Village of East Moline v. Pope , 224 Ill. 386 ( 1906 )

Mr. Chief Justice Scott

delivered the opinion of the court:

Section 12 of article 9 of the constitution provides that no municipal corporation shall be allowed to become indebted, in any manner or for any purpose, to any amount, including existing indebtedness, in the aggregate exceeding five percentum on .the value of the taxable property therein, to be ascertained by the last assessment for State and county taxes previous to the incurring of such indebtedness. This is a limitation on the power of the General Assembly to authorize indebtedness. All legislation in conflict with the said section must yield to its provisions. The purpose of such legislation makes no difference. It may be for the building of water-works or the erection of libraries, schools or hospitals; but if the amount of existing indebtedness of the municipality already exceeds five per cent of the assessed value the legislation is in conflict with this constitutional provision, and void. It will be observed, however, that the provision does not place a limitation upon the amount or rate of taxes to be raised, but merely upon the amount of indebtedness to be incurred.

In 1899 the General Assembly passed a statute for the purpose of enabling cities and villages to secure the benefits of water-works. This act was amended in 1905, and section 1 provides (Hurd’s Stat. 1905, p. 344,) that cities and villages shall have the power to levy, in addition to the taxes now authorized by law, a direct annual tax of not more than one cent on the dollar upon all the property within its corporate limits, to be payable yearly for a period of not more than thirty years, for the sole purpose of purchasing, constructing or enlarging water-works. Sections 2 and 3 provide for the making of the contract and the submission of the same to a vote of the people for ratification. Section 5 provides that the municipal authorities shall have the power to issue bonds against the tax levy, the same to be payable only out of the special tax when collected and out of the net revenue derived from the operation of the works, which bonds are to draw interest at the rate of six per cent, and be used for the purposes specified. Section 7 provides for the form of the bond, and contains this provision: “This bond * * * is payable solely out of funds derived from special tax levy and net revenue of the water-works of the city, * * * and out of no other fund.” These are the provisions of the statute under which it was sought by the village of East Moline to pass the ordinance and erect the waterworks.

It is admitted by the pleadings that at the time this ordinance was passed the village was indebted to the full amount of five per cent of its assessed valuation, as provided in the constitution. It seems to be conceded that if this one percentum tax had been levied for the purpose of creating a sinking fund out of which the water-works was to be built, and no bonds were to be issued, the ordinance would be valid and not in conflict with the constitutional limitation, for the reason that the constitutional limitation is not against the rate of taxation but against the amount of indebtedness. But it is insisted by appellee that the issuing of the bonds will create an indebtedness which will be in contravention of the constitutional limitation. On the other hand, it is insisted by appellants that inasmuch as the bonds were to be payable solely out of the special tax levied and the net revenue of the water-works, the bonds would not be an indebtedness, within the meaning of the constitution.

Many cases in which we have defined the term “indebtedness,” as used in the constitution, are cited. One of the earliest of these cases is City of Springfield v. Edwards, 84 Ill. 626, in which we held that the indebtedness specified in the constitution is the voluntary incurring of a legal liability to pay; that a debt payable in the future is no less a debt than if payable presently, and a debt payable upon a contingency, as upon the happening of some event, such as the rendering of service or delivery of property, is no less a debt, and therefore within the inhibition; that if a contract or undertaking contemplates a liability to pay, the debt exists; and it makes no difference whether the debt be for necessary current expenses or for something else,—it is nevertheless an indebtedness contemplated by the constitution. To the like effect are the following: Law v. People, 87 Ill. 385; Howell v. City of Peoria, 90 id. 104; Culbertson v. City of Fulton, 127 id. 30; Prince v. City of Quincy, 128 id. 443; City of Chicago v. McDonald, 176 id. 404.

In the case of City of Joliet v. Alexander, 194 Ill. 457, it was sought to issue bonds for the purpose of securing money under the act in question to enlarge a system of water-works already in existence. As security for the bonds the waterworks already in existence, together with an annual revenue of about $10,000, was to be pledged, and we held that, inasmuch as the city owned a valuable piece of property which was producing a large annual revenue, the pledge of that property and the revenue as security to obtain money with which to enlarge the plant was incurring an additional indebtedness in excess of that limited by the constitution, and the city was without authority to do so. But on page 463 we said: “What is said relative to mortgaging property owned by the city or pledging its existing income is not intended to apply to a mortgage, purely in the nature of a purchase money mortgage, payable wholly out of the income of property purchased or by resort to such property. This is not a case where there is no obligation of the city except the performance of a duty in the creation and management of a fund, and where the water-works, upon paying for themselves, will become the property of the city.”

In the case at bar it is manifest that if nothing but the income from the water-works was pledged or could be reached to satisfy the principal and interest of the bonds the case would be within the meaning of the language last quoted, but here revenue of the village to be obtained by general taxation to the extent of one cent on the dollar of taxábles must be applied to the payment of this indebtedness if the income from the water-works proves insufficient to satisfy it.

Appellants’ reasoning, to state it more at large, is this: that as the constitution is silent on the question of the amount of tax that may be levied and as the statute authorizes the levy of this one percentum, there is nothing to prevent the municipality incurring an indebtedness beyond the constitutional limit if it is to be paid by this tax; that as a special fund is to be derived' from the one percentum, which fund can only be applied to the payment of the bonds, and as they cannot be paid out of any other portion of the ordinaiy revenue of the village, they should not be regarded as an indebtedness within the meaning of the constitution, the conclusion being, that a municipal obligation in excess of the constitutional limitation is not prohibited unless directly payable out of the general funds of the municipality.

The section of the constitution above referred to requires that when any municipality incurs a bonded indebtedness which is within the constitutional limit it shall provide for the collection of a direct annual tax sufficient to pay the interest on such debt as it falls due, and also to pay and discharge the principal thereof within twenty years from the time the debt was contracted.

A special fund should be provided to meet an indebtedness within the constitutional limit, and there is therefore no distinction in this regard between the bonds which the appellant village proposes to issue and bonds which would be within the constitutional limit, as a special fund to be raised by general taxation is provided to pay the bonds in either instance.

Inasmuch as the village could be required to satisfy these bonds with money derived from the one percentum tax if the income from the water-works proved insufficient to meet them, we regard the indebtedness which they evidence as within the constitutional prohibition. If it were otherwise, the legislature could authorize the issuance of bonds for any proper municipal purpose in any amount, to be paid out of a tax levied for the special purpose of paying them, and thereby render nugatory the constitutional provision limiting municipal indebtedness.

The decree of the circuit court of Rock Island county will be affirmed.

Decree affirmed.