The so-called special fund doctrine, or the holding that a liability or obligation of a public body incurred in the construction or extension of a public utility, where the liability or obligation is payable solely out of the revenues derived from such utility or such extension, is not a debt within the inhibition or prohibition of the State Constitution, fixing debt limits for such public body, is too well established in our jurisprudence to be disturbed at this time. The doctrine is now recognized and established in some thirty-two states *Page 227 and the number is steadily growing. I shall therefore recognize the special fund doctrine as established law in this state and devote no time to a consideration of its merits or weaknesses, but enter at once into a consideration of the two questions upon which this action hinges: (1) Did the Granger Act pre-empt the field with reference to issuing revenue bonds, that is, does the Granger Act, chapter 22, Laws of Utah 1933, 2d Sp. Sess., provide the sole and exclusive method by which revenue bonds may be issued? (2) If the Granger Act is not exclusive, are the ordinances involved in this action and the methods by which Provo City is proceeding valid and proper?
To my mind the solution of this matter does not depend on whether the Granger Act pre-empted the field with reference to issuing revenue bonds, as held by Mr. Justice MOFFAT, or whether the Granger Act was just an additional statutory remedy leaving the procedure used in the Barnes v. Lehi Case as modified by the Fjeldsted Case still open to the municipalities, as held by Mr. Justice WOLFE. The city proceeded in this case under the initiative provisions of the State Constitution and statute enacted pursuant thereto. The constitutional provisions pertinent to this inquiry provide:
Preamble, "we, the people of Utah, in order to secure and perpetuate the principles of free government, do ordain and establish this Constitution."
Article 1, § 2, "All political power is inherent in the people; and all free governments are founded on their authority for their equal protection and benefit."
Article 1, § 24, "All laws of a general nature shall have uniform operation."
Article 1, § 26, "The provisions of this Constitution are mandatory and prohibitory, unless by express words they are declared to be otherwise."
Article 1, § 27, "Frequent recurrence to fundamental principles is essential to the security of individual rights and the perpetuity of free government."
Article 1, § 25, "This enumeration of rights [in this constitution] shall not be construed to impair or deny others retained by the people." *Page 228
In these sections is laid down the basic fundamental philosophy underlying our Constitution and government setup, and a proper appreciation thereof is necessary to an understanding and interpretation of them.
The form of the state government is set up in articles 5, 6, 7, and 8 of the State Constitution and the powers divided into three distinct departments, the legislative, the executive, and the judicial. The duties, limitations, and powers of each department are set forth and within the sphere allotted to each of them in the exercise of their proper power, the executive and the judicial departments are absolute with undivided authority. The legislative department, operating in the broader field of determining policy and enacting the laws which affect our lives, liberties and property, is subjected to a divided authority and to checks from the other departments. To prevent the Legislature in such field from infringing the inalienable rights declared in article 1, section 1, of the Constitution, and lest they may forget section 27 with respect to recurrence to fundamental principles, the legislative department of the state was placed in a divided responsibility. Article 6 of the Constitution vests the legislative power of the state in two separate bodies: (1) In a Senate and a House of Representatives designated as the Legislature. (2) In the people of the state of Utah through the initiative and referendum. These two legislative bodies are separate and distinct. For economy and convenience the routine of legislation is exercised by the Legislature, but the legislative power of the people directly through the ballot is superior to that of the representative body. By the referendum the people may repeal an act of the Legislature, may prevent it from taking effect, and may suspend its operation until they may express themselves thereon by ballot. Bear in mind that the Constitution vests the Governor with veto power on acts of the Legislature, but he has no veto power on legislation enacted by the people through the initiative. And if an act enacted by the Legislature and one enacted by *Page 229 the people through the initiative conflict, the enactment by the people controls over the act of the Legislature.
Article 6 provides further that the initiative and referendum may be exercised by fractional parts of the state, by legal subdivisions thereof, and by municipalities, and declares that the people of the state, or any fractional part, or legal subdivision thereof, may, as provided by law, enact by initiativeany desired legislation within the field in which such subdivision or fractional part may function in a governmental way. Chapter 10, title 25, R.S. Utah 1933, sets up the methods or machinery for carrying into effect the provisions of article 6 of the Constitution, and, in section 21 et seq., declares that legal voters of any city or town may initiate any desired legislation in the same way and to the same extent within the city and its powers as the people of the state may do within the state as a whole. And this was the method followed by Provo in enacting the two ordinances under attack in this action.
The Constitution provides two methods by which municipal corporations may be established and set up: (1) Pursuant to general laws enacted by the legislative authority of the state for the incorporation and establishment of cities and towns. (2) By framing its own charter by initiative proceedings. Article 11, § 5. Since it is admitted that Provo falls in the first class, we need not discuss the distinctions between them in detail. The City of Provo not having a charter under the special provisions of article 11, § 5, is a creature of the Legislature and as such has the powers granted to it which the Legislature has granted to all cities of its class by general law. Salt Lake City v.Sutter, 61 Utah 533, 216 P. 234. Such grants of powers to the city form, in effect, the Constitution for the city. They define the things it may do, the extent of its political powers, and the governmental functions it may exercise. Within that sphere the city may act, may proceed, and may determine its policies and carry them into effect, and within such grant the city *Page 230 acts within its constitutional powers. The powers conferred upon cities by the Constitution are set forth in section 5, article 11, as follows:
"The power to be conferred upon the cities by this section shall include the following:
"(a) To levy, assess and collect taxes and borrow money, within the limits prescribed by general law, and to levy and collect special assessments for benefits conferred.
"(b) To furnish all local public services, to purchase, hire, construct, own, maintain or operate, or lease, public utilities local in extent and use; to acquire by condemnation, or otherwise, within or without the corporate limits, property necessary for any such purposes, subject to restrictions imposed by general law for the protection of other communities; and to grant local public utility franchises and within its powers regulate the exercise thereof.
"(c) To make local public improvements and to acquire by condemnation, or otherwise, property within its corporate limits necessary for such improvements; and also to acquire an excess over than [that] needed for any such improvement and to sell or lease such excess property with restrictions, in order to protect and preserve the improvement.
"(d) To issue and sell bonds on the security of any such excess property, or of any public utility owned by the city, or of the revenues thereof, or both, including in the case of public utility, a franchise stating the terms upon which, in case of foreclosure, the purchaser may operate such utility."
This provision expressly grants to the city the right to acquire, own, construct, and operate electric light plants and distribution systems and also the right to issue bonds on the revenues of municipally owned utilities. The power to acquire, construct, own, and operate electric lighting plants and distribution systems had been granted to cities by legislative act prior to the amendment to the Constitution granting the power. The constitutional grant was to forever prohibit the Legislature from repealing its grant of power and so deny such right to the municipality.
Pursuant to constitutional provisions, the Legislature has provided a form of government for cities and towns. Provo has a commission form of government as provided by law. *Page 231 Within the field or scope of the organic act, as it were, of the city — the powers granted by the Constitution and Legislature — the city commission acts as one part of the legislative body of the city, and the city commissioners as the executive department of the city. In cities without the commission form of government the mayor heads the executive department and the city council is one part of the legislative body. As above indicated the people of the city constitute another legislative body of somewhat superior powers. Both, however, must operate within what might be called the organic act of the city — the grant of powers to it.
The Legislature may regulate the term of office and compensation of officers of cities incorporated under general acts of the Legislature. Such offices being creations of the Legislature may be controlled by it. The Legislature may define their duties and prescribe the methods by which such duties may be exercised or discharged. It may exercise over its officers an administrative control and lay down the procedure by which they are to be governed. In doing so the Legislature is not infringing, limiting, or regulating the powers granted to the municipality. It is not exercising municipal functions, nor controlling the same. It is merely setting forth administrative details to govern the offices it has created and it has wisely provided that, when it has not prescribed the administrative method to be pursued by city officers, such officers shall themselves determine the method by ordinance. Section 15-7-2, R.S. 1933.
Statutes prescribing how the city may proceed in exercising any of the powers granted to it in purely local matters, that is, in matters not of state interest, are administrative details only and are not to be construed as limitations or as grants by the Legislature. They are not limitations upon the powers of the city but are directory to the city officials; they do not provide that the power is granted to the city only when exercised in this way but provide that the city officials when exercising the function shall proceed as therein directed. *Page 232 It is not that the Legislature seeks to guard the city against availing itself of the power granted, but to protect the city against erroneous, careless, hasty, or fraudulent actions by the officers in its exercise. "That the City Commission or the City Council must proceed in this manner when it assumes to act for the city in this matter," is all the Legislature has said in administrative enactments.
An examination of the statutes makes this plain. Title 15, R.S. 1933, contains the legislative pronouncements governing cities and towns. The first 6 chapters set up the system of city and town government, and then chapter 7 has to do with powers of cities and towns. Section 15-7-2 reads:
"When by this title power is conferred upon the board of commissioners, city council or board of trustees to do and perform any act or thing and the manner of exercising the same is not specifically pointed out, the board of commissioners, city council or board of trustees may provide by ordinance the manner and details necessary for the full exercise of such powers."
Section 15-7-7 authorizes cities to issue bonds for water, light, and sewers, and provides that the city commission or council cannot do so except by vote of the people.
Section 15-7-15 declares that municipal power plants cannot be sold except on vote of the people, and section 15-7-17 then provides the council or commissioners cannot sell even after an authorizing vote unless the bid equals the price fixed by a committee of citizens from outside the council or commission. Section 15-7-18 declares that money received from sale of such plant in excess of debts against the plant is a special fund and can only be expended by the city after an election wherein the people vote authority to extend it. Section 15-7-19 authorizes cities to grant city lands to railroads but only after it has been submitted to the vote of the people.
The foregoing provisions, sections 15-7-1 to 15-7-19, covering all provisions of the statutes relative to the city entering or quitting the field of major activities affecting the *Page 233 whole community, serve as distinct limitations and restrictions on the activities of city officials, not cities, and provide that the officials may act only after a vote of authority by the people. This is in keeping with the constitutional provisions, supra, that frequent recurrence to fundamental principles is necessary in understanding our government and its powers and Constitution. Foremost among those fundamental principles is that provision of the Constitution that all political power is inherent in the people and they may do anything in the expression of their popular will not expressly prohibited by the Constitution and they may even change that. Be it noted that none of the sections above, except the constitutional limitation on debt, is a limitation on the city, but on the city officials, and refers them for authority to the source of all power, the people.
Sections 15-7-20 to 15-7-63 have to do with special improvement taxes and districts and provides that such cannot be done without the approval, express or implied, of the people affected thereby within the district. Still carrying on the fundamental principle that the limitation fixed and methods prescribed by the Legislature are not against the city but the city officers, chapter 8 of title 15, being sections 15-8-1 to 15-8-108 having to do with general powers and duties of all cities, prescribes no methods for carrying out the provisions, and vests the authority to do so in the city council or city commission. These chapters cover not matters of civic policy or matters of great moment, or things necessarily of long duration, but matters of detail administration within that group of activities generally called police powers pertaining to public health and safety. As to those matters the city council or city commission may by ordinance provide for the exercise of the power and the manner and method in which it shall be exercised. Sections 15-7-2 and 15-8-84. This covers all statutes as to cities except the Granger Act.
The Legislature has therefore done the following with respect to cities: (1) Provided for their incorporation, *Page 234 classification, and form of government. (2) Granted to them certain powers. (3) Provided that, within those matters of governmental functions commonly spoken of as police powers, the city commission or city council may by ordinance prescribe the manner and extent of administration. (4) Provided that within the broader field of powers granted cities, or longer range planning, and determination of policy not reasonably changeable from day to day, the city officials can act only after and in accordance with authority received by a vote of the people granting the same. We repeat, all statutory inhibitions upon the exercise of municipal powers are not against the city, but are upon its officers if they act without consent of the electorate. We have referred to these matters to show that the Legislature itself in recurrenceto fundamental principles has recognized that within the scope of municipal powers there is no limitation upon the voice of the people sounded through the ballot box; that all political poweris inherent in the people and within their own constitutional bailiwick they determine public and legislative policy.
Let us look briefly at the Granger Act, chapter 22, Laws Utah 1933, 2d Sp. Sess., and see how it fits into this scheme of things. It provides that any county, city, or incorporated town in the state may purchase or construct, inter alia, electric plants and distribution systems and extensions thereof or additions thereto. Amendment of 1935, chapter 74. This is a grant or reaffirmation of a grant of power to the cities. Section 2 declares that the act "shall be construed as a cumulativestatutory authority for the purposes herein named and shall not be construed to repeal any existing laws with respect thereto, it being the purpose and intent of this act to create an additionaland alternate statutory method for the purposes herein named." Section 3 provides:
"Whenever the governing body of any * * * city * * * shall determine to proceed under this act * * * it shall first cause a comprehensive estimate to be made, * * * [second] shall, byordinance *Page 235 * * * by at least two-thirds vote of the governing body, provide for the issuance of revenue bonds." etc.
It is evident therefore that the Legislature was merely putting limitations on and prescribing the method by which the governing body of the city could proceed to do these things without first taking a vote of the people, the source of power.
It is nowhere declared that before a city can do the things therein provided the requirements of section 3 must be complied with. What it does declare is that before the governing body can issue revenue bonds [without a vote of the people] they must meet requirements 1 and 2 of section 3 of the act. It is another evidence that the Legislature in keeping with the spirit of article 1 of the Constitution has not assumed to prescribe the method in which the people, the source of all power, and who by the Constitution retained unto themselves the right to exercise all political power, even to the extent of changing their government, and specifically declared that by the initiative process the people themselves were a legislative body coequal in power and with superior advantages to the Legislature, must exercise their power. This power is also perpetuated to the people, unlimited, in each subdivision or fractional part of the state, within the scope and extent of its granted and governmental powers. The Constitution grants it and the Legislature, as shown above, has nowhere indicated any intent or attempt to limit or circumscribe it. The Granger Act therefore, confirms what was said earlier in this opinion that the limitations written and methods prescribed by the Legislature are limitations and restrictions, not upon cities, but upon the city officials when they act upon major matters without a vote of the people, for the purpose of protecting the community, the people, from hasty, ill-conceived, fraudulent, or questionable ventures of officials serving short terms and who may wish to put over some pet scheme or "child" of their *Page 236 own. On important matters the people must not be left unadvised or their will ignored.
It would seem, therefore, that city councils or city commissions holding offices created by the Legislature are, in the discharge of those duties, subject to such rules as may be prescribed by the Legislature. And when they seek to issue revenue bonds without the consent of the people they are subject to the control of the Legislature and must proceed in the manner prescribed in the Granger Act. But the people themselves are not creatures or creations of the Legislature. They are the father of the Legislature, its creator, and in the act creating the Legislature the people provided that its voice should never silence or control the voice of the people in whom is inherent all political power; and being coequal in legislative power, the Legislature, the child of the people, cannot limit or control its parent, its creator, the source of all power. And when the people, by the proper exercise of the initiative, their method of legislating, have spoken on a matter essentially within their scope of government, the master has spoken and even the voice of the child, though it may be recalcitrant, is stilled. This I conceive to be the spirit of the Constitution of the state and of the federal government; this is the meaning of article 1 of the State Constitution which declared all political power to be inherent in the people, and in adjuring all people and all state departments and officers to frequently recur in their deliberations to fundamental principles, which adjuration is directed to the judicial department as well as the legislative and executive departments.
This principle of interpretation has been applied by courts of other states. The Supreme Court of Oregon in Schubel v.Olcott, 60 Or. 503, 120 P. 375, 379, says:
"The principle of local self-government is regarded as fundamental in American political institutions. It is not an American invention, but is traditional in England, and is justly regarded as one of the most valuable safeguards against tyranny and oppression. From Blackstone and the elementary writers we learn that the civil divisions *Page 237 of England — counties, towns, etc. — date back to the times of Alfred the Great. In no changes of policy, dynasty, peace or internal war, or even conquest, have these organizations been abandoned. They are in effect the same now as they were before the Norman Invasion. Wherever the Anglo-Saxons have gone with their language and laws, these communities, each with a local administration, have gone with them. Here have been the seats of modern civilization, the nurseries of public spirit, and the centers of constitutional liberty. They are the opposites of those systems that collect all power at a common center. This right of self-government should be carefully guarded and every infraction or evasion thereof condemned. This important principle finds its ideal counterpart in the New England town meeting, which is a legal assembly composed of the qualified voters of a town, and held for the election of all town officers and the discussion of all matters pertaining to the public business, property, and expenses of the town. Black's Constitutional Law (3d Ed.) 504, 505.
"In pursuance of this general principle, municipal corporations are established in all the states and invested with rights and powers of government subordinate to the general authority of the state, but exclusive within their sphere. The principle of local government being thus firmly implanted in our political system, it rests with the legislative authority of each state, which, in this state, includes the legal voters by means of the initiative, to apply and adjust this principle to the varying needs of its own people. That sovereign authority must determine what municipal corporations shall be created and what shall be their powers and the limit of their jurisdiction, according to the requirements of the different sections and districts of the state and their capacity and need of local government. In some of the states, the right of local government is guarded by constitutional provisions forbidding the Legislature to make any private or special laws `regulating the internal affairs of towns and counties.' In others, it is considered as one of the rights inherent in the people at the time of the adoption of the Constitution and reserved to the people by that instrument, except as modified by the grant of authority to the Legislature. Black's Constitutional Law, § 185.
"In this state we have a dual system of legislation. By the provisions of our constitutional amendments, the right to enact local, special, and municipal measures is reserved to the legal voters of their municipalities and districts. This authority is to be exercised in the respective localities by means of the initiative process. Whatever have been the duties or powers of counties prior to the adoption of these amendments, we see no reason why such quasi municipalities or *Page 238 districts cannot be endowed with legislative functions by the plain provisions of the Constitution."
And in Allen v. State, 14 Ariz. 458, 130 P. 1114, 1117, 44 L.R.A., N.S., 468, the court intimates that the action of the people under an initiative is to be given greater weight than an act of the Legislature, saying:
"All political power is inherent in the people, and governments derive their just powers from the consent of the governed. This is not a mere metaphor, that sounds pleasing to the ear, nor is it a maxim that may not have a concrete application; but it is a vital principle, adhered to in the formation of the government of this state. By their Constitution, the legislative authority was vested in a Legislature, consisting of a Senate and House of Representatives; but the people reserved the power to propose laws and amendments to the Constitution, and to enact or reject such laws and amendments at the polls, independently of the Legislature, and they also reserved, for use at their own option, the power to approve or reject at the polls any act, section, or part of any act of the Legislature. The people did not commit to the Legislature the whole lawmaking power of the state, but they especially reserved in themselves the power to initiate and defeat legislation by their votes. In this state the Legislature and the people constitute the lawmaking power. This is important when we come to consider the adjudicated cases holding that if the enrollment or original record of the statute is regular on its face — that is, if the act is framed with no infirmity on its face, is duly promulgated, or properly authenticated and deposited in the proper office — it is conclusively presumed to have been regularly enacted, the record is invulnerable to attack, and proves itself. If such sanctity and verity may be given to the acts of the delegated representatives of the people in legislative body assembled, it must with clearer reason and with greater force be given to the act of the sovereign itself, the source of all governmental power, the record of which, in its lawmaking capacity, is authenticated and promulgated as the Constitution provides."
In Long v. Portland, 53 Or. 92, 98 P. 149, 1111, the court said:
"The power of the referendum is fully reserved to the people, and is not dependent upon anything, except a provision by general law as to the manner of its exercise." *Page 239
Provo City having therefore proceeded by initiative to enact the ordinance in question, and the provisions of the ordinance being within the scope of power which a city may exercise, they need not comply with the statutory details as to how city officers, acting without direct authority in the matter, must proceed. The people, the source of all power, having enacted this ordinance directly as authorized by the Constitution, its validity cannot be assailed except upon constitutional grounds as to the power of the city to operate in the field covered by it. The issues as to the bond ordinance must therefore be settled in favor of the city.
Another point in this controversy should receive attention. It is contended that the city obligates itself, under the contracts, to levy and collect rates for power sufficient to pay the interest on the bonds, and the bonds themselves as they mature; that if the revenues are not sufficient for that purpose the city must pay the difference, either 3 directly from its general fund which is tax revenues, or by charging itself higher rates for street lights and other city purposes, and thus indirectly pay the obligation from tax revenues. This argument is based upon one paragraph of section 6 and subdivisions (a) and (g) of section 10 of the ordinance of the Nuveen contract for the issuance and repayment of the revenue bonds. Those parts of the contract, as far as pertinent to this question, are as follows:
"The city has covenanted and agreed and does hereby covenant and agree that it will fix such rates for the sale ofelectricity and will collect and account for the revenues to be received for the sale of such electricity that the net revenuesso received will be sufficient promptly to pay the principal of and interest on this bond and the issue of which it forms a part as each becomes due."
"(a) That while the bonds authorized herein or any of them remain outstanding and unpaid, the rates for all electricity sold by the said electric light and power plant and system to said city and to its citizens, and to all consumers within or without the boundaries of said city, shall be reasonable and just, taking into account and consideration the cost and value of said plant and system and the cost of maintaining and operating said plant and system, and the proper and necessary allowances for the depreciation thereof and the amounts *Page 240 necessary for the retirement of all bonds, and the accruing interest on all such bonds as may be issued hereunder, and thereshall be charged against all purchasers of said electricity,including said city, such rates and amounts as shall be adequateto meet the requirements of this and the preceding sectionshereof, all of which revenues, including those received from the city, shall be subject to distribution to the payment of the cost of operating and maintaining the plant and system, and the payment of principal of and interest on the bonds herein authorized as hereinbefore provided;" (Italics supplied.)
(g) That in the event of default on the part of the city in paying principal of or interest on said revenue bonds promptly as each falls due, or in the keeping of any covenant herein contained, and if such default shall continue for a period of sixty (60) days, the city will appoint a manager for said system, which manager shall have full control over said system and shall operate said system for the City of Provo City, and shallenforce such reasonable rates and charges as will be sufficientto make the payments required by this ordinance, and shall in all things so operate said system as to fully comply with all of the requirements and provisions of this ordinance. The right of the holder or holders of the bonds herein authorized to require the appointment of such manager shall not be exclusive, and in the event of default as herein outlined, such holder or holders shall have the right to proceed in law or equity to require the performance of the covenants herein contained in any action which to them shall seem appropriate." (Italics supplied.)
The sections quoted lend some color to the argument and therefore in the interests of the city, of Nuveen, and of the people who may ultimately own the bonds, if issued, we deem it necessary and proper to give attention to the question in this opinion.
These bonds, being by their terms and by the ordinance authorizing their issuance, strictly revenue bonds, to be paid only from the revenues received from the sale of electrical power from the plant to be erected, may not, directly or indirectly, be a charge on, or paid from revenues derived from, taxation. This is the gist, the crux, and the basis of the special fund doctrine. Any other construction would make them a "debt" within the constitutional inhibition, and void the whole issue. And since the city is, by the Constitution, prohibited from incurring debts beyond the specified *Page 241 limit, they cannot by subterfuge or indirection do that which they could not do openly and directly. The debt inhibition was written into the Constitution to protect the citizens from, and assure them that there would be no, excessive tax burden imposed upon them. This because the duty of, and necessity for, payment of a tax is not optional or contractual, but a burden imposed not with the consent, but often against the will, of the taxpayer. There is the further reason that a tax becomes a lien upon the property of the taxpayer and may be a means of divesting him of his property. By its express terms the Constitution makes the limitations and inhibitions on the taxing power mandatory and prohibitory. Article 1, § 26. If these provisions of the ordinance quoted above were construed to mean that the city must, or the manager of the plant could, fix rates for power either on the citizens or on the city for power used by it, on a basis that must produce sufficient revenue to pay the interest and the bonds as they mature, regardless of the amount of power used or consumed, the city would be made a guarantor of the bonds, and not merely a guarantor of good faith in operating the plant. For the city to be a guarantor of the bonds, regardless of revenues received, would make the obligation a debt within the meaning of the Constitution. It is the fact that the bonds are onlypayable from the revenues of the utility, and cannot, in anyevent, be paid from tax revenues, that takes them out of the debt limitation and upholds the special fund doctrine. Of course the city, in the discharge of its duties, needs electric power for its public buildings, the proper working of its electrical machinery, for lighting its streets, and other proper municipal purposes. Its officials owe a duty to its citizens to provide such lights and facilities when they can be furnished at reasonable rates. And in the exercise of a common business economy, the city may, and probably should, buy its power from its own plant when it has electrical power to sell. And the city, in the use of such power and energy may, and properly should, pay therefore a reasonable rate so that the private users of municipal *Page 242 power would not be required to pay by increased rates for power furnished for public use, and used and enjoyed equally with them, by other citizens and residents not using power from the municipal plant.
And in the establishment and operation of a municipal electric power plant and distribution system, as in all of its functions and activities, the city owes to its inhabitants, and property owners within the city, the duty of safeguarding their interests, their lives, and property. The city owes to itself and its people, in its activities, the utmost good faith, and the assurance that the inhabitants and taxpayers shall receive, for every dollar of their tax money paid, a fair value and return. This right, this duty, the city has no power to waive, surrender, or contract away, and any agreement, contract, or ordinance by which the city seeks to waive, surrender, or contract away such right, duty, or obligation to its citizens is, to such extent, null and void and of no force or effect whatsoever.
The ordinance in question, and the bonds, if any, issued thereunder, are therefore, and must be, interpreted and construed in the light of the law as just stated. The provisions quoted above, therefore, mean that the city in fixing the rates to be paid by itself and other users of power from its plant, must exercise good faith with the bondholders, and levy and charge rates sufficient to pay the interest and the bonds as they mature, provided that such rates to the city and to itsinhabitants using power from the municipal plant must bereasonable rates for the type, kind, and character of the servicerendered. And in determining what rate is reasonable, the test shall not be the amount of money required to pay the bond, but what the service rendered is reasonably worth. Any attempt of the city to fix or charge rates, or for the city to pay rates, fixed on a basis that brings a rate appreciably higher than this, would be an attempt of the city to pay the obligations out of funds other than the revenues from the utility and would be unlawful, null, and void. Any construction or interpretation of this agreement, *Page 243 as evidenced by the ordinance and the bonds, to render the city liable to pay rates in excess of the reasonable and fair value of the light and power it receives, would take the same out of the special fund doctrine, and would make the obligations a debt of the city in violation of the provisions of the State Constitution.
We come now to a consideration of the other ordinance, or what is referred to as the construction or Ulen contract for the erection of the proposed power plant and the construction of the distribution system. The validity of this ordinance is assailed upon some thirteen grounds by the intervener, General Contractors Association of Utah. There may be some doubt as to whether the intervener, not being a resident, a voter, or a taxpayer within Provo City, is in any position to question the validity of the ordinances of the city, but since the points it makes and its argument are adopted by plaintiff, we shall pass that question and consider the points so presented.
At the outset, we may state that the ordinance referred to as the construction ordinance, or the ordinance for the construction of the power plant and distributing system, is not a contract between Provo City and the Ulen Contracting Corporation for the erection and construction of a power plant and distributing system. This was an initiated ordinance 4 and, as such, to be valid, must be of a legislative character. Only those matters which are strictly and properly legislative functions are subject to the initiative for their creation and existence. The making of detailed terms, approval of plans and specifications, selection of employees, particularly specialized help and the execution of contracts, are essentially acts involving fine distinctions, selections, exercise of discretion and judgment, to carry out and effectuate the legislative declarations and policies. It is the function of the legislative branch of government to determine and declare in matters of policy and procedure, and to establish what the law shall be. It is the duty of the executive branch to carry out such policies, to *Page 244 execute the duties set up by legislation, and to do the acts necessary to make operative, put into effect and carry out the policies, principles, and rules laid down by the legislating body. While the legislative department and the executive department are not wholly independent and separate from each other, and no clear line of demarcation can be drawn between them, yet their functions in the main fall into rather clearly defined groups. Certain it is that only those activities or matters which are legislative and not executive lend themselves to the initiative processes.
But while the making and execution of contracts are essentially executive functions, the ordinance here involved may still be sustained as a proper exercise of the legislative power by the people through the initiative. As indicated above, this ordinance does not make a contract with the Ulen Contracting Corporation. Such an act could probably not be done by the initiative process. This ordinance, by its terms, is a legislative authorization for the city executive department to enter into a contract with the Ulen Contracting Corporation for the erection of a power plant and the construction of a distributing system. It is fundamental that the executive branch may not validly make and enter into contracts for the state, county, or city, except upon authorization of the legislating body, expressly given or implied as necessary or reasonably convenient for the effective discharge of the duties imposed on the executive by law. Had there been no initiated ordinance, the city commission must need take the proper proceeding to authorize the mayor and recorder to execute the contract. Such only was the import and effect of this ordinance, as initiated legislation; and the executive duty to carry out and make effective the declared legislative policy for the erection and construction of a municipal power plant and distributing system of capacity sufficient to meet the requirements declared by the people are duties thereby imposed upon the city commissioners as the executive department of the city. *Page 245
The legislative authority has thus been granted for the making of a contract with the Ulen Contracting Corporation. The legislative body has therein defined the type of contract, the general terms, conditions and limitations of the contract which may be made by the executive department. This is a proper exercise of legislative functions and is properly done through the initiative process. The right of the executive department to enter into and execute a contract with the Ulen Corporation is confined within the limits thus fixed by the people. In view of the different interpretations placed upon this ordinance by the parties, and the attacks on its validity, it is imperative that we first declare what kind of a contract has been authorized. Two views or theories are advanced. One, that the ordinance provides for a contract whereby the Ulen Contracting Corporation undertakes and agrees to construct for Provo City an electric power plant and distribution system on a cost plus basis, subject to the limitations fixed in the ordinance; and the other, that the city is merely employing the Ulen Contracting Corporation as an agent or superintendent of construction to build for the city the plant and distribution system on a force account. The proposal submitted by the Ulen Corporation is in garbled phrases, some of which indicate the first theory and some the second theory. But to have any validity the ordinance must be for one or the other. It is clearly not in the alternative. We shall therefore examine the contract to determine its purpose, extent, and effect.
As to the first theory: The proposal reads:
"We will design and construct for Provo City * * * (A) An electric generating plant consisting of two (2) two-thousand (2000) kilowatt units complete, including land, water, trackage, building and all machinery, equipment and labor necessary and required to fully complete said system ready foruse. (B) An electrical distribution system of sufficientcapacity to furnish the City of Provo and its inhabitants with electrical energy, including all machinery, equipment and labornecessary and required to fully complete said system ready foruse." (Italics supplied.) *Page 246
It is further provided that the Ulen Corporation will "work in close cooperation with the City organization" and "turn the completed work over to you [the City] ready for use." The corporation then agrees to "require all sub-contractors" to carry insurance covering liability to the public and employees. There can be no sub-contractor without a primary or general contractor. There are other provisions in the proposal and in the ordinance which even more strongly show that the Ulen Corporation is to be a contractor on a cost plus basis. The ordinance expressly provides that, when the proposal is signed by the city, "it shall constitute an existing and enforceable contract" between the parties. The provisions governing the purchase of materials, letting of bids therefor, the payment for materials and labor, the rendering of monthly accounts to the city, all show that the Ulen Corporation is an independent contractor and not a city employee.
If the ordinance be construed according to the second theory, then many of the terms thereof are meaningless, contradictory, and some in violation of law. Under the second theory the validity of the entire ordinance may well be doubted, but upon that question we do not pass because we are of 5 the opinion, and so hold, that this ordinance authorized a contract with the Ulen Contracting Corporation for the erection and construction of an electric power plant and distribution system, wherein the Ulen Corporation is not an employee or agent of the city to build on force account, but is an independent contractor to build the plant and system on a cost plus basis, under and subject to the terms and limitations fixed in the ordinance. By this ordinance the city, through its mayor and recorder, is authorized to enter into a contract with the Ulen Contracting Corporation wherein the latter agrees and undertakes to design, draw, and prepare detailed plans and specifications for an electric generating plant consisting of two 2,000-kilowatt units complete, and an electrical distribution system *Page 247 of sufficient capacity to furnish the City of Provo and its inhabitants with electrical energy, which plans and specifications shall meet the approval of the city commission. The Ulen Corporation must further agree and undertake to erect and construct said plant and system, complete and ready for service, according to the aforesaid detailed plans and specifications, approved by the city commission; and to furnish all land, water, trackage, buildings, machinery, equipment, supervision and labor necessary and required to fully complete said plant and system ready for use; and to turn the completed work, the generating plant and distribution system, ready for use, over to the city. The Ulen Corporation is to pay for the machinery, equipment, and material, used or necessary to be used in the erection and construction of said plant and system, and all engineering, supervision and labor charges, and under thestatute must furnish a good and sufficient bond for the faithfulperformance and completion of the contract and the prompt paymentof all persons supplying labor or materials used in theprosecution of the work. Section 17-1-1 R.S. Utah 1933.
The construction of the plant and distribution system, all labor and materials, excluding all engineering and supervision charges, shall not exceed to the city the sum of $685,000, but any savings from this amount are for the benefit of the city. That is to say, the city shall pay to the Ulen Corporation the actual costs of labor and materials, excluding engineering and supervision charges, but in no event exceeding $622,000. In addition to the actual costs but not exceeding the amount specified, the corporation is to receive as the "plus" on the cost plus contract the sum of $65,000, of which amount $35,000 represents full compensation for designing the plant and system and preparing detailed plans and specifications to the approval of the city commission; and $30,000 as provided in article VIII of the proposal for all engineering supervision and other services rendered or to be rendered by the Ulen Corporation. All purchases of materials *Page 248 over $500 are to be let by bids to the advantage of the city, and acceptance of bids subject to the approval of the city. There are other limitations and conditions prescribed by the ordinance, but we have only called attention to those which must not only be involved in any contract made pursuant to this ordinance, but are proper to set forth in this opinion in considering the objections made to the validity of the ordinance.
This is the basis upon which the ordinance rests and upon which we consider the objections urged against it. There are thirteen points of attack upon the ordinance, numbered (a) to (m), inclusive. It is first urged that there was no meeting of the minds of the contracting parties as to the kind, character, and extent of the plant and equipment to be received by the city. This has already been disposed of. The ordinance is not a contract, but authority for the executive department of the city to enter into a contract to have constructed for the city "acomplete electric power plant and system." We cannot assume that when the contract is made the city officials will execute a contract that does not meet the conditions upon which they were authorized to execute the same. Attack (b) is that the taxpayers of Provo were misled into voting as they did. The argument that a party was misled or deceived into making a contract is, of course, only available to a privy to the contract, the party who was deceived. However, what we have heretofore said disposes of this objection as well as (c) and (d) which are based upon claims of uncertainty as to the nature and size of the proposed plant.
Point (e) is that the ordinance provides for the funds of the city to be deposited with and disbursed by persons other than the officers of the city in violation of law. While the holding that this ordinance is not a contract but merely a legislative authorization for the making of a contract perhaps disposes of this question, we deem it advisable to add the following comment. Certain it is that the city is required *Page 249 to keep its funds, from whatever source derived, in the hands of its officials or in a bank within the state, approved by the depository board, "except where necessary to deposit moneys in a bank or banks outside of this state in order to provide for payment of maturing bonds or other evidences of indebtedness or the interest thereon." Chapter 47, section 8, Laws of Utah 1933, as amended by chapter 53, Laws of Utah 1935. We must assume that when the city officials execute a contract for the construction of the plant, they will observe and obey the law and make no provisions for the deposit of the city's funds outside of the state, or for expenditure of the funds without official responsibility or accountability. See Schieffelin v. Hylan,236 N.Y. 254, 140 N.E. 689. Points (f), (g) and (h) are without merit and are disposed of by what we have already said.
We come now to the point that the agreement with the Ulen Contracting Corporation was made without any call for bids. It is conceded by the intervener that there is no statutory requirement to call for bids on improvements of this 6 kind. There are but two provisions in the statutes with reference to calling for bids by municipal corporations on making public improvements. Section 15-7-20, R.S. 1933, requires bids for any improvement estimated to cost over $6,000 to be paid for out of the general funds of a city of the second class, such as Provo. In the case of Barnes v. Lehi City, 74 Utah 321,279 P. 878, we held that this section had no application to improvements to be paid for exclusively out of funds derived from the improvement. See, also, Bohn v. Salt Lake City, 79 Utah 121,8 P.2d 591, 81 A.L.R. 215. The other is section 3 of chapter 22, Laws of Utah 1933, 2d Sp. Sess., commonly known as the Granger Act. Since by its express terms, that section applies only to proceedings under that act, and since we hold this is not an improvement under that act, that section has no application. It is strenuously urged that, as a matter of policy, we should require the city to advertise and call for bids even for improvements under the special fund doctrine. *Page 250 It may well be the better policy for cities to do all their improvements, over the specified amount, under the competitive bidding system, to invite competition, guard against favoritism, improvidence and extravagance, and fraud in awarding contracts, and, for the benefit of the public, to secure the best work and supplies at the lowest prices practicable, but the determination of policy is a matter for the Legislature and not for the court. We invite the attention and consideration of the Legislature to the matter and leave it there. We must apply the law as we find it and not assume to determine matters of policy. The law seems well established that in the absence of statutory requirements the city need not advertise for bids. McQuillin, Municipal Corporations, 2d Ed., vol. 3, § 1288, p. 862; Schulte v. SaltLake City, 79 Utah 292, 10 P.2d 625.
Point (j) is that no bond is required under the ordinance. We have already pointed out that the city must require a bond to insure performance and payment for materials and labor. Points (k) and (l) have to do with the possibilities of waste in construction and delegation of power to the city engineer. We have held that the detailed plans and specifications must be approved by the city commission, as must also all purchases over $500. We assume that the city officers will do their duty as provided by law. When and if they do not, complaint may be made.
The last point is that this ordinance is so closely tied to the bond ordinance (Nuveen contract) that it must fail if the bond ordinance fails. The ordinance itself so provided, but since we have held the bond ordinance valid, the question is settled in favor of the city.
I concur, therefore, in the order quashing the writ, and permitting the city to proceed as indicated in the opinion.