Court Opinion

ID: 3570958
Source: CourtListenerOpinion
Date Created: 2016-07-05 23:23:44.551016+00
Date Added: 2024-06-11T07:40:56.609429
License: Public Domain

While recognizing the strength of the argument for the restrictions placed upon the "special fund doctrine" as advanced by the California Supreme Court in Garrett v. Swanton, 216 Cal. 220,13 P.2d 725, and cases there cited, I am persuaded that the case at bar affords a field for the application of the distinction made in Lang v. City of Cavalier, 59 N.D. 75,228 N.W. 819, 826, where the city owned a system for the distribution of electrical energy but was without a generating plant, its property was "useless and without value."
Chapter 47, Laws 1919, as amended (chapter 90, art. 26, Comp. St. 1929), commanded that the revenues derived from the operation of any public utility owned and operated by *Page 402 
a municipality, for the purchase or construction of which the municipality shall have issued bonds, to be applied to accomplish two purposes, the first and paramount of which was "(a) to the maintenance of said public utility in good repair, to the improvement and extension thereof and the payment of legitimate expenses of operation," and, secondarily, "(b) to the payment of the interest on the bonds so issued for the purchase or construction of such public utility."
Chapter 57, Laws 1933, authorizes municipalities to issue revenue bonds payable solely out of the unpledged net income of public owned utilities when the governing body of such municipalities declare by ordinance adopted by affirmative vote of two-thirds of the members thereof that it is necessary "for the purpose of making necessary improvements, * * * repairs and betterments of said utility." In the case at bar, the governing body of the town of Springer has declared the necessity for the installation of a new pipe line, rehabilitation filtration plant, and installation of pressure increasing devices. If the distributing system of a waterworks plant gives out, the plant becomes useless and without value. It being the duty of a municipality operating such a utility to supply pure and wholesome water and maintain sufficient pressure for the prevention of disasters by fires, it is readily to be seen that these instrumentalities are necessary to preserve the usefulness and value of the system. Ordinarily I would look with sympathy upon the restrictions to the "special fund" doctrine as developed in Garrett v. Swanton, particularly in view of our holding in Palmer v. City of Albuquerque, 19 N.M. 285, 142 P. 929, L.R.A. 1915A, 1106. It is to be noted, however, that in Palmer v. City of Albuquerque, the only thing decided was that a city could not mortgage its property. It could be argued with force that the same principle applies to the pledge of income of property owned by the city. In that case, this court cited with approval Joliet v. Alexander, 194 Ill. 457, 62 N.E. 861, 863, and East Moline v. Pope, 224 Ill. 386, 79 N.E. 587. The first of these Illinois cases is constantly cited in the decisions of courts of jurisdictions committed to restrictions on the "special fund" doctrine. Passing over the fact that the holding in Joliet v. Alexander has been somewhat restricted by the Illinois Supreme Court, as pointed out by Mr. Justice Sadler, I note that in the opinion in the Joliet Case the court said: "The ordinance proposes to take the income now derived from it, amounting to about $10,000 a year, and devote it to the payment of the certificates. This is existing property and income of the city derived annually from the present system of water works, independent of the extension, and in no manner resulting from or depending upon it."
The case of repairs and betterments necessary to preserve the plant from destruction or impairment and to enable it to function so as to discharge the purpose of its existence is, in my judgment, different from that of an independent extension.
It is suggested, however, that, since the ordinance authorizing the issuance of the *Page 403 
1916 general obligation bonds provided for the establishment of a "bond fund" derived in part from the operation of the waterworks system out of which the governing body might pay interest on the outstanding 1916 bonds, and the tax levies provided for in said ordinance to pay said interest be proportionately reduced, and since the Legislature in the 1919 act (chapter 47) made it mandatory that such a fund be created and so applied, this amounts to a legislative covenant with the taxpayer for his relief (State ex rel. Roswell v. State Tax Commission, 34 N.M. 304, 280 P. 258), and amounts to a dedication of a portion of the revenues derived from the operation of such utilities to the payment of said interest, and, since chapter 57, Laws 1933, only authorized the pledge of the "unpledged net income of public owned utilities," what is proposed to be done under color of the act has the effect under the definition of net revenue erroneously arrived at by the majority to deplete the "bond fund" established by the 1919 Legislature and to require its replenishment from the levy of taxes or other resources of the town.
I am strongly impressed by the contention, but will not elaborate it because I think the majority is in error in their appraisal of the effect of chapter 57, Laws 1933, upon chapter 47, Laws of 1919. In the opinion, it is said of chapter 47, Laws 1919: "It will continue to be the duty of municipalities to conform to the provisions of 1929 Comp. St. c. 90, art. 26, in the conduct of municipal water works systems, except where they issue bonds under chapter 57, in which event, article 26, supra, must give way to the 1933 Act."
This amounts to saying that net revenue as used in the act of 1933 means the balance of a gross revenue derived from the operation of the utility after deducting "all reasonable expenses of operation." Said chapter 47, Laws 1919, was not expressly repealed by chapter 57, Laws 1933, and, as repeals by implication are not favored, it is our duty to seek reconcilement rather than conflict.
In my opinion, it was not intended by chapter 57, Laws 1933, to disturb the operation of chapter 47, Laws 1919.
The 1933 act authorizes municipalities to pledge the income from the operation of municipally owned public utilities. That the Legislature had the power to do so in 1919 is not questioned. That the Legislature of that year having within a few days after the adoption of chapter 47, Laws of 1919, affirmatively denied to municipalities such power indicated a legislative belief that it had already pledged or devoted or dedicated such revenues for certain specific purposes. If the Legislature may authorize a municipality to pledge revenues derived from operation of a public utility, there seems no reason for saying that it may not dispense with the action of the governing body of such municipalities and do so itself.
Section 2 of chapter 57, Laws 1933, says that the revenue bonds are payable out of net income, and such municipalities are authorized to pledge such revenue to secure the payment thereof. Section 6 of the act does not *Page 404 
say that the gross revenues from the plant, less reasonable expenses of operation, shall be pledged. To be sure, it is mandatory upon the governing bodies of municipalities issuing revenue bonds to establish such rates for service rendered by such utility as will create a net income which shall be sufficient to pay interest coupons on said revenue bonds as they shall mature, and to provide a sinking fund which shall be adequate to discharge said bonds as and when they shall mature, and it shall be their duty to maintain such rates continuously until such bond issue has been fully liquidated. But it is not there or elsewhere in the act said that rates for such service may not be established which will create revenue sufficient to make further repairs, improvements, and extensions, after the proceeds of the revenue bonds have been all expended, and to create revenue to pay the interest on prior existing bond issues.
If it be said that construction would admit of the inclusion of repairs, improvements, and extensions within the phrase "all reasonable expenses of operation," it may be said also that there may be found considerable authority that interest is an operating expense, and should also be embraced in said phrase.
What is meant by the authorization of chapter 57, Laws 1933, to issue revenue bonds payable solely out of the "unpledged net income," etc.?
It seems to contemplate pledges of revenues derived from the operation of municipally owned utilities existing prior to its enactment, or that thereafter more than one pledge might be made under the authority of this statute. In either event, it would be necessary to establish such rates as would create revenue sufficient after paying reasonable expenses of operation to discharge bond pledges, and the definition of net income entertained by the majority would not work. The California Supreme Court, in Garrett v. Swanton, supra, referring to a late Missouri case, said:
"A case very similar to the instant case, likewise involving a Fairbanks, Morse  Co. contract, has been recently decided by the Circuit Court of Appeals, Eighth Circuit — City of Campbell, Mo., v. Arkansas-Missouri Power Co., 55 F.2d 560. In that case the action was brought to enjoin the city and Fairbanks, Morse  Co. from carrying out the provisions of a contract for the purchase of certain machinery to be used by the city as a part of its municipal light plant. It appears that at the time the contract was entered into the city, by means of a bond issue approved by the people, already had constructed a distributing system and a power house. The contract with Fairbanks, Morse  Co. was for the purpose of certain machinery for the power plant. The total purchase price of $62,366.40 was to be paid in seventy-two monthly installments, each installment being evidenced by an order providing that said payment was to be made solely out of the light and power fund, and such obligation was not to be a general obligation of the city, `but is a special obligation payable only *Page 405 
out of the net revenues of the Light  Power Plant.' By the terms of the contract net revenue was defined as the balance of the gross receipts of the power plant after the payment of the legitimate and necessary expenses of the operation of the plant, plus interest on the bond issue, were deducted. It is to be noted that the legal and factual situation presented by the above contract is almost identical with those presented in the instant case. In fact, the contract above outlined presents a situation much stronger in favor of upholding the contract than does the case at bar, for the reason that the specific fund from which the payments were to be made was defined as the fund remaining in the light and power fund after interest on the bonds was deducted, a provision not found in the contract here under consideration. The court held that the contract violated the debt limitation clause in the Missouri Constitution."
Long before the contract referred to in the preceding quotation was entered into, the Missouri Legislature adopted an act almost identical in purpose and very similar in arrangement to our chapter 47, Laws of 1919, making it the duty of municipalities operating waterworks plants to charge rates which —
"shall be sufficient to raise funds adequate:
"I. To pay the current running expenses for maintaining the water works system, and provide for such extensions and renewals as same may become necessary.
"II. To provide for the payment of the interest on the bonded indebtedness.
"III. To provide (sinking fund)."
See R.S. of Missouri 1919, § 9113 (Mo. St. Ann. § 7675).
Of course, I place no greater reliance upon this circumstance than that with a statute similar to our chapter 47 of Laws of 1919 before them, the parties, including Fairbanks, Morse  Co., whom the books disclose have had vast experience in drafting similar contracts, so as to avoid running counter to limitations upon the debt contracting powers of municipalities, deemed it just and wise, and perhaps safer, to provide for a payment of interest on outstanding bonds out of revenue derived from operation of the utility before making application of such revenue to the payment of the more recent issue of revenue bonds on pledge orders. Chapter 57, Laws 1933, contains authority broad enough to apply to a number of varied situations. Revenue bonds under it might be issued by a municipality operating a public owned utility, which was not in debt, in which event the present question would not arise. Chapter 47, Laws of 1919, was not designed as a legislative direction to all municipalities owning and operating a public utility, but was designed to direct and control only such municipalities so operating public owned utilities "for the purchase or construction of which the municipality shall have issued bonds." In the case of such municipality as had not issued bonds for the purchase or *Page 406 
construction of its public utility, no restraint would be upon it if it desired to avail itself of the provisions of chapter 57, Laws of 1933, so far as the statute is concerned. Since only "sufficient" of the net income is pledged as will pay the interest and the principal of the revenue bonds, I am not sure that we need a definition of "net revenue," but, if one is required, I think, in view of the 1919 and 1933 legislation under the facts in this case, a proper definition of net revenue would be, in effect: "The balance of the gross receipts of the municipality's water works plant after the payment of all reasonable expenses of operation, including interest on outstanding bonds issued for the purchase or construction of the public utility."
Substantially such a definition and application of the statutes would eliminate the objection that the transaction as a whole would result in the resources of the town becoming depleted by the requirements of the proposed new issue of revenue bonds, and consequently require replenishment from taxes or other revenues of the town. Because I think this is a reasonable construction of the 1919 and 1933 acts, as applied to the situation in the case at bar, I concur in affirmance of the judgment. *Page 407