Opinion
May 25, 1936.
June 26, 1936.
Municipal corporations — Indebtedness — Interest on bonds — Interest not accrued — Personal property tax assumed — Act of April 21, 1933, P. L. 54 — Loan — Temporary — Current expenses — Subterfuge — Pledge of taxes — Diversion of tax for specific purpose — Deduction of delinquent taxes and liens — Amount.
1. In assessing the amount of outstanding indebtedness of a municipality, the principal of all indebtedness and interest then due should be included but not the interest to become due. [314-15]
2. In a proceeding to enjoin the increase of debt of a municipality by councilmanic authorization of a bond issue, it was held that the lower court erred in including as part of the bonded indebtedness of the municipality the four mill tax imposed by the Act of April 21, 1933, P. L. 54, and assumed by the city, computed to the maturity of the bonds. [314-15]
3. Where it appeared that the city had pledged its outstanding delinquent taxes in payment of a loan; that only about one-third of such taxes were collected during the ensuing year; that for a period of years the city had budgeted 100% of collection of its current taxes, although actual collection of such taxes was below that amount, and that at the end of each year it borrowed, to pay for that year's operating expenses; it was properly held that the action of the city in treating such loans as payable out of current expenses was a mere subterfuge to evade the constitutional restriction, and that the difference between the amount of the loan in question and the amount of delinquent taxes collected as security for it, must be included as a part of the fixed debt of the city. [315]
4. Where the city assessed and collected each year a tax for library purposes but failed to pay the sums collected for the tax to the city public library and used them for general borough purposes, the amount of the tax collected and diverted was properly charged as a liability in the same category as a sinking fund charge. [316].
5. The allowance, as a deduction from the city debt, of the full value of delinquent taxes with penalties, and of the full amount of outstanding liens for improvements, respectively, was held excessive, and, in each case, reduced by 25%. [316]
Before KEPHART, C. J., SCHAFFER, MAXEY, LINN, STERN, and BARNES, JJ.
Appeals, Nos. 247, Jan. T., 1936, and 28, Jan. T., 1937, by defendants, from decree of C. P. Northampton Co., June T., 1935, No. 5, in case of Pennsylvania Power and Light Company v. City of Bethlehem et al. Findings and decree are to be corrected and, as corrected, are affirmed.
Bill in equity for injunction. Before STEWART, P. J.
The opinion of the Supreme Court states the facts.
Decree entered granting injunction. Defendants appealed.
Errors assigned, among others, were dismissal of exceptions to findings and conclusions.
Daniel L. McCarthy, for appellants.
Edward J. Fox, Sr., with him Thos. J. Perkins, Edmund G. Hauff, Herbert J. Hartzog and George R. Booth, for appellee.
Argued May 25, 1936.
The City of Bethlehem proposed to increase its debt by councilmanic authorization of a bond issue. Proceedings were instituted to enjoin this on the ground that it would exceed the two per cent. limit on councilmanic borrowing established by article IX, section 8, of the Constitution. The court below held that the present debt, without including the proposed increase, transgressed the constitutional limitation by $123,645.07. Both parties appeal.
The city complains that the court below erred in including as part of its bonded indebtedness the four-mill tax imposed by the Act of April 21, 1933, P. L. 54, computed to the maturity of city bonds. This tax the city had agreed to assume. In assessing the amount of outstanding indebtedness the principal of all indebtedness and interest then due should be included but not the interest to become due. Campbell v. Wilkins Twp., 273 Pa. 204, decides nothing to the contrary and the lower court cases cited to us are not instructive as they were decided on other grounds. The point is ruled by what was said by this court in the opinion of Mr. Justice MAXEY, in Derry Twp. School District v. Derry Boro. School Dist., 310 Pa. 45, 48, which we need not repeat. The exception to this item should have been sustained.
The next item challenged by the city is the inclusion, as a part of its fixed debt, of a temporary loan to pay current expenses. With due recognition of our decisions in Scranton Electric Co. v. Old Forge Boro., 309 Pa. 73; Schuldice v. Pittsburgh, 251 Pa. 28; Georges Twp. v. Union Fruit Co., 293 Pa. 364; Phila. Reading Coal Iron Co. v. Coal Twp. Poor Directors, 311 Pa. 236, the court below committed no error in holding these loans part of the city's debt. It found "that $145,000.00 was borrowed by the city in December, 1934, pledging its outstanding delinquent taxes in payment of the loan; $44,604.82 of delinquent taxes was collected in 1935. The difference was $100,395.18, and this amount complainant contends is a debt. That loan of $145,000.00 was used to pay the deficit in the city's operating expenses for the year 1934 . . . It appears from the testimony that for the past five years, every year the city has budgeted 100% collection of its current taxes while the actual collection of the taxes was below that amount, and at the end of each year it borrowed to pay for that year's operating expenses. We are clearly of opinion that the attempt of the City of Bethlehem to justify their loans for the past five years by treating them as payable out of current expenses is a mere subterfuge to evade the Constitutional prohibition." We agree with the court below in this conclusion and, on the above findings, the exception to this item was properly dismissed. See Fitzpatrick v. Thomas, 311 Pa. 191.
The city assesses and collects each year a one-half mill tax for library purposes. It failed to pay the sums collected from the tax to the Bethlehem public library but used it for general borough purposes. The court below properly charged this as a liability in the same category as a sinking fund charge.
The objecting taxpayer appellant complains that the court below was too liberal in allowing as a deduction from the city debt the full value of delinquent taxes with penalties. While such taxes may be first liens and, ordinarily, reasonably certain of collection, we are living in times when 100% collections are an impossibility. Considering the tabulation in the record showing the collection of delinquent taxes for the past five years, this item of credit on the gross indebtedness should be reduced by 25%. See Ward v. Pittsburgh, 321 Pa. 414. The court below should have sustained this appellant's exception to the sum fixed, and it is here so ordered. In the recalculation the court below should reconsider the $42,000 in delinquent taxes which the city contends was mistakenly deducted. With respect to the outstanding improvements liens for paving, sewers, curbs and gutters, we make a similar reduction of 25%. These should not have been allowed at their full value at the present time.
We find no errors of moment in the other items and calculations by which the city's councilmanic debt was determined. We do not pass on the right of the city to construct an electric light plant or to furnish electricity to its inhabitants. Nor do we pass on the validity of the city's contract with the federal government. These questions were reserved by the parties pending the decision on the questions above decided.
The findings and decree are to be corrected in accordance with this opinion and, as corrected, are affirmed, costs to be paid by the City of Bethlehem.