This is an appeal from a judgment of the Court of Tax Review as to certain tax levies of the city of Woodward for the fiscal year commencing July 1, 1930. David Reid, George Irwin and others, and the Atchison, Topeka Santa Fe Railway Company and the Missouri, Kansas Texas Railway Company of Texas filed protests in that court. The three protests were consolidated and tried together. The Court of Tax Review held "* * * that the sum of $332.046.25, cash on hand from the sale of the light plant, and now to the credit of the light fund, does not have to be paid into the sinking fund, and might *Page 5 be dealt with by the city council in such ways as it may decide are the best interests of the city, but does hold the attempted appropriation on the part of the mayor and city council appropriating for the building of additions to the city in the way of gas plants and light plants is void, and have to be appropriated by the county excise board." From that judgment the protestants appealed to this court.
The facts disclosed by the record are substantially as follows: The city of Woodward was the owner of a municipal light and power plant which it had constructed from the proceeds of the sale of a bond issue authorized by the voters of that city for that purpose, pursuant to the provisions of section 27, art. 10, of the Constitution, to which plant additions, extensions, and repairs had been made from the proceeds of the sales of other bond issues authorized by the voters of that city pursuant to the same constitutional provision. It sold the plant under the provisions of chapter 94, Sess. Laws 1927. An attack upon the sale was made and the legality of the sale was sustained by the decision of this court in Thomas v. Reid, 142 Okla. 38, 285 P. 92. Thereafter, and about the 14th day of March, 1930, the city received $505,000 in cash as the proceeds of the sale. A portion of that sum was disbursed by the city in payment of indebtedness of the city for machinery and equipment used in the plant and a portion thereof was transferred to the sinking fund. The balance, $326,503.07, was held in a special fund on the 30th day of June, 1930, On July 7, 1930, the governing body of the city, by resolution, attempted to appropriate that amount for various purposes, including construction of a light plant, gas plant, and sewer system.
On or about the 13th day of August, 1930, the city tendered into the federal district court the sum of $326,000 for the use and benefit of the plaintiff in that action, who was the vendee of the purchaser from the city of the light and power plant, the tender being made in support of the claim of the city that the sale of the light and power plant was void and that it should be set aside and held for naught. The money was not paid into court.
The protestants contend that the entire amount of the proceeds of the sale, after the payment of the indebtedness of the city for machinery and appliances for the use of the plant, should be credited to the sinking fund of the city, and that the excise board should have considered that amount as a part of the sinking fund in fixing the rates of ad valorem tax levy for the fiscal year in question.
The city contends:
"After the sale of a municipally owned utility, it is the plain duty of such municipality to devote from the proceeds of the sale a sum sufficient to retire the unmatured bonds which were issued for the purpose of constructing such utility. * * * However, when the municipality has made such provision for meeting all the future interest and accruals of the bonds against the utility which was sold, it has performed its duty to the sinking fund, and completely met all the requirements of law in that regard."
An issue is thereby presented. That issue is dependent upon the meaning of section 16, art 10, of the Constitution. By the provisions of that section, "All laws authorizing the borrowing of money by and on behalf of the state, county, or other political subdivision of the state, shall specify the purpose for which the money is to be used, and the money so borrowed shall be used for no other purpose." That is a part of the Public policy of the state. City Nat. Bank v. Inc. Town of Kiowa, 104 Okla. 161. 230 P. 894. The question is presented as to whether that constitutional limitation relates to subsequent uses of the borrowed money as well as to the first use thereof. That it relates to the first use thereof has been determined by this court in Re Bliss, 142 Okla. 1, 285 P. 73, and Aaronson v. Smiley, Co. Treas., 142 Okla. 29, 285 P. 59, wherein we held that accrued interest on bonds and the net premium derived from the sale of bonds should be credited to and held in the sinking fund for the purpose of reducing the rate of ad valorem tax levy necessary to pay the interest thereon and to create, a sinking fund for the retirement thereof. That it relates to a subsequent use thereof has been held by this court in Gulf, C. S. F. Ry. Co. v. Excise Board, 141 Okla. 34, 283 P. 1003, wherein we held:
"Where a municipality borrows money for the purpose of purchasing or constructing a water and light plant and thereafter sells the same and receives payment thereof partly in cash and partly in promissory notes evidencing the unpaid portion, interest collected on the notes and the amount evidenced by the notes must be credited to the sinking fund for the purpose of paying the interest on the bonds evidencing the indebtedness and to retire the said bonds at maturity."
In the language of this court in that case, the record in this case does not show the *Page 6 amount in controversy to be a profit derived from the operation of a public utility. The record in this case shows that a public utility has been converted into money by reason of the sale thereof for a cash consideration. Section 116, art. 10, of the Constitution is a limitation. To construe it to apply only to the first use of the borrowed money would be to defeat its practical operation, for money might be borrowed to build a light plant and the money so borrowed might be used to build a light plant, but the light plant might be sold and the proceeds of the sale might be used for some other purpose. We cannot give the section a construction which would operate to defeat the purpose thereof.
Section 27, art. 10, of the Constitution is a limitation as to the purpose for which indebtedness may be incurred. The indebtedness incurred pursuant thereto may be used only for the purpose of "* * * purchasing or constructing public utilities, or for repairing the same, to be owned exclusively by such city. * * *" Under the provisions of that section any city or town may become indebted in any amount for the purposes therein stated. That limitation as to the use of the borrowed funds is applicable to subsequent uses as well as to the first use thereof. We cannot hold that the makers of the Constitution, by the adoption of section 27, art. 10, of the Constitution, intended to provide a scheme or plan by which the limitation contained in section 16 and section 9, art. 10, of the Constitution might be nullified. If the construction requested by the city officials were given, it would enable the municipal officers of a city that had incurred an indebtedness under the provisions of section 27, art. 10, of the Constitution, for the purpose of purchasing or constructing a public utility or for repairing the same, with the consent of the voters, to, sell the public utility, and, without the consent of the voters, to use the proceeds of the sale for purposes other than those that are provided by that section and to defeat the limitations on the rate of ad valorem taxation contained in section 9, art. 10, of the Constitution. In the language of this court, in O'Neil Engineering Co. v. Inc. Town of Ryan, 32 Okla. 738,124 P. 19:
"It has been said that the strict enforcement of these constitutional and statutory limitations and restriction against municipal indebtedness, which may require the invalidation of contracts, will often result in hardship. This may be true. * * * But the hardships that may so arise are not comparable with those to be suffered by the citizens of this commonwealth, if these wise and salutary limitations, imposed by the people themselves against themselves, shall be swept aside, or evaded by ingenious reasoning, to meet the supposed necessities of a situation, or even the apparent equities of a particular case."
We, therefore, hold that the provisions of sections 16 and 217, art. 10, of the Constitution are applicable not only to the immediate use of the money borrowed, but to any subsequent use thereof, and that they apply as well to the proceeds of the sale of the property purchased with borrowed money as to the borrowed money with which the property was purchased.
When a municipal utility, which was purchased, constructed, or repaired with borrowed money, is converted into money by reason of a sale of the property, the proceeds of the sale are controlled by the provisions of sections 16 and 27, art. 19, of the Constitution, and may be used only for the purpose for which the money was borrowed. Where the proceeds of the sale are not used for the purpose for which the money was borrowed, they must be used to reimburse the taxpayers.
In the instant case the light and power plant was constructed from the proceeds of the sale of bonds issued pursuant to the provisions of section 27, art. 10, of the Constitution, approximately 20 years ago. See City of Woodward v. Rainer,29 Okla. 493, 119 P. 964, in which this court reversed a judgment of the district court granting an injunction against the issuance of bonds in the amount of $30,000 for the construction of a light plant by the city of Woodward. Extensions, improvements, and repairs were made at subsequent dates from other funds derived from the sale of bonds issued pursuant to the provisions of section 27, art. 10, of the Constitution. When a municipally owned public utility, which was purchased, constructed, or repaired under the provisions of sections 16 and 27, art. 10, of the Constitution, is sold by the municipality, the proceeds of the sale may be used for the purpose for which the money was borrowed, under the statutory provisions and the ordinances and charter provisions of the city with reference to the expenditure of public funds. If not so used, an amount equal in value to the amount of all of the indebtedness incurred by the municipality for the purchase, construction, or repair of the same, with all of the interest thereon, whether matured and paid or unmatured, must be paid into the sinking fund, and the *Page 7 remainder thereof must be paid into the current expense fund, to reimburse the ad valorem taxpayers of the city for the amount of taxes paid by them or chargeable against their property by reason of the incurring of the indebtedness. We are unable to determine from the record the proportion in which the proceeds of the sale should be so applied.
The protestants contend that when the city of Woodward sold its light and power plant, all rights incident to the operation or ownership of the utility were canceled and lost, and that the city could re-enter the light and power business only by following the method and procedure outlined in the Constitution.
That contention was not germane to any issue before the Court of Tax Review and it will not be considered by this court on appeal. The Court of Tax Review was in no wise concerned with the question of whether or not the city of Woodward could have used any portion of the proceeds of the sale of the plant for the construction of a new light plant, for two reasons: First, the city of Woodward did not attempt to use any portion of the proceeds of the sale of the plant for the construction of a new light plant during the fiscal year in which the proceeds thereof were received; and second, it did not make any appropriation from the proceeds of the sale of the plant for the construction of a new plant during that fiscal year. The proceeds of the sale of the plant were received by the city on March 14, 1930. The portion thereof in controversy was on hand at the close of that fiscal year. Under date of September 10, 1928, four days prior to the date of the election at which the voters of the city of Woodward authorized the sale of the plant, the governing body of the city provided by resolution that the balance of the purchase price, after the payment of the claim of the Fairbanks-Morse Company, and the interest accruing thereon, should be placed in a separate fund and held separate and apart from other moneys, for the purpose of retiring the outstanding bonded indebtedness of the city as the same became payable. It is not necessary to determine whether or not that action amounted to a legal appropriation of the proceeds of the sale of the plant, for no other action with reference to the proceeds of the sale of the plant was taken until the 7th day of July, 1930. At the close of the fiscal year commencing July 1, 1929, the money in controversy was revenue of the city unappropriated for any purpose, unless it was appropriated as provided by the resolution of September 10, 1928. The city of Woodward took no action prior to the 7th day of July, 1930, from which this court can conclude that there was any municipal intention to use any portion of the proceeds of the sale of the plant for the construction of a new light plant. We, therefore, hold that at the end of the fiscal year commencing July 1, 1929, the balance on hand from the proceeds of the sale of the plant was an unappropriated balance on hand, subject to the constitutional and statutory provisions as to unappropriated balances of revenue.
While a municipal electric light and power plant may be operated without the aid of ad valorem taxation and when so operated is not subject to the statutory provisions as to appropriations and the fixing of tax levies, it may be operated under the ad valorem tax statutes of the state, and when it is so operated it is subject to those provisions. In re Bliss, supra. No matter how it is operated, the money collected therefrom must be accounted for, as required by the provisions of section 30, art. 10, of the Constitution, section 12076, O. S. 1931 (section 9697, C. O. S. 1921), and section 12674, O. S. 1931 (section 9695, C. O. S. 1921). By those provisions municipal officers are required to make reports in writing showing by classes the earnings and costs of maintenance thereof and the true fiscal condition of the municipality as of the close of the fiscal year. While the profits derived from the operation of such a plant may be applied by the municipality to the operation of the plant or to any other legal purpose (St. Louis-S. F. Ry. Co. v. Andrews, Co. Treas.,137 Okla. 222, 278 P. 617; Pitts, Co. Treas., v. Allen,138 Okla. 295, 281 P. 126; Perrine v. Bonaparte, Co. Treas.,140 Okla. 165, 282 P. 332; St. Louis-S. F. Ry. Co. v. County Excise Board, 142 Okla. 176, 286 P. 345; St. Louis-S. F. Ry. Co. v. Bonaparte, Co. Treas., 142 Okla. 177, 286 P. 343, and Blake, Co. Treas., v. Abraham, 149 Okla. 112, 299 P. 488), they must be so applied during the fiscal year in which they are received, and, if there is a balance on hand therefrom at the close of the fiscal year that has not been appropriated by valid resolution or ordinance for some legal purpose, that balance must be considered as a resource in determining the amount of money to be raised by ad valorem taxation for the next fiscal year. In re. Bliss, supra.
A financial statement is required to be made by the city officers on the first Monday *Page 8 in July of each year as of the close of business on June 30th of the preceding fiscal year. The governing body of the city of Woodward met on the 7th day of July, 1930, that being the first Monday of July, 1930, and attempted to make the appropriations hereinabove referred to. We are thus confronted with the legal question of whether or not the proceeds of the sale of the plant on hand June 30, 1930, and unappropriated, might be appropriated on the 7th day of July, 1930, as was attempted to be done. Our answer to that question is that there was no such power in the governing body of the municipality. The unappropriated balance on hand at the close of the fiscal year ending June 30, 1930, was required, by the provisions of section 12678, O. S. 1931 (section 9699, C. O. S. 1921), to be deducted in determining the rates of ad valorem tax levy for the ensuing fiscal year. That statute provides for the deduction of "* * * the amount of any surplus balance of revenue or levy, ascertained to be on hand from the previous fiscal year or years. * * *" "Revenue," as used therein, means income from sources other than ad valorem taxation. In re Monsell, 142 Okla. 130, 285 P. 836.
The amount in controversy herein was revenue on hand from the previous fiscal year or years. It had not been appropriated, and by the provisions of that section it was required to be deducted by the excise board in determining the rates of levy for the municipality for the ensuing fiscal year, under the rule stated by this court in Re Bliss, supra. We, therefore, hold that revenue of a municipality derived from the sale of a municipal light and power plant on hand at the close of the fiscal year, and not theretofore appropriated by the municipal authorities for some lawful purpose, must be considered by the excise board in fixing the rates of levy for municipal purposes for the ensuing fiscal year. We are not unmindful of the fact that the application of this rule may operate to prevent a municipality from building up a reserve for the operation of a municipal light and power plant. In the language of this court in Re Town of Afton, 43 Okla. 720, 144 P. 184:
"To this suggestion we reply that when the question of enforcing a plain provision of the organic law is presented on one side, and policies and hardships, on the other, our duty is clear, and we have no choice. The plain provisions of the Constitution must be obeyed and followed, not only by the courts, but by every one; and it is the solemn duty of this court, when its jurisdiction is properly invoked, to maintain and not destroy or impair the wise provisions of this sacred document."
It is urged that the municipal officers have tendered into the federal court the amount of the funds in controversy, and that to require the use of those funds as herein provided will defeat a right of recovery of the city in case it is successful in that litigation. Since the city has not tendered into the federal court the full amount received by it from the sale of the light plant, its right to recover in that case cannot be prejudiced. If a tender is necessary in that cause, it is of the entire amount received by the city and not a part thereof. Whether or not a tender is necessary in that case, we know of no provision of law that authorizes a municipality to hold a fund in excess of $300,000 and, at the same time, impose a tax upon the property owners of the municipality for the operation of the municipality.
The Court of Tax Review is directed to ascertain the amount that should be credited to the sinking fund, under the rule herein stated, and to apply that amount to that fund in determining the rate of ad valorem tax levy for that fund. It is further directed to apply the remainder of the amount to the current expense fund in determining the rate of ad valorem tax levy for that purpose. If the amount that should be credited to the sinking fund is in excess of the needs of that fund for all purposes, including unmatured interest and accruals, the remainder thereof should be credited by the Court of Tax Review to the current expense fund and used to reduce the rate of ad valorem tax levy for that purpose. If the amount that should be credited to the current expense fund is in excess of the total needs of that fund, the excess constitutes unappropriated funds on hand for the fiscal year commencing July 1, 1930.
The judgment of the Court of Tax Review is reversed and the cause is remanded to that court for further proceedings in conformity herewith.
LESTER, C. J., CLARK, V. C. J., and RILEY, HEFNER, and CULLISON, JJ., concur. McNEILL and KORNEGAY, JJ., dissent. SWINDALL, J., not participating.