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Switzer v. City of Phoenix

Supreme Court of Arizona

July 1, 1959

Walter E. SWITZER, Jr., Appellant,
v.
CITY OF PHOENIX, Jack Williams, Mayor of the City of Phoenix, David P. Jones, Wesley Johnson, Faith I. North, V. A. Cordova, Dr. Joseph Madison Greer, and Clarence H. Shivvers, Members of the Phoenix City Council, John E. Burke, Phoenix City Clerk, Appellees.

Page 428

[86 Ariz. 123] Gust, Rosenfeld, Divilbess & Robinette, Phoenix, for appellant.

William C. Eliot, City Atty., Merle L. Hanson, Anis Mitchell and Leven B. Ferrin, Asst. City Attys., Phoenix, for appllees.

STRUCKMEYER, Justice.

This is an action wherein appellant, an elector and real property taxpayer of the City of Phoenix, seeks a declaratory judgment and injunctive relief to prevent the issuance of certain street improvement bonds. The court below entered a summary judgment in favor of appellees, declaring that the ordinance of the City of Phoenix under which the bonds were issued did not violate the state constitution and was not otherwise unlawful.

On May 7, 1957, the city held a bond election at which the duly qualified electors authorized the issuance of certain street and highway improvement bonds; thereafter, on September 27, 1957, the city adopted its Ordinance No. S-1186, by which there was authorized the issuance of street and highway improvement bonds in the amount of $2,500,000, the principal and interest thereon to be paid from the city's share of the funds received from the Motor Vehicle Fuel and Gasoline Tax receipts collected by the State and distributed to the city pursuant to the applicable statutes.

Appellant first urges that the issuance of the bonds would increase the total indebtedness of the city above the four per cent limit set by the constitution of Arizona, Art. IX, § 8, A.R.S. Both the proposition submitted to the voters on May 7, 1957 and the Ordinance recite:

'* * * This bond and the issue of which it is a part are payable solely, as to both principal and interest, from the proceeds of revenues to be derived by said City from taxes collected by the State of Arizona and returned to the city for street and highway purposes. * * *'

It is the settled law of this state that bonds issued to finance public improvements, if made payable solely from the revenues to be derived from the operation of the improvement, do not constitute an indebtedness within the meaning of the limitation clauses of the constitution. [86 Ariz. 124] Guthrie v. City of Mesa, 47 Ariz. 336, 56 P.2d 665; Crandall v. Town of Safford, 47 Ariz. 402, 56 P.2d 660; Humphrey v. City of Phoenix, 55 Ariz. 374, 102 P.2d 82; Board of Regents of University of Arizona v. Sullivan, 45 Ariz. 245, 42 P.2d 619.

Appellant argues, however, that the same rule should not apply when the obligations are to be paid out of the fund created by the collection of a special excise tax. The authorities dealing with this problem are not entirely in accord, but the weight generally is to the effect that an obligation payable from a special fund created by the imposition of fees, penalties, or excise taxes and for the payment of which the general credit of the taxing authority is not pledged is not a debt within the meaning of constitutional debt limitations. See Stone v. City of Hobbs, 54 N.M. 237, 220 P.2d 704, and Annotation 100 A.L.R. 878; Gruen v. Tax Commission, 35 Wash.2d 1, 211 P.2d 651. We will follow the weight of authority at least to the extent where, as here, the fund from which the obligations are to be paid is created

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by voluntary contributions of the state to the city.

Appellant next urges that a municipality may not, under the existing law, pledge all the revenues to be received from the Motor Vehicle and Gasoline taxes to the repayment of highway improvement bonds. We notice that section 7 of the Ordinance is a pledge of revenues in the alternative. The city pledges all 'or so much thereof as may be necessary.' Consequently, the question presented is academic and does not pertain to an actual controversy. It is not subject to resolution by this court. Podol v. Jacobs, 65 Ariz. 50, 173 P.2d 758.

The city's Ordinance S-1186, among other things, promises the bond purchaser:

'* * * that no decrease in the proportion thereof [the Motor Vehicle Fuel Tax] payable to the City of Phoenix may be made while any of such bonds so remain outstanding and there is hereby vested in the holders of such bonds and the interest coupons thereto attached a contract right in the continuation of such tax and its allocation as above set forth.'

And further,

'* * * The contract rights herein vested in the holders of such bonds shall extend to the imposition, collection and proper application of the street revenues [meaning the taxes collected by the State of Arizona and returned to the City for street and highway purposes] until such bonds shall have been paid in full as to principal and interest and shall not be subject to repeal, impairment or ...


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