Opinion
May 1, 1950 —
June 6, 1950.
APPEAL from a judgment of the circuit court for Dane county: ARTHUR W. KOPP, Circuit Judge, Presiding. Affirmed.
For the appellant there was a brief by Ela, Christianson Ela of Madison, and oral argument by Walter P. Ela.
For the respondents there was a brief by Harold E. Hanson, city attorney, for the city of Madison, John E. Coyne, Leonard G. Howell, and A.W. Bareis, and Schubring, Ryan, Petersen Sutherland of Madison, for the Madison General Hospital Association, and oral argument by R.J. Sutherland and Floyd A. Brynelson of Madison.
This is an appeal from a declaratory judgment entered on December 28, 1949, in an action commenced on November 11, 1949, by Jack Meier, for himself and on behalf of all other property owners and taxpayers of the city of Madison, plaintiff, against the city of Madison, John E. Coyne, president of the common council of the city of Madison, Leonard G. Howell, city manager of the city of Madison, A.W. Bareis, city clerk of the city of Madison, and Madison General Hospital Association, defendants.
For many years the city of Madison has owned the land and buildings comprising a hospital known as the "Madison General Hospital." In 1902 the city leased the hospital property to the Madison General Hospital Association, a nonstock, nonprofit association, for so long as the association and its successors should maintain a general hospital thereon suitable to the needs of the city. From that time to the present the hospital has been operated exclusively by the association through its board of directors now consisting of eighteen members, five of which are the officers of the city or substitute Madison citizens who may be approved by the association board. All operating revenues of the hospital are received by and are the property of the association. For some years the city has contributed annually to the association about $16,000 to aid in the maintenance of the hospital; otherwise the association has paid all hospital expenses from its operating revenues and from gifts, etc. Nothing has ever been paid to the city from the earnings of the association.
The 1902 agreement required the association to furnish, free of charge, care and facilities for certain classes of persons sent to it by the city for such care.
In 1941 it was proposed to expand the facilities of the hospital at a cost of about $350,000. The finances required for such expansion were to be raised by the issue by the city of $300,000 of "hospital revenue bonds." By the 1941 agreement the association was to pay a rental over a period of forty years sufficient to pay the principal and interest of the bonds. The city issued and sold $300,000 of the "hospital revenue bonds" in 1941 but the contemplated addition was prevented by the war and has never been built. $270,000 of these bonds are still outstanding. The association has paid the agreed rental to date.
On March 5, 1949, the city and the association made a new contract which is the basis for the bonds involved in this action. The contract recites the need for additional facilities and that it is proposed to build improvements at a cost of about $2,500,000. It was contemplated when the contract was made that the cost of the construction of the addition should be provided by funds to be secured from the federal government, gifts, bequests, and funds otherwise available to the association, and by the issue by the city of new "hospital revenue bonds" of about $1,500,000. Out of the proceeds of the sale of the new bonds it was contemplated that the city would redeem those still outstanding of the issue of 1941. By the terms of the 1949 agreement the city leased the hospital, including the additions and new equipment, to the association for the term of forty years from January 15, 1951. The 1949 agreement contains this provision:
"The lessee shall, on or about October 15th of each year beginning with October 15, 1950, submit to the lessor the estimated cost of insurance, maintenance, repairs, renewals, and replacements needed for the succeeding calendar year and the lessor and lessee shall then mutually agree on the amount of money, which, however, during the term of this lease shall be at least $75,000, to be made available by the lessor for such purposes. The lessor shall include such agreed amount in its budget for such succeeding calendar year."
By the contract the association further agreed to pay the city a monthly rental sufficient to pay the principal and interest of the new hospital revenue bonds as well as of the outstanding 1941 bonds. The association agreed to operate the property as a general hospital and to maintain therein facilities to provide for persons who might be sent to the hospital as wards of the city or those for whom care is ordinarily provided by the city; included in the group to be so cared for are those ordinarily sent to a contagious or isolation hospital for the care of which the city has in the past been expending about $30,000 per year.
On August 17, 1949, the city adopted an ordinance authorizing the issuance of $1,300,000 of "hospital revenue bonds" which ordinance was on November 11, 1949, superseded by one authorizing $1,570,000 of such bonds. The latter ordinance is authorization for the bonds, the legality of which is here involved.
The ordinance and the bonds provide that the bonds are to be payable only from the income and revenues to be realized from the operation of the hospital and are to be secured by a statutory mortgage lien thereon in accordance with ch. 66 of the statutes. The ordinance provides for the payment of rental by the association sufficient to pay the principal and interest of the bonds and that the revenue should be set aside in a separate fund to meet the requirements of the ordinance and the bonds. The ordinance provides further that $1,300,000 of the bond-issue proceeds will be used for the hospital extension and the remaining $270,000 will be used to retire or replace the outstanding balance of the 1941 issue.
The present assessed valuation of the taxable property in the city is $196,902,420 so that its five per cent constitutional debt limit is $9,845,121; its present debt chargeable against the constitutional debt limit, other than any of the other obligations involved in this action is $5,988,806.10.
For many years the city has contributed approximately $16,000 annually toward the cost of maintenance, insurance, repairs, and the like on the hospital property. As has been stated, it has also operated a contagious hospital at an approximate cost to the city of $30,000 annually. It is contemplated by the contract that the cost of operating a contagious hospital will be eliminated by the fact that the association will maintain one free of cost to the city.
The city has proceeded under sec. 66.067, Stats. which provides:
"For the purpose of financing necessary public-works projects whether or not under [the National Industrial Recovery Act], . . . hospitals, and any and all other necessary public-works projects . . . undertaken . . . by any . . . municipality shall be deemed public utilities within the meaning of section 66.066, and any . . . municipality may finance such public utilities in accordance with the provisions of and in the manner provided in section 66.066. For the purposes of such financing, rentals and fees shall be considered as revenue. Any indebtedness created pursuant to this section shall not be considered an indebtedness of such . . . municipality and shall not be included in arriving at the constitutional five per cent debt limitation."
The plaintiff contends that in the application of sec. 66.067, Stats., all of the provisions of sec. 66.06 must be complied with, specifically that failure to have complied with subs. (2) (c) to (2) (f) renders the bonds invalid. They provide:
"(c) As accurately as possible in advance, said board or council shall by ordinance fix and determine:
"1. The proportion of the revenues of such public utility which shall be necessary for the reasonable and proper operation and maintenance thereof;
"2. The proportion of the said revenues which shall be set aside as a proper and adequate depreciation fund; and
"3. The proportion of the said revenues which shall be set aside and applied to the payment of the principal and interest of the bonds herein authorized and shall set the same aside in separate funds.
"At any time after one year's operation, the council or board may recompute the proportion of the revenues which shall be assignable as provided above based upon the experience of operation or upon the basis of further financing.
"(d) The proportion set aside to the depreciation fund shall be expended in making good depreciation either in said public utility or in new constructions, extensions, or additions. Any accumulations of such depreciation fund may be invested, and if invested, the income from the investment shall be carried in the depreciation fund.
"(e) The proportion which shall be set aside for the payment of the principal and interest of the bonds herein authorized shall from month to month as the same shall accrue and be received, be set apart and paid into a special fund in the treasury of the said municipality to be identified as `the . . . special redemption fund.'
"(f) If any surplus shall be accumulated in any of the above funds, it shall be disposed of as provided in section 66.069(1) (c)."
It would seem that if the legislature had intended by its enactment of sec. 66.067, Stats., to do no more than to extend the definition of public utilities in sec. 66.066 to include the projects referred to in sec. 66.067, and otherwise to make all of the provisions of sec. 66.066 applicable, nothing more would have been necessary than to amend sec. 66.066(1) by including hospitals, etc., in the class of utilities authorized to be built, operated, etc., by a municipality. If it had been intended to make all of the provisions of sec. 66.066 applicable that would have been a simple way of expressing it. Instead, a new section was created affecting only the public works therein described and without any reference to sec. 66.066, except to provide that such works "may be financed" in the manner provided in the latter section.
Sec. 66.066, Stats., deals with a number of matters which cannot properly be considered as being connected with the matter of financing; for instance, the fixing of the cost of and payment for services rendered the municipality by the utility, the rates to be charged consumers, etc. If plaintiff's contention were correct compliance with these provisions, which have no relation to the matter of financing, would be required. Plaintiff does not contend that such compliance is required.
The subsections of sec. 66.066, Stats., quoted above and to which plaintiff particularly refers, do not deal solely with the matter of financing; they also have to do with the operation of the utility and the manner in which its operating revenue is to be used and applied. It is to be observed also that by the terms of the second paragraph of sub. (2) (e) 3, the governing body of the municipality is authorized at any time after one year's operation to make reassignment of the proportions of revenue originally made, indicating that the provisions of the subsections were intended to deal with the operation rather than with the original financing of a utility.
It is our view that in this case, particularly in view of the arrangement between the city and the association for the maintenance and operation of the hospital, the provision in sec. 66.067, Stats., that a municipality "may finance" the hospital utility in the manner provided by sec. 66.066 must be construed to mean that there is to be compliance with the latter section only with respect to the manner in which the funds for its construction are to be raised. There has been compliance in that respect.
Plaintiff contends that since the hospital is not to be operated as a municipal utility it is not eligible for financing as such. It is true that the city does not plan to operate the hospital — it is to be operated by the association under the lease. He does not question the city's authority to operate a hospital. The answer to his contention is found in the following quotation from Eau Claire Dells Imp. Co. v. Eau Claire, 172 Wis. 240, 252, 179 N.W. 2:
"In operating a waterworks system a city acts in a proprietary and not in a governmental capacity. Piper v. Madison, 140 Wis. 311, 122 N.W. 730; State Journal P. Co. v. Madison, 148 Wis. 396, 134 N.W. 909; Nemet v. Kenosha, 169 Wis. 379, 172 N.W. 711. Acting in a proprietary capacity it may, generally speaking, exercise such powers as a private concern engaged in a like business may exercise; for in their business matters municipal corporations are governed by very much the same rules as private corporations. Schneider v. Menasha, 118 Wis. 298, 305, 95 N.W. 94; Omaha W. Co. v. Omaha, 147 Fed. 1, 77 C.C.A. 267, 12 L.R.A. (N.S.) 736; Biddeford v. Yates, 104 Me. 506, 72 A. 335; Little Falls E. W. Co. v. Little Falls, 102 Fed. 663. Therefore, wholly irrespective of direct legislative authority, the city could contract to have another do that which it could do in its proprietary capacity, namely, build and operate the dam for waterworks purposes."
The same must be said of the operation by a city of a hospital.
Plaintiff contends that the indebtedness represented by the $1,570,000 of bonds does not qualify for exemption from the constitutional debt limit, "five per centum on the value of the taxable property" in the city. The city does not become indebted by the provisions of the ordinance nor by the terms of the bonds. Nothing is pledged for the payment of the principal and interest of the bonds except the hospital property and the rental to be paid by the association. No obligation to pay the bonds from the city's funds, except such rentals, may be read out of any of the provisions of the ordinance or the terms of the bonds. On the contrary, the ordinance provides that the bonds shall be payable only out of the "special redemption fund and shall be a valid claim of the holders thereof only against said special redemption fund." Likewise, each bond contains the provision that it "is payable only from the rental accruing under" the lease, and that it "does not constitute an indebtedness of" the city. The statute itself, sec. 66.067, provides that any indebtedness created pursuant to it "shall not be considered an indebtedness of such . . . city. . . ." The bonds do not create an obligation which constitutes an indebtedness under sec. 3, art. XI, Const.
Since the indebtedness, if it might be so designated, created by the bonds is "secured solely by the property [and] income of" the hospital it is, by virtue of the 1932 amendment, exempt from the debt limitation originally fixed by the constitutional provision. The amendment is as follows:
"Providing, that an indebtedness created for the purpose of purchasing, acquiring, leasing, constructing, extending. adding to, improving, conducting, controlling, operating, or managing a public utility of a town, village, or city, and secured solely by the property or income of such public utility, and whereby no municipal liability is created, shall not be considered an indebtedness of such town, village, or city, and shall not be included in arriving at such five per centum debt limitation."
It is claimed that the city's undertaking to pay to the association $75,000 per year for the term of forty years for the maintenance, etc., of the hospital, creates a present indebtedness of $3,000,000 within the constitutional limitation. The constitutional provision speaks of indebtedness, not of contractual obligations. There is no indebtedness except that which accrues and matures from year to year, and then only if the association performs as the lease requires. The obligation does not ripen into an indebtedness until at the end of each year's performance by the association. We do not suppose that it would be contended, for instance, that a city would be indebted in the sum of $40,000 immediately upon his qualification for office of an official elected for a term of four years at an annual salary of $10,000.
"Where a municipality contracts for annual services for a series of years, to be paid for by annual payments, such contract does not come within such a prohibition. `In such case the whole amount which may ultimately become due does not constitute a debt, within the meaning of the constitution. To that end, regard is to be had only to the amount that may become due within a certain year or other period.' 1 Dillon, Mun. Corp. sec. 136 a, and cases cited." Stedman v. Berlin, 97 Wis. 505, 512, 73 N.W. 57. See also Herman v. Oconto, 110 Wis. 660, 86 N.W. 681.
We conclude, therefore, that neither the ordinance, the bonds, nor the agreement to pay the stipulated $75,000 per year for maintenance, etc., is chargeable against the city's five per cent debt limit fixed by sec. 3, art. XI. Const.
By the Court. — Judgment affirmed.
HUGHES, J., dissents.