No. 12263 

IN THE SUPREME COURT OF THE STATE OF MONTANA 

BURLINGTON NORTHERN INC,, 

successor to Great Northern Railway 

Company, a corporation, 

Plaintiff and Appellant, 

ETATHEAD COUNTY, a political subdivision 

of the State of Montana et al., 

Defendants and Respondents. 

Appeal from: District Court of the Eleventh Judicial District, 

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 Jellison, Kalispell, Montana. 

M. Dean Jellison argued, Kalispell, Montana. 

Submitted: April 24, 1973 

Filed :JfR 13 1973 

4 

Decided : 3v~ 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 

tt 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 to an existing facility (as the 

trial court found) or a new facility. Further, it makes no difference whether a part of the money proposed to be expended in 

the 1968-69 budget was money left over from the previous year or 

money to be raised by taxes during the current year, if the total 

amount proposed to be spent was less than the amount that would 

be raised by the permissible mill levy during the current year. 

The only issue on appeal is whether or not the trial court 

erred in determining that a capital outlay expenditure for an 

existing facility could be discharged by the county by applying 

"cash on hand" first to the expenditure, and then by using the 

available mill levy to raise the balance needed for the Flathead 

County airport operation for the fiscal year ending June 30, 1969, 

We find the trial court erred in reaching its conclusion that 

the financing procedure followed by respondent county was proper. 

Clearly this type of budget procedure violates sections 16- 

1901 through 16-1911, R.C.M, 1947, (County Budget System) enacted 

to give the taxpayer notice as to how his taxes were to be spent 

and protection from the improper use of tax monies. Section 16- 

1904(2) clearly provides that the cash balance in any fund must 

be applied first against ordinary expenses in the budget. "Funds 

on hand" at the end of a fiscal year are to be used to reduce the 

tax requirements of the next fiscal 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 Art. XIIL, Sec. 5, Montana Constitution, 

which provides in pertinent part: 

I1 No county shall incur any indebtedness or liability for any single purpose to an amount exceeding ten thousand dollars ($10,000) without 

the approval of a majority of the electors thereof, 

voting at an election to 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 indebted 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 assessment for state and county taxes previous to the incurring of such indebtedness, and all bonds or obligations 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.2d 543; State ex rel. Ward 

v. Anderson, 158 Mont. 279, 491 P.2d 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 accomplished 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 commissioners 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 determined 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, city or town, as the case may be, 

upon the credit thereof by borrowing money or 

issuing bonds for such purposes, provided that 

no money may be borrowed and no bonds may be 

issued for such purpose until the proposition 

has been submitted to the taxpayers affected 

thereby, and a majority vote to be cast therefor," 

(Emphasis added). 

In 1969, section 1-804, R,C.M, 1947, was amended to allow the 

creation of a "reserve fund" but only for the use by the county 

to "resurface, overlay, or improve existing runways, taxiways and 

rampsft. Even under this amendment, the county could not have financed the remodeling of the administration building in the manner 

which it did. 

There was, as shown previously, some $42,000 left over from 

the previous year, the total 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 taxpayers 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 Art. XIII, 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, to claim that no "indebtedness or 

liabilitytt was created because the money was already on hand. 

In Diederichs, the money on hand came from insurance proceeds as 

a result of a fire 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 is consistent with the rationale of Cause No. 

12390, Burlington Northern Inc. v, Richland County, decided this 

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. 
Mr, Justice Gene B. Daly and Mr, Justice Frank I. Haswell 

dissenting: 

We respectfully dissent to the view of the majority, 

The text of the majority opinion concludes with the statement: 

"This decision is consistent with the rationale of Cause No. 

12390, Eurlington Northern Inc. v. Richland County, decided 

this same date." We agree with the rationale applied in the 

Richland County case and that the rationale applied in the 

present case is consistent with that of the Richland County case, 

however, the facts of the present case are in no way consistent 

with those of the Richland County case. 

In the Richland County case an "indebtedness or liability" 

of $200,000 from the State Aeronautics Board was undertaken by 

the Sidney-Richland County Airport Commissi.on for the "single 

purpose1f of airport runway construction. Repayment of principal 

and interest was to be made by the county from the proceeds of a 

one and one-half mill levy to be reapplied until repayment was 

complete, 

In the present case the Flathead County Board of Commissioners approved expenditure of about $70,000 for remodeling work 

on the airport administration building. Funds remaining from 

previous years' budgets in the amount of about $42,000 and a 

one-half mill levy effected to provide about $29,000 made up 

the total expenditure, The county is permitted under section 

1-804, R.C.E.I. 1947, to impose a "permissive" two mill levy "for 

the purpose of establishing, constructing, equipping, maintaining 

and operating airports * *I1. (Emphasis supplied). The record 

indicates that had the maximum permissive two mill airport levy 

been effected, over $80,000 would have been raised thereby. The 

permissive one-half mill airport levy which was effected, together 

with remaining funds, provided the total amount of authorized 

expenditure. Consequently, there was never any "indebtedness or 

liability" incurred by Flathead County within the meaning of 
Art. XIII, Sec. 5, of the Montana Constitution. 

The application of the constitutional provision contained 

in Art. XIII, Sec. 5, by the majority in the present case, in 

our view, is incorrect, as pointed out in State ex rel. Diederichs 

v, Board of Trustees, 91 Mont, 300, 305, 7 P.2d 543, while 

quoting with approval language from State ex rel. Rankin v. Board 

of Examiners, 59 Mont. 557, 197 P. 988, 992: 

11 I In construing our constitutional provision 

applicable, we have under consideration the 

meaning of the words "debt or liability, " and 

in our view the prohibition intended by these 

words is the creation of a debt or obligation 

of the state in excess of cash on hand and 

revenue provided fort ;k +: %. * * * No provision 

of law has been made for submittina to the 

electors the question of the expen&ture of cash 

on hand raised for a definite purpose, in excess 

~-00; and by the lawmakers this constitutional 

restriction has been interpreted as a restriction 

upon the borrowing of money, as by statute a method 

is provided for the manner of submittine U to the 

people the question of borrowing money in excess of 

$10,000." (Emphasis supplied). 

We would affirm the summary judgment entered by the district 

court. 

Associate Justices.