided by law", This constitutional provision has been executed by section 16-807, R . C . M . 1947, which provides: "Limit of Indebtedness. No county must become in- debted in any manner for any purpose to an amount, including existing indebtedness, in the aggregate exceed-ing five per centum of the val.ue of the taxable property therein, to be ascertained by the last assess- ment for state and county taxes previous to the in- curring of such indebtedness, and all bonds or obliga- tions in excess of such amount given by or on behalf of such county are void. No county must incur any indebtedness or liability for any single purpose to an amount exceeding ten thousand dollars without the approval of a majority of the electors thereof voting at an election to be provided by law." Here, there can be no question but that the action taken by the Board of County Commissioners in contracting to remodel the airport building created an "indebtedness or liability" within the meaning of both the constitutional and statutory provisions, and was for a "single purpose". State ex rel, Diederichs v. Board of Trustees, 91 Mont. 300, 7 P . 2 d 543; State ex rel. Ward v . Anderson, 158 Mont. 279, 491 P . 2 d 868. In effect, what was done here by respondent county was to over levy for the airport fund in 1967 and create a fund to which it made the necessary levy the following year and thereby accomp- lished the remodeling of the airport building without allowing the electors to vote on it. At that time Montana law did not allow any accumulation of a "reserve fund". Section 1-804, R . C . M . 1947, provided: "1-804. Tax levy for establishment and operation of airports. For the purpose of establishing, constructing, equipping, maintaining and operating airports and landing fields under the rovisions of this act the county com- missioners of [or 'i the city or town council may each year assess and levy in addition to the annual levy for general administrative purposes, a tax of not to exceed two ( 2 ) mills on the dollar of taxable value of the roperty of said county, city or town, In the event of jointly established airport or landing field, the county commissioners and the council. or councils involved shall determine in advance the levy necessary for such purposes and the proportion each political subdivision joining in the venture shall pay, based upon the benefits it is de- termined each shall derive from the project. Provided that if it be found that the levy hereby authorized will be insufficient for the purposes herein enumerated, the commissioners and councils acting are hereby authorized and empowered to contract an indebtedness on behalf of such county, c i t y or town, a s the case may be, upon the credit thereof by borrowing money o r issuing bonds for such purposes, provided that no money may be borrowed and no bonds may be issued for such purpose u n t i l the proposition has been submitted t o the taxpayers affected thereby, and a majority vote t o be cast therefor," (Emphasis added). I n 1969, section 1-804, R,C.M, 1947, was amended t o allow the creation of a "reserve fund" but only for the use by the county t o "resurface, overlay, o r improve existing runways, taxiways and rampsft. Even under t h i s amendment, the county could not have f i - nanced the remodeling of the administration building i n the manner which it did. There was, a s shown previously, some $42,000 l e f t over from the previous year, the t o t a l expenditure the previous year was $29,833 out of a budget of $67,942. Very, very clearly, the county had created a "reserve fund" by the simple device of over-levying a tax. The county extended a levy against the tax- payers for a capital outlay expenditure and spread it over two years; and thus, by their bootstraps picked themselves up and jumped over the constitutional limitation bf A r t . X I I I , Sec, 5, and the statutory provisions of sections 16-807 and 16-1904, R.C.M. 1947. This "bootstrap" operation then allowed the county, under the rationale of State ex rel. Diederichs v. Board of Trustees, 91 Mont. 300, 7 P.2d 543, t o claim that no "indebtedness o r l i a b i l i t y t t was created because the money was already on hand. I n Diederichs, the money on hand came from insurance proceeds as a result of a f i r e which destroyed the school building for which voters had already approved bond financing. In the instant case the funds on hand came about by violating the county budget laws. This decision i s consistent with the rationale of Cause No. 12390, Burlington Northern Inc. v, Richland County, decided t h i s same date. The judgment of the district court is reversed and it is directed to enter judgment for appellant. A ociate Justice f ? / /Chief Justice ................................. Associate Justices. M r , J u s t i c e Gene B. Daly and Mr, J u s t i c e Frank I. Haswell dissenting: W e respectfully dissent t o the view of the majority, The t e x t of the majority opinion concludes with the statement: "This decision i s consistent with the r a t i o n a l e of Cause No. 12390, Eurlington Northern Inc. v. Richland County, decided t h i s same date." W e agree with the r a t i o n a l e applied i n the Richland County case and t h a t the r a t i o n a l e applied i n the present case i s consistent with t h a t of the Richland County case, however, the f a c t s of the present case a r e i n no way consistent with those of t h e Richland County case. In the Richland County case an "indebtedness o r l i a b i l i t y " of $200,000 from the S t a t e Aeronautics Board was undertaken by the Sidney-Richland County Airport Commissi.on f o r the "single purpose1f of a i r p o r t runway construction. Repayment of principal and i n t e r e s t was t o be made by the county from the proceeds of a one and one-half m i l l levy t o be reapplied u n t i l repayment was complete, I n the present case the Flathead County Board of Commis- sioners approved expenditure of about $70,000 f o r remodeling work on the a i r p o r t administration building. Funds remaining from previous years' budgets i n the amount of about $42,000 and a one-half m i l l levy effected t o provide about $29,000 made up t h e t o t a l expenditure, The county i s permitted under section 1-804, R.C.E.I. 1947, t o impose a "permissive" two m i l l levy "for the purpose of establishing, constructing, equipping, maintaining and operating a i r p o r t s * *I1. (Emphasis supplied). The record indicates t h a t had the maximum permissive two m i l l a i r p o r t levy been effected, over $80,000 would have been raised thereby. The permissive one-half m i l l a i r p o r t levy which was effected, together with remaining funds, provided the t o t a l amount of authorized expenditure. Consequently, there was never any "indebtedness o r l i a b i l i t y " incurred by Flathead County within the meaning of A r t . X I I I , Sec. 5 , of the Montana Constitution. The application of the constitutional provision contained i n A r t . X I I I , Sec. 5, by the majority i n the present case, i n our view, i s incorrect, a s pointed out i n S t a t e ex r e l . Diederichs v, Board of Trustees, 91 Mont, 300, 305, 7 P.2d 543, while quoting with approval language from S t a t e ex r e l . Rankin v. Board of Examiners, 59 Mont. 557, 197 P. 988, 992: 1 1 I In construing our constitutional provision applicable, we have under consideration the meaning of the words "debt o r l i a b i l i t y , " and i n our view the prohibition intended by these words i s the creation of a debt o r obligation of the s t a t e i n excess of cash on hand and revenue provided f o r t ; k + : %. * * * N o provision of law has been made f o r submittina t o the e l e c t o r s the question of the expen&ture of cash on hand raised f o r a d e f i n i t e purpose, i n excess ~ - 0 0 ; and by the lawmakers t h i s constitutional r e s t r i c t i o n has been interpreted a s a r e s t r i c t i o n upon the borrowing of money, a s by s t a t u t e a method i s provided f o r the manner of submittine t o the U people the question of borrowing money i n excess of $10,000." (Emphasis supplied). W e would affirm the summary judgment entered by the d i s t r i c t court. Associate Justices.