Price v. Philadelphia Parking Authority

Opinion by

Mr. Justice Roberts,

In May 1964, appellants, B. Price and Barook Masuda, instituted an action in equity to enjoin appellee, the Philadelphia Parking Authority, from proceeding under separate negotiated agreements for the development of two projects, hereafter referred to as the Academy House Project and the Rittenhouse Square Project, and to have such agreements declared null and void.

The Philadelphia Parking Authority is “a public body corporate and politic, exercising public powers,”¹ created by the City of Philadelphia pursuant to enabling legislation² for the purpose of establishing a coordinated system of off-street public parking facilities.³ Purporting to act under the powers granted by the enabling act, the Authority entered into the challenged projects: the Academy House Project with National Land and Investment Company and the Rittenhouse Square Project with Jack Wolgin and Ephraim Prankel. Due to the nature of the action and the issues presented, it is necessary that we set out the essential terms of the contested agreements.

I. Academy House Project

The Philadelphia Parking Authority presently operates an open-air facility of a 100 car capacity on the southern half of the block bordered by Broad, Watts, Spruce, and Locust Streets in the City of Philadelphia.⁴ National Land and Investment Company is the record owner of the remaining portion of the block, the situs of a vacant structure formerly the John Bartram Hotel.

In the Fall of 1963, National Land and the Parking Authority entered into a negotiated agreement for the development of the Academy House Project.⁵ In essential terms, the agreement provided that tbe Authority was to purchase that portion of the block owned by National and to acquire the remainder from the City of Philadelphia.⁶ The Authority further agreed to demolish the existing structure and to finance and construct an eight-story public parking garage on the site. The proposed garage, estimated to cost between $8,000,000 and $9,000,000,⁷ was to provide space for approximately 862 automobiles and was to be leased to National for operation as an Authority parking facility. The term of the lease with National for the garage was to be co-terminous with the life of the bonds issued by the Authority to finance land acquisition and construction costs. National, however, was granted an exclusive option to renew the lease “if, and whenever and to the extent that, the life of the Authority is extended . . . .”⁸

In addition to the garage, the Authority also agreed to lease for a like term the air space over the proposed facility to the private developer for the construction of a high-rise apartment complex. The contemplated structure was to consist of two apartment towers rising 22 floors above the garage,⁹ containing in excess of 1000 apartment units. The developer was to be permitted to allocate space on the ground and concourse levels of the garage for its own use or for lease to commercial tenants. This area was to occupy approximately 74,000 square feet and was to be sublet to private commercial tenants for offices, shops, a bank, and a restaurant.¹⁰

National’s financial commitments under the lease agreement called for three separate rental payments: (1) “debt-service rentals” which were to consist of an amount sufficient to meet the amortization and interest on the bonds issued by the Authority to finance the acquisition of the situs and construction of the garage j¹¹ (2) “Authority rentals” which were to consist of payments for the use of air space over the garage in the following sequence and amounts: $5,000 for the first year of the lease term, $10,000 for the second, $15,000 for the third, $20,000 for the fourth, $25,000 for the fifth and every year thereafter, except for the last 10 years of the lease term, for which the payment was to be $30,000 annually; and (3) “excess rentals” which were to consist of a percentage of the gross receipts over a given amount received by the developer from the operation of the garage and the lease of commercial space therein. Neither the percentage nor the level of gross receipts at which excess rental payments become due is stated in the written agreement or has as yet been fixed by the parties.

Under the agreement, title to the project was to be in the name of the Parking Authority. The developer, however, obtained an exclusive option to acquire the entirety, including the land, garage and apartment structure tliereon, at the end of the lease term for an amount based upon the cost of the garage or its appraised value at the time of purchase. Thus, no actual payment was to be required for the acquisition by National of title to the structure to be constructed by it over the garage facility.

As an aspect of the lease, the developer agreed to operate the proposed garage “as a public parking facility of the Authority . . . .” The rates and other charges for use of the garage by the public were to be determined by the Authority subject to the proviso that the fees could not be reduced below the amounts initially set without the lessee’s consent.

II. Rittenhouse Square Project

At approximately the same time the negotiations took place between the Authority and National, the Authority also entered into a construction and lease agreement with Jack Wolgin and Ephraim Frankel. The agreement provided for the lease of air rights over a parking facility owned and operated by the Authority at 1815-27 Walnut Street, Philadelphia, Pennsylvania.¹²

Under this agreement, the tenant-developers, Wolgin and Frankel, were empowered to construct a 19 story office building over the Authority’s parking garage. The tenants were also to be permitted to “improve and occupy space within the Garage for access to and support of the Office-Building, and... [to] construct ... [stores] in the basement and on the ground level of the Garage . . .” to be used for their benefit or sublet to other private commercial tenants.¹³

The tenant-developers, under the agreement, were obliged to pay the Authority for the spaee within and above the garage a rental averaging approximately $25,-000 annually. The term of the lease was to extend for the life of the Authority, including any extension thereof, but was not to exceed 99 years. During the lease term, the parking facilities and improvements thereto made by Wolgin and Frankel, including the office building to be constructed, were to be owned by the Authority. However, the developers were given an exclusive option to purchase the entire project, land, parking facilities, and all improvements, for a sum ranging from $1,000,000 to $1,318,000, exercisable after January 1993, or after the retirement of all outstanding revenue bonds, whichever occurred later.

III. Grounds of Challenge

In their complaint, Price and Masuda challenge the legality of both projects alleging essentially that the Authority, by employing negotiated agreements rather than competitive bidding, had exceeded its statutory authority; that the Authority was not authorized to engage in the projects because as envisioned they were primarily and predominantly private in nature; and that, as to the Academy House Project, there was no demonstrable present or anticipated future public need for the parking facility proposed.

The Parking Authority filed an answer to the complaint which put the essential facts in issue, and the parties presented testimony. At the start of the trial, at the conclusion of appellants’ case, and again when the record was closed, the Authority moved to dismiss on the ground that Price and Masuda lacked standing to challenge the transactions and that they had failed to establish that they were entitled to the relief sought.

Treating the complaint as averring two separate causes of action, the chancellor granted the Authority’s motion to dismiss with respect to the Rittenhouse Square Project on the ground that the complaining parties lacked standing to challenge the transaction. He denied the motion as to the Academy House Project and proceeded to make an adjudication, with findings of fact and conclusions of law.

The chancellor concluded that the Parking Authority, by entering into the Academy House Project without competitive bidding, had not violated the provisions of the enabling act. He further concluded that the project was a public endeavor and that appellants had failed conclusively to establish the lack of public need for the proposed construction.¹⁴ And, although he had previously dismissed that portion of the complaint seeking to enjoin the Rittenhouse Square Project, the chancellor proceeded to make findings of fact and conclusions of law on the merits in order to provide a record in the event that his determination that Price and Masuda lacked standing to challenge it be reversed. On the merits, he concluded that the Authority had not acted contrary to the enabling act.

IV. Standing to Sue

Price and Masuda are citizens and taxpayers of the City of Philadelphia. In sustaining their standing to challenge the Academy House Project, the chancellor found that Price and Masuda fell within the ambit of the well-defined rule that a taxpayer may challenge the “wrongful expenditures of tax monies and the wasting of assets.” Loewen v. Shapiro, 389 Pa. 610, 613, 133 A. 2d 525, 527 (1957). Although the Authority is not a traditional governmental body, it is created to perform essential public services through the medium of a publicly owned enterprise and is not subject to taxes or assessments upon any property acquired for or devoted to such purposes. Act of June 5, 1947, P. L. 458, §15, as amended, 53 P.S. §355, enacted pursuant to Pa. Const., Art. IX, §1; see Pittsburgh Public Parking Auth. v. Bd. of Property Assessment, 377 Pa. 274, 279, 105 A. 2d 165, 166 (1954); McSorley v. Fitzgerald, 359 Pa. 264, 267, 59 A. 2d 142, 144 (1948); cf. Moon Township Appeal, 387 Pa. 144, 127 A. 2d 361 (1956); West View Borough Municipal Auth. Appeal, 381 Pa. 416, 113 A. 2d 307 (1955). Thus, if permitted to proceed, the Academy House Project will presumably result in the removal of a large tract of real estate from the tax rolls because of the location thereon of an Authority parking facility. Cf. Pittsburgh Public Parking Auth. v. Bd. of Property Assessment, 377 Pa. 274, 105 A. 2d 165 (1954); Moon Township Appeal, 387 Pa. 144, 127 A. 2d 361 (1956). Based upon appellants’ allegation that real estate would be illegally exempted thereby, the chancellor reasoned that the project was amenable to challenge by one whose tax burden would be affected. We agree with this conclusion. As the chancellor stated, “to the extent that real estate tax revenues will be diminished by an illegal exemption, and hence be unavailable for future use, . . . [Price and Masuda] as contributors to that fund will have suffered a pecuniary loss.”

In Mayer v. Hemphill, 411 Pa. 1, 6, 190 A. 2d 444, 446 (1963), this Court reiterated the well-settled rule that a taxpayer may seek to enjoin the wrongful or unlawful expenditure of public funds even though he is unable to establish any injury other than to his interest as a taxpayer. See Smith v. Gallagher, 408 Pa. 551, 185 A. 2d 135 (1962) ; Scudder v. Smith, 331 Pa. 165, 200 Atl. 601 (1938); Harris v. Philadelphia, 299 Pa. 473, 149 Atl. 722 (1930); Page v. King, 285 Pa. 153, 131 Atl. 707 (1926). The court below correctly reasoned that the reduction of tbe tax base which results from the exemption of property from taxation has, for all practical purposes, the same effect upon the taxpayer as an expenditure of funds. If the latter is challengable by a taxpayer, as has been repeatedly held, so therefore must be the former. Cf. Bernstein v. Pittsburgh, 366 Pa. 200, 77 A. 2d 452 (1951).¹⁵

Proceeding to that portion of the complaint dealing with the Rittenhouse Square proposal, the chancellor concluded that Price and Masuda lacked standing to challenge that project. In distinguishing that transaction from Academy House, the chancellor reasoned that since the Authority presently enjoys a tax exemption on its existing facility, the mere lease of commercial space within and above the building, even if improper, did not threaten appellants with any pecuniary injury. He concluded, therefore, that appellants could not invoke equity jurisdiction to attack the Rittenhouse Square Project. In this, the chancellor erred.

As has previously been noted, under tbe agreement between the Authority and tbe developers of tbe Rittenbouse Square Project, tbe latter were given an exclusive option to purchase tbe existing garage facility and land. Thus, tbe Rittenbouse Square Project involves not merely a lease transaction but also envisions tbe sale of publicly owned and financed facilities to private developers.

In considering tbe Authority’s claim that tbe Rittenbouse Square Project is not subject to tbe instant challenge, it is significant to note that tbe existence of tbe Parking Authority is limited to a term of fifty years, subject to the power of tbe City of Philadelphia to extend its life for an additional like term. Act of June 5, 1947, P. L. 458, §5, as amended, 53 P.S. §345(b)(1). Upon tbe termination of its existence, tbe assets of tbe Authority will pass to tbe City of Philadelphia. Act of June 5, 1947, P. L. 458, §14, as amended, 53 P.S. §354.¹⁶ Thus, within tbe foreseeable future, tbe City of Philadelphia is destined to acquire the assets of tbe Authority. And, an alleged improper diversion of this property, following its acquisition by tbe City, would be subject to judicial scrutiny at tbe behest of a taxpayer.¹⁷ Yet, in tbe instant case, if Authority property is improperly diverted, Price and Masuda, as citizens and taxpayers of tbe City of Philadelphia, will sustain a similar pecuniary injury.¹⁸ Under such circumstances, we are led to conclude that Price and Masuda, as representatives of tbe taxpayers of tbe City of Philadelphia, possess the requisite pecuniary interest in the Rittenhouse Square Project to challenge the transaction.

Our conclusion is reinforced by a recognition of the need to subject the activities of public authorities to judicial scrutiny.¹⁹ As public bodies, they exercise public powers and must act strictly within their legislative mandates. Moreover, they stand in a fiduciary relationship to the public which they are created to serve and their conduct must be guided by good faith and sound judgment. See Schwartz v. Urban Redevelopment Auth., 411 Pa. 530, 536, 192 A. 2d 371, 374 (1963); Heilig Bros. Co. Inc. v. Kohler, 366 Pa. 72, 77-78, 76 A. 2d 613, 616 (1950). The mushrooming of authorities at all levels of government and the frequent complaint that such bodies act in an arbitrary and capricious manner in violation of existing law dictate that a check rein be kept upon them. Schwartz v. Urban Redevelopment Auth., 411 Pa. 530, 536, 192 A. 2d 371, 374 (1963); Keystone Raceway Corp. v. State Harness Racing Comm., 405 Pa. 1, 5, 173 A. 2d 97, 99 (1961). These considerations dictate that the independence of authorities from some of the usual restrictions on governmental activity²⁰ not be extended so as to insulate them from judicial scrutiny through the medium of taxpayers’ suits.²¹

Having concluded that appellants have standing to seek to enjoin the Rittenhouse Square Project as well as the Academy House Project, we now proceed to a consideration of the merits of their challenge.

Y. Academy House Project

Appellants first urge that the chancellor erred in concluding that the enabling act did not impose upon the Authority the duty to utilize competitive bidding in the leasing of the air rights over the proposed Academy House construction. While we are in agreement with the chancellor’s conclusion that the Authority was free to negotiate the lease o'f the proposed garage facility,²² we do not agree that it was free to dispense with competitive bidding in the leasing of air rights.

The enabling act grants the Authority broad general powers to operate, own, and lease — both as lessee or lessor — facilities in the fulfillment of its statutory purpose of providing public off-street parking. Act of June 5, 1947, P. L. 458, §5, as amended, 53 P.S. §345 (a) (Supp. 1965). In order to assist in defraying its expenses, the Authority is also empowered by the enabling act “to lease portions of the street level or other floors of . . . parking facilities for commercial use . . . .” Ibid. However, leases of such commercial space within Authority facilities are subject to the explicit statutory requirement that they be entered into “on a fair competitive basis.” Ibid.²³ Thus, the enabling act distinguishes between the leasing of facilities for operation as an Authority parking garage and the leasing of commercial space for incidental, revenue producing purposes, explicitly mandating that the latter commercial leases be granted only on the basis of competitive bidding. Ibid.

In 1961, the Legislature added the following proviso to §5 of the Act: “Nothing herein contained shall be construed to prohibit the sale or leasing by the Authority of the right to occupy and use the space above any parking facilities for commercial uses other than parking . . . .” Act of June 5,1947, P. L. 458, as amended, Act of September 2, 1961, P. L. 1229, §1, 53 P.S. §345(a) (Supp. 1965). This amendment merely granted the Authority the power to lease air space for non-parking commercial uses just as the Act had previously authorized the Authority “to lease portions of the street level or other floors of . . . parking facilities for commercial use . . . .” It is clear, therefore, that the power to lease air rights is an aspect of the Authority’s power to lease non-parking commercial space and only incidental to its primary purpose of providing parking facilities for the general public.

This Court has previously expressed the policies underlying the requirement of competitive bidding, noting that the resulting competition guards against favoritism, improvidence, fraud, and corruption in the awarding of public contracts. Yohe v. Lower Burrell, 418 Pa. 23, 28, 208 A. 2d 847, 850 (1965); Corcoran v. Philaelphia, 363 Pa. 606, 609, 70 A. 2d 621, 623 (1950); see also 10 McQuillin, Municipal Corporations §29.29 (3d ed. 1950). Giving recognition to these policies, the Legislature explicitly mandated the use of competitive bidding both with respect to the leasing of non-parking commercial space ²⁴ and the letting of construction and repair contracts.²⁵

The language of the 1961 Amendment to the Act providing for the leasing of air space neither specifically nor impliedly exempts such leases from the requirement of competitive bidding. Nothing there contained suggests an intent on the part of the Legislature to alter its policy of requiring competitive bidding in the leasing of commercial space so as to exclude the leasing of air rights from the requirement of such bidding and to deny the public the protection thereby afforded. Absent a clear expression of such an intent, we are compelled to conclude that such leases are subject to the same requirement as all non-parking commercial leases, that they be granted “on a fair competitive basis.”²⁶

We hold, therefore, that the agreement between the Parking Authority and National for the lease of air rights over the Academy House Project, entered into by private negotiation rather than by competitive bidding, was unauthorized and void. Accordingly, Price and Masuda were entitled to the relief which they sought below and the action of the chancellor in dismissing their complaint must be reversed.

However, in light of the importance of the public issues raised by the challenged transaction, we find it appropriate to discuss another aspect of the litigation which also mandates reversal of the court below.

Price and Masuda attacked the Academy House Project not only on the ground that it was entered into without competitive bidding but also on the ground that any benefit to be derived therefrom would be predominantly private, not public in nature and that the project was therefore beyond the scope of the powers statutorily conferred upon the Authority. Our consideration of the transaction in its entirety leads us to conclude that they must prevail on this ground as well.

The Parking Authority, as a public corporation, exercises public powers. Act of June 5, 1947, P. L. 458, §5, as amended, 53 P.S. §345 (Supp. 1965). Its engagements are public in nature, and its facilities, whether operated by the Authority or leased to private parties, are public property. See Pittsburgh Public Parking Auth. Petition, 366 Pa. 10, 76 A. 2d 620 (1950). Empowered to act only for the public benefit, the Authority may not employ its resources for the primary and paramount benefit of a private endeavor. An engagement essentially private in nature may not be justified on the theory that the public will be incidentally benefited.

In determining whether the instant project is essentially public or private in nature, we are confronted with, an issue analogous to that frequently presented in eminent domain proceedings. We have said in that context that such power may not be employed for the purpose of devoting the property so acquired for merely private benefit. See Belovsky v. Redevelopment Auth. of Philadelphia, 357 Pa. 329, 340, 54 A. 2d 277, 282 (1947). Although there may be an incidental benefit to private parties without invalidating the taking, the power of eminent domain may not be employed unless the public is to be the primary and paramount beneficiary of its exercise. Ibid. And while we do not deal here with eminent domain, we are confronted with the purported exercise of powers statutorily subject to the same limitation.²⁷ The Parking Authority Law confers no power on the Authority to act other than for the public benefit in providing off-street parking facilities. Accordingly, the Academy House Project may not be permitted to proceed unless as presently envisioned it will result predominantly in public benefit through the creation of additional off-street public parking facilities commensurate with the public investment in the project.

In considering the validity of the agreement between the Authority and National, we examine first the benefits to be derived by the private developer from the Academy House Project. Under the agreement, the Parking Authority will purchase land from the developer for the situs of the project, demolish the existing structure, and construct the garage thereon. National will lease and operate the garage and also construct and operate thereover a high-rise apartment building containing in excess of 1000 units. The developer will also be permitted to devote substantial portions — approximately 71,000 square feet — of the ground and basement levels of the garage to its own purposes and to sublet other portions to private commercial enterprises. In addition, National will have an exclusive option to acquire the land and public garage.

By what is essentially a sale and lease-back arrangement, National will be able to finance its site costs through the medium of long term public financing, with all the benefits which attend such an arrangement, not generally available to other private commercial developers. Moreover, were National to embark on the proposed apartment construction absent reliance on Authority provided parking, it would be required to make provision for its tenants to the extent of approximately 500 car spaces in order to comply with the Philadelphia Zoning Code.²⁸ By advantaging itself of the Authority’s commitment to construct and to lease a public parking facility to it, National is able to avoid the initial investment required to comply with the requisite zoning provisions. And by the use of its exclusive option to acquire the garage facility in the future, National is able to defer such major capital investment to a much later date and to accumulate revenues generated by the parking facility and the concourse and ground level commercial rentals for the cost of acquisition.²⁹

To this extent, the Academy House Project involves substantial public financing of a private endeavor. Irrespective of any benefit that tbe public may ultimately derive, it cannot be denied that a significant ingredient of tbe transaction is tbe use of tbe Parking Authority as a conduit by wbicb a private developer is able to lighten substantial burdens, both economic and regulatory, wbicb would otherwise devolve upon it.³⁰ There is therefore presented on this record a substantial degree of public involvement and investment in a private profit making venture, not only with respect to tbe operation of tbe garage facility itself, but in tbe overall commercial aspects of tbe complex as well. And although certain such benefits may necessarily flow from tbe Authority’s power to lease air rights, whether a particular project is within the ambit of the enabling act is dependent upon the public being accorded benefits sufficiently substantial in nature as to justify the Authority’s involvement in the endeavor. Hence, the totality of private benefit accruing to National must be considered in determining whether the project as proposed reflects the required predominant public benefit.³¹ In the instant ease, in the face of the numerous and substantial benefits accruing to the private developer from the Academy House Project, the record fails to disclose any benefit to the public of more than a limited and incidental nature.

The parking facility presently operated by the Authority at the situs of the project has a capacity of 100 cars. The proposed garage will have a capacity of approximately 862 cars. The chancellor made a finding that the Academy House apartment development would require 356 car spaces for residential tenants and 80 car spaces for commercial tenants, a total of 436 spaces. He concluded that the proposed project would provide an excess of 426 spaces for the public and an increment of 326 spaces over that presently available at the Authority’s open air facility.

In arriving at his conclusion that the apartment complex would only generate a daily demand for 436 car spaces, the chancellor relied upon a report prepared for National in September 1963 by Wilbur Smith and Associates, traffic consultants. However, although the Smith Report repeatedly discusses the parking demand to be generated by guests and business visitors to apartment residents, its conclusion that the Academy House apartment development would only utilize 356 car spaces fails to account for this demand. It is obvious that an apartment house of the size contemplate*! will, as the Smith Report indicated, generate a significant demand beyond that created by the tenants themselves. The failure of the Smith Report to include such demand in its projection of the space to be required by the apartment development renders that report of limited utility. Under such circumstances, reliance on the Smith data that the Academy House complex will require only 436 car spaces was unjustified and unreasonable.³²

In the absence of another, more reliable index of demand, we think the appropriate reference for projection should have been the requirements of the zoning code. Under the code, as previously noted, a minimum of 500 car spaces would have been required. Taking into account the 80 spaces found by the Smith Report to be required by the commercial tenants, it could reasonably be anticipated that a total demand for 580 spaces will be generated by the Academy House Project. Since, however, the Parking Authority presently provides 100 car spaces on its open-air facility, the situs of which will be taken up by the complex, the net gain to the public upon the completion of the project will be approximately 180 car spaces.

This net increment to the public, in light of the magnitude of the garage project and the substantial benefits accruing to public therefrom, is not sufficient to warrant the public involvement here proposed. In weighing the benefits to the respective parties, the record compels the conclusion that the Academy House Project, as envisioned, results in the subordination of the public interest to that of a private developer.

In the face of the limited and, to a great extent, conjectural gain in the number of parking spaces which will be made available to the general public by the Academy House Project, the private developer is assured of very substantial and significant benefits. As a result of the Authority’s engagement in the project, National will be the beneficiary of a large scale public investment in a garage facility to be utilized primarily by its own tenants.

The enabling act does not contemplate that the resources of the Parking Authority shall be employed to secure to private activities the means to carry on a private enterprise whose primary objective and purpose is private gain and not the satisfaction of public need. Cf. City & County of San Francisco v. Ross, 44 Cal. 2d 53, 60, 279 P. 2d 529, 533 (1955). In weighing the relative benefits to be accrued, we are compelled to conclude that the facility contemplated in the present case appears to be narrowed to such an enterprise. Cf. ibid. The totality of these circumstances leads us to conclude that the public is not the primary and paramount beneficiary of the Academy House Project. In the absence of such prospective public benefit, neither the public participation nor the grant of governmental benefits to private parties here proposed may be permitted.³³

In reaching this conclusion we are not unmindful of the suggestion which has been advanced that the Academy House Project represents a contribution to the development of center-city Philadelphia. However, the Authority is limited by the enabling act to engagements which will result in the fulfillment of its statutory mandate of providing off-street public parking. Such assistance to a private developer as is here eontemplated is beyond tbe scope of the Authority’s statutory powers.

Moreover, a careful consideration of the effect of the Authority’s participation in the instant project casts grave doubt on its ultimate contribution to center-city renewal. By reason of the Authority’s involvement in this venture, National will be placed at a competitive advantage over existing comparable facilities privately financed and properly taxed. But more importantly, the competitive advantages accorded National as a result of the Authority’s participation will have the effect of discouraging wholly private investment in similar center-city development. To permit the instant project to proceed would establish an unwise and dangerous precedent under which all such future development would require and seek similar Parking Authority assistance in order to equalize the advantages accorded National. Furthermore, under such precedent the Authority could employ its other public powers, including the power of eminent' domain,³⁴ for the primary benefit of private developers.

For the reasons heretofore stated, we hold that the Parking Authority may not cloak a private interest, as is here proposed, with benefits so grossly disproportionate to the benefits accorded the public. The challenged agreement, therefore, was beyond the Authority’s power and appellants were entitled to injunctive relief.³⁵

VI. Rittenhouse Square Project

In light of our previous conclusion that the Parking Authority is not free to lease air rights by private negotiation, we are compelled to conclude that the chancellor erred in denying appellants injunctive relief with respect to the Rittenhouse Square Project as well. Óur conclusion that this project must be enjoined because of the Parking Authority’s failure to comply with the competitive bidding requirements of the enabling act is reinforced by a consideration of certain aspects of this transaction not present in the Academy House Project.

Under the terms of their agreement with the Authority, the developers of the Rittenhouse Square Project were authorized to “construct, lease and maintain certain commercial areas ... in the basement and on the ground level of the Garage [sic] along the Walnut Street frontage thereof . . . .” Accordingly, the negotiations between the parties envisioned not only the lease of air space, but also the lease of commercial space within the garage facility. As to the lease of the latter, no possible construction of the enabling act would remove the obligation of the Authority to proceed by competitive bidding, since the Act specifically requires that the leasing of such commercial space be done only “on a fair competitive basis.” Act of June 5, 1947, P. L. 458, §5, as amended, 53 P.S. §345(a) (Supp. 1965). This statutory mandate having been disregarded, the agreement between the Authority and Wolgin and Frankel was beyond the scope of the Authority’s powers and thus invalid.³⁶

Accordingly, the decree of the court below dismissing tbe complaint must be reversed and the record remanded for further proceedings consistent herewith. Costs upon appellee.

1 Parking Authority Law, Act of June 5, 1947, P. L. 458, §5, as amended and supplemented, 53 P.S. §345 (Supp. 1965).

2 Ibid, §§1-16, as amended and supplemented, 53 P.S. §§341-56.

3 Ibid, §5, as amended and supplemented, 53 P.S. §345.

4 The City of Philadelphia is the record owner of the situs of this facility, having purchased the land for $1,000,000, and leases it to the Parking Authority. An ordinance was passed by the City, and approved by the Mayor on December 5, 1962, authorizing the sale of the land to the Parking Authority for $1,100,000.

5 The agreement was embodied in a “Letter of Intent” from National to the Parking Authority. This letter contained the essential terms of the agreement and was approved and accepted by vote of the members of the Authority.

6 The price to be paid by the Authority to National for the land to be acquired from it has not been determined. The record reveals, however, that $1,500,000 has been suggested by National.

7 The record reveals that the Chairman of the Parting Authority testified that the cost of building the garage was estimated by the builder and architects to be between $8,000,000 and $9,000,-000. However, it is not indicated whether this estimate included land acquisition and demolition costs. If such amounts are not included, the overall investment in the garage could run well over $10,000,000.

8 However, the aggregate of the initial lease term and the extension term could not extend beyond the year 2059.

9 The “Letter of Intent” does not provide for or limit the use to which National may put its air-rights leasehold. The record indicates that National contemplates the construction here described. Exhibit P. 24, p. 2.

10 Ibid.

11 incóme produced by the parking garage facility, both from parking and from the lease of commercial space will be available for such rental payments.

12 The garage at this location had been constructed by the Authority in 1953.

13 Since the agreement resulted in a reduction of the capacity of the garage, the lessees agreed to add a fifth tier to the existing four tier structure to replace the space diverted.

14 While the chancellor recognized that appellants had established a prima facie case that no present need existed for the proposed garage, he concluded that the Authority could have reasoned otherwise, both with respect to present and reasonably anticipated future need, and therefore had not acted arbitrarily.

15 Given the ultimate basis of taxpayers’ litigation as a means of mobilizing the self-interest of individuals within the body politic to prevent illegal and unwarranted governmental action. Notes, Taxpayers’ Suits: A Survey and Summary, 69 Yale L.J. 895, 904-06 (1960), the public interest would not be served by dismissing the instant suit on the ground that the Authority may be denied an exemption for the garage. Cf. Pittsburgh Public Parking Auth. v. Bd. of Property Assessment, 377 Pa. 274, 105 A. 2d 165 (1954). The construction presumably will be funded in reliance on the exemption of the garage facility from taxation. Were the exemption to be denied following its completion on the ground that the project was unauthorized and illegal, the security of the bond issue would be threatened and the public interest in the credit of the Authority impaired. It is appropriate, therefore, that the transaction be subject to review at this juncture rather than at some later date under circumstances which may prevent the public interest from being vindicated.

16 Cf. Morris, Evading Debt Limitations with Public Building Authorities: the Costly Subversion of State Constitutions, 68 Tale L.J. 234, 245-46 (1958).

17 See Bernstein v. Pittsburgh, 366 Pa. 200, 77 A. 2d 452 (1951) ; Harris v. Philadelphia, 299 Pa. 473, 149 Atl. 722 (1930) ; Wolff Chemical Co. v. Philadelphia, 217 Pa. 215, 66 Atl. 344 (1907).

18 Cf. Bernstein v. Pittsburgh, 366 Pa. 200, 77 A. 2d 452 (1951) ; Harris v. Philadelphia, 299 Pa. 473, 149 Atl. 722 (1930).

19 Cf. Davis, “Judicial Control of Administrative Action”: A Review, 66 Colum. L. Rev. 635, 659 (1966) ; Davis, Standing to Challenge Governmental Action, 39 Minn. L. Rev. 353, 391-96 (1955) ; Jaffe, Standing to Secure Judicial Review: Public Actions, 74 Harv. L. Rev. 1265 (1961).

20 See Morris, Evading Debt Limitations With Public Building Authorities: the Costly Subversion of State Constitutions, 68 Yale L.J. 234 (1958) ; Shestack, The Public Authority, 105 U. Pa.. L. Rev. 553 (1957).

21 A taxpayer’s suit, as an alternative to reliance on public prosecutions to prevent and redress wrongful conduct, serves an important public interest: “[T]he availability of such litigation is insurance against the instances in which the responsible prosecutors, usually political officers, are themselves allied with the action challenged or are overly burdened to identify and rectify every . . . illegal practice.” Notes, Taxpayers’ Suits: A Survey and Summary, 69 Yale L.J. 895, 911 (1960) ; see also Jaffe, Standing to Secure judicial Review: Public Actions, 74 Harv. L. Rev. 1265, 1280, 1282 (1961).

22 See Seligsohn v. Philadelphia Parking Auth., 412 Pa. 372, 194 A. 2d 606 (1963) ; Clark v. Public Parking Auth., 372 Pa. 481, 94 A. 2d 576 (1953).

23 We deem the statutory phrase “on a fair competitive basis” to impose the requirement of competitive bidding, since any other construction would render the direction meaningless. See Whitemarsh Twp. Auth. v. Elwert, 413 Pa. 329, 196 A. 2d 843 (1964) ; Commonwealth v. Sitkin's Junk Co., 412 Pa. 132, 194 A. 2d 199 (1963); Daly v. Hemphill, 411 Pa. 263, 191 A. 2d 835 (1963). The Authority has the inherent duty to act to advance the public interest. This duty would necessarily dictate that leases be entered into in a fair, open and reasonable manner. We must conclude therefore that the Legislature, by its explicit statutory direction, intended that the Authority utilize competitive bidding in entering into such leases.

24 Act of June 5, 1947, P. L. 458, §5, as amended, 53 P.S. §345(a) (Supp. 1965).

25 lbid, §11, as amended, 53 P.S. §351 (Supp. 1965).

26 Our conclusion that the duty to employ competitive bidding is- imposed by the Act is reinforced by a consideration peculiar to air right leaseholds. Due to their recent advent, standards by which such leaseholds may be valued have not yet evolved. By requiring competitive bidding, the Legislature has established a method by which the “market-place” will operate to ensure that such leases are not entered into in an arbitrary and capricious manner, whether by reason of favoritism or good faith mistakes in valuation.

27 Cf. City & County of San Francisco v. Ross, 44 Cal. 2d 52, 279 P. 2d 529 (1955) ; Denihan Enterprises v. O’Dwyer, 302 N.Y. 451, 100 N.Y.S. 2d 512, 99 N.E. 2d 235 (1951) ; McClelland v. Mayor and Council of Wilmington, 159 A. 2d 596 (Del. 1960) ; Wilmington Parking Auth. v. Ranken, 105 A. 2d 614 (Del. 1954) ; Note, State Constitutional Limitations on the Power of Eminent Domain, 77 Harv. L. Rev. 717, 724-25 (1964).

28 Phila. Zoning Code §§14-1402(2) (a) (.1), 14-1403.

29 Even though National agrees to pay for the garage facility upon the exercise of its option, its ability to defer any capital investment in the facility to some date years in the future supports the characterization of the transaction as one involving public financing.

30 It should also be noted that were National to embark upon the Academy House Project without the benefit of the Authority parking facility, its real estate taxes would be significantly higher. The garage which it would be required to construct in order to comply with zoning requirements would not be exempt from realty taxes. The potential savings under the challenged arrangement may be illustrated as follows: Assuming an $8,000,000 facility, a 69.6% assessment, see Schenley Land Co. v. Allegheny County Bd. of Property Assessment, 205 Pa. Superior Ct. 577, 581, n.1, 211 A. 2d 79, 82, n.1 (1965), would produce $5,568,000 of taxable realty aside from land. When taxed at the current Philadelphia rate of $4.37 per $100 of valuation, the annual tax on the garage would be $243,-321.60. Assuming for purposes of illustration a constant assessment and tax rate, the potential savings when projected over a thirty year period would rise to $7,299,648, an amount approximating the initial cost of the facility. Any increase or decrease in the market value of the facility, the assessment, or the tax rate would, of course, affect the actual result.

31 Other provisions obtained by the private developer which must be considered in determining whether the project as envisumed embodies a permissible balance of public and private benefit include: tbe inability of tbe Authority to reduce rates below that initially set without the consent of National; the exclusive options obtained by National to renew its lease and to purchase the garage facility; and the absence of any provision in the written agreement for the posting of a performance bond or security deposit. It should be noted that by reason of the lease and option provisions, the Authority has, in practical effect, created a limited and private market for the lease and sale of the garage facility by establishing National as the sole and exclusive operator and potential purchaser.

32 Another limitation of the specific report which the chancellor relied upon in concluding that the Academy House apartment complex would only require 436 car spaces was the failure of the report to indicate the data or criteria upon which its projections were based.

33 Of. Note, State Constitutional Limitations on the Power of Eminent Domain, 77 Harv. L. Rev. 717, 724-25 (1964).

34 Act of June 5, 1947, P. L. 458, §5, as amended, 53 P.S. §345 (b) (12).

35 In light of the disposition we make, we find it unnecessary to reach the issue of whether the Authority had acted unreasonably in concluding that present and anticipated future public need in the locale of the proposed garage facility were sufficient to warrant its construction. Assuming arguendo the existence of such need, the Authority may not propose to meet it through the medium of a project which results in an overwhelming and predominate benefit to private developers.

36 We take note of the fact that the Parking Authority, in acquiring the site for the Rittenhouse Square parking facility, agreed to a restriction which prohibits construction higher than 70 feet above ground level. It has been suggested that the private developers, Wolgin and Prankel, control that restriction and, as a result, are the only parties with whom the Authority could negotiate respecting the air rights over the facility. This contention does not merit serious consideration and may be disposed of without reaching the issue of the propriety of the Authority’s action in binding itself in this manner. The Authority, as a public body, is specifically empowered by the enabling act to use eminent domain in the furtherance of its public purpose. Act of June 5, 1947, P. L. 458, as amended, 53 P.S. 345(b) (12). Thus, so long as the Authority is acting within its statutory powers, the deed restriction is no more an impediment to further development of the Rittenhouse Square facility than the presence of the John Bartram Hotel is an impediment to the development of the Academy House project. In both instances, the Authority is empowered to acquire by eminent domain any private interest which inhibits the exercise of its public purpose.