Case Name: Schuchman et al. v. Pittsburgh et al.
Court: Supreme Court of Pennsylvania
Jurisdiction: Pennsylvania
Decision Date: 1945-01-20
Citations: 351 Pa. 527
Docket Number: 
Parties: Schuchman et al. v. Pittsburgh et al.
Judges: Before Maxey,. C. J., Drew, Linn, Stern, Patterson, Stearne and Jones, JJ.
Reporter: Pennsylvania State Reports
Volume: 351
Pages: 527–541

Head Matter:
Schuchman et al. v. Pittsburgh et al.
Argued Jan, 18, 1945.
Before Maxey,. C. J., Drew, Linn, Stern, Patterson, Stearne and Jones, JJ.
Charles F. C. Arensherg and Ella Qraubart, with them Patterson, Crawford, Arensherg & Dunn, for plaintiffs.
Anne X. Alpern, City Solicitor, and Elder W. Marshall, with them James H. Beal, Jr., and Reed, Smith, Shaw & MeClay, for defendants.
January 20, 1945.

Opinion:
Opinion by
Mr' Chief Justice Maxey,
Our decision is that Ordinances No. 312 and No. 313 of the City of Pittsburgh set forth in the Bill of Complaint and the proposed official actions of Cornelius D. Scully, Mayor of the City of Pittsburgh, and Edward R. Prey, Controller of the City of Pittsburgh, of signing and counter-signing the bonds referred to in the ordinances named and the proposed sale by the City of Pittsburgh, and the Mayor and Controller thereof, of the bonds of that city, authorized by those ordinances, are not forbidden by the Constitution and are in accordance with the statutes of Pennsylvania, and the injunction which in the bill filed we are asked to issue against the City of Pittsburgh and the officials above named is therefore refused and the bill is dismissed. Each party to pay its own costs.
March 21, 1945:
An opinion discussing the questions involved, in this case will be filed later.
Opinion by Me. Justice Hoeace Steen,
On December 1,1944, the Mayor of the City of Pittsburgh transmitted to the Council the departmental estimates for the city's requirements for the year 1945 amounting to $24,029,433, and an estimate of revenues of $24,014,906. While this indicated an almost balanced budget the Mayor stated that there was an urgent need for increases of salaries and wages of city employes, for the creation of new positions, and for equipment, material and services necessary for the repair and maintenance of the municipality's physical plant, all of which would involve large additional expenditures. He expressed the opinion that the millage should not be increased and that the only alternative for raising the required revenue was by the issue of refunding bonds to liquidate a portion of the city's funded indebtedness maturing in 1945.
In response to this communication the Council, on December 4,1944, enacted an ordinance fixing the millage at the same rate as previously, and on the same day passed the ordinances, No. 312 and No. 313, which are the subject of the present controversy. Ordinance No. 312 directed the issuance and sale of bonds of tbe city in the amount of $600,000 for tbe purpose of refunding that amount of "people's" bonds maturing on March 1, and April 1,1945. Ordinance No. 313 .directed tbe issuance and sale of bonds in tbe amount of $900,000 for tbe purpose of refunding that amount of "councilmanic" bonds maturing on February 1, March 1,-April 1 and May 1, 1945. Each of these ordinances recited, that "There are now and will be insufficient assets in tbe respective sinking funds applicable to the payment of tbe principal of tbe aforesaid bonds at tbe time said bonds mature and are subject to redemption-and payment by tbe City of Pittsburgh" ; also that "In the opinion of Council, there will be a default in tbe payment of tbe principal of tbe bonds maturing as aforesaid within one year, unless refunding bonds 'of tbe City of Pittsburgh are issued for tbe purpose of redeeming tbe aforesaid bonds maturing during tbe year 1945." Both ordinances provided that "All assets in tbe sinking fund applicable to tbe payment of tbe principal of tbe bonds refunded shall first be so applied to tbe payment thereof, and thereafter tbe proceeds arising from tbe salé of tbe . . . refunding bonds shall be applied to tbe redemption of said . . . bonds maturing during the year 1945, and for no other purpose whatsoever."
On December 30,1944, Council passed an appropriation ordinance which reduced tbe allotment for sinking fund purposes by tbe sum of $1,500,000 (that amount being provided for by tbe proposed sale of refunding bonds), and appropriated the larger part of that sum for increases of wages and salaries, for tbe establishment of new positions, and for. repairs to sewers, bridges and other property and equipment of tbe city.
Plaintiffs, who are property owners and taxpayers of tbe City of Pittsburgh, filed a bill of complaint in,the Court of. Common Pleas of Allegheny County to restrain the city, its Mayor and Controller, from issuing and selling tbe two issues of refunding bonds in- tbe aggregate amount of $1,500,000 authorized by these ordinances. Answers to the bill were filed by ;defendants, but no material issues; of fact were raised. Because of the importance of the case to the City of Pittsburgh and the need for a speedy decision we granted the petition of defendants to have a writ of special certiorari issue removing the record to this court for the purpose of having-the matter considered here in the first instance. Our decision was handed down on January 20, 1945, and the present opinion is filed in pursuance of the decree then rendered. ,
The refunding bonds were to be issued under and by virtue of the authority conferred by the Municipal Borrowing Law of June 25, 1941, P. L. .159. Section 503 of that act provides that "Where any municipality has issued general obligation bonds either originally or for refunding purposes to secure any debt of. such municipality which may have matured but remain unpaid and uncancelled or are about to mature and become payable and there is at the time or will, in the opinion of the council in the case of cities and boroughs and the corporate authorities in the case of other municipalities, be a default in the payment of principal thereon within one year, the municipality for the purpose of paying off. such bonds may authorize, issue and sell refunding serial general obligation bonds bearing interest at a rate not exceeding six per centum per annum in addition to any taxes the payment of which may be assumed by the municipality, the maturity of any such bonds not to exceed twenty years after .the date thereof, and not exceeding in the aggregate the amount of the bonds or other evidences of indebtedness So to be paid. All assets in the sinking fund applicable to the payment of the principal of the bonds proposed to be refunded shall first bé so applied, and the balance of such issue only shall be redeemed by the issue of new bonds."
The provisions of the two ordinances under consideration comply in all respects with the conditions and directions thus prescribed. Plaintiffs, however, raise questions regarding the interpretation of this section of the statute and as to its constitutionality. They contend that the condition that "there is at the time or will, in the opinion of the council . , be a default in the payment of principal thereon within one year" should not be construed so as to allow Council to entertain or. express such an opinion if the revenues derived from taxation will be sufficient to liquidate the bonds maturing during the year and if a default in the payment of the principal will therefore arise only if all such revenues are devoted to the general needs of the city government instead of the amount required to meet the maturities being first placed in the sinking fund as provided by law.
The view thus advocated by plaintiffs is wholly untenable, for, if adopted, it would mean in effect that no refunding bonds could ever be issued and sold. It is inconceivable that the City of Pittsburgh or any other municipality will ever become reduced to such a desperate condition as to be unable to raise by taxation merely the amount needed to meet its sinking fund requirements, and, even if such a situation should materialize, it is obvious that no purchaser could then be found who would purchase refunding bonds issued under such conditions. Plaintiffs suggest that the statute would come into use in cases where "the bank in which the sinking funds were deposited closed, or where taxpayers were unable to pay their taxes because of a depression or other emergency, or where moneys in the sinking fund had been stolen". Surely the authority given by the Municipal Borrowing Law to refund maturing bonds was not intended to be limited to such extreme situations as those thus depicted. What was evidently intended was that the "default" which would give rise to the right to refund maturing bonds would occur whenever, in the opinion of Council, the taxes that could reasonably be levied and collected would be insufficient to meet the general operating expenses of the municipality in addition to the sinking fund requirements. A city which, even if it liquidated its funded indebtedness, could not obtain sufficient revenues to operate its essential governmental activities, would automatically cease to exist.
It need scarcely be stated that this court is not concerned with the wisdom of the policy adopted in this instance by the Council of the City of Pittsburgh. Unduly burdensome taxation should, as far as possible, be avoided, but whether the millage rate in Pittsburgh has reached a practical maximum, whether the government of the city can be more economically administered, whether the need for increases in the salaries and wages of its employees and for the repair and rehabilitation of its plant and equipment is as urgent as represented, whether better methods of financing are reasonably available, are all questions for legislative, not judicial, consideration. If, in the judgment of the Council, the existing situation can be better met by issuing refunding bonds than by levying taxes sufficient, when added to the moneys in the sinking fund, to liquidate the maturing bonds, there is no right in a court to interfere with that judgment unless it involves a violation of law.
The attack upon the validity of the ordinances is based upon Article IX, section 10 of the Constitution, which makes it obligatory upon a municipality incurring any indebtedness to provide for the collection of an annual tax sufficient to pay the interest and also the principal thereof; and upon Article XV, section 3, which provides that every city shall create a sinking fund, which shall be inviolably pledged for the payment of its funded debt. Several statutes have been passed implementing these constitutional mandates, beginning with the Act of April 20,1874, P. L. 65, sections 2 and 4, and extending down to the Municipal Borrowing Law of 1941, section 207 and Article IV. The Act of March 7, 1901, P. L. 20, for the government of cities of the second class, Article XIX, section 3, VII, and the amendatory Act of June 27, 1913, P. L. 644, section 3, contain such provisions. Moreover, the various ordinances under which the maturing bonds were issued in the present case observed these requirements by providing prospectively for the levy and assessment annually of a tax sufficient' to pay the interest on the bonds and for a sinking fund for the payment of the principal as it became due, and the bonds themselves contained similar language. It is also true that the decisions of this court have time and again emphasized the inviolability of sinking funds for the redemption of municipal obligations and the need for scrupulous performance of the duty to deposit the required annual amounts into such funds from the tax revenues of the municipality. "That these constitutional provisions [referring, inter alia, to Art. IX, sec. 10] are mandatory and not merely directory, and are to be viewed in the light of limitations upon the powers to be exercised by municipalities, seems to us clear; They are safeguards in the interest of the taxpayer that must be observed": Borough of Rainsburg v. Fyan, 127 Pa. 74, 77, 17 A. 678, 679. "No temptation however great, no necessity however imperious, shall move the city to divert one dollar of the [sinking] fund to a purpose other than the redemption or payment of the debt": Brooke v. Philadelphia, 162 Pa. 123, 130 29 A. 387, 390. "The section [Art. IX, sec. 10] is an explicit and express command to subdivisions of government to perform & duty, a duty which may be enforced by mandamus": Ohlinger v. Maidencreek Township, 312 Pa. 289, 293, 167 A. 882, 884. More recent affirmations of these principles are to be found in Corporation for the Belief of Widows v. Philadelphia, 317 Pa. 76, 176 A. 727; Sinking Fund Commissioners of Philadelphia v. Philadelphia, 320 Pa. 394, 182 A. 645; Clark v. Philadelphia, 328 Pa. 521, 196 A. 384. All these cases and numerous others make it perfectly clear that, after levy made and tax collected and deposited to the credit of the sinking fund, the fund thus appropriated cannot be diverted to other purposes. But here no question , is involved as to the integrity of any of the sinking funds of the City of Pittsburgh, nor has there been any diversion of moneys from • those funds or from any tax levies required to liquidate the city's funded indebtedness. The moneys in the sinking funds applicable to the payment of the maturing bonds are to be used for that purpose. There has been no breach, of the contracts entered into with the bondholders, for obviously it makes no difference to them from what source the money is derived which is to be used for the payment of their bonds.
There is nothing in the Constitution or .statutes of Pennsylvania which requires that the funded indebtedness of a municipality shall be paid only out of moneys derived from taxation' and accumulated in the sinking funds. On the contrary, beginning with the Act of April 20,1874, P. L. 65, see. 7, passed contemporaneously with the adoption of the Constitution, there have been numerous statutory enactments providing for the refunding of municipal indebtedness. Such an act, for example, was that of April 14, 1881, P. L. 10, which was extended to cities of the first and second classes by the amendatory Act of March 1, 1899, P. L. 6; other examples are the Acts of January 5, 1934, P. L.- 218, and May 9, 1935, P: L. 155. Thus we find a series of statutes running side by side with those providing for the maintenance and integrity of the sinking funds, and between these two chains of enactments there is no conflict or inconsistency ; they establish two different methods of liquidating the maturing bonds of municipalities, the one method, that of refunding, to be used only under the circumstances and conditions specifically prescribed.'
A refunding operation does not increase the municipal indebtedness but is merely a continuation thereof; it is not the creation of a new debt in ascertaining the constitutional limit of two per centum of the assessed valuation of property beyond which the debt cannot be increased except by a vote of the people: Hirt v. City of Erie, 200 Pa. 223, 49 A. 796; Schuldice v. Pittsburgh, 234 Pa. 90, 99, 82 A. 1125, 1128; Madden v. Borough of Mount Union, 322 Pa. 109, 117, 185 A. 275, 278. Therefore it need not be submitted for approval by the electorate; the bonds which refund so-called "people's" bonds adopt their character as electoral indebtedness: Commonwealth v. Cannon, 308 Pa. 321, 162 A. 277. The Municipal Borrowing Law itself provides, section 501, that "Funding and refunding bonds may be authorized, issued and sold without the assent of the electors. General obligation bonds issued to fund or refund bonds issued or debt incurred with the assent of electors shall evidence debt incurred with the assent of electors."
It is urged upon us that a policy of refunding indebtedness instead of liquidating it through taxation encourages extravagance. But Article IX, section 8 of the Constitution limits the lawful indebtedness of municipalities to a prescribed percentage upon the assessed value of the taxable property, and, as long as that limit is not exceeded, those who drafted and the electors who approved the Constitution apparently deemed it of minor importance over what duration of time a municipality might choose to remain in debt. It was evidently anticipated that there would come times and occasions when municipalities, like individuals, might be obliged, because of straitened financial circumstances, temporarily to renew outstanding obligations instead of being obliged to liquidate them out of shrunken tax revenues.
For the reasons indicated the Court decided, as set forth in its decree of January 20, 1945, that ordinances No. 312 and No. 313 of the City of Pittsburgh, and the issue and sale of the bonds therein .authorized, are not forbidden by the Constitution or the statutes of Pennsylvania, and accordingly the injunction prayed for was refused and the bill of complaint dismissed.
Subsequently the Board of Property Assessment, Appeals and Review certified to the Controller the total assessed valuations of real estate for the year 1945 in a much less amount than for the previous year, thus indicating that the receipts from taxation would not reach the amount assumed by the Mayor.
The so-caUed, Charter Act of. June 25, 1919, P. L. 581, Art. XVIII, section 2 and section 8, contain similar provisions for the City of Philadelphia.
The indebtedness of the City of Pittsburgh is well within the constitutional limit.