Opinion
Decided May 4, 1931.
Municipal corporations — Operating gas plant and distributing system, a proprietary function — Issuing general bonds, payable by general taxation, a governmental act — Right to issue bonds conferred only by constitution or laws — Bonds to replenish gas plant's operative fund, not authorized, when — Gas plant a public utility which municipality may construct and operate — Bonds authorized for gas plant, when — Section 4, Article XVIII, Constitution.
1. In operating municipal gas plant and distributing gas, city acts in proprietary capacity.
2. Since taxation is sovereign function, city's issuing general bonds payable by general taxation is governmental act.
3. City's right to issue bonds payable by general taxation to
replenish municipal gas plant's operative fund from which payments were made for improvements and extensions must be found in Constitution or laws (Section 4, Article XVIII, Constitution).
4. Ordinance contemplating issuance of bonds payable by general taxation, ostensibly to replenish municipal gas plant's operative fund, from which payments had been made for improvements and extensions, held unauthorized (Section 4, Article XVIII, Constitution).
5. Municipal gas plant is "public utility," which municipality under Constitution may construct and operate. (Section 4, Article XVIII, Constitution).
6. Municipality may issue bonds to acquire, construct, own lease and operate municipal gas plant and to provide funds for those purposes (Section 4, Article XVIII, Constitution).
APPEAL: Court of Appeals for Butler county.
Mr. David Pierce and Mr. Walter S. Harlan, for plaintiff.
Mr. John F. Neilan and Mr. Millikin Shotts, for defendant.
This case is here on appeal from the court of common pleas of Butler county. The action was a taxpayer's suit, seeking to enjoin the city of Hamilton from issuing bonds, or taking action under and by virtue of a certain ordinance.
It is claimed that the ordinance in question is an action of council without authority of law, and that any action taken under the ordinance to issue the bonds would be illegal and void, and would constitute an abuse of corporate powers.
The first question for consideration is the force and effect of the ordinance in law, and whether or not, under the ordinance in question, the municipal corporation had the power to issue general bonds to be paid by general taxation upon all the property of the corporation for the purpose therein expressed.
The pertinent portions of the ordinance, necessary for a consideration of this question, are as follows:
"Whereas, the city of Hamilton, Ohio, maintains and operates a public utility, to-wit: a gas works and distribution system for the supplying of gas to the corporation and the inhabitants thereof, and
"Whereas, said city is indebted to the Columbia Gas Supply Company in the amount of $110,777.69, on account of gas purchased from January 1, 1923, to December 31, 1927; and
"Whereas, during said period of time there was taken from the operative revenue of said gas works the sum of $101,179.09, which sum was used for capital expenditures in said gas department as shown by the report of the director of finance made on May 6, 1929, and
"Whereas, bonds should be issued for said capital expenditures, to-wit: the improvements and extensions so made, in order to replenish the operative funds from which the expenditures were so made; and,
"Whereas, this council has requested the director of finance to issue his certificate as to the life of the property; assets or improvement, and the director of finance has certified to council such estimated life as 25 years, and has further certified the maximum maturity of such bonds as 25 years; and
"Whereas, this council estimates that a tax for said bonds will first appear on the duplicate for the year 1930, and that the final settlement with the county treasurer next following the inclusion of a tax for this issue in the annual budget of the county auditor, as provided by law, will be obtained not earlier than the 1st day of September, 1931.
"Section I: That it is deemed necessary to issue and sell bonds of the city of Hamilton, Ohio, in the principal sum of $100,000.00 for the purpose of paying the improvements and extensions made in the gas works and distribution system of the city of Hamilton, Ohio, as hereinabove set forth, and to replenish the operative fund from which the cost and expense necessary to make such improvements and extensions was taken at the time said extensions and improvements were made. Included in said amount is interest on said bond issues in the sum of $4500.00, for interest maturing previous to the receipt of taxes from which said interest is to be paid.
"Section V: That the proceeds of the sale of said bonds, except the premiums and accrued interest thereon, shall be placed in the city treasury to the credit of the Gas Works Fund, and shall be disbursed for the purpose of replenishing the operative fund of the gas department of the city of Hamilton, Ohio, and for no other purpose, and for which purpose said money is hereby appropriated, and the premiums and accrued interest from the said sale shall be transferred to the trustees of the sinking fund to be applied by them in the manner provided by law.
"Section VI: That the faith, revenue and credit of the city of Hamilton, Ohio, are hereby pledged for the prompt payment of both principal and interest of the bonds hereinabove described, in accordance with the laws and Constitution of the State of Ohio."
Counsel for the city base some argument on the proposition that, in the operation of its gas plant and distributing system, the city is acting in a proprietary capacity, and therefore stands upon the same footing as a private individual or corporation in its powers.
While it is true in the operation and distribution the city is acting in a proprietary capacity, and it was so held in the case of Travelers Ins. Co. v. Village of Wadsworth, 109 Ohio St. 440, 142 N.E. 900, 33 A.L.R., 711, that question is not here.
The question before us is the issuance of general bonds, to be paid for by general taxation. That has always been recognized as a governmental act, and was so held in the case of State, ex rel. City of Toledo, v. Cooper, 97 Ohio St. 86, 119 N.E. 253, wherein the court declared in its syllabus: "Taxation is a sovereign function."
The right, therefore, to issue bonds for the purposes stated in the ordinance must be found either in the Constitution of Ohio or in the laws passed by the Legislature.
The purpose for the issuance of the bonds as declared in the ordinance is "to replenish the operative fund from which the cost and expense necessary to make such improvements and extensions was taken at the time said extensions and improvements were made."
We find no authority in the legislative acts granting power to a municipality to issue bonds for such purposes. If any such authority is granted, it must be found in Section 4 of Article XVIII of the Constitution of Ohio, and the scope of the power therein granted, as declared in the case of State, ex rel. City of Toledo, v. Weiler, 101 Ohio St. 123, 128 N.E. 88.
Section 4 of Article XVIII of the Constitution of Ohio reads as follows: "Any municipality may acquire, construct, own, lease and operate within or without its corporate limits, any public utility the product or service of which is or is to be supplied to the municipality or its inhabitants, and may contract with others for any such product or service."
A municipal gas plant is a public utility. The Supreme Court in the case of State, ex rel., v. Weiler, supra, held that this provision of the Constitution was self-executing, and that the issued bonds for the purposes named under Section 4 of Article XVIII are essential to the enjoyment of the power granted, and are necessarily incident thereto, and that the power was included in the power expressly conferred. So that the municipality may issue bonds for the purpose of acquiring, constructing, owning, leasing, and operating its municipal gas plant, and as decided in the case of State, ex rel., v. Weiler, supra, could issue bonds to provide funds for any of these purposes.
If the ordinance in question provided for the issuing of bonds for any of these purposes, the ordinance and the issue of bonds thereunder would be valid, if within the legislative limitations for taxation. This brings us to the question of ascertaining for what purpose the bonds are to be issued under the ordinance.
The title of the ordinance is: "An Ordinance to issue bonds for the purpose of paying for the improvements and extensions made in the Gas Works and distribution system, in the City of Hamilton, Ohio, and to replenish the operative fund from which the cost and expense necessary to make such improvements and extensions was taken at the time said extensions and improvements were made."
Among the recitals in the ordinance is that "said city is indebted to The Columbia Gas Supply Company in the amount of $110,777.69, on account of gas purchased from January 1, 1923, to December 31, 1927." The ordinance then recites that during said period "there was taken from the operative revenue of said gas works the sum of $101,179.09, which sum was used for capital expenditures in said gas department." Then follows the statement that "bonds should be issued * * * in order to replenish the operative funds from which the expenditures were so made."
The ordinance provides in Section 5: "That the proceeds of the sale of said bonds * * * shall be placed in the city treasury to the credit of the Gas Works Fund, and shall be disbursed for the purpose of replenishing the operative fund of the gas department of the city of Hamilton, Ohio, and for no other purpose."
The ordinance does not recite that it is necessary to issue bonds for the purpose of acquiring a gas plant, nor for the purpose of constructing a gas plant, nor for operating a gas plant. It does not recite any deficit arising in the acquiring, constructing, or operating of the plant, other than that there is an indebtedness to the Columbia Gas Supply Company in the sum of approximately $110,000. Had the ordinance recited that this indebtedness arose from the operation of the gas plant, and sought to issue bonds for the payment of this indebtedness, we would have a different question.
In so far as the ordinance recites, there may be ample funds in the operative fund for all purposes chargeable to said fund.
In considering the ordinance, the court is in doubt as to the intent and purpose of the bond issue. If it is intended to use the proceeds to discharge the indebtedness to the Columbia Gas Supply Company, the ordinance is incomplete for that purpose. If it is intended to raise money for improvements and extensions, it is incomplete for that purpose. The improvements and extensions have already been paid for according to the recitals in the ordinance.
The declared purpose is only to replenish the operative fund from which payments have been made for the improvements and extensions, without a recital of necessity or that any deficit exists.
Section 5 provides that the proceeds of the sale of the bonds "shall be disbursed for the purpose of replenishing the operative fund * * * and for no other purpose." If it was intended under this provision that after replenishing the operative fund the money was necessary for and would be used only for operating expenses, the ordinance should have so declared.
Our conclusion is that the ordinance in its provisions is uncertain as to its intention and meaning; that the only purpose expressed is that the proceeds from the sale of the bonds are to be used for the purpose of replenishing the "operative fund." There being no authorization in the Constitution or laws of the state for such purpose, the plaintiff is entitled to the injunction prayed for.
This conclusion makes it unnecessary to discuss the other questions raised. The injunction will be granted.
Injunction allowed.
ROSS, P.J., and CUSHING, J., concur.