McGuire v. Philadelphia

91 A. 622, 245 Pa. 287, 1914 Pa. LEXIS 875

• Court: Supreme Court of Pennsylvania
• Decided: May 12, 1914
• Docket: No. 1; Appeal, No. 690
• Status: Published

Opinions

Opinion by

Me. Justice Beown,

By an ordinance of the select and common councils of the City of Philadelphia, approved October 3,' 1913, the corporate authorities of the said city signified their desire to increase its indebtedness in the sum of $8,600,000, and at an election held on the fourth of the following November the electors of tbe city voted in favor of the proposed increase. On February 5, 1914, an ordinance was introduced in the common council of the city, authorizing the mayor to borrow $8,600,000 voted for at the November election. On March 12, 1914, the complainant, a taxpayer of the City of Philadelphia, filed this bill, of which we assumed original jurisdiction, in view of the large public interest involved and of the importance of an early determination of the question whether the borrowing capacity of. the city had been exceeded in authorizing the creation of a new indebtedness of $8,600,000. The averment of the bill is that the said borrowing capacity was exceeded, and its prayers are: “First. That the said election held upon November 4, 1913, be declared void. Second. That the City of Philadelphia, Rudolph Blankenburg, mayor of the said city, John M. Walton, controller of the said city, and William McCoach, treasurer of the said city, the said defendants, and each of them be restrained by injunction preliminary until hearing and perpetual thereafter from carrying out the direction of the said proposed ordinance annexed hereto marked ‘Exhibit A,’ and from borrowing on the faith and credit of the City of Philadelphia, the said sum of $8,600,000, or any part thereof, and from issuing the bonds of the said city for the said sum or any part thereof, and from signing, countersigning or paying any warrant for the cost of advertising the said ordinance. . Third. That the said proposed ordinances be declared invalid.”

The last assessed valuation of taxable property in the city preceding the election of November 4, 1913, was $1,556,323,614, seven per centum of which is the sum of $108,942,652.98. This was the limit of the borrowing capacity of the city when the ordinance of October 3, 1913, was approved and the election on November 4 was held. From the gross indebtedness of the city existing at those dates the defendants insist there ought to have been two deductions — one for $6,524,216.57, the amount of the city’s indebtedness incurred by it for school purposes and subsequently assumed by the school district under the provisions of the Act of May 18, 1911, P. L. 309, and the other for $6,750,000, the amount of authorized but unissued loans. If neither of these two items could have been lawfully deducted from the gross indebtedness of the city, it is conceded that its borrowing capacity was exceeded in authorizing the loan of $8,-600,000. If that capacity was exceeded, the said proposed loan must be declared invalid.

The constitutional provision which concisely, clearly and definitely fixes the borrowing capacity of a city is that its indebtedness “shall never exceed seven per centum upon the assessed value of the taxable property therein.” The indebtedness of a municipality, like that of an individual, is what it owes and can be called upon to pay, and the constitutional limitation upon its power to contract indebtedness is fixed without regard to what assets, real or personal, it may own. It may own absolutely real estate worth seven per cent, of all the taxable property within its limits, but property which it may so own is not to be weighed in the balance in determining how much it may borrow. Under the plain words of the Constitution it is never a question of how much a municipality owns in determining how much it may borrow. County, city, borough, township and school district, corporately rich or poor, all have the same basis for their borrowing capacity. It is the assessed value of the taxable property within their confines, seven per centum of which is the limit to which any of them may borrow. The Constitution says nothing about their assets. If the same were permitted to be taken into account in ascertaining the borrowing capacity of the subdivisions of the State, it would not only not be uniform, but there would be endless controversies and litigation in determining the value of county, city, borough, township and school district assets. The constitutional provision in this respect is alike for rich and poor. In the same year that it went into effect the legislature undertook to increase the borrowing capacity of municipalities by providing that, from their gross indebtedness, for the purpose of ascertaining their borrowing capacity, there shall be deducted “all outstanding solvent debts.” By necessary implication this legislation was forbidden, for the sole constitutional provision, which says nothing of the assets of a municipality, is that its indebtedness shall never exceed seven per centum upon the assessed value of the taxable property therein.

If the question of the constitutionality of the Act of April 20,1874, P. L. 65, had been raised promptly after its passage, we have no doubt that it would have been held to be legislation forbidden by the Constitution by clearest implication. But for more than a score of years it remained unchallenged, and, in the interval, municipalities acted upon its authority, and millions of dollars have been borrowed and disbursed in reliance upon it. It is for this reason that we do not now feel any imperative necessity which would justify us in striking it down: Commonwealth v. Gilligan, 195 Pa. 504; Elliot v. Philadelphia, 229 Pa. 215. In the latter case the solvent debts which the city claimed to deduct from its gross indebtedness were, as appears from the paper books now before the writer, for delinquent taxes and other items which were absolutely due and payable to the city, the proceeds of which it could use to discharge any outstanding obligations. Outstanding solvent debts, within the meaning of the Act of 1874, which a municipality may deduct from its gross indebtedness in ascertaining its borrowing capacity, are debts due to it directly, payment of which it can enforce as one of its quick assets for the liquidation of any of its obligations. Elliot v. City of Philadelphia is authority for this, and nothing more, in construing the meaning of the words “solvent debts” as used in the Act of 1874, and neither now nor at any time in the future will they be given any other than their strict, literal meaning.

At the beginning of the first school year after the passage of the Act of May 18,1911, P. L. 309, commonly known as the “School Code,” the title to all property, real and personal, which had belonged to the City of Philadelphia for public school purposes, passed to the school district of the said city. By section 120 of the said code the school district succeeded to and was required to assume the payment of all indebtedness which had been incurred by the city for school purposes. When the title of the city to the property owned by it for school purposes thus passed to the school district, the net outstanding debt of the city which had been incurred for school purposes was $6,978,080.89. At the time of the election of November 4, 1913, this had been reduced to $6,524,216.57, and one of the two questions for our determination is whether that sum ought to have been included in the indebtedness of the city in ascertaining its borrowing capacity when the loan of $8,600,000 was authorized.

The indebtedness of the city to the amount of $6,524,-216.57, incurred by it for school purposes, is still outstanding in the shape of its valid obligations to pay, and the holder of each of these obligations can look to it for payment. The Act of 1911, imposing upon the school district the obligation to pay this indebtedness, in no manner affects the absolute liability of the city to pay it. The legislature could not have impaired in the least degree these obligations of the city, for both Federal and State Constitutions forbid the passage of any statute impairing the obligation of contracts. The liability of the city to pay remains, in respect to this indebtedness, just the same as if the Act of 1911 had not been passed. What its general indebtedness was before the passage of that act still exists, except so far as it had been paid or reduced.

But it is earnestly contended that, under the Act of April 20, 1874, the amount of the city’s indebtedness assumed by and imposed upon the school district ought to be deducted from the gross indebtedness of the city in determining how much it actually owes. We have already stated what is to be understood as “solvent debts” within the meaning of the Act of 1874, the constitutionality of which we have been constrained to sustain on doubtful ground; and it is easy of demonstration that the deductions claimed by the city for its indebtedness for school purposes are not within the provisions of that act, which are not to be further extended for the purpose of practically increasing the borrowing capacity of a municipality beyond the limit fixed by the Constitution. There is nothing in the Act of 1911 providing how or when the indebtedness incurred by the City of Philadelphia for school purposes shall be paid by the school district. Answer may be made to this that the school district can be compelled to pay whenever the city pays its obligations to those who will look to it for payment. When that will be does not appear from the pleadings. It may be in the remote future, but whether the time of payment is near or far away, the same power that passed the school code may repeal it, and in that event, with all property held for school purposes returned to it, the city might find itself, in the matter of its indebtedness for school purposes, just where it was before the code was passed. By its resolution of October 8, 1912, the Board of Public Education formally recognized the indebtedness of the city for school purposes as a debt of the school district, imposed upon it by the Act of 1911, but the proviso is that the school district shall not pay until sometime in the future. Under the authority conferred upon it by section 506 of the code, the school district might have issued bonds for the purpose of paying the indebtedness of the city for school purposes and handed those bonds over to it; but it did not do so. Suppose, however, it had so acted; the city, with those bonds in its actual possession, could certainly now contend with more reason that the school indebtedness should no longer be charged against its general indebtedness; but we should have to say, even under such circumstances, that the amount of its gross indebtedness remained unaffected, though means for the payment of a portion of the same had been placed in its hands by the school board. This is what was distinctly ruled by a full court in the well-considered case of Brooke v. City of Philadelphia, 162 Pa. 123. It is conclusive that the city’s present contention cannot prevail. It was there held that only the city’s own obligations in the sinking fund could operate as a reduction of its indebtedness, and the reason for this was that so much of its indebtedness as was represented by its own bonds in the sinking fund, purchased by it, had been practically paid. As to all the other securities in that fund it was ruled that the city’s indebtedness was not reduced by them, even though the fund was inviolably pledged, both under the Constitution and an act of assembly, to the payment of the municipal indebtedness. In so holding Mr. Justice Dean said: “As set out in appendix to plaintiffs’ paper book, there are now in the sinking fund, 6 per cents city loan, $14,-233,350; 4 per cents, $1,949,750; 3 per cents, $6,947,000; altogether, $23,130,100 of city certificates purchased by the commissioners. There are, besides these, other securities, not those of the city, in the fund. As to these last, obviously, they remain in the fund, bound by the inviolable pledge which attached to them when they first became part of it. So far as concerns them, they have not yet been applied in payment or redemption of any part of the funded debt. An asset of the city, easily convertible into cash, they undoubtedly are, but as yet they have not operated to the reduction of the funded debt, to which purpose they were pledged. In effect, they only represent the savings of the city, set aside in anticipation of payment of the debt; as to any actual reduction of the debt by them, there has been none; the debt is still an outstanding liability unaffected by the savings, with only an increased ability on part of the city to pay; an increase in ability measured by the cash value of the savings. When used in purchase of the debt, there is a release of the pledge, and a discharge of the obligation, to the amount of the purchase.” This followed the plain words of the Constitution, that, without regard to its own assets for the payment of its debts, the indebtedness of a municipality shall never be increased beyond the limit of seven per centum upon the assessed value of taxable property therein. Brooke v. Philadelphia was subsequently followed by Bruce v. Pittsburgh, 166 Pa. 152, and Schuldice v. Pittsburgh, 234 Pa. 90.

The city does not even hold a debt against the school district, due and payable to it, the proceeds of which it may use for the payment of any of its outstanding obligations. There is a mere promise or obligation by the school district, admittedly solvent, to pay a part of the city’s indebtedness. There is, however, no promise to pay. anything to the city, and no obligation is imposed upon the school district to do so. To contend that a mere promise, or even an obligation, to pay a debt which the city itself owes, is a solvent debt due to it, is to assume that the legislature did not know the difference between a debt due from one person to another and a promise by a third party to pay the same. Solvent debts which the legislature had in mind are debts absolutely due and payable directly to the municipality, without regard to what it may do with the money when received. The indebtedness of the city, incurred by it for school purposes, is still its debt, to be included in determining the amount of its liabilities.

The second question for our consideration is the right of the city to deduct from its gross indebtedness authorized but unissued loans amounting to $6,750,000. If the city’s contention as to this should, prevail, it would mean that a municipality’s indebtedness may be authorized by the corporate authorities and electors to an unlimited amount and that the Constitution permits the authorization of that which it at the same time declares shall not be consummated. This is trifling with the spirit and intent of that instrument, conflicts with common sense in construing it and is in the teeth of the third section of the Act of 1874, which provides that “the indebtedness of any county, city, borough, township, school district, or other municipality or incorporated district, in this Commonwealth, may be authorized to be increased to an amount exceeding two per centum, and not exceeding seven per centum, upon the last preceding assessed valuation of the taxable property therein.” The authorization of indebtedness by a municipality is thus clearly limited by the statute to seven per centum of the assessed valuation of taxable property. In the second section of the same act the municipal authorities are permitted “to authorize” an increase of debt to the constitutional limit. Every authorization of a municipal loan is, therefore, to be regarded as exhausting pro tanto the municipality’s borrowing capacity. It is not conceivable that the framers of 'the Constitution, or the people who adopted it, ever intended that an election should be held to authorize that which it may be impossible to carry out; yet this is the anomalous situation contended for by the defendants. If an increase of one million dollars beyond the seven per cent, limit may be authorized because former authorized loans had not been issued when said increase was authorized, loans to the amount of a hundred million dollars beyond the limit may be authorized. In such a situation who could declare which loans should be issued?

Counsel for defendants seek to justify their contention as to authorized but unissued loans by what was said by the lower court in Redding v. Esplen Borough, 207 Pa. 248. The bill in that case was to enjoin payment by the borough authorities of moneys claimed on a contract for the construction of a sewer alleged to have been illegally entered into by the borough authorities, in view of its indebtedness existing at the time, including authorized but unissued loans. The borough indebtedness, at the time it contracted for the construction of the sewer, including those loans, was $209 less than two per cent, of the assessed valuation of the taxable property within its limits. There was subsequently assessed against it as its portion of the cost of the construction of the sewer the sum of $1,066.89, which it paid; but there was no evidence that this sum had not been actually paid out of the borough’s current funds. While it is true that the court below expressed the opinion that authorized but unissued loans of the borough were not to be regarded as its indebtedness, we are not to be understood as approving this. We affirmed the decree because, with the unissued loans counted as part of the municipal indebtedness at the time the contract was entered into, that indebtedness was not in excess of "the constitutional limit, and it further did not appear, as the court found, that the contract imposed any liability upon the borough. Another case relied upon by counsel for defendants is Thompson-Houston Electric Company v. City of Newton, 42 Fed. Repr. 723, in which there is an expression by the Circuit Court of the United States for the southern district of Iowa that municipal indebtedness is not incurred for municipal improvements until the bonds authorized for the same have been sold and issued. It appeared, however, that, at the time the City of Newton was about to issue the bonds involved in the controversy before the court, the indebtedness of the city was not beyond the constitutional limit, and, therefore, the restraining order was refused. That case is not to be regarded as an authority in support of the defendants’ contention in the present proceeding.

Nothing more need be said in support of our decree of March 30,1914.