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Reichenberger v. Salt River Project Agricultural Improvement and Power District

Supreme Court of Arizona

July 6, 1937

B. F. REICHENBERGER, Appellant,
v.
SALT RIVER PROJECT AGRICULTURAL IMPROVEMENT AND POWER DISTRICT, Appellee (3872); B. F. REICHENBERGER, Appellant,
v.
SALT RIVER PROJECT AGRICULTURAL IMPROVEMENT AND POWER DISTRICT, Appellee (3886); SALT RIVER VALLEY WATER USERS ASSOCIATION, a Corporation, Appellant and Cross-Appellee,
v.
SALT RIVER PROJECT AGRICULTURAL IMPROVEMENT AND POWER DISTRICT, Appellee and Cross-Appellant (3887), (Consolidated)

APPEAL from judgments of the Superior Court of the County of Maricopa. Howard C. Speakman, Judge (Nos. 3872-3886); M. T. Phelps, Judge (3887). Judgments affirmed as modified.

Mr. Charles A. Lambie, for Appellant in Nos. 3872 and 3886, and for Appellee and Cross-Appellant in No. 3887.

Messrs. Sloan, Scott & Green, for Appellee in Nos. 3872 and 3886, and for Appellant and Cross-Appellee in No. 3887.

OPINION

Page 453

[50 Ariz. 146] LOCKWOOD, J.

These three actions were brought before us on appeal from the superior court of Maricopa county, under the circumstances set forth hereinafter. While they are separate in form, and, legally speaking, the judgments rendered therein are different, yet we think the issues raised can be best considered and determined in one opinion, and we shall, therefore, so treat them, entering the proper formal judgment is each separate case.

In order that we may consider and discuss properly the legal issues involved, it is advisable that we should state briefly the circumstances out of which these actions arose. In the last decade of the nineteenth century it was apparent that agriculture in the Salt River Valley had reached its limit, unless some method could be adopted for storing the flood waters of the Salt and Verde Rivers for use in the time of shortage of the natural flow of these rivers. This involved the expenditure of a large amount of money, and for many reasons it was impossible to secure private capital for this purpose. An appeal was, therefore, made to the federal government for aid. After some years of negotiations a plan was worked out under which the government was willing to advance funds to construct a storage reservoir on the upper regions of Salt River. One of the necessary steps in this plan was the formation of one organization to represent the farmers of the Salt River Valley in their dealings with the government, and the Salt River Valley Water Users Association, hereinafter called the "association," was incorporated for this purpose. While its articles of incorporation are voluminous, and in many respects unique, yet in substance the association is a private corporation, organized under the laws then applicable to private corporations, and functioning as such. The association entered into contracts with the [50 Ariz. 147] federal government, which provided substantially as follows: The government advanced the funds necessary for the building of the Roosevelt reservoir and later the extension of the distributing irrigation system of the valley, and retained and still retains the legal title thereto, although the actual operation of the system has long since been turned over to the association. The association obligated itself to repay to the government, within a stipulated period of time, the amount of money expended by the latter for the irrigation system, together with interest thereon. The period for repayment was extended by Congress from time to time, and though much of the original indebtedness has been paid, a considerable portion is still outstanding.

It soon appeared that the complete developments of the waters of the Salt and Verde, together with the electric power which might be generated thereby, required additional works of an extensive character. The government declined to advance any further money for this purpose, but did permit the association to issue bonds and to cause these works to be constructed on its own account, the legal title thereto being held by the government, and an additional indebtedness of many million dollars was incurred by the association in this manner. It later appeared that it was advisable to establish a storage reservoir on the Verde River, and after considerable difficulty an arrangement was made with the government to furnish the funds for this and some other improvements of the irrigation system of the association, on the same general terms as it did for the Roosevelt reservoir, to wit: The title to the works to remain in the government, but the plant to be operated under a guaranty of repayment by the association. As a result of all these proceedings, the association was operating, with the ultimate prospect of owning, a very complete and [50 Ariz. 148] extensive irrigation and power system, but was indebted many million dollars therefor, both to the United States government and to private bondholders; the interest alone in its obligations amounting to hundreds of thousands of dollars annually. All of these debts

Page 454

ultimately had to be met by payments made by the owners of land irrigated by the association. Its officers naturally, and very properly, endeavored to reduce these costs so far as possible, and finally evolved a scheme which, if successful, would result in the saving of several hundred thousand dollars of interest annually. This plan may be stated generally as follows:

In the year 1922 the legislature of Arizona had provided for the organization of what were denominated agricultural improvement districts (Laws 1922, Sp. Sess., chap. 23). The general substance of the act authorizing these districts may be stated as follows: Whenever a prescribed number of landowners desired to do so, they could file a petition with the board of supervisors of the proper county, asking that district be formed for the purpose of irrigating the land within specified boundaries. Upon compliance with the terms of the act, the district was formed and could finance itself in the manner set forth in the act, and levy taxes on the lands in the district to meet its necessary expenses. At least two districts were formed under this act, and shortly after their organization it appeared to be for the mutual benefit of these districts and the association that the latter should guarantee certain bonds of the districts, issued for the purpose of providing irrigation systems therefor. The question of whether or not such a thing could be done came before this court in the case of Bethune v. Salt River Valley, etc., 26 Ariz. 525, 227 P. 989. In this suit there were two objections raised: (a) That the law authorizing the organization of the districts was [50 Ariz. 149] unconstitutional; and (b) that the association was not authorized to guarantee their indebtedness. The constitutional objection was based on three points: The first, that the right to vote on district questions, including the election of officers, was limited to owners of real estate; the second, that the district, although a private organization, was given the authority to levy a tax; the third being a technical one which is immaterial in the present case. We held that neither of the objections to the constitutionality of the act were valid ones, and that the legislature had the power to provide for the organization of districts in the manner and with the powers set forth in the act. We also held that the interest of the association in the proper functioning of the districts so organized was such that it might, under conditions which we held existed in that case, guarantee the bonds issued by the districts.

Districts of a nature like that of our agricultural improvement districts have been authorized in a number of the western states, and many questions have arisen as to the character, powers, and rights of these districts. One of the most frequent questions has been the extent to which they are subject to various constitutional limitations, and in determining such questions it has frequently been necessary to decide whether the district was a private corporation, a municipal corporation, or an organization of some other character, for upon the answer to this question would depend what constitutional limitations applied to them.

The officers of the association evidently came to the conclusion that there was perhaps some authority for a conclusion that these districts were municipal corporations in the fullest sense of the word, subject to the limitations imposed by law upon such corporations, and with correlative rights. Among the important rights granted to municipal corporations, under the [50 Ariz. 150] Constitution of Arizona, is that of exemption from any form of taxation, both as to their property and securities issued by them. It, therefore, occurred to the officers of the association that if a district could be organized under the agricultural improvement district act which would issue its bonds for the purpose of providing money to take up the outstanding bonds of the association, the bonds of the district, for reasons which are too well known for discussion, could be placed at a much lower rate of interest than those issued by the association as a private corporation, and the stockholders of the association, who, of course, would ultimately pay the district bonds, would thus be saved a very large sum of money each year. A request was, therefore, made that the legislature amend the agricultural improvement district act by including among the purposes for which such districts might be organized, the following:

"... or to reduce the cost of irrigation, drainage and power to the owners of the lands in said district by the sale of surplus water or power produced, owned or controlled by the district, and the construction, maintenance, extension, ...


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