Opinion
Nos. 19096 and 19345
Decided November 12, 1925.
Schools — Transfer of territory — Section 4692, General Code — County board of education to equitably divide funds and indebtedness — Both districts subject to levy for share of bonded indebtedness — Constitutional law.
1. It is the duty of county boards of education upon transfer of property from one district to another pursuant to the provisions of Section 4692, General Code, to make an equitable division of the funds and of the indebtedness of the transferred territory.
2. Where, subsequent to the issuance of bonds for the erection of a school building and the levy of a tax to pay same by a rural school district, the county board of education, under authority of Section 4692, General Code, transfers a portion of such district to an adjoining district and makes an equitable division of the funds and of such bonded indebtedness between the district from which and the district to which the territory was transferred, all the property of each district is subject to the levy of a tax to meet its share of the indebtedness as so apportioned.
3. Section 4692, General Code, is not violative of any provision of either the state or federal Constitution.
ERROR to the Court of Appeals of Muskingum county.
IN MANDAMUS.
These two cases were argued and submitted to the court together, and will be so decided.
Cause No. 19096 is an error proceeding from the Court of Appeals of Muskingum county. Issue was made by demurrer to the petition. The action was brought in the court of common pleas of that county by the plaintiffs, as taxpayers of the Adams Mills rural school district, as it was prior to the transfer hereinafter referred to, on behalf of themselves and others similarly situated. The essential facts stated are that prior to July 21, 1923, the Jefferson rural school district in Muskingum county, which contained the villages of Dresden and Trinway and adjacent territory, had by a vote of the electors caused a new school building to be erected in Dresden, the expense of which was met by the issuance of bonds of the Jefferson school district, $96,000 whereof were outstanding and unpaid on the date mentioned; that on July 21, 1923, by the action of the county board of education, the Trinway portion of said Jefferson district, which had a tax duplicate of $1,489,000, and a school enumeration of about 100 pupils, was transferred from the Jefferson district to the Adams Mills rural district, such transfer being made without any action on the part of the board of education or the taxpayers of the Adams Mills district; that in November, 1924, the county board of education ordered that $25,000 of the bonds of the Jefferson school district should be paid by the Adams Mills school district, and directed the county auditor of Muskingum county to levy a tax of three mills on all the property of the Adams Mills district to pay the interest on such portion of said bonds, and to pay the principal of those which were due or would become due; and that this action of the county board was reported to the Court of Appeals by supplemental answer, in a suit theretofore brought by the board of education of the Jefferson district against the county board in the court of common pleas, but which was then pending in the Court of Appeals, and by said court was approved as a settlement of the case and the county auditor ordered by the court to make such levy. It is averred that neither the board of education of the Adams Mills district, nor the plaintiffs, nor any other taxpayers situated similarly to the plaintiffs, were parties to that proceeding. The board of education of the Adams Mills district did not certify to the county auditor, or to the budget commissioners of the county, any amount to pay bonds or interest on bonds, nor did it consent thereto, but the county auditor levied the tax upon all the property in the Adams Mills district in Muskingum county, and directed the county auditor of Coshocton county to levy the same tax upon all the property in that district in that county, which was done.
Trinway is about four miles from Adams Mills; each constitutes a distinct community; and no benefits accrued to the Adams Mills district by the transfer of said property to it. A decree enjoining the levy and collection of the tax to pay such bonds was prayed for. In the court of common pleas a demurrer was sustained to the petition, and in the Court of Appeals a demurrer was sustained to an amended petition and, the plaintiffs not desiring to further plead, the petition was dismissed.
Cause No. 19345 is an action in mandamus filed in this court. It is brought by the state, on the relation of the retirement board of the state teachers' retirement system and Harry S. Day, as treasurer of state, against the board of education of the Adams Mills rural school district and Prescott S. Gray, as clerk of the board. In the petition the authorization and issuance of the $96,000 of bonds of the Jefferson school district for the purpose stated is set forth, the bonds being in the denomination of $1,000, each bearing interest at 5 1/2%, payable semiannually on the 1st day of March and September of each year, and numbered from 1 to 96; and it is stated that bonds numbered 1, 2, 3, and 4 were due and payable September 1, 1923, and that four bonds in consecutive numbers were due each September 1st thereafter until and including September 1, 1946. The bonds were offered for sale and purchased by the Industrial Commission of the state, and thereafter purchased by the retirement board of the state teachers' retirement system of Ohio, which is the present holder thereof.
Pursuant to Section 1465-58a, General Code, these bonds were by order of the Industrial Commission consolidated and issued as one bond, the principal amount of which is $96,000, payable in installments evidenced by the combined principal and interest coupons thereto annexed. It is averred that the resolution of the board of education of the district which authorized their issuance contained a levy of taxes sufficient to pay the interest and principal thereof as they matured, a copy of which was certified by the clerk-treasurer of the board to the county auditor of Muskingum county, pursuant to an act of the General Assembly passed April 29, 1921 (109 O. L., 344), Section 15; that $2,000 of said bonds, due September 1, 1923, and $2,000 thereof due September 1, 1924, are due and unpaid, together with interest on $25,000 of said issue from September 1, 1924. Thereafter, and while the school building for the erection of which the bonds were issued was in process of construction, the county board of education of Muskingum county adopted a resolution therein set forth, which transferred from the Jefferson school district to the Adams Mills rural school district certain territory bounded and described, which was contiguous to the Adams Mills school district, the transfer being made pursuant to Section 4692, General Code. Maps were duly filed with the county auditor; notice given as required; and, no written remonstrance being filed, the transfer became effective.
The school building referred to is at Dresden, being in that part of the Jefferson district not transferred to the Adams Mills district. The tax duplicate valuation at that time of the property so transferred was $1,489,000, and contained the village of Trinway, and the school enumeration therein was about 100 pupils. After such transfer, the duplicate valuation of the territory remaining in the Jefferson district was $1,252,210. It is then averred in the petition that thereafter an action was filed in the court of common pleas of Muskingum county by the individuals composing the board of education of the Jefferson school district, and as taxpayers thereof, against the individuals composing the board of education of Muskingum county, the county auditor, and the county superintendent, wherein it was claimed that no equitable division of the funds of the territory transferred had been made, and no division of the indebtedness, and the action sought to enjoin the transfer of the territory on that account; that subsequently, upon issues joined in the second amended petition, the answer and supplement thereto, in the Court of Appeals of Muskingum county, to which the cause had been taken on appeal, that court, on November 17, 1924, found that by resolution duly passed by the county board of education during the pendency of said proceeding a division of the indebtedness had been made, and that the same was equitable, which it then confirmed, the entry reciting that "all parties to said cause agreeing and consenting thereto in final settlement of said cause." The quoted portion is a part of the journal entry which further recites that "thereupon, all parties consenting and agreeing thereto, no injunction is allowed, and the county auditor is ordered to make the levies referred to in said resolution, and that the funds collected from said levies be used for the payment of said indebtedness."
It is also averred that said decree is unreversed and unmodified, and remains in full force and effect. In the resolution referred to it was determined that the outstanding indebtedness of the Jefferson school district, to wit, the sum of $111,000, should be divided as follows: $86,000 thereof to be and remain the obligation of the Jefferson school district, as then constituted, and $25,000 thereof to be an obligation of the Adams Mills school district, to which the territory previously described had been transferred. It is averred that said levies were made and certified and said taxes collected by the treasurers in the December, 1924, and June, 1925, collections. The December collection amounted to $3,426.39 and the June collection amounted approximately to the same, of which amount it appears that $1,850.45 was collected from the Coshocton county part of the old Adams Mills district, $1,727.71 from the Muskingum county part of such district, and $4,943.34 from the Trinway territory transferred from the Jefferson district. It is averred that the plaintiffs are entitled to receive under the division of the indebtedness heretofore set forth the sum of $2,000, being the principal on bonds Nos. 5 and 6, due September 11 1924, with interest due September 1, 1924, together with interest thereon at 5 1/2 per cent. from that date, and the additional sum of $2,000, being the principal sum due on bonds Nos. 9 and 10, due September 1, 1925, together with interest thereon at 5 1/2 per cent. from that date; that in addition thereto plaintiffs are entitled to receive the amount or amounts due on unpaid interest installments by reason of said apportionment of said indebtedness, September 1, 1924, unpaid interest, $687.50; March 1, 1925, unpaid interest, $632.50; September 1, 1925, unpaid interest, $605; together with interest at the rate of 5 1/2 per cent. per annum from their respective due dates.
It is averred that, although demand has been duly made, the defendants fail and refuse to pay out of said funds the sum due the plaintiffs, the defendants claiming that the action of the county board of education, taken November 17, 1924, and the decree of the Court of Appeals heretofore referred to, are ineffectual to create an obligation upon said board of education. The prayer of the petition is that a writ of mandamus issue compelling said board of education of the Adams Mills rural school district to apply the moneys now in the hands of its treasurer or hereafter to come into the hands of the treasurer from the August, 1925, distribution of taxes to the payment of the interest and principal installments, together with the interest on said overdue accounts. Issue was made by general demurrer.
Mr. C.B. Hunt, and Messrs. Frazier Frazier, for plaintiffs in error.
Mr. Clarence J. Crossland, prosecuting attorney, Mr. C.O. Turner, prosecuting attorney, Mr. C.C. Crabbe, attorney general, and Mr. Wilbur E. Benoy, for defendants in error in cause No. 19096.
Mr. C.C. Crabbe, attorney general, and Mr. Wilbur E. Benoy, for relators.
Mr. C.B. Hunt, and Messrs. Frazier Frazier, for respondents in cause No. 19345.
A demurrer in each case presented the question of the validity of the levy of taxes upon property in the Adams Mills rural school district to meet the payment of the portion of the bonded indebtedness of the territory transferred to that district from the Jefferson school district, as apportioned by the county board of education.
It is to be observed that as a part of the proceeding of the issuance of bonds of Jefferson school district for the purpose of erecting a school building therein, a levy of taxes sufficient to pay the principal and interest thereon as they matured had been authorized and duly certified to the county auditor, whose duty followed to place the same upon the duplicate, which duty in that regard was duly performed.
It is required by Section 11, Article XII of the Constitution of Ohio, that legislation whereby bonded indebtedness is created must make provisions for levying and collecting annually by taxation an amount sufficient to pay the interest on said bonds and provide a sinking fund for their redemption at maturity. Pursuant to that requirement it was provided by Section 5649-1b, General Code (109 Ohio Laws, p. 344), that upon the issuance of bonds a certificate of the resolution providing therefor shall be filed with the county auditor, and that "thereafter, the county auditor, without further action by the tax-levying authority of the subdivision, shall include said annual levies in the appropriate annual budgets submitted by him to the budget commissioners as provided in Section 5649-3c of the General Code."
In this instance the duty of the county auditor was fully performed. By the subsequent action of the county board of education the transfer of territory from the Jefferson district to the Adams Mills district was made, and the indebtedness apportioned pursuant to the provisions of Section 4692, General Code. No now or additional order of the board of education was necessary to authorize the levy of taxes for the payment of the bonds. That had been done by the Jefferson district board pursuant to the Constitution and the statute. Consequently the action of the county board, whereby in connection with its proceedings authorizing a transfer of territory and a division of indebtedness it assumed to direct the levy of the taxes, may be disregarded, as may also the subsequent decree of the Court of Appeals approving that action. That suit was brought merely for the purpose of enjoining the completion of such transfer until the county board performed its full duty under Section 4692, General Code, by apportioning the indebtedness of the transferred territory. Such bonded indebtedness had been incurred by the Jefferson school district for the erection of a school building in that district, which was in process of construction at the time said territory was sought to be and was transferred from the Jefferson school district to the Adams Mills school district. The territory having been duly transferred, and the indebtedness having been apportioned by the county board pursuant to Section 4692, General Code, the county auditor properly proceeded under Section 5649-3c, General Code, and the tax theretofore levied was continued upon the property in the Jefferson district and the property in the Adams Mills district in accordance with the apportionment of indebtedness so made by the county board of education. That the levy was so made and continued is not questioned, but it is contended that the indebtedness of the original district cannot be apportioned under the law in such manner that the property other than that in the original Jefferson district can be required to pay any indebtedness created by that district, and it is further contended that if the statute authorizes a levy on property other than that in the original district such provision is violative of the constitutional guaranty of the equal protection of the law.
It seems to be the clear purpose and intent of the provisions of Section 4692, General Code, to require that any of the indebtedness of the district from which territory is transferred shall be apportioned between the districts from which and to which such territory is transferred. Indeed, it is impossible to make that provision of the statute effective if not so interpreted and applied.
When such division was made the indebtedness became the indebtedness of the Adams Mills district and of the Jefferson district, as apportioned. Under the provisions of Section 4692, General Code, the "legal title of the property of the board of education shall become vested in the board of education of the school district to which such property is transferred," and, when an equitable division of the indebtedness was made, all the property in each district became liable for its respective proportion thereof. There is no statutory provision which would authorize a tax levied upon only a portion of a district or subdivision, and no method has been prescribed, and none has been suggested, whereby that could be done. It would be contrary to the provisions of all tax levying and tax limitation statutes. In accordance with the familiar principles of statutory construction, Section 4692, General Code, will be so construed as to make it a valid enactment for all purposes, and proceedings thereunder will, if possible, be so construed as to accomplish a valid result. Just as legislation enacted subsequent to the issuance of bonds that would remove a portion of the security thereof, and thereby impair the obligation of contract, would be invalid as against the holders of said bonds so also would a proceeding under this statute which undertook to transfer a portion of the district be a nullity against holders of the bonds, if it did not provide for the apportionment of the indebtedness and payment of the bonds as contemplated in the original proceeding for the issuance thereof, as required by the constitutional and statutory provisions heretofore referred to.
The contention that such statutory provision is violative of the due process clause of the federal Constitution has been considered in numerous cases and decided adversely thereto. In Hunter v. City of Pittsburgh, 207 U.S. 161, 28 S.Ct., 40, 52 L.Ed. 151, it was held:
"There is no contract, within the meaning of the contract clause of the Federal Constitution, between a municipality and its citizens and taxpayers that the latter shall be taxed only for the uses of that corporation and not for the uses of any like corporation with which it may be consolidated."
The language of Justice Moody, who rendered the opinion of the court, is pertinent here. After referring to the powers conferred upon municipal corporations and their status as political subdivisions of the state, he said, at page 178 ( 28 S.Ct., 46):
"The State, therefore, at its pleasure may modify or withdraw all such powers, may take without compensation such property, hold it itself, or vest it in other agencies, expand or contract the territorial area, unite the whole or a part of it with another municipality, repeal the charter and destroy the corporation. * * * Although the inhabitants and property owners may by such changes suffer inconvenience, and their property may be lessened in value by the burden of increased taxation, or for any other reason, they have no right by contract or otherwise in the unaltered or continued existence of the corporation or its powers, and there is nothing in the Federal Constitution which protects them from these injurious consequences."
The proposition involved here is thus stated in 1 McQuillin on Municipal Corporations, Section 265, and numerous authorities are cited:
"Thus the Legislature has the power to extend the limits of an existing municipality by annexing territory thereto, although such territory will receive no benefit from incorporation in return for the municipal burdens thereby imposed upon it, and although the annexed territory is thereby rendered liable for the pre-existing debts of the municipality."
In the case of Mount Pleasant v. Beckwith, 100 U.S. 514, 25 L.Ed., 699, where it appears that certain municipalities were legislated out of existence, and their territory was by an act of the Legislature brought within the city of Racine, Wis., the court held:
"Where a municipal corporation is legislated out of existence and its territory annexed to other corporations, the latter, unless the Legislature otherwise provides, become entitled to all its property and immunities, and severally liable for a proportionate share of all its then subsisting legal debts, and vested with its power to raise revenue wherewith to pay them by levying taxes upon the property transferred and the persons residing thereon."
Such questions have been previously before this court. One appears in the case of Blanchard v. Bissell, 11 Ohio St. 96, where territory contiguous to the city of Toledo was annexed to that city. The action was one to enjoin the collection of taxes levied for city purposes. The court approved the doctrine of the case of Powers v. Commrs. of Wood County, 8 Ohio St. 285, and in the course of the opinion (at page 100) said:
"It was further objected by the plaintiff below, that the city of Toledo was largely indebted at the time of annexation, and that, without his consent, his lands and lots could not be annexed and be thereby subjected to taxation to discharge that indebtedness. This question was also made and considered in the case of Powers v. Commrs. of Wood County. And we are satisfied with the decision that such fact does not, necessarily, prevent or invalidate an order of annexation, though it may very properly be considered by the county commissioners in determining the propriety of annexation."
In the case of State ex rel. v. Cincinnati, 52 Ohio St. 419, 40 N.E. 508, 27 L.R.A., 737, the constitutionality of an act authorizing a city to annex contiguous territory was challenged, and was upheld by this court. It was there held in the syllabus that it is not a valid objection to a statute, or to an annexation under it, that a municipal corporation may be so annexed without the consent of its constituted authorities or inhabitants; nor that the taxable property therein will become subject to taxation for the payment of previously incurred indebtedness of the city to which the annexation is made.
In other jurisdictions the same principle has been applied in cases of consolidation of school districts and of detachment of territory from one school district and its attachment to another. Attorney General of Michigan ex rel. Kies v. Lowrey, 199 U.S. 233, 26 S.Ct., 27, 50 L.Ed., 167; Grout v. Illingworth, Treas., 131 Iowa 281, 108 N.W. 528; Gerhardt v. Yorktown Independent School Dist. (Tex.Civ.App.), 252 S.W. 197; State ex rel. Bilby v. Brooks (Mo.Sup.), 249 S.W. 73. The case last cited seems especially applicable because of the similarity of the legislation under consideration. It was there held that school districts and their property are creatures of the state which may be created and abolished at will by the Legislature. Hence that no provision of the Constitution was violated in providing for consolidation of school districts, even when applied to a district which had a surplus in its treasury which was transferred to the consolidated district.
All the property involved in the controversy in the instant case is embraced within the county school district, the board of education of which is given broad powers with reference to the arrangement of districts, changing the boundary lines thereof, the transfer of territory from one district to another, and the equitable division of funds and indebtedness when transfers are made. It has frequently been announced by this court that the exercise of these powers conferred upon the county board of education will not be interfered with unless it clearly appears that it has abused the discretion so conferred upon it.
It is well stated in the case of Kneale v. Jennings, 111 Ohio St. 637, 645, 146 N.E. 87, 89, that the "arranging of districts is an administrative matter. The property owner pays taxes for the schools of his district, not because of what the board may do as regards territorial boundaries, but because of a direct requirement of the Constitution."
The facts disclosed would not warrant the conclusion that the county board had abused its discretion in the matter of the division of indebtedness. It follows that the levy made upon property in the Adams Mills district to pay the proportion of the bonded indebtedness of the territory detached from the Jefferson district and transferred to the Adams Mills district, in accordance with the apportionment made by the county board of education, was a valid levy, and that the proceeds thereof must be applied to the discharge of the bonds apportioned to that district as an equitable share of the indebtedness of the territory which was transferred to and became a part of the Adams Mills district.
The judgment of the Court of Appeals in the error proceeding is therefore affirmed, and in the original action in mandamus instituted in this court the demurrer to the petition is overruled and the writ allowed.
Judgment affirmed in case No. 19096. Writ allowed in case No. 19345.
JONES, DAY, ALLEN, KINKADE, and ROBINSON, JJ., concur.
MARSHALL, C.J., not participating.