Opinion of the Justices to the Senate , 231 Mass. 603 ( 1919 )

To the Honorable Senate of the Commonwealth of Massachusetts:

We, the Justices of the Supreme Judicial Court, have considered the questions upon which our opinion is required by the order of March 12,1919, a copy of which is hereto annexed, and respectfully submit this opinion:

The questions relate primarily to the constitutionality, if enacted, of Senate Bill No. 54 and House Bill No. 722. These bills in form and substance are amendments to Spec. St. 1918, c. 159. Nevertheless the proposed changes are so radical as to make them in substance important new legislation and not mere perfecting of the details of an existing statute. In order to express an intelligent opinion upon the proposed bills, it is necessary to examine the original statute. We are constrained to do this under these circumstances notwithstanding the well settled rule, from which we do not here depart, that we are not required to express to the General Court or either branch thereof opinions as to the constitutionality or construction of statutes already enacted. Commonwealth v. Smith, 9 Mass. 531. Opinion of the Justices, 226 Mass. 607, and references at page 612.

We consider first Spec. St. 1918, c. 159. . That act was in substance and effect a taking over of the Boston Elevated Railway by the Commonwealth for operation for a limited period of ten years and possibly for a longer period under some circumstances, upon condition that its terms should be accepted by the holders of not less than a majority of all the stock of the Boston Elevated Railway Company and of the West End Street Railway Company and upon the further condition that the Boston Elevated Railway Company should provide for raising $3,000,000 by the issuance of that amount of new and preferred stock. Two main purposes of that act were (l)1 to provide for the establishment of rates of fares' which should be adequate to pay the cost of performing the service furnished by the Commonwealth through using the property of the Boston Elevated Railway Company as that cost was defined in § 6, and (2) to make an agreement for the payment of the rental for the use of the Boston Elevated Railway Company and its property by the Commonwealth by agreement with the companies interested to be manifested by acceptance by their stockholders. That rental was fixed by §§ 5 and 6 at payment not exceeding seven per cent on the preferred stock and by payment of dividends on the common stock of five per cent for the first two years, five and one half per cent for the succeeding two years, and six per cent for the remainder of the period of public operation. The chief design of that act was to provide by public operation for fares at rates sufficient to meet all costs of furnishing the service.

In § 11 provision was made for the advancement of moneys by the Commonwealth (to be assessed upon the .cities and towns enjoying the service) to maintain the reserve fund. But that was rather an incidental provision to tide over the affairs of the company until the fundamental idea of rates adequate to meet the cost of the service could be established and the habits of the travelling public could become adjusted thereto. That act was accepted by the stockholders of the two corporations and the new stock has been subscribed. Thus the act has become operative according to its terms and constitutes a contract between the parties as set forth in § 18.

We are of opinion that that act was constitutional and for these reasons: The means of transportation for people at large is a matter of public interest. In earlier times turnpikes and toll bridges in private ownership and management afforded facilities for travel. Gradually these mostly have been taken over by counties, cities and towns and the tolls abolished. Andover & Medford Turnpike Corp. v. County Commissioners, 18 Pick. 486. Murray v. County Commissioners, 12 Met. 455. Central Bridge Corp. v. Lowell, 4 Gray, 474; S. C. 15 Gray, 106. The ownership and operation of a ferry by a municipality contravenes no constitutional limitation. Attorney General v. Boston, 123 Mass. 460. Steam railroads in their last analysis are highways for the use of the public. The Commonwealth has in several instances lent its aid to the construction of such railroads. See Kingman, petitioner, 153 Mass. 566, 570, for references to statutes. Numerous special statutes and finally a general law have been enacted authorizing cities and towns to subscribe for stock of railroads. Kittredge v. North Brookfield, 138 Mass. 286. Commonwealth v. Williamstown, 156 Mass. 70. Such legislation is constitutional. Prince v. Crocker, 166 Mass. 347, 361. The Commonwealth contributed toward the construction of the Hoosac Tunnel and ultimately acquired the ownership and assumed the management of the Troy and Greenfield Railroad. Troy & Greenfield Railroad v. Commonwealth, 127 Mass. 43. Amstein v. Gardner, 134 Mass. 4. Nearly forty early statutes incorporating street railways contained a section whereby the municipality within which such railway was constructed might acquire its property. The construction of the Boston subway for street railway purposes was held a public use for which money raised by taxation lawfully might be expended. Prince v. Crocker, 166 Mass. 347. The same is true of the East Boston Tunnel. Browne v. Turner, 176 Mass. 9. Property invested in street railways by private investors has been held to become thereby affected with a public interest. Donham v. Public Service Commission, 232 Mass. 309. It has been decided in other jurisdictions that the construction, acquisition and operation of street railways may be made a municipal function. Sun Printing & Publishing Association v. Mayor of New York, 152 N. Y. 257. Walker v. Cincinnati, 21 Ohio St. 14. Platt v. San Francisco, 158 Cal. 74, 81, 82. Barsaloux v. Chicago, 245 Ill. 598. Under modern conditions local transportation by an electric railway may be determined by the Legislature to concern the welfare and convenience of all the inhabitants of a particular district. In essence Spec. St. 1918, c. 159, was a legislative agreement for the lease to the Commonwealth of a public utility to be operated for a limited time by public officers upon the payment of fair rental on an investment made under public supervision and under laws prohibiting stock watering or other means of inflation.

We are led to the conclusion that said c. 159 was within the constitutional power of the Legislature.

A radical change in the scheme embodied in Spec. St. 1918, c. 159, is proposed by Senate Bill No. 54 and House Bill No. 722. Rates of fare large enough to pay the cost of the service are abolished and a fare, which is or may be less than cost, is substituted, the balance of the cost to be made up by taxation. Senate Bill No. 54 provides in substance for a maximum fare of five cents upon the lines of the Boston Elevated Railway Company, and, if the income thus received shall be inadequate to meet the cost of the service, as apparently confessedly it will be, the deficiency is to be made up by payments to the Boston Elevated Railway Company from the treasury of the Commonwealth out of moneys to be borrowed. Sums so advanced are to be assessed upon the cities and towns in which the lines of the company are operated in proportion to the number of persons therein using the railway company. Thus the money paid to the Boston Elevated Railway Company is ultimately to be raised by taxation. In form and substance Senate Bill No. 54 is an amendment of Spec.. St. 1918, c. 159. The proposed bill amends that act in effect by striking-out § 7, which requires fares as nearly as possible to meet the cost of service, and by substituting therefor its § 1, which establishes a maximum fare of-five cents, and by modifying by its §§ 2, 3, 4 and 5, the terms of §§ 9, 10, 11 and 14 of said c. 159. House Bill' No. 722 aims at the result of reducing the fares to be charged on lines of the Boston Elevated Railway Company by the payment by the Commonwealth to that company of an amount equal to the rentals due from it for the use of subways and the ultimate assessment of the sums so paid upon the same cities and towns in the same way as in Senate Bill No. 54. This also is a raising by taxation of money for the operation of the Boston Elevated Railway Company. Thus the conception of rates of fare adequate to meet the cost of the service is wholly eliminated and for that plan a fixed maximum rate of fare, which is or may be much less than the cost of service, is put in its place, the difference between the actual cost of the service and the fixed maximum rate to be made, up out of moneys to be raised by taxation. The method adopted is to continue the payment of the dividends to the stockholders of the Boston Elevated Railway Company fixed by said c. 159 and treat these dividends as a part of the cost of the service. The proposed legislation provides also that it shall become operative with its burdens of increased taxation in the various cities and towns to be affected without submission to their voters or municipal boards or officers for acceptance.

It is a matter of common knowledge that the expenses of maintenance and operation of street railways in the neighborhood of Boston have increased enormously since the outbreak of the great war. This is due among other causes to the greatly augmented costs of labor, copper, coal and necessary supplies. The adjustment of fares to meet these changed conditions without unusual public inconvenience and interference with settled social conditions of a considerable portion of the people presents a problem of great difficulty. The present appears to be commonly regarded as a period of transition, where prophecy as to the ultimate adjustments to be reached is uncertain.

The fundamental question thus presented is whether the State has the power under the Constitution to take over a public utility such as is the Boston Elevated Railway Company and operate it for so low a rate of fare as to create a deficit and pay that déficit in the only way in which it can be paid, out of moneys raised by taxation. To State the question differently, it is whether the State can carry such persons as desire to ride upon the Boston Elevated Railway at less than cost and assess the rest of that cost upon the public by taxation. This is an entirely novel question so far as we are aware. No decision has been made of such a question to our knowledge. ■ Reference was made to the general principle in Opinion of the Justices, 150 Mass. 592, 593, in these words: “We also assume that the gas or electricity to be furnished to the inhabitants for their private use is to be paid for by them at rates to be established, which shall be deemed sufficient to reimburse to the cities and towns the reasonable cost of what is furnished, and that all the inhabitants of a city or town are to have the same or similar rights to be supplied with gas or electricity, so far as is reasonably practicable, and the capacity and extent of the works, which it is deemed expedient to maintain, will permit. Whether cities and towns can be authorized to give gas or electricity to their inhabitants, or to sell either to them, at varying and disproportionate prices, selecting their customers, selling to some and arbitrarily refusing to sell to others, are questions which it is not necessary to. consider.” It also was said in Attorney General v. Boston, 123 Mass. 460, at pages 469, 470, that it was not necessary to consider “whether it is within the power of the Legislature, under the Constitution of the Commonwealth, to authorize a city or town to establish and maintain a free ferry at the public expense.” It was said in Davies v. Boston, 190 Mass. 194, 197, respecting the same ferry, “The fact that the business, as managed, was not profitable to the city does not change its character.”

It is an underlying principle of our government that money raised by taxation can be used only for public purposes and not for the advantage of private individuals. "The power to levy taxes is founded on the right, duty and responsibility to maintain and administer all the governmental functions of the State, and to provide for the public welfare. To justify any exercise of the power requires that the expenditure which it is intended to meet shall be for some public service, or some object which concerns the public welfare. The promotion of the interests of individuals, either in respect of property or business, although it may result incidentally in the advancement of the public welfare, is, in its essential character, a private and not a public object.” Lowell v. Boston, 111 Mass. 454, 460, 461.

There are numerous instances where the State has authorized the construction and maintenance of public works which involve the element of benefit to private individuals. Assessments of benefits are authorized but seldom are required to equal in amount the benefit conferred.' It is limited sometimes to one half only. See as to highways, R. L. c. 50, § 1, now St. 1917, c. 344, Part III, § 1. There is no such limitation as to the assessment of benefits arising from sewers. R. L. c. 49, § 3. Annual assessments for the use of sewers to aid in their maintenance have been authorized. Some statutes authorize assessments .for reconstruction of sidewalks. All these statutes have been upheld. Carson v. Brockton, 175 Mass. 242, and 182 U. S. 398. Sayles v. Public Works of Pittsfield, 222 Mass. 93. Statutes authorizing building of a market-house, Spaulding v. Lowell, 23 Pick. 71, the removal of ashes, Haley v. Boston, 191 Mass. 291, and the maintenance of public baths, Bolster v. Lawrence, 225 Mass. 387, part of the expense to be charged to those benefited, have been upheld. In no instance, so far as we are aware, has it been intimated that the entire expense must be borne by those benefited or that the entire benefit must be assessed. The taking over of toll bridges and roads and the abolition of tolls have already been referred to.

The fundamental question is whether the General Court has the right to authorize the operation of the Boston Elevated Railway Company through trustees appointed by the Governor. It can do so if it is a public purpose. If it is a public purpose, the General Court has the same power respecting that purpose that it has respecting other public purposes. Since transportation of the public such as is furnished by the Boston Elevated Railway is a public purpose, there is no imperative constitutional requirement that it must be operated by the public authorities at cqst or at a profit.

The present bills provide in their ultimate analysis for taxation in order that dividends may be paid to the stockholders of a public service corporation. Property invested by private persons in public service corporations becomes affected with a public interest. Statutes authorizing rate regulation of privately owned public utilities rest on this principle. It commonly has been held that stockholders of such corporations who have wisely and honestly invested property actually used for the benefit of the public are entitled to a reasonable return upon their investment. We are unable to discern any distinction in principle between public operation at a loss to be made up by general taxation of a utility owned by the public and a contribution from public money toward the efficient maintenance of the same utility in private ownership but under public operation. A statute to such an end would be constitutional, however, only after a legislative determination that the real value of the private property so devoted to the public use, together with all its other sources of income, required such contribution in order that it might receive fair return. Legislation designed merely to provide a gratuity to private individuals, corporations or stockholders, would of course be unconstitutional. Such a determination was made in essence by the enactment of said c. 159. That act in §§ 5 and 6 substantially determined that the dividends there set forth constituted a fair return on actual investment.

Therefore, we are of opinion that the public as a body has a concern in the continued operation of the Boston Elevated Railway, by the trustees appointed by the Governor, in a safe and practical manner adequate to the needs of those who travel. If the rational way to accomplish this result is an assumption by the public of a part of the expense so that the burden of operation shall not fall alone upon the shareholders but also in part upon the cities and towns using the service in the way provided in the proposed bills, that is a public purpose. It was an inducement to stockholders to continue an otherwise losing and possibly confiscatory investment.

The right to apportion the public burdens among different, separate divisions of the State can hardly be questioned. Hingham & Quincy Bridge & Turnpike Corp. v. County of Norfolk, 6 Allen, 353. Although it has been the custom of the General Court to submit such legislation to the acceptance of the municipalities to whose taxes resort must be had for the money required, that has not always been done nor is it necessary under the Constitution. The power of the Legislature is paramount in this particular. Kingman, petitioner, 153 Mass. 566.

The questions presented reach into a new field differing fundamentally from any hitherto occupied by legislation. We have given them the best consideration possible in the time at our disposal.

Therefore we answer "Yes” to questions (1) and (2) and “No” to questions (3) and (4).

Arthur P. Rugg.

William Caleb Loring.

Henry K. B raley.

Charles A. He Courcy.

John C. Crosby.

Edward P. Pierce.

James B. Carroll.