Appeal, No. 310, Jan. T., 1941, from order of C. P. No. 6, Phila. Co., June T., 1941, No. 2949, in re: Petition of the City of Philadelphia for the exclusion of debt invested and proposed to be invested in its sewer system and facilities for treatment and disposal of sewage. Order affirmed.

Petition by City for deduction from its indebtedness in ascertaining the borrowing capacity of the City of that portion of its debt proposed to be incurred in connection with a sewer system.

The facts are stated in the opinion by FLOOD, J., of the court below, as follows:

The City of Philadelphia wishes to borrow $42,000,000. to make urgently needed improvements to its sewage disposal system. The city's general debt is in excess of 10% of the assessed valuation of all taxable property, and it is therefore prohibited by Article IX, Section 8 of the Constitution from borrowing further except for a public improvement which "may reasonably be expected to yield revenue in excess of operating expenses sufficient to pay interest and sinking fund charges thereon". A City Ordinance approved June 12, 1941, imposes certain charges or rentals for the use of the sewers, which, if collectible, will yield revenue in excess of operating expenses sufficient to pay interest and sinking fund charges on the proposed debt, as well as on the existing sewer debt of $58,496,700. The city has petitioned the court, under the Act of May 21, 1921, P. L. 1054 (53 P. S. sec. 6757 et seq.) for a decree that the proposed new debt and the existing sewer debt may be excluded from the calculation of its debt in determining its borrowing capacity. Since the charges imposed by the ordinance are sufficient, if valid and collectible, the question for us to determine is whether those charges are valid.

The imposition of sewer rentals is authorized by the Act of July 18, 1935, P. L. 1286, as amended by the Act of May 14, 1937, P. L. 630 (53 P. S. 1030-31). The Act provides that the total annual rent to be charged "shall be apportioned equitably among the properties served". The rental imposed by the Ordinance of June 12, 1941, cannot be sustained unless it conforms to this Act. An earlier ordinance, passed for the same purpose on August 14, 1940, imposed a charge upon each lot or parcel of land "having any connection with or being available for connection with the sewerage system of the city" . . . at a rate equal to 40¢ per $100. of assessed valuation for each lot or parcel of land. Upon this basis revenue to be received would have been sufficient to pay all principal and interest upon the indebtedness already incurred and about to be incurred for the sewer system and to pay maintenance and operating charges of the system as well. The Supreme Court, however, refused to permit the proposed indebtedness to be excluded from the calculation of the city's borrowing capacity in Hamilton's Appeal, 340 Pa. 17 (1940). The court held that in operating a sewerage system the city is acting in a proprietary capacity and under the Act of 1935, supra, as amended, may charge for the use of the sewers only at rates in proportion to use. Any charge in excess of the value of the service given or any charge for properties for which sewerage system is available but not actually used is unjustified. The court held that a flat charge of 40¢ per $100. of assessed valuation upon all properties for which the sewerage system was available was a tax and not a rental charge. Since the limitation upon the city's borrowing capacity is essentially, even if not directly, a limitation upon the city's power to impose taxes, the city could not evade the constitutional limitation by imposing a tax sufficient to pay all costs and calling that tax a rental.

City Council, in the present ordinance, has eliminated the charge upon properties not actually using the sewer system. So our problem is merely whether the rental charge is equitably apportioned among the users as required by the Act of 1935, supra, as amended.

The rate imposed by the present ordinance is a combination of two factors: (1) three mills upon each dollar of the assessed valuation, and (2) twenty-five per cent of the water rent. No serious objection has been raised to the second of these factors, since the amount of water which flows into a building is apt to be roughly proportional to what flows out as sewage. While there are exceptions without doubt, and while it might be more equitable to consider some further factors having to do with types of use, yet we cannot say that a measure of sewer use based upon water use is inequitable. It is City Council's duty to decide upon the rate, and we cannot set it aside unless it is clearly inequitable.

The other factor, however — three mills upon each dollar of the assessed valuation — is a tax and has no relation to the use made of the sewers. It consequently falls under the ban of the Supreme Court's decision in the Hamilton case. The fact that it may be invalid as a tax because not imposed upon all properties does not make it valid as a sewer rent. It is measured by the value of the property served, without relation to the use of the sewers. It is therefore not in accord with the Act of 1935, supra, and is invalid. Without it the sewer revenues are not sufficient. The city's petition must therefore be dismissed.

The 1940 ordinance, condemned by the Supreme Court, provided for a charge of four mills per dollar (40 cents per $100.) of assessed value on all properties. The present ordinance provides for a tax of three mills per dollar upon all properties using the sewer, and makes up the balance needed by charging 25% of the present water rent to all sewer users. Except for the elimination of any charge against non-users, the present ordinance is very similar to the condemned ordinance of 1940. The major portion or the charge is still a tax, reduced from four mills to three.

The respondent has offered in evidence a list of properties chosen at random throughout the city of various types and in various locations. The city, except in one case, has not challenged the representative character of list. The list indicates that the three mills charge is the major element of the "sewer rental" in the case of all dwellings, apartments, hotel and commercial establishments listed. Only in some of the industrial establishments does the other factor exceed it. Since the major portion of the charge in the case of most properties has no relation to the use of sewers, we cannot square it with the requirement that the charges must be in proportion to the extent of user. Hamilton's Appeal, supra, pp. 22-23.

The city's principal argument, in attempting to meet this difficulty, is that the cost of furnishing sewer facilities is much greater in some sections of the city than in others; that the major share of the annual cost of the sewage disposal system to the city is its debt service, which is far in excess of the cost of operation and maintenance; and that while use of water roughly measures current use of sewer facilities, it does not measure "the cost of furnishing the sewer facilities". The city's argument for relating the cost of furnishing the facilities to assessed valuation is this: "Although it is impossible to accurately allocate the cost of installation to any particular property as a general rule, other things being equal, in the district where the value of property is highest the cost of furnishing and maintaining the sewers is the greatest, by reason of the congestion of traffic, the manner in which the improvement must be handled, the public utility equipment encountered underground, and for other reasons".

The difficulties which bar our acceptance of this are many. Primarily it is clear that the charge is based not upon extent of user but the cost of furnishing the facilities. This the law does not sanction.

But if the value of the use is, as the city claims, different from the extent of the use, yet the city has failed to show any relation either between the value of the use and the cost of installation, or between the cost of installation and the assessed value of the properties served.

It would seem that the value of the use of the sewers is more likely to depend upon the use to which a building is put, than upon its location, or upon the cost of installation of the sewers. Two buildings in the same section of the city might make widely varying uses of the sewers. Thus within one block on the west side of Broad Street, between Walnut and Spruce Streets, are a hotel, two office buildings and the Academy of Music. Obviously the value of the sewer to these various buildings varies with the type of building. The Academy of Music has a sewerage problem which is different from that of the office buildings and different again from that of the hotel.

But even if cost of installation can be considered, that cost cannot be measured by assessed valuations. The city attempts to relate cost of sewer installation to assessed values by pointing out that land values are apt to be higher where traffic is heavy and the cost of installing sewers is consequently greater. The sewers, however, were installed years ago, and we have no evidence as to the condition at that time. Some of the city's sewers were installed over 100 years ago. None of the new sewers are to be installed in the central section of the city where values are apt to be highest. The major portion of the new expenditure will be for sewage disposal works located along the river fronts and having nothing to do with sewer pipes in any section of the city.

If extent of use of the sewers can be reasonably measured by the water rent, as the city must concede, then under the city's theory that the other variable factor is cost of installation, buildings in different sections of the city should pay different multiples of the water rent, but buildings in the same section should all pay approximately equal multiples of their water rent. For example, if cost of installation is three times as great in the center of the city as in the outlying sections, then under the city's theory, properties in the outlying section might be charged a sewer rental just equal to the water rent, while those in the center of the city would be charged three times the water rent. But under that theory, while certainly some variation is allowable, it would not be proper to charge one building in the center of the city a sewer rental equal to three times the water rent, while another in the immediate vicinity in the same section paid six times the water rent. Yet such a condition does result when the charge is based upon the assessed value of the property.

To turn again to the four properties above mentioned on Broad Street between Walnut and Spruce Streets, the cost of installing the sewer on Broad Street is the same for all. Even if one is served from Walnut Street and the others from Spruce or Locust Streets, the cost should not vary greatly, and presumably would be lower on Locust and Spruce Streets than on Walnut Street which is nearer the center of congestion. But the sewerage charge for the hotel at Walnut Street is 1.7 times the water rent, for the office buildings 4.2 and 4.3 times the water rent respectively, and for the Academy, at Locust Street, 15.8 times the water rent.

If the two chief factors to be considered are as the city says (a) extent of use to be measured by water use, and (b) cost of installation, which is dependent upon location, it is hard to justify a scheme of charges under which, in the case of two properties within the same block where the location or cost of installation factor is approximately the same, one should pay fifteen times the water rent while the other pays only one and a half times the water rent.

An example showing an even greater discrepancy which the city claims is not typical but which cannot be ignored, appears in the two properties at the southeast and the southwest corners, respectively, of Broad and Race Streets. The property on the southwest corner will pay 4.7 times its water rent, while that on the southeast corner pays 41.2 times the water rent.

It may be that these random samples do not give a complete picture, although the city has made no showing that they do not. But it appears also from the list submitted that the charges levied against ordinary dwelling houses vary substantially in terms of water rents. Again it is a matter of common knowledge that corner dwellings in a row are assessed for taxation at a considerably higher figure than similar properties in the interior of the same block. Such higher assessments are no doubt based upon higher values, because of double street frontage, additional light and air, and perhaps other factors, such as availability for commercial use. But we cannot see how it can be argued that these factors have any bearing upon sewage disposal cost. Nor do they affect the value of sewage disposal facilities to the property owner except insofar as availability for the future commercial use is concerned, and this mere availability, as we read the Supreme Court's opinion in the Hamilton case, cannot be charged for in the annual sewer rental.

The portion of the charge based upon assessments and therefore depending to a large extent upon ground value and location factors cannot, in our opinion, be sustained as bearing a reasonable relation to the value of the use of sewer facilities.

In view of this we need not discuss respondent's other objections. It is to be noted, however, that the Supreme Court in the Hamilton case quotes with approval the language of the Supreme Court of Virginia in Southern Railway Co. v. Richmond, 8 S.E.2d 271, 274 (1940) to the effect that while the privilege of using a sewer may enhance the value of an abutting lot, this value accrues at once upon construction of the sewer, and the city may levy a special assessment to the full amount of the enhanced value. If in lieu of this, the city elects to charge for the use of the sewer, the charge must be in proportion to use.

The city argues that the cost of sewage disposal for any property depends not only upon the quantity but upon the type of sewage. But the city does not suggest that the assessed value of the property has any relation to the type of sewage. This argument at most raises a doubt as to whether a rate based upon water use alone would be equitable, but it does not support the portion of the rate based upon assessed valuation.

A brief has been filed by the Interstate Commission of the Delaware River Basin and by the Philadelphia Chamber of Commerce, emphasizing the vital importance of the sewage disposal improvements which the city seeks to make. No doubt can be entertained as to the urgency of the problem. Such urgency, however, does not justify the court in sanctioning what the law does not permit.

The Philadelphia Chamber of Commerce has filed a brief which states that the commercial and industrial interests of the city consider the plan equitable. Unfortunately their opinion cannot guide the court in view of the Supreme Court's view that a rental charge to be equitable under the Act, must be in proportion to extent or value of use. The city has indicated also that it is proposed that the general tax rate will be decreased so that the apparent unfairness to certain classes of sewer users will be neutralized. This simply makes the ordinance appear to be a repetition, with a slight modification, of last year's ordinance which imposed an additional four mills charge on all properties, while a companion proposal would reduce the tax rate by four mills, so that there would not be an additional burden upon any property. Unfortunately, that could not be done under the Constitution and the present plan is open to the same objection.

The city faces a real problem. For years sewer service has been supplied without charge by the city and has been paid for out of the general tax rate. This means, of course, that sewer service has not been paid for by the citizens according to use. Heavy water users who are consequently heavy users of the sewers paid no more for their use of the sewers than other persons whose property had the same value but whose use of the sewers was slight. Obviously a continuation of this system, while inequitable to the light users of the sewers, is painless because they pay no more in the aggregate than they have been paying in the past. However, the city cannot obtain money to improve the system without changing this plan because the city has no further borrowing capacity and under the Constitution no money can be spent for sewer betterments unless the revenue from the sewer system will take care of all sewer indebtedness, and the city is by statute authorized to collect revenue from the sewers only by an equitable apportionment among users according to the use. The continuation of the traditional method of paying for sewer service in Philadelphia may be a painless method of paying for the improvements, but it is patently inequitable. Therefore it cannot be sustained under the Act of 1935 and the Constitution.

It seems that a sewerage charge based upon the amount of water used, or upon the water rates, would satisfy the legal requirements of the Act. Cf. Carson v. Sewerage Commissioners of Brockton, 175 Mass. 242 (1899). The city has filed a supplemental brief in which it indicates that if sewer rates are based entirely upon water rents, the amount charged will approach one and one-half times the water rent and that such a rate will amount to several times the annual tax bill for certain industrial concerns and would make the cost of carrying on their business in Philadelphia prohibitive. But if the sewer rent based upon water rent alone bears particularly heavily upon certain industries, the reason seems to be that they have in the past been paying much less than an equitable share of the cost of the sewer facilities. If, to encourage such industries, concessions should be made to them, Council must adopt some other method which will bear a reasonable relation to the value of the use of the sewers to the property owners, and not an arbitrary basis which bears equally unfairly and inequitably upon other large groups of property owners.

The city maintains that there is no method of charging for sewerage service which can be exactly equitable to every owner and that a practical basis must be used. This may be conceded, and will be allowed for by the courts in a proper case. But the fact that no system would give exactly equitable results in every case, is no reason for sustaining as equitable a formula which is obviously inequitable in a large number of instances and which is made up in large part of a factor which bears no demonstrable relation to the service charged for.

To summarize: The city has no general power to borrow money since its present debt is more than 10% of the assessed value of its taxable property, which is the constitutional debt limit. It may borrow beyond that limit only for a public improvement whose revenue may be reasonably expected to pay the interest and sinking fund charges upon the money so borrowed, together with the operating expenses of the improvement. The city may obtain revenue from its sewer system only by levying a sewer rental in accordance with the terms of the Act of 1935, supra, as amended, which provides that the rentals must be equitably apportioned according to use. The Ordinance of July 12, 1941, does not equitably apportion the charges for sewer rental according to use, but imposes a charge upon property owners using sewers which is in large part a tax, having no relation to the extent of the use of the sewers by the property owners. Such a charge violates the provisions of the Act of 1935 and is for that reason invalid. Moreover since the constitutional debt limitation is in effect a limitation upon the city's right to tax, an improvement cannot be said to be self-liquidating when the major part of the so-called revenue is derived not from a use charge but from a tax. Hamilton's Appeal, supra. The urgency of the need for the sewers cannot give the court an excuse for overlooking a definite constitutional limitation. The fact that none of the citizens object gives us no better reason for ignoring the Constitution. The lack of objection no doubt arises from the fact that the citizens have become used to having the sewer system taken care of out of the general budget of the city and paid for out of the general tax levy. This is inequitable as to large classes of the population, but since they have paid upon this basis for so long, to continue to pay upon this basis would be relatively painless. This is, however, not equivalent to saying it would be equitable. It is for City Council and not the court to fix and apportion the rate, and we are reluctant to override its discretion, but in view of the Act of 1935, before we can approve the sewer rental, we must say that it is equitable or at least that it is not patently inequitable. This we cannot do in this case.

Our conclusion is that that portion of the rental consisting of a charge of three mills upon the assessed value of the property served has no substantial relation to the cost or value of the sewerage facilities actually used by the property, and is therefore unauthorized by the Act of 1935, as amended, supra, and uncollectible as a sewer rental charge. If it is to be considered as the imposition of a tax, it is likewise invalid and uncollectible for the reasons set forth in the opinion of the Supreme Court in Hamilton's Appeal, supra. Since the remaining component of the rental charge will not yield revenue sufficient to make the proposed sewer loan self-liquidating we are without power to declare that it should be excluded from the calculation of the city's debt in determining its borrowing power. The urgency of the necessity for the improvements cannot confer upon us the power of sanctioning an unconstitutional method of providing them. Some other method must be used.

The petition is dismissed.

Petitioner appealed.