Opinion
Page __
__ Cal.App.2d __ 337 P.2d 153 CITY OF PALM SPRINGS, a Municipal Corporation, Petitioner, v. Mary G. RINGWALD, City Clerk of the City of Palm Springs, Respondent. Civ. 6000. California Court of Appeals, Fourth District March 26, 1959Hearing Granted May 20, 1959.
[337 P.2d 154] Jerome J. Bunker, City Atty., Palm Springs, Kirkbride, Wilson, Harzfeld & Wallace, Ernest A. Wilson, San Mateo, for petitioner.
Thompson & Colegate, Roy W. Colegate and F. Gillar Boyd, Jr., Palm Springs, for respondent.
STONE, Justice pro tem.
Petitioner, City of Palm Springs, is a general law city governed by a city council. An ordinance was enacted by the council pursuant to the Parking District Law of 1951 (Streets & Higfhways Code Section 35100 et seq.) which provides for a proposed parking district to be known as Parking District No. 1 of the City of Palm Springs. To pay the cost of acquiring property for the parking lots and to construct improvements and install parking meters, the ordinance provides that bonds shall issue in the amount of $1,400,000. It further provides that the bonds and interest thereon are not to be a debt of the City nor a charge, lien, or incumbrance, legal or equitable, on any of the City's property or upon any of its income or receipts or revenues other than the revenues to be pledged to the payment thereof. The revenue to be pledged is to be derived from the following sources: (1) revenue from parking facilities to be acquired; (2) the net revenue from street parking meters existing or to be installed within the proposed district; (3) contributions of money by the City to the district; and (4) the creation of a special fund to be supplied from future revenue from the City's sales and use taxes. The first of the three proposed methods of financing the parking district bonds are specifically enumerated in Streets and Highways Code section 35411. There is no provision in the act for the pledge of sales and use tax revenue for that purpose. Petitioner urges that such authority derives from section 35255 of the Streets and Highways Code, which reads:
'Additional contributions by city. The statement of the amount of city contribution in the petition or in the resolution of intention shall not prevent the city from making additional [337 P.2d 155] contributions to the project before or after the issuance of bonds therefor and shall not prevent the city from paying all or any part of the incidental expenses in connection with the proceedings under this part.'
Petitioner's theory is that if the City is empowered to make contributions 'after the issuance of bonds' it has implied authority to pledge those contributions in futuro. Based upon this premise the City has framed its ordinance to provide that a special fund shall be established to be supplied by a pledge of future use and sales tax revenue. The respondent City Clerk refuses to publish the ordinance upon the ground it and the bonds proposed to be issued pursuant to it are and will be invalid upon two grounds: first, 'That the proposed ordinance and subsequent bond issue will violate the constitutional limitations on municipal debt contained in Article XI, Section 18 of the California State Constitution'; and second, 'That the proposed ordinance and subsequent bond issue will be invalid in that they do not follow the provisions of the Parking District Law of 1951'.
Petition for Writ of Mandate Proper Remedy.
A question has been raised as to whether mandamus is a proper remedy. Before taking up the two objections to the ordinance raised by respondent it should be noted that mandamus is an appropriate remedy to compel respondent to publish the ordinance if it meets the requirements of the law since the acts demanded are ministerial duties. City of Walnut Creek v. Silveira, 47 Cal.2d 804, 807, 306 P.2d 453; City of Oxnard v. Dale, 45 Cal.2d 729, 731, 290 P.2d 859.
Does the Pledge of Sales and Use Tax Revenue in Futuro Violate Article XI Section 18 of the California Constitution?
The City proposes to pledge as a trust fund part of the City sales and use tax revenue to be received in future years. This sales and use tax revenue is to supplement the income from the operation of the parking areas to be acquired, and from the parking meters, because such income alone would be insufficient to discharge the bond payments as they are to become due. Respondent contends that a diversion of future sales and use tax revenue from the general fund of the City would violate the provisions of Article XI, Section 18 of the California Constitution which provides, insofar as pertinent here:
'No county, city, town, township, board of education, or school district, shall incur any indebtedness or liability in any manner or for any purpose exceeding in any year the income and revenue provided for such year, without the assent of two-thirds of the qualified electors thereof, voting at an election to be held for that purpose, nor unless before or at the time of incurring such indebtedness provision shall be made for the collection of an annual tax sufficient to pay the interest on such indebtedness as it falls due, and also provision to constitute a sinking fund for the payment of the principal thereof, * * *.'
The City does not propose to hold a bond election nor seek the approval of the bonds by two-thirds of the electors. Petitioner asserts that such an election is unnecessary because the sales and use tax revenues are to be pledged to a special fund and therefore Section 18, Article XI is not controlling.
Special Fund Doctrine.
California has long recognized the 'special fund doctrine' which generally stated holds that revenue bonds or other obligations of a governmental body which are payable solely from a special fund do not violate Section 18, Article XI of the Constitution provided the governmental body is not liable to maintain the special fund out of its general fund or by tax levies should the special fund prove insufficient. This doctrine has been created by decisions of the courts and not by statute.
[337 P.2d 156] The California cases which have recognized and defined the doctrine in this state have placed certain limitations upon its applicability. It has been held first that the indebtedness so created must not be an indebtedness or obligations of the governmental body concerned, which in this case would be the City. This requirement has been satisfied by petitioner as the ordinance provides by section 2930:
'Bonds Not a Debt. The bonds and interest thereon are not a debt of said City, nor a charge, lien or encumbrance, legal or equitable, upon any of its property or upon any of its income or receipts or revenues, other than the revenues which have been pledged to the payment thereof as herein provided.'
The second requirement enunciated by the cases is that payments into the special fund beyond the current year, that is, payments in futuro, cannot be a charge upon the general fund. Rather, the revenue must be supplied by the agency to be benefited. In each decision upholding the special fund doctrine the payments pledged to be paid into the special fund have been from the revenue of the particular project to be benefited or the district or agency of which the project was to become a part. A review of the California cases which have recognized and defined the special fund doctrine, in relation to the source, of revenue and the project benefited, reveal the following: Ryan v. Riley, 65 Cal.App. 181, 190, 223 P. 1027. Motor Vehicle Department benefited, special fund derived from the use of highways; Shelton v. City of Los Angeles, 206 Cal. 544, 275 P. 421, Department of Water and Power benefited, the special fund provided from revenue derived from Department of Water and Power; In re California Toll Bridge Authority, 212 Cal. 298, 302, 298 P. 485. Toll Bridge Authority benefited, special fund provided from revenues collected as tolls by the Toll Bridge Authority; California Toll Bridge Authority v. Kelly, 218 Cal. 7, 13, 21 P.2d 425, special fund provided from tolls to be collected from use of particular bridge for which bonds issued; Department of Water and Power of City of Los Angeles v. Vroman, 218 Cal. 206, 22 P.2d 698, power facilities of city benefited, special fund derived from the sale or use of electric energy; Housing Authority of Los Angeles County v. Dockweiler, 14 Cal.2d 437, 460, 94 P.2d 794, improvements to Housing Authority, revenue derived from housing project and any annual contributions made by the Federal Authorities to the Housing Authority; City of Glendale v. Chapman, 108 Cal.App.2d 74, 238 P.2d 162, improvements to be made to existing water works, special funds supplied by revenue collected by water works; Board of State Harbor Commissioners for San Francisco Harbor v. Dean, 118 Cal.App.2d 628, 631, 258 P.2d 590. San Francisco harbor benefited, special fund provided from revenue derived from harbor facilities; City of Oxnard v. Dale, 45 Cal.2d 729, 732, 290 P.2d 859, sewer system benefited, special fund derived from gross revenues from the sewer system.
Prior to the decision of City of Oxnard v. Dale, supra, there had been some doubt whether the source of revenue for the special fund was restricted to the improvements for which the bonds were issued, or whether there could be a pledge of revenue from the entire facility or agency which was to be benefited. The broader view was adopted by the court and the Special Fund Doctrine in California was clarified accordingly. The rule governing the source of the special fund was delineated as follows, 45 Cal.2d at page 733, 290 P.2d at page 861:
'The cases in California are not entirely clear as to the extent of the operation of the special fund doctrine, and there is a conflict of authority on the subject in other states. Some of the courts in other jurisdictions have held that revenue bonds payable solely from a special fund will not be free from the constitutional limitation unless the fund is restricted to the revenues from the particular improvement which is to be constructed out of the proceeds of the bonds in question, but [337 P.2d 157] under the prevailing view the doctrine may be applicable where the revenues of the entire existing system, as well as those of the proposed improvement, are pledged. See Joint Report of Committees of the American Society of Civil Engineers, the Section of Municipal Law of the American Bar Association and others (1951), 12 Ohio State L.J. 147, 182, st seq.; 38 Am.Jur. 155-156.'
Petitioner contends that the Supreme Court, by its decision in City of Walnut Creek v. Silveira, 47 Cal.2d 804, 306 P.2d 453, overruled all of the prior decisions which restrict the doctrine in so far as the source of the revenue supplying the special fund is concerned. However, when construed in the light of its facts the Walnut Creek case does not overrule City of Oxnard v. Dale, supra, and the long line of cases which preceded it. The question before the court was the constitutionality of the Limited Obligation Bond Law of 1955, Gov.Code, § 43648 et seq. That act authorized cities of less than 4,000 population to issue Limited Obligation Bonds which were to be paid solely from sales and use taxes, provided the proceeds from the bonds were used for the acquisition, construction and completion of certain types of municipal improvements. The Limited Obligation Bond Law specifically made a favorable vote of two-thirds of the electors voting a prerequisite to the issuance of the bonds authorized by the act. Government Code, Sec. 43614. This is the same voting requirement contained in Section 18, Article XI of the Constitution. City of Fairfield v. Hutcheon, 33 Cal.2d 475, 477, 202 P.2d 745. Compliance with this requirement was had in the Walnut Creek case as the court said, 47 Cal.2d at page 808, 306 P.2d at page 454, 'The election was duly and regularly held in the manner provided by law; two-thirds of the votes cast at the election were in favor of, and authorized the issuance of the limited obligation bonds'. Thus in the Walnut Creek case the Supreme Court did not have before it the question of whether or not that portion of Section 18, Article XI which requires a favorable vote of two-thirds of the electors voting was dispensed with. It is also significant that in the Walnut Creek case, supra, 47 Cal.2d at page 813, 306 P.2d at page 457, the court as authority for its ruling cites the cases of City of Oxnard v. Dale, supra; Department of Water and Power of City of Los Angeles v. Vroman, supra; California Toll Bridge Authority v. Kelly, supra; In re California Toll Bridge Authority, supra; and Shelton v. City of Los Angeles, supra, all of which restrict the special fund doctrine to those situations where the income is derived from the agency to be benefited. Further, the court in support of its holding quotes with approval 47 Cal.2d at page 813, 306 P.2d at page 457, the following limitation enunciated in City of Oxnard v. Dale, supra: "An obligation which is payable out of a special fund is not an 'indebtedness or liability' of a governmental body within the meaning of section 18 of article XI of the Constitution if the governmental body is not required to pay the obligation from its general funds, or by exercise of its powers of taxation, should the special fund prove insufficient." We deem the words 'not required to pay the obligation from its general funds' to be controlling. The sales and use taxes which petitioner proposes to pledge are excise taxes unrelated to the parking district, and such revenue comes within the meaning of the term 'general funds'. We conclude that the case of City of Walnut Creek v. Silveira, supra, does not overrule City of Oxnard v. Dale, supra, in so far as the source of revenue supplying the special fund is defined therein. Rather, it holds that revenue bonds or other obligations payable solely from a special fund established pursuant to either (1) the authority of constitutional legislation, or (2) the special fund doctrine as enunciated by the Supreme Court in City of Oxnard v. Dale, supra, do not violate Article XI, Section 18 of the Constitution. The special fund established by the ordinance before us is not authorized by the Parking District Law of 1951, nor does it meet the requirements [337 P.2d 158] of the special fund doctrine. Therefore, the revenue to be derived from the sales and use tax, which is an excise tax, may not be diverted from the general fund for a period beyond the particular year unless there is compliance with Section 18, Article XI of the California Constitution.
Does Article XI, Section 18 Apply Only to Property Taxes?
Petitioners contend that Article XI, Section 18 is intended to apply only to property tax revenues. No authority is cited for this position. We think the reason none is cited is that section 18 uses the language 'exceeding in any year the income and revenue provided for such year'. It may be true that at the time section 18, Article XI was adopted a city or county received very little income or revenue other other than that derived from property taxes. That fact if conceded does not support an implication which would justify a restrictive interpretation of the words 'income and revenue' which are clear and unambiguous. The foresight of those who framed the provision has been demonstrated during the intervening years. Cities and counties have developed into more and more complex governmental organizations offering many new and widely varying types of services. The increase in volume as well as variety of services demanded by an evolving society has added to the cost of government. Cities and counties have found it increasingly difficult to meet such costs by property tax revenue alone. Necessity has required them to devise ways of supplementing that source of income. The sales and use tax with which we are concerned is a pertinent example of such a tax. The scope of Article XI, section 18 encompasses not alone property taxes, but the other types of 'income and revenue' taxes which produce revenue for the general fund.
Petitioner also contends: 'It the city makes reasonable provisions for its creditors, it should be permitted, in the exercise of its taxing power, to determine for what objects of public convenience and welfare its power shall be exercised and to appropriate money for those objects'. We consider this argument completely irrelevant. The purpose of section 18, Article XI of the Constitution is not to interfere with the city's exercise of its discretion in determining for what objects of public convenience and welfare its power shall be exercised and for which money may be appropriated. Arther, it is designed to afford the people who are required to pay the cost of providing such objects of public convenience and welfare an opportunity to express their approval or disapproval of a long term indebtedness. The constitutional provision does not prohibit the legislative body of the city from spending any or all of its current income for whatever it deems to be proper or necessary objects of public convenience or welfare. It simply provides that the legislative body may not encumber the general funds of the city beyond the year's income without first securing the consent of two-thirds of the electorate.
Do the Ordinance and Proposed Bond Issue Violate the Parking District Law of 1951?
The answer to this, respondent's second objection, is largely answered by the discussion of respondent's first objection. Petitioner relies on section 35255 of the Streets and Highways Code which permits the city council to make contributions after the issuance of the bonds as its authority for pledging future sales and use tax revenue. If this section is interpreted as petitioner contends it would impute to the legislature an intent to enact legislation which contravenes Article XI, Section 18 of the Constitution. This would be contrary to settled judicial principles which require an interpretation of legislation consonant with constitutionality. Shealor v. City of Lodi, 23 Cal.2d 647, 653, 145 P.2d 574. Therefore, we conclude that section 35255 does not authorize a pledge or a diversion of future revenue from the general fund.
[337 P.2d 159] Respondent raises additional questions concerning the adequacy of the petition which was circulated preparatory to forming the district. We deem it unnecessary to discuss those questions in view of the holding that the ordinance and proposed bonds are invalid.
Writ denied.
GRIFFIN, P. J., anc MUSSELL, J., concur.