holding that the provision creating the revolving fund did not unconstitutionally benefit private persons, i.e., the bondholders, but rather was for a public purposeSummary of this case from In re City of Columbia Falls
Nos. 6,595, 6,596.
Submitted November 13, 1929.
Decided November 29, 1929.
Cities and Towns — Taxation — Special Improvement Districts — Creation of Revolving Fund to Insure Prompt Payment of Liability — Constitution — Validity of Act as to Districts Created in Future — Invalidity as to Districts Established in Past.
Cities and Towns — Special Improvement Districts — Act Creating Revolving Fund to Insure Prompt Payment of Bonds and Warrants — Constitutionality. 1. Held, in a taxpayer's suit, that Chapter 24, Laws of 1929, creating a revolving fund to be raised by transfers from the general fund of the city or town which shall be deemed loans, and in addition to or in lieu of such transfers, from a tax levy, to secure prompt payment of special improvement district bonds or warrants, is not invalid as violative of either section 1, Article XIV, Amendments to the federal Constitution, guaranteeing the equal protection of the laws, or section 26, Article V, of the state Constitution, prohibiting the passage of special laws.
Taxation — Extending Public Aid to Private Enterprise — Meaning of Constitutional Provision Prohibiting Gift or Donation. 2. Section 1, Article XIII, of the state Constitution prohibiting a municipality, among others, from extending public aid to a private or semi-public enterprise, contemplates that the purpose for which public funds shall be expended shall be a public one; if it is, the fact that private individuals will profit by the expenditure will not condemn the Act authorizing it.
Same — For "Public Purpose" — Constitution. 3. The term "public purpose" as used in the Constitution, section 11, Article XII, in providing that taxes shall be levied and collected for public purposes only, is synonymous with governmental purposes; the purpose must affect the inhabitants as a community and not merely as individuals; and whether a tax is levied for a public or private purpose is to be determined by the course or usage of the government, the object for which such a tax has by a long course of legislation been levied and what objects have been considered necessary for the proper support and use of the government sanctioned by time and the acquiescence of the people.
Cities and Towns — Construction of Special Improvements for Public Purpose — Act Creating Revolving Fund to Pay Warrants and Bonds Held Constitutional as to Districts Established After Passage of Act. 4. Held, that the construction of improvements under the special improvement district law is essentially for a public purpose benefiting the entire community in a city or town, and that therefore Chapter 24, Laws of 1929, creating a fund to insure the prompt payment of improvement district bonds or warrants so far as districts to be created in the future are concerned, thus stabilizing their value and insuring their salability, is not obnoxious to the constitutional provision (see par. 3, above) that a municipality shall not authorize a loan, gift or donation to individuals, even though purchasers of the bonds and warrants shall, in the future, have greater security for their payment than they have had hitherto, such fact being but incidental to the public purpose.
Taxation — Legislature has Plenary Power to Lay Taxes for Public Purposes — Function of Courts. 5. In the absence of constitutional limitation, the legislature has plenary power to lay taxes for public purposes, and the courts in determining the legality of such an Act have nothing to do with its policy or reasonableness of the legislation.
Same — Constitution — When Statutes not Invalid as Imposing on People New Liability for Past Transaction. 6. A legislative Act which extends an option to the people of a municipal subdivision of the state under which by a vote of the taxpayers they may decide for or against assuming a liability in respect to a past transaction does not offend against section 13, Article XV, of the Constitution, prohibiting the assembly from passing any law for the benefit of a corporation or individuals imposing upon them a new liability for a past transaction.
Cities and Towns — Chapter 24, Laws of 1929, Creating Revolving Fund for Prompt Payment of Special Improvement Liabilities not Violative of Provisions of Section 13, Article XV, Constitution. 7. Under the last above rule, held, that Chapter 24, Laws of 1929, providing that its provisions authorizing the creation of a revolving fund for the prompt payment of special improvement bonds and warrants, shall not apply to districts theretofore created unless the taxpayers shall authorize such course at an election, does not violate the prohibition embodied in section 13, Article XV, of the Constitution.
Taxation — Constitution — When Courts will Declare Legislative Declaration That Tax is for Public Purpose as in Violation of Constitutional Limitation. 8. While the questions as to what shall constitute a public burden and what is for the public good and what are public purposes within the meaning of the above rules are for the legislative judgment and discretion, with which courts are loath to interfere, where there is an absence of public liability and public interest and the action of the legislature is clearly evasive of constitutional limitation in that regard, its mere fiat that the Act comes within its constitutional power of taxation as for a public purpose is not binding and the courts must declare it void.
Cities and Towns — Chapter 24, Laws of 1929, Held Unconstitutional as to Districts Created Before Passage of Act. 9. Held, that Chapter 24, Laws of 1929, in so far as it authorizes cities to assume liabilities for losses suffered by holders of special improvement bonds and warrants issued prior to the passage of the Act, amounts to a reimbursement of the holders for such losses is violative of section 11, Article XII, of the Constitution, prohibiting taxation for other than a public purpose, and therefore invalid in that regard.
Appeals from District Court, Cascade County; H.H. Ewing, Judge.
Messrs. Maddox Church, for Appellant, submitted a brief; Mr. Fletcher Maddox argued the cause orally.
Messrs. Cooper, Stephenson Hoover and Mr. H.R. Eickemeyer, for Respondents, submitted a brief; Mr. W.H. Hoover, argued the cause orally.
Chapter 24, Laws of 1929, authorizing the creation of special improvement district revolving funds in cities, for the purpose of securing prompt payment of district bonds and warrants, and requiring levy of taxes for the requirements of such funds, is violative of section 1 of Article XIII of the Constitution, in that the law creates a method by which a city may appropriate a portion of its funds belonging to all the taxpayers and collected by levy upon all taxable property, to a so-called revolving fund and which "shall be deemed and considered and shall be loans from such general fund to the revolving fund." Thus, the city gives or loans its credit in aid of the special improvement district or districts which require such funds, and for the ultimate benefit of the holder or holders of bonds or warrants issued by such improvement district. ( Hill v. Rae, 52 Mont. 378, Ann. Cas. 1917E, 210, L.R.A. 1917A, 495, 158 P. 826; Fox v. Mohawk etc. Soc., 165 N.Y. 517, 80 Am. St. Rep. 767, 51 L.R.A. 681, 59 N.E. 353; William Deering Co. v. Peterson, 75 Minn. 118, 77 N.W. 568; Atkinson v. Board of Commissioners, 18 Idaho, 282, 28 L.R.A. (n.s.) 412, 108 P. 1046; Bank of Commerce v. Huddleston, 172 Ark. 999, 50 A.L.R. 1202, 291 S.W. 422.)
The loan from the general fund and from the half-mill tax authorized by the Act is simply an assurance or indemnity fund for the special benefit of the holders of improvement district bonds and warrants. This is an attempted appropriation of public moneys for a purpose which is neither public nor governmental. (Const., sec. 11, Art. XII.) When the taxpayer's money is diverted from the general fund of the city, it thereupon ceases to be under the control of the state. (Id., sec. 35, Art. V. See State ex rel. Evans v. Stewart, 53 Mont. 18, 161 P. 309; State v. Kelly, 71 Kan. 811, 6 Ann. Cas. 298, 70 L.R.A. 450, 81 P. 450; State v. Switzler, 143 Mo. 287, 65 Am. St. Rep. 653, 40 L.R.A. 280, 45 S.W. 245; German-American Sav. Bank v. Spokane, 17 Wn. 315, 38 L.R.A. 259, 49 P. 542.)
The statute is unconstitutional in that it violates section 13 of Article XV of the Constitution. The provisions of Chapter 24 (sec. 3), providing that sections 1, 2 and 3 may be made applicable to special improvement districts heretofore created, when authorized by an election of the freeholding taxpayers, are in direct conflict with section 13, which reads: "The legislative assembly shall pass no law for the benefit of a railroad or other corporation, or any individual or association of individuals, retrospective in its operation, or which imposes on the people of any county or municipal subdivision of the state, a new liability in respect to transactions or considerations already past." ( In re Pomeroy, 51 Mont. 119, 123, 151 P. 333; Ross v. Lettice, 134 Ga. 866, 137 Am. St. Rep. 281, 68 S.E. 734; Towle v. Eastern R.R., 18 N.H. 547, 47 Am. Dec. 153; Commissioners v. Rosche, 50 Ohio St. 103, 40 Am. St. Rep. 653, 19 L.R.A. 584, 33 N.E. 408; French v. Deane, 19 Colo. 504, 24 L.R.A. 387, 389, 36 P. 609; Benshoof v. Iowa Falls, 175 Iowa, 30, 156 N.W. 898; Weber v. City of Detroit, 158 Mich. 419, 122 N.W. 570; City of Grand Rapids v. Lake Shore etc. R.R. Co., 130 Mich. 238, 97 Am. St. Rep. 473, 89 N.W. 932; Helena Con. Water Co. v. Steele, 20 Mont. 1, 37 L.R.A. 412, 49 P. 382; Dolenty v. Broadwater County, 45 Mont. 261, 122 P. 919.)
The attempt to make the provisions of Chapter 24 applicable to districts heretofore created is nothing more nor less than an attempt to create an obligation to pay where that obligation did not before exist. This principle is given consideration in State ex rel. Mills v. Dixon, 66 Mont. 76, 213 P. 227.
Injunction lies to restrain the collection of a void tax ( Montana Ore Pur. Co. v. Maher, 32 Mont. 480, 81 P. 13), and to restrain the holding of an election under a void statute, upon the ground of an unlawful expenditure of public funds. ( McAlister v. State, 95 Okla. 200, 219 P. 134, 33 A.L.R. 1370, 1379, note on p. 1384; Garry v. Martin, 70 Mont. 587, 227 P. 573; Stange v. Esval, 67 Mont. 301, 215 P. 807; Poe v. Sheridan County, 52 Mont. 279, 157 P. 185.)
A special improvement district falls within the scope of "any individual, association or corporation." ( Whipple v. Tuxworth, 81 Ark. 391, 99 S.W. 86; Memphis Trust Co. v. Board of Directors of St. Francis Levee Dist., 69 Ark. 284, 62 S.W. 902; Wilson v. Wm. R. Compton Bond M. Co., 103 Ark. 452, 146 S.W. 110.)
The words "public purposes" as used in section 11, Article XII, of the Constitution, providing that taxes shall be collected for public purposes only, are synonymous with "governmental purposes." ( State ex rel. Mills v. Dixon, 66 Mont. 76, 213 P. 227.)
Attack is made upon Chapter 24, Laws of 1929, for the reason that it authorizes a tax to be levied and collected and loaned to special improvement district funds for the benefit and protection of the holders of bonds and warrants issued against such fund, and is, in effect, a levy of a tax for a private purpose and not for a public governmental purpose, and hence is in violation of section 11, Article XII, of the Constitution. The constitutional provision reads as follows: "Taxes shall be levied and collected by general laws and for public purposes only. They shall be uniform upon the same class of subjects within the territorial limits of the authority levying the tax." Inasmuch as the one-half mill levy proposed by Ordinance No. 626 is upon all of the taxable property in the city of Great Falls and the city of Great Falls is the authority levying the tax, there can be no objection to the legislation for want of uniformity. Inasmuch as the statute is applicable to all cities and towns where special improvement districts are in effect, no objection can be made to the legislation that it is not a general law.
The main question is whether the tax is for a public purpose. The court will bear in mind in approaching this question that it is for the legislature generally to say whether a purpose is public or otherwise. ( Lewis and Clark County v. Industrial Acc. Board, 52 Mont. 6, L.R.A. 1916D, 628, 155 P. 268; Cunningham v. Northwestern Imp. Co., 44 Mont. 180, 119 P. 554.) That this tax is levied and collected for a public purpose is too clear to admit of serious argument. By analogy, if a tax to provide a fund devoted to the relief of injured employees of a county is not obnoxious as offending against this provision of the Constitution, and of the seed grain law of 1915, designed to furnish aid to persons engaged in agriculture where they have no means with which to purchase seed, is not in contravention of this section, as stated in State ex rel. Cryderman v. Wienrich, 54 Mont. 390, 170 P. 942, then obviously a statute designed to assist cities in the creation and financing of special improvement districts cannot be obnoxious to the Constitution upon this ground. The public nature of the improvement is not impaired or destroyed by reason of the fact that it specially benefits certain property which is assessed to pay the cost of making it. The private nature of a special improvement assessment, as distinguished from a "tax," must not be confused with the public nature of the improvement itself, or legislation in aid thereof.
A further public purpose is to be noted in connection with the particular provisions of this Act authorizing the creation of a revolving fund to take care of slow or delinquent special improvement district bonds or warrants. Legislation and procedure by the municipality thereunder is necessary to make good the credit of the community in such way that the special improvement district bonds for districts created after the passage of the Act may be sold at their full value, so that every dollar of money borrowed through the bonds will be applied to the construction of the contemplated improvement and there will be no discount charged by the lender to take care of anticipated delinquencies. This most certainly subserves a public purpose in making the cost of all special improvements throughout the city less by the amount of the discount for delinquencies.
The purpose of the Act is further in aid of the credit of the community and thus in aid of the improvement of the community in that it makes marketable the special improvement district bonds for districts now being created. It is a matter of common knowledge that there exists at present, and has existed for a period of time immediately preceding the passage of this Act, practically no market at all for special improvement district bonds and warrants of the communities of the state of Montana. This lack of suitable market has the inevitable result of retarding the progress of those communities in health, sanitation, beautification and general public welfare and convenience.
No stronger case can be presented of a legislation fundamentally public in its purpose than legislation in aid of special improvements in cities and towns, which improvements necessarily, as declared by law and in fact, must be for the public good and convenience. To argue that this legislation is primarily in aid of the holders of bonds and warrants is to take an all too narrow view of the ultimate purpose of the Act. The legislature cares nothing for the personnel of the holders of these bonds and warrants; and, except in the sense of desiring to meet its justly incurred obligations, neither the state nor the city of Great Falls have any concern in the financial status of the persons holding bonds and warrants of these districts. The case of Hill v. Rae, 52 Mont. 378, Ann. Cas. 1917E, 210, L.R.A. 1917A, 495, 158 P. 826, relied upon by counsel for the appellant for other reasons, sufficiently answers the contention that the purpose of this Act is not a public one.
It is contended that the Act is a special or local law in that it provides relief for the holders of bonds and warrants of special improvement districts, and does not provide relief for the holders of other municipal bonds or warrants. Counsel has misconstrued the meaning of the constitutional provision referred to. The law is designed to cover all special improvement districts in all cities and towns in the state. This is not "special" or "class" legislation. Had the law specified only special improvement districts in the city of Great Falls, for instance, it would be subject to criticism, but where all improvement districts are affected alike, the law is a general one. (See Hill v. Rae, supra, and Trumper v. School District No. 55, 55 Mont. 90, 173 P. 946.)
The Act and ordinance do not violate section 1, Article XIII, of the Constitution. It is urged that the Act and ordinance authorize a loan by the city of its funds and credit in aid of special improvement districts of the city of Great Falls and in aid of the holders of bonds and warrants of such districts, and that they authorize a donation by the city of Great Falls of its funds for the protection of holders of improvement district bonds and warrants, whereby the holders of such bonds and warrants will enjoy a preference and security not shared by the holders of other city bonds and warrants. Analogous cases to the one at bar, where the legislation was found not to be obnoxious to this clause in the Constitution, are State ex rel. Campbell v. Stewart, 54 Mont. 504, Ann. Cas. 1918D, 1101, 171 P. 755, Lewis and Clark County v. Industrial Acc. Board, 52 Mont. 6, L.R.A. 1916D, 628, 155 P. 268, the seed grain law case from which the quotation above is taken, and Thaanum v. Bynum Irr. Dist., 72 Mont. 221, 232 P. 528. The attention of the court is respectfully directed to the case of Comfort v. City of Tacoma, 142 Wn. 249, 252 P. 929, where a revolving fund, almost identical with the one herein, was under discussion and the demurrer of the defendant was sustained. So far as we know this is the only decision directly in point, and, while the provision of the Constitution similar to section 1 of Article XIII of our Constitution was not directly discussed, nevertheless the language of this opinion with reference to the public purposes of this Act should be controlling as to the effect of that section of the Constitution upon the Act here in question.
In Stanley v. City of Great Falls et al. (No. 6,596), the plaintiff as a taxpayer seeks to restrain the proposed and threatened expenditure of public moneys, the calling and conducting of the election, on the ground that such election is unlawful in that Chapter 24 of the ordinance and resolution passed pursuant thereto are unconstitutional, for the reasons heretofore pointed out in Stanley v. Jeffries (No. 6,595), and the further reason that the provisions are retroactive and retrospective and in violation of section 13, Article XV, of the Constitution. A careful reading of the section will disclose that the prohibition is against the legislative assembly, as distinguished from the county, city or other municipal subdivision: "The legislative assembly shall pass no law * * *." There is no prohibition against a county or city passing a law retrospective in its operation or imposing a liability in respect to transactions or considerations already passed if it desires to do so. The answer to appellant's contention is found in the case of In re Pomeroy, 51 Mont. 119, 151 P. 333, where Mr. Justice Holloway, in discussing this provision of the Constitution says: "While the state is forbidden to impose upon a county or municipal subdivision a liability in respect to a transaction or consideration already passed * * *, it is left free to impose such liability upon itself, so far as anything to the contrary has been called to our notice." The statute does not undertake to impose any liability at all. The city is given the option to impose the liability upon itself by levy of a tax (if this may be called imposing a liability), and as to the improvement districts created prior to the passage of the Act, the city council may not make the revolving fund applicable thereto without the vote of the tax-paying freeholders of the municipality. Obviously, the constitutional provision is not invaded in letter or spirit by this legislation.
Mr. William T. Pigott, Amicus Curiae, submitted a brief and argued the cause orally.
The plaintiff, Howard H. Stanley, appeals from a judgment of dismissal, after demurrer sustained to his complaint, in each of two actions commenced by him as a taxpayer of the city of Great Falls.
In his first action, W.S. Jeffries, as county treasurer of Cascade county, is made defendant, and therein plaintiff sought to enjoin that officer from collecting a tax levied under City Ordinance No. 626 of the city of Great Falls, enacted pursuant to the provisions of Chapter 24 of the Session Laws of 1929.
The second action was brought against the city of Great Falls, its clerk and treasurer, to enjoin the holding of an election in conformity with certain provisions of Chapter 24, above.
The basis of each action is the alleged unconstitutionality of the statute mentioned, and this question was duly presented to the trial court by demurrer to the complaint in each action. On the sustaining of the demurrers, plaintiff refused to plead further, and suffered judgment of dismissal to be entered. As the one question is presented in the two appeals, they were briefed and argued jointly, and will be so disposed of here.
Under our statutory provisions with relation to special improvements in cities and towns, any special assessment made and levied to defray the cost and expenses of special improvements constitutes a lien upon all property included in an improvement district (sec. 5247, Rev. Codes 1921), but, under the provisions of section 2215, Id., such a lien is extinguished by the issuance of a tax deed on sale of the property for delinquent taxes ( State ex rel. City of Great Falls v. Jeffries, County Treasurer, 83 Mont. 111, 270 P. 638).
As the cost of an improvement is ordinarily apportioned to the several lots according to area or front footage on the improvement (sec. 5238, Rev. Codes 1921), it will be seen that, by reason of delinquency of property owners in paying assessments, a certain percentage of the principal and interest on special improvement bonds may never be paid. In order to meet this situation, the legislature in 1929 enacted Chapter 24, Laws of 1929, which provides as follows:
"Section 1. The City or Town Council or Commission of any City or Town which has heretofore created, or may hereafter create, any special improvement district or districts for any purpose, may in its discretion, as to such district or districts heretofore created, and shall, as to such district or districts hereafter created, in order to secure prompt payment of any special improvement district bonds or warrants issued in payment of improvements made therein, and the interest thereon as it becomes due, create, establish, and maintain by ordinance a Fund to be known and designated as `Special Improvement District Revolving Fund.'
"Section 2. For the purpose of providing funds for such Revolving Fund the City or Town Council (1) may in its discretion, from time to time, transfer to the Revolving Fund from the General Fund of the City or Town such amount or amounts as may be deemed necessary, which amount or amounts so transferred shall be deemed and considered, and shall be, loans from such General Fund to the Revolving Fund; and (2) shall, in addition to such transfer or transfers from the General Fund, or in lieu thereof, levy and collect for such Revolving Fund such a tax, hereby declared to be for a public purpose, on all the taxable property in such City or Town as shall be necessary to meet the financial requirements of such Fund, such levy, together with such transfer, not to exceed in any one year five per centum (5%) of the principal amount of the then outstanding Special Improvement District bonds and warrants.
"Section 3. Whenever any Special Improvement District bond or warrant, or any interest thereon, shall be, at the time of the passage of this Act, or shall thereafter become due and payable, and there shall then be either no money or not sufficient money in the appropriate district fund with which to pay the same, an amount sufficient to make up the deficiency may, by order of the Council, be loaned by the Revolving Fund to such district fund, and thereupon such bond or warrant * * * shall be paid from the money so loaned * * * provided, however, that the above provision[s] * * * shall not apply to any district * * * heretofore created, unless and until, at an election * * * a majority of the legal voters who shall be * * * free-holders of property situated in the City or Town, shall authorize the City or Town Council to proceed thereunder, such election to be called and conducted in the manner and under such regulations as the Council may provide.
"Section 4. Whenever any loan is made to any Special Improvement District Fund from the Revolving Fund, the Revolving Fund shall have a lien therefor on all unpaid assessments and installments of assessments on such district, whether delinquent or not, and on all moneys thereafter coming into such district fund, to the amount of such loan, together with interest; * * * and whenever there shall be moneys in such district fund which are not required for payment of any bond or warrant * * * or * * * interest * * * so much of such moneys as may be necessary to pay such loan shall, by order of the Council be transferred to the Revolving Fund; and after all the bonds and warrants issued on any Special Improvement District have been fully paid, all moneys remaining in such district Fund shall by order of the Council be transferred to and become part of the Revolving Fund.
"Section 5. Whenever there is in the Revolving Fund an amount in excess of the amount which the Council deems necessary for payment or redemption of maturing bonds or warrants or interest thereon, the Council may
"(1) by vote of all of its members at a meeting called for that purpose, order such excess or any part thereof transferred to the General Fund of such City or Town, or
"(2) use such excess or any part thereof for the purchase of property at sales for delinquent taxes or assessments, or both, or which may have been struck off or sold to the County * * * and against which property there then be any unpaid assessment for special improvements on account whereof there are outstanding special improvement district bonds or warrants of the City or Town.
"The Council may sell any tax certificates issued on any such sale or sales. After acquiring title * * * the City or Town may lease such property, or sell the same at public or private sale, * * * or otherwise dispose thereof. * * * All proceeds * * * shall belong to and be paid into the Revolving Fund, and be subject to transfer in whole or in part to the General Fund. * * *"
Pursuant to the provisions of this Act, in August, 1929, the city council of Great Falls, by Ordinance No. 626, levied and assessed upon all taxable property within the limits of that city a tax of one and one-half mills on each dollar of the assessed valuation, in addition to the general levy for city purposes, which tax has been duly spread, and, unless he is restrained by the court, the treasurer will collect the amount of such tax from the property holders, and the council will thereafter transfer such amount to the special improvement district revolving fund. In Stanley v. Jeffries, County Treasurer, the plaintiff, as a property owner within the city of Great Falls, seeks to enjoin such collection.
In Stanley v. City of Great Falls, the same plaintiff seeks to enjoin the holding of a city election by which the council is attempting to secure authorization, pursuant to section 3 of Chapter 24, to apply the provisions of the law to improvement districts created in that city prior to the enactment of the law. The complaint in this action alleges that the city had, before the enactment of the law, created certain special improvement districts serving only a portion of the city, and had theretofore issued bonds and warrants in payment of the improvements made, due at the time the Act was passed, and which cannot be paid because of the delinquency of property holders, whose property has been sold to third persons for county taxes, and for which tax deeds have been issued, and thus the lien of the city for delinquent assessments has been lost and extinguished.
1. Stanley v. Jeffries, County Treasurer, involving the constitutionality of Chapter 24, Laws of 1929, as applying to the relief of special improvement districts organized after the passage of the Act:
Here the contention of the plaintiff is (a) that the Act authorizes a loan of city funds and credit in aid of such districts for the benefit of the holders of bonds and warrants of the district, and is, in effect, a donation to establish a guaranty fund for the protection of individual holders of such bonds or warrants, enabling them to enjoy a privilege and security not shared by the holders of other classes of city bonds and warrants, or other creditors of the city, in violation of section 1, Article XIII of our Constitution; (b) that it denies to the plaintiff the equal protection of the law, in violation of section 1, Amendments, Article XIV of the federal Constitution; (c) that it is a special law and offends against section 26, Article V of the state Constitution, in that it does not provide protection by general law for all holders of all classes of municipal bonds and warrants which are in default; and (d) that it is in effect a tax for a private purpose, for the benefit of the holders of special improvement district bonds and warrants, in violation of section 11, Article XII of our Constitution.
Only (a) and (d) of these contentions require serious consideration.
It is clear that, since the plaintiff is accorded the same protection as all other taxpayers of the city of Great Falls, and the Act applies to all cities and towns wherein special improvement districts exist, the Act is violative of neither section 1, Amendments, Article XIV, U.S. Constitution, nor section 26, Article V, of the state Constitution. ( Hill v. Rae, 52 Mont. 378, Ann. Cas. 1917E, 210, L.R.A. 1917A, 495, 158 P. 826; Trumper v. School District, 55 Mont. 90, 173 P. 946; Lewis and Clark County v. Industrial Acc. Board, 52 Mont. 6, L.R.A. 1916D, 628, 155 P. 268.) No other city bonds and warrants stand in the precarious situation of these special improvement district bonds and warrants, as this is the only class of bonds and warrants which does not have the credit of the city back of them.
Section 1, Article XIII, of the Constitution, declares that "neither the state, nor any county, city, town, municipality, nor other subdivision of the state shall ever give or loan its credit in aid of, or make any donation or grant, by subsidy or otherwise, to any individual, association or corporation; * * *" while section 11, Article XII, provides that "taxes shall be levied and collected by general laws and for public purposes only. * * *"
As declared above, the tax here under consideration was levied, and the proposed collection will be under "general laws," and whether or not the Act in question is violative of either of the quoted provisions of the Constitution depends upon the nature of the purpose for which the tax is intended. Is it intended to aid the holders of district bonds and warrants, or to serve a public purpose by enabling cities and towns to erect needed public improvements through the instrumentality of the special improvement district law?
Section 1, Article XIII, of the Constitution was intended to prevent the extension of public aid to private enterprise or that of a semi-public nature, yet having for its purpose gain to the individual, association or corporation building it up, and the inhibitions therein contained do not apply to such enactments as are intended for the relief of the poor ( State ex rel. Cryderman v. Wienrich, 54 Mont. 390, 170 P. 942), the Workmen's Compensation Act, Laws 1915, Chapter 96 ( Lewis and Clark County v. Industrial Acc. Board, supra), or the War Defense Act, Laws of 1918, Ex. Sess., Chapter 21 ( State ex rel. Campbell v. Stewart, 54 Mont. 504, Ann. Cas. 1918D, 1101, 171 P. 755, 757), as in each of these instances the purpose to be served was found to be a public one, although private individuals might profit thereby. The mere fact that the money raised will go to individuals will not condemn the Act in question, since the test is not as to who receives the money, but, Is the purpose for which it is to be expended a public purpose? ( City of Wilmington v. Wolcott, 12 Del. Ch. 379, 112 A. 703; Carman v. Hickman County, 185 Ky. 630, 215 S.W. 408; Payne v. Jones, 47 S.D. 488, 199 N.W. 472; Denver Rio Grande Ry. Co. v. Grand County, 51 Utah, 294, 3 A.L.R. 1224, 170 P. 74.)
Thus the two quoted constitutional provisions are directed toward the same prohibited action, and, if the Act under consideration is not violative of the one, it is not violative of the other.
The term "public purpose," as used in the Constitution, is synonymous with governmental purpose. ( State ex rel. Mills v. Dixon, 66 Mont. 76, 213 P. 227.) An essential to a "public purpose" is that it shall affect the inhabitants as a community and not merely as individuals. ( Stevenson v. Port of Portland, 82 Or. 576, 162 P. 509.)
Whether a tax is levied for a public or private purpose is to be determined by the course or usage of the government, the object for which such a tax has been customarily and by long course of legislation levied, and what objects have been considered necessary to the proper support and the proper use of the government, "and whatever lawfully pertains to this purpose and is sanctioned by time and the acquiescence of the people may be said to be for a `public purpose.'" ( Hagler v. Small, 307 Ill. 460, 138 N.E. 849.) The true test is whether the work to be done is essentially public and for the general good of the inhabitants, satisfying their needs or contributing to their convenience, rather than merely for gain or for private objects. ( City of Tombstone v. Macia, 30 Ariz. 218, 46 A.L.R. 828, 245 P. 677.)
Here, it is true, the holders of bonds and warrants of any city in this state, issued for the payment of special improvements made under the special improvement district law (Chap. 56, Part IV (Pol. Code), Rev. Codes 1921), will profit by the provisions of Chapter 24, above, as compliance by the city with its provisions will, in part at least, do away with losses by reason of the failure of a certain per cent of the property owners to pay the special assessments, and consequent loss of liens on property, as above pointed out, for which, without this Act, there was no method of recoupment. But the work to be done within such improvement districts as are hereafter created in cities is essentially public work, and the purpose of providing for such work necessarily a public purpose.
Section 5225, Revised Codes of 1921, within Chapter 56 above, vests in a city council jurisdiction over public streets, alleys, places and courts, and the power to acquire rights of way therefor, "and to order to be done any of the work mentioned in this chapter under the proceedings hereinafter described."
Section 5226, Id., provides that "whenever the public interest or convenience may require, the city council is hereby authorized and empowered to create special improvement districts. * * *" Then follows a long list of purely public improvements which may be erected by the creation of such a district.
Under the special improvement district law, the cost of the work may be assessed to bordering property because of supposed special benefit, and "whenever the contemplated work or improvement, in the opinion of the city council, is of more than local or ordinary public benefit * * *" and under certain other conditions, the council may spread the assessments over an extended district. (Sec. 5228, Id.)
But the laying out and improvement of streets, alleys, sewers and the like is essentially a public purpose benefiting the entire community, although the work is done in but a portion of the city, and, in the absence of any legislative restriction, each portion of the city might be thus improved at the general public expense, and no taxpayer could be heard to complain thereof. In other words, in order to erect any public improvement by the creation of special improvement districts, both general benefits to the municipality and special benefits to particular property must be conferred — the special benefit to adjacent property is but incidental to the general benefit to the city; it could not otherwise lawfully be created.
When, therefore, the legislature provided that, as to special improvement districts created in the future, a fund shall be created to insure the prompt payment of bonds and warrants issued in payment of such improvements, it but modified the special improvement district law to impose upon the general public, within the municipality, a conditional obligation to pay a small portion of the cost of erecting the public improvement, whereas it might have, lawfully, imposed a much greater burden upon the municipality.
It is readily discernible that, under the law as it existed at the time this Act was passed, the value of district bonds and warrants was problematical, and their salability greatly impaired, and the public credit and public good necessitated some action to remedy the defects in the existing law.
As said of the Act under consideration in State ex rel. Campbell v. Stewart, above: "This is primarily not an Act `to authorize'" a loan, gift, or donation to "`individuals, associations or corporations'; on the contrary, if it is any of these things, it is so only secondarily or incidentally."
That the purchasers of bonds or warrants shall, in the future, have greater security for the payment thereof than they have had in the past, is but incidental to the public purpose of the Act before us, and does not militate against its validity. A somewhat similar provision for stabilizing special improvement district bonds was recently upheld in the state of Washington. ( Comfort v. City of Tacoma, 142 Wn. 249, 252 P. 929.) Bank of Commerce v. Huddleston, 172 Ark. 999, 50 A.L.R. 1202, 291 S.W. 422, also sustains our position. It is true that the public work considered therein was coextensive with the city, but, as all public works constructed within special improvement districts must necessarily benefit the entire city, this fact does not lessen the force of the decision as an authority here.
We are concerned only with the legality, and not at all with the policy or reasonableness, of a legislative enactment, and, in the absence of a constitutional limitation, the legislature has plenary power to levy taxes for public purposes. The question as to whether or not this enactment will trench upon the constitutional limitation of indebtedness of the city is not here presented.
Finding no constitutional prohibition against such an Act as this in its application to improvement districts created after the passage of the Act, the judgment in Stanley v. Jeffries is affirmed.
2. Stanley v. City of Great Falls: In the second case we are
called upon to consider the constitutionality of that portion of section 3 of Chapter 24, Laws of 1929, which declares that "the above provision [provisions?] of sections 1, 2, and 3 of this Act shall not apply to any district or districts heretofore created, unless and until, at an election * * * a majority of the legal voters who shall be taxpaying free-holders of property situated in the city * * * shall authorize the * * * council to proceed thereunder."
The wording of this provision demonstrates that the legislature was mindful of the provisions of section 13, Article XV, of the Constitution against which plaintiff asserts the Act offends. This section declares that "the legislative assembly shall pass no law for the benefit of a railroad or other corporation, or any individual or association of individuals, retrospective in its operation, or which imposes on the people of any county or municipal subdivision of the state, a new liability in respect to transactions or considerations already passed."
Herein the legislature did not attempt to impose a liability upon the people with respect to past transactions, but merely gave them the option to impose such a burden upon themselves if they saw fit, which, in so far as this inhibition of the Constitution is concerned, they may do. ( In re Pomeroy, 51 Mont. 119, 151 P. 333.)
The Act does not offend against the prohibition contained in section 13 of Article XV of the Constitution.
However, what is the purpose of the Act in so far as it deals with special improvement district bonds and warrants issued prior to the date thereof? Such bonds and warrants were, it is true, issued for the purpose of constructing a public work, and consequently issued for a public purpose, but the transaction has been completed and the bonds and warrants accepted in full settlement thereof; they have passed into the hands of individuals or corporations. With respect to these, there is no duty or obligation resting upon the city other than to enforce and obey the provisions of the special improvement district laws; if this is done, and still a loss is suffered by reason of deficiencies in that law, the loss falls upon the holders of the bonds and warrants, and not upon the city.
It must always be conceded that the proper authority to determine what should and what should not constitute a public burden is the legislative department of the state, and what is for the public good and what are public purposes are questions which the legislature must decide upon its own judgment, and in respect to which it is vested with a large discretion with which courts are loath to interfere; but, where there is an absence of public liability and public interest, and the action of the legislature is clearly evasive of the constitutional limitation, the mere fiat of the legislature that an Act comes within its constitutional power is not binding, and it is the duty of the court to declare the Act void, regardless of the declaration of the legislature. (Cooley on Constitutional Limitations, 6th ed., 588-611; State ex rel. Goodman v. Stewart, 57 Mont. 144, 187 P. 641; State ex rel. Mills v. Dixon, above.)
Here the situation discussed in Stanley v. Jeffries is reversed. The purpose of the Act, in so far as it authorizes the assumption of liability for losses suffered by the holders of bonds and warrants issued prior to the passage of the Act, must be held to be reimbursement of those holders for such losses, and, although it is urged that such action would tend to rehabilitate the city's credit, such a purpose, if it existed, must be held to be the secondary or incidental purpose. It is not even clear that action was necessary for such secondary purpose. Proposing purchasers of bonds and warrants look only to the present condition of the law, and therefrom determine whether or not such bonds and warrants furnish a reasonably safe investment; it can hardly be presumed that the fact that other investors have suffered loss under a different condition of the law would deter proposing investors from purchasing bonds and warrants in the future.
As it clearly appears that the portion of the Act now under consideration authorizes the levy and collection of taxes for a private purpose, it is violative of section 11, Article XII, of the Constitution, and cannot stand.
The judgment in Stanley v. City of Great Falls is reversed and the cause remanded to the district court of Cascade county, with direction to issue the writ prayed for.
MR. CHIEF JUSTICE CALLAWAY, ASSOCIATE JUSTICES FORD and ANGSTMAN, and HONORABLE W.H. POORMAN, District Judge, sitting in place of MR. JUSTICE GALEN, absent on account of illness, concur.