This is an original proceeding in this court. On petition of plaintiff, a taxpaying resident citizen of Ogden, Utah, suing for himself and on behalf of others similarly situated, an alternative writ of prohibition was issued wherein the defendants were directed to desist further proceedings with reference to the issuance and sale of certain bonds in the sum of $645,000 until the further order of this court, and to show cause why the writ should not be made permanent. The defendant Ogden City is a municipal corporation of Utah, a city of the second class, and the individual defendants are the mayor, city commissioners, city treasurer, and city recorder, respectively, of such city. The defendants and each of them filed a general demurrer to the petition alleging that the petition does not set forth any cause of action or sufficient ground to warrant making the writ permanent. After the case was submitted, and after a tentative opinion was written, but not filed, the parties filed a stipulation adding to the petition certain allegations of fact which the parties considered might be material, and which *Page 282 made clear certain allegations which before were indefinite, and stipulated that the demurrers on file be deemed as running to the petition as amended. The following statement of facts covers the allegations of the petition as amended:
The facts alleged in the petition and admitted by demurrer are these: Ogden City is a municipal corporation of the second class. It owns, maintains, and operates an existing waterworks supply and distribution system which supplies water to approximately 45,000 people. The waterworks system consists of certain wells heretofore drilled by the city in an artesian basin lying about eight miles easterly from the city at the head of Ogden Canyon, together with certain water supplies from side streams entering the canyon between the wells and certain reservoirs constructed and owned by the city and situate on high land in the eastern portion of the city. The water from the side streams is so controlled that, when needed, it is diverted into the reservoirs and commingled with the water from the wells. From the reservoirs the water is distributed throughout the city and to some extent outside the city limits by means of a system of water mains, laterals, and pipe connections. The system cost approximately $450,000 when first acquired in 1907, and on which there has been spent approximately $1,500,000 additional for enlargement and betterment.
The valuation of the taxable property within the city as shown by the assessment for 1932 is $37,992,012, 8 per centum of which would fix the debt capacity of the city at $3,039,360, under the provisions of the state Constitution. There are now outstanding general obligation bonds in the sum of $2,714,500, to which must be added $70,000 of sewer bonds authorized by the voters and about to be sold. A bond issue of $250,000 was heretofore authorized by vote of the qualified electors for a joint city and county building, to be issued and sold when Weber county raises a like amount for construction of such building, but these bonds have not yet been issued. *Page 283
Of the outstanding bonds $1,522,500 are water bonds, the proceeds of which have been expended on the waterworks system. To pay the principal and interest on such bonds, the city has obligated itself to levy an annual tax sufficient for that purpose. The total revenues of the city for the year 1932, exclusive of any surplus from the waterworks department, will not exceed $488,572.92. The amounts budgeted for expenditure for the year exceed the amount of such estimated revenue by $40,972.37, substantially the whole of such expenditures having heretofore been made or obligations for the payment thereof having been incurred. The net operating revenue of the waterworks fund for the year 1932 will not exceed the amount of such deficit arising in the other funds, and the city has incurred obligations equal to its full current revenue for the year from all sources.
During the 6 years next prior to the filing of the petition, the waterworks system has produced a gross revenue in excess of $1,000,000, with an operating expense of slightly more than $300,000, yielding a net operating profit of approximately $745,000. During this 6-year period all the revenue derived by the city from the sale of water has been covered into the waterworks fund, created by the ordinance, section 162, hereafter quoted in full, and from such fund there has been paid, first, the current operating and maintenance expense of the system, a small part of the cost of betterments and improvements; the major part of the cost of improvements and betterments being paid out of revenues obtained by sale of bonds. Out of this special fund has been paid the interest charges on outstanding waterworks bonds, and such principal of waterworks bonds as has been paid during that period. (The amount of such principal payments is not disclosed.) After making such payments, and retaining some amount as a surplus in the waterworks fund, there has been a net surplus of from $55,000 to $90,000 each year which has been covered from the waterworks fund into the general fund of the city. None *Page 284 of the water bonds heretofore issued and sold have by their terms been made a charge on the waterworks revenues, but expressly provide they are payable both as to principal and interest out of revenues raised by general taxation. During the 6-year period mentioned, the city has not levied any tax for the purpose of paying principal or interest on its waterworks bonds. In each of such years the maximum levy permitted by law of 2 mills on the dollar of assessed valuation for contingent expenses has been levied and the revenues received therefrom used for general fund purposes but not for payment of any service on waterworks bonds.
Some time prior to December 14, 1932, Ogden City made application to the Reconstruction Finance Corporation for a loan of $645,000 for which it would issue and deliver "Water Revenue Bonds" in the same amount, and in connection with such application prepared and presented a financial statement showing the revenues and expenditures of such city and of its waterworks department during the 6-year period referred to, together with estimates of the revenues and expenditures of the waterworks department for a period of 15 years commencing with the year 1933, based upon the actual receipts and expenditures over the period from 1927 to 1932, both inclusive. It is alleged:
"That during such past six year period the net obligations [revenues] in such Waterworks Fund remaining after payment of all charges thereunto, including interest and principal payments upon the Waterworks Bonds, was in excess of the annual charges for principal and interest under the proposed bond levy in any such period of six years. That such estimates disclose a probable net operating profit in the period of fifteen years, commencing with the year 1933 and ending with the year 1947, from the operations of such Waterworks System in excess of necessary current operating expense and cost of maintenance of $2,209,227.70; that the principal falling serially due upon the bonded indebtedness covered by outstanding Waterworks Bonds of Ogden City during such period would be $375,000.00; and the amount falling due under such proposed bond issue will be the whole thereof or $645,000.00, a total principal payment of $1,020,500.00, and the interest charges upon such outstanding obligations and proposed obligations during such period would be $887,875.50, leaving an estimated surplus of Waterworks revenue *Page 285 over expenses of maintenance and current operation, retirement of principal and payment of interest on the outstanding Waterworks Bonds and bonds represented by Exhibit `A' of $300,852.20."
The matter is probably immaterial to a determination of any issue in the case, but we have quoted the above statement in full, and suggest that it would appear from other facts set out in the petition that no account is taken in such estimate of the sinking fund requirements for a portion at least of the outstanding waterworks bonds. The statement includes an item of $375,000 to cover estimated serial payments on outstanding waterworks bonds. Under the statute such bonds may be payable serially over a period of not more than 40 years. $375,000 paid over a period of 15 years would amount to $25,000 per year, which would meet the serial requirements of only $1,000,000 of 40-year bonds, and leave $522,500 of bonds without any provision, in the estimate, for serial payments or sinking fund requirements. The estimate does not therefore include all the city's obligations on its bonds during the 15-year period mentioned.
Before December 14, 1932, there was passed by the board of commissioners of Ogden City and published an ordinance, in effect on and prior to that date, known as section 162, which is as follows:
"Waterworks Fund, Disposition. All moneys received from water rentals shall be paid into and accounted for separtely from other public moneys, and such moneys on hand at any time shall be termed the Waterworks Fund. All cost of maintenance and operation of such system of water supply and water works shall be paid therefrom. The Board of City Commissioners may also provide for the payment from such fund of any interest upon or principal payments falling due upon any bonded indebtedness of such city created in connection with the purchase of such water works system or its extension, improvement or other betterment, and whether represented by original issue bonds or refunding bonds, and may also provide for the setting up of a sinking fund or funds or surplus within such Waterworks Fund for the purpose of providing means of discharging any such bonds, and may provide the respective priorities of any such payments so ordered made therefrom. There shall next be paid therefrom the cost of any extension to or betterments to such water supply *Page 286 system, which the Board of City Commissioners may have ordered paid therefrom. Any balance not expended for the above purposes may, at such time or times as such Board of Commissioners may determine, be transferred to the General Fund of such City."
With a view to borrowing the sum of $645,000, and without any authorization by a vote of the qualified electors of the city pursuant to the provisions of chapter 25, title 16, Comp. Laws Utah 1917 (section 792 et seq.), and without any intention of submitting the proposal to a vote of such qualified electors, the board of commissioners on December 14, 1932, passed and published an ordinance, now in force, if within the power of the board to enact, providing for the issue and sale of $645,000 "Water Revenue Bonds," the proceeds of which were to be used, as stated therein, "for the purpose of making repairs, improvements, and extensions to the waterworks system of Ogden City, and to provide for the public safety, preserve the public health, promote the prosperity and improve the morals, peace, order, comfort and convenience of the inhabitants of said City." Such repairs, improvements, and extensions to the waterworks system as shown by plans and specifications of the city engineer are the following:
"(a) Construction of a pipe line conduit from a point in Ogden Canyon substantially below such artesian wells and at a point where the surface water supply, farthest distant from said city is taken into such system to said city reservoirs, at an estimated cost of $410,620.00;
"(b) Construction of an additional reservoir with a capacity of approximately 38,000 gallons, immediately south of the present city reservoirs and intended solely to supplement the reservoir supply of such city as provided by said present reservoirs, at an estimated cost of $110,000.00;
"(c) Installation of various pipe line replacement, including both main pipe lines and laterals within said city, at an estimated cost of $75,000.00; and
"(d) Purchase of and installation of meters for the purpose of measuring the water supply furnished to water users within said city at an estimated cost of $50,000.00."
The ordinance contains the ordinary and necessary recitals authorizing the issue of such bonds, and, in addition *Page 287 thereto, provides for payment of principal and interest out of a "Waterworks Fund" to be maintained during the life of the bonds, and created solely by revenues to be derived from sales of water from the entire waterworks system, and that "said bonds shall constitute a lien upon the net revenues from said waterworks system prior to any thereon which may be given to any other bonds or other obligations subsequently issued"; that payments from the "Waterworks Fund" shall be made solely for the following purposes:
"(a) First, all reasonable expenses of operation and maintenance of said waterworks system.
"(b) Second, the principal of and interest on said bonds as the same shall become due."
"That out of any moneys over and above the amounts required for the aforesaid payments a reserve shall be accumulated and maintained in an amount at least equal at any time to the amount of principal of and interest on said bonds falling due during the next ensuing fiscal year."
Any moneys in the fund over and above the amounts required for these payments and reserve are to be disposed of as the board of commissioners may determine.
The bonds are to bear 5 per cent interest payable on the 1st days of January and July of each year, and principal payments are to be made annually in specified sums from $15,000 to $50,000 over a period of twenty years. Other obligations stated in the ordinance are as follows: (a) That the city will charge and collect sufficient rates on water furnished from the system to provide for all payments and reserve specified in the ordinance; (b) the bonds are to be sold on the best terms obtainable, without regard to face value; (c) the city shall pay into the "Waterworks Fund" the reasonable value of all water used by it for public purposes; (d) for the purpose of servicing the bonds, the fiscal year shall continue to be the same as the calendar year until the bonds are paid or retired; (e) that the ordinance shall constitute a contract between the city and the holder or holders of such bonds who may enforce performance of any of the provisions by appropriate action in law or equity; *Page 288 (f) the bonds to be issued with interest coupons attached; (g) the holder to have the option or privilege of registering the bonds as to principal, or principal and interest, with the city treasurer.
Plaintiff alleges that it is the purpose and intent of the board of commissioners to sell such bonds from time to time as the making of the improvements requires, at private sale without public advertisement, and that such board is about to call forthwith for bids on the bonds or some part thereof; that, subsequent to the passing of the bond ordinance, and prior to filing the petition in this court, plaintiff made demand on the defendants and each of them to desist from taking any steps under the terms of the bond ordinance toward the issuance or sale of such bonds, and the board of commissioners and each of the individual defendants denied such demand, and, unless restrained by an order of court the board of commissioners, will authorize and offer such bonds for sale and "sell the same contrary to the provisions of the laws of the State of Utah and in excess of the powers of said City and of said Board of City Commissioners, and the said other defendants will perform such acts with respect to such bond issue as such ordinance provides to be done respectively by them."
It is further alleged in the petition as follows:
"That it is not possible for said city to segregrate the revenues here from said proposed improvements and betterments to said system of waterworks supply from the revenues now derived from said system of waterworks and supply as presently constituted nor is it possible for said city to determine that any proportion of the total revenues from such waterworks and supply system derivable from the same after the making of said proposed improvements, can be ascribed to and will be derived from said proposed improvements; further that said proposed bond issue is wholly without warrant of law and in excess of the powers of such city and of any powers or authority of its said Board of City Commissioners and that the same will constitute an illegal and void issuance of public obligations and will result in great expense to such city and will occasion increased taxation by such city and consequent loss to this applicant and all others similarly situated." *Page 289
The reasons stated in the petition for the invalidity of the bond ordinance and the proposed water revenue bonds to be issued pursuant to its terms are as follows: (a) The ordinance provides for sale of the bonds for the best terms obtainable, and does not restrict the sale to the face value thereof as required by section 794, Comp. Laws Utah 1917, as amended by chapter 63, Laws Utah 1925; (b) that no provision is made for levy of a tax to meet any deficiency if the rates and charges from the water system are insufficient to meet operating and maintenance charges and payments due on such bonds; (c) the agreement to pay into the waterworks fund the reasonable value of all water used by the city for public purposes imposes a burden on the general revenues of the city for the benefit of the fund; (d) that the city cannot covenant with respect to its fiscal year, as that power is vested in the Legislature by section 1, art. 13, of the Constitution of Utah; (e) that such an indebtedness cannot be incurred without the submission of the proposal to create such debt to a vote of the qualified electors as provided by section 792, Comp. Laws Utah 1917; (f) that such bond issue will increase the indebtedness of the city to an amount in excess of the limit of indebtedness fixed by section 4, art. 14, of the Constitution of Utah; (g) the ordinance creates a debt in excess of the taxes and potential revenues of the city from taxation and all other sources for the current year, and in excess of the estimated expendable revenue for the year; (h) such indebtedness is in excess of the budget provisions of the year 1932; and for which no provision has been made by the budget for that year; (i) there is no warrant in law for the city to pledge the net revenues of the water system for the payment of the principal and interest of such bonds; or (j) giving these bonds a lien on the net revenues of the water system superior to that of any other bonds, prior or subsequent, issued in connection with the purchase, construction, maintenance or betterment of the system; or (k) the creation of the special fund by section 161 of the Revised Ordinances, as amended; *Page 290 or (1) the accumulation and maintenance in the special waterworks fund of an amount equal to the amount necessary to pay principal of and interest on any bonds falling due the next ensuing year, thereby depriving the city of the use of moneys so retained and imposing an additional burden on the taxpayers of the city; or (m) the issuance of coupon bonds, or the privilege of registration of such bonds, both as to principal and interest; or (n) to charge and collect sufficient rates for water furnished to provide all payments specified in such ordinance, since the city is without power to fix any rate except such as may be reasonable for the service rendered; or (o) covenanting that such ordinance shall constitute a contract between the city and the holders of such bonds, enforceable in law and equity, thereby abdicating and waiving all right to pass any ordinance amendatory thereto.
It is conceded by defendants that the proposed improvements will afford no new source of revenue, but defendants say that they will reduce waste of water and increase the safety and efficiency of the system. The betterments will be built into the present system in such manner that it will be impossible to measure in terms of money any saving affected thereby in any accurate or even approximate manner.
The decisive question presented by this record is whether or not the obligation to be incurred by 1, 2 issuance of proposed bonds is a "debt" of the city, as contemplated by the provisions of our Constitution. The Constitution provides:
Article 14, § 3: "No debt in excess of the taxes for the current year shall be created * * * by any city * * * unless the proposition to create such debt, shall have been submitted to a vote of such qualified electors as shall have paid a property tax therein, in the year preceding such election, and a majority of those voting thereon shall have voted in favor of incurring such debt."
Article 14, § 4: "* * * No city * * * shall become indebted to an amount, including existing indebtedness, exceeding four per centum of the value of the taxable property therein, the value to be ascertained by the last assessment for State and County purposes, previous *Page 291 to the incurring of such indebtedness; except that in incorporated cities the assessment shall be taken from the last assessment for city purposes; provided, that no part of the indebtedness allowed in this section shall be incurred for other than strictly county, city, town or school district purposes; provided further, that any city of the first and second class when authorized as provided in Section three of this article, may be allowed to incur a larger indebtedness, not to exceed four per centum * * * for supplying such city or town with water, artificial lights or sewers, when the works for supplying such water, light and sewers, shall be owned and controlled by the municipality."
It is apparent from the admitted facts, and indeed is conceded by defendants, that the proposition of creating the indebtedness was not authorized by a majority of the qualified electors; that the $645,000, if added to the amount of outstanding bonded indebtedness, is in excess of 8 per cent of the assessed value of taxable property in the city; that the amount of the issue is in excess of the revenues of the city for the year 1932; and that no provision was made in the budget of 1932 for payment of part or all of the bond obligation.
The issue is concisely stated by defendants in their brief as follows: "If the proposed bond issue is subject to the constitutional provisions imposing limitations upon the power of cities of the second class as to issuance of bonds or incurrence of indebtedness, or to the provisions of the budget law, the ordinance is void, the city commissioners have exceeded their powers, and the writ requested should be made permanent."
Defendants contend the obligation is not a "debt" within contemplation of the constitutional provisions, since by the terms of the ordinance the principal of and interest on the proposed bonds are made payable solely out of a special fund called the "Waterworks Fund," to be created by the impoundment of the revenues earned by operation of the waterworks system, and from no other source, and that the bonds are not general obligations of the city. They cite the following cases and authorities in support of their contention: Barnes v. LehiCity, 74 Utah 321, 279 P. 878, 885; *Page 292 Shields v. City of Loveland, 74 Colo. 27, 218 P. 913;Faulkner v. City of Seattle, 19 Wash. 320, 53 P. 365;Donahue v. Morgan, 24 Colo. 389, 50 P. 1038; Shelton v.City of Los Angeles, 206 Cal. 544, 275 P. 421; 6 McQuillin on Municipal Corporations (2d Ed.) 48, 49; 19 R.C.L. 985, 986; 44 C.J. 1131. Other cases support the same view: Searle v. Townof Haxtun, 84 Colo. 494, 271 P. 629; Ward v. Chicago,342 Ill. 167, 173 N.E. 810; Scott v. City of Tacoma, 81 Wash. 178,142 P. 467.
What has come to be known as the "Special Fund Rule," supported by a great majority of cases, and adopted in this state by the case of Barnes v. Lehi City, supra, is that constitutional or statutory limitations upon municipal indebtedness are not violated by an obligation, which, by contract of purchase, or issue of notes or bonds, is payable out of a special fund created by the net income or revenue to be derived solely from the property purchased, and the municipality is not otherwise obligated to pay the liability. See cases cited in Barnes v. Lehi City, supra, and in note, 72 A.L.R. 688.
We have no desire to repudiate or depart from the rule announced in Barnes v. Lehi City, supra, as it is supported by sound reason and by the overwhelming weight of authority. In order to approve the contentions of Ogden City in this case, we would be required to enlarge the rule of the Barnes Case and open the door to much borrowing by the municipalities of this state in violation of constitutional restrictions and limitations. It matters not how anxious public officials may be to bring about desirable and necessary improvements and betterments, such improvements, under our Constitution and law, must be paid for either out of revenues within the treasury or such as may be lawfully anticipated as revenues of the current year (Dickinson v. Salt Lake City, 57 Utah 530, 195 P. 1110), or the debt incurred for such improvements must be authorized by a majority vote of the qualified electors (Const. art. 14, § 3), and be within the constitutional limitation of 4 per cent or 8 per cent, as the *Page 293 case may be, based on the value of taxable property of the city (Const. art. 14, § 4), or be paid for exclusively out of the net earnings or income of the property or improvements purchased (Barnes v. Lehi City, supra).
The facts in the Barnes Case show that Lehi City had an electric light distributing system used to furnish the city with street lights, but its generating plant was inadequate and dilapidated. No income was produced from the system. The city made a contract with Fairbanks, Morse Co. for certain generating machinery, whereby the company retained title to the machinery until paid, and agreed to accept installment payments from the earnings of the plant. Any future administration of the city could, without violation of the contract, repudiate the transaction and refuse to continue payments, and the only recourse available to the company would be to retain payments already made and repossess the generating machinery to which it retained title. In the decision of Barnes v. Lehi City, supra, it was said:
"It has now become a well-recognized principle of law that these constitutional provisions do not apply to a case where public property is purchased or constructed, and payment therefor is to be made, exclusively from the revenues derived from the property. In the instant case, impounding the earnings of the electric light and power plant in a special fund which is expressly pledged for the purpose of maintaining the plant and the payment of the interest and purchase price installments as they accrue under the proposed contract casts no additional burden on the taxpayers of Lehi City. * * * The credit of the city is not extended, nor is any money which is derived from taxation or other existing sources of revenue expended, in the purchase price or maintenance cost of the plant. The city cannot be coerced into applying any part of its general revenue for the payment of the purchase price of the plant or for any part of the cost of maintenance thereof."
By the admitted facts in this case a large income from an existing waterworks system owned by the city is pledged to pay the principal and interest on the bonds; the greater part of the property to be purchased or improvements made *Page 294 will be incorporated or built into the existing waterworks system in such manner that it could not be thereafter segregated or withdrawn without destruction of the new property and destructive impairment of the entire system; the city is irrevocably pledged to pay the bonds out of revenues of which the city is now the owner, and no future board of commissioners will have any option to repudiate the obligation or decline to carry out the terms of the contract. True, the fund out of which the bonds are to be paid is a special fund, but it is a special fund created by impounding the revenues earned by property of which the city is now the owner, and which, but for the contract, would be available for use by the city in meeting its other obligations.
The special fund rule is not without its limitations. These have been pointed out by the Supreme Court of California in the recent case of Garrett v. Swanton, 216 Cal. 220,13 P.2d 725, 729, as follows:
"An examination of the cases from other jurisdictions establishes the fact that there are at least two well-settled limitations or exceptions to the `special fund' doctrine. Thus it is well established that an indebtedness or liability is incurred when by the terms of the transaction a municipality is obligated directly or indirectly to feed the special fund from general or other revenues in addition to those arising solely from the specific improvement contemplated. It also seems to be well settled, as a second limitation to the doctrine, that a municipality incurs an indebtedness or liability when by the terms of the transaction the municipality may suffer a loss if the special fund is insufficient to pay the obligation incurred."
We are of the opinion that the admitted facts bring the transaction involved in the instant case within either or both of these exceptions or limitations. The waterworks system was acquired and constructed at a cost of over $2,000,000, and there are still outstanding general obligation water bonds of the city in the sum of $1,522,500. Heretofore, the net surplus revenue from the operation of the waterworks system, over and above cost of operation and maintenance, was applied to the payment of interest and serial payments of principal on such bonds, and a balance *Page 295 of from $55,000 to $90,000 each year covered into the general fund to meet other general obligations of the city. Now it is proposed to impound the whole of such net surplus revenues in the special waterworks fund and pledge such to the payment of the "Water Revenue Bonds." In other words, it is not only income earned or to be earned by the contemplated improvements that constitutes the special fund, but income from the entire system. It is not alleged that the new improvements and betterments would materially increase the revenue of the system, or that the income from such, if any, can be segregated or estimated. In the brief of defendants, it is admitted that this cannot be done and that there will be no measurable increase in revenue. It follows necessarily, therefore, that the burden on the general taxpayer will be increased to make up to the general fund the amount which formerly went to the general fund, but now is to be impounded in the waterworks fund to meet the obligation of the water revenue bonds. Thus, while tax revenues are not directly pledged to the payment of the water revenue bonds, the tax levy must be increased, and such revenues will be indirectly used to feed the special fund. This situation is made plain by the fact that, when the net water revenues for the year 1932 are diverted to the special fund, the general revenues of the city will be $40,972.37 short of meeting the budget requirements of that year. This deficit must be made up by general taxation. The city will also lose property in the form of established income when such income is impounded in the special fund and pledged to meet the requirements of the water revenue bonds. We agree with what was said by the California Supreme Court on this point in the case ofGarret v. Swanton, supra, as follows:
"We do not believe that the `special fund' doctrine was ever intended to be applied to a situation where the municipality, directly or indirectly, is or may be compelled to feed the special fund from other revenues in addition to those arising from the special improvement contemplated. Such a subterfuge, if sanctioned, would go far to effectually wipe out the purpose and intent of the constitutional provision." *Page 296
There are cases which hold that, where improvements to or extensions of an existing system increase the revenues of the system, and such increase can be segregated and measured, the making of a contract of purchase will be upheld where the increased revenues or savings alone are pledged to the payment of the purchase price. This is in harmony with, and not an extension of, the doctrine of the case of Barnes v. Lehi City, supra, where the purchase price was to be paid exclusively out of earnings of the purchased property. Bell v. City of Fayette,325 Mo. 75, 28 S.W.2d 356; Jones v. City of Corbin,227 Ky. 674, 13 S.W.2d 1013.
As already indicated, the contract approved by this court inBarnes v. Lehi City was such a contract as could be abandoned or repudiated at any future time by the governing authorities of the city, and the city would lose nothing of its owned property or income and would be under no obligation to make further payment. The contractor would, under the express terms of the contract, take back its own property and retain the paid installments, which would represent merely the earnings from the contractor's property No such results would follow here. There is no way left open for subsequent boards of commissioners to refuse to be bound by the debt obligation imposed by the bonds. The bondholders could not repossess the property purchased by the proceeds of the bonds. The improvements and betterments are to be so built into the existing system that they could not be segregated. On the other hand, the ordinance expressly provides that its terms and obligations may be enforced by appropriate action in law or in equity. The city is bound to pay the interest on and principal of the bonds, and may by court action be coerced to raise or maintain the water rates sufficiently to meet such obligations, and to continue to divert revenues now owned by it, resulting from the operation of its waterworks system, into the special fund to pay the water revenue bonds and interest. This is a liability voluntarily incurred by the city by express *Page 297 contract, and which it is bound to pay in money, and therefore a "debt." Overall v. City of Madisonville, 125 Ky. 684,102 S.W. 278, 12 L.R.A. (N.S.) 433; 17 C.J. 1376. While we indicated in the Barnes v. Lehi City Case that the word "debt," in construing constitutional restriction, has a meaning less broad and comprehensive than it bears in general usage, yet we think such word cannot be so, construed as to exclude an obligation, such as we have here, where the city cannot escape the obligation and may be compelled to make payment, even though payment be limited to a special fund, where the special fund is made up of revenues from property now owned by the city. But, if the ordinance did not so provide, yet the city for the strongest of reasons, after having received and spent the proceeds of the bonds, would be bound to discharge the debt. Muir v. MurrayCity, 55 Utah 368, 186 P. 433. This distinction is pointed out in State v. City of Portage, 174 Wis. 588, 184 N.W. 376, 377, as follows:
"The distinguishing element, as then defined, consisted in the fact that the city could not be coerced by the creditors of its grantor into applying to his claim either its general revenue or property owned by it at the time of the contract, but was free at its election to abandon the plan of acquiring or holding that which, prior to the contract, it did not own."
While there is lack of harmony in the decided cases, we are satisfied that the weight of authority and better reasons compel a holding that bonds such as Ogden City now proposes to issue and sell constitute a debt subject to the limitations and restrictions imposed by sections 3 and 4 of article 14 of our Constitution. Such water bonds cannot be issued or sold unless authorized by a majority vote of the qualified electors of the city, and, when added to existing indebtedness, be within 8 per cent of the value of the taxable property of the city. The following cases support this view: Garrett v. Swanton, supra;Hesse v. City of Watertown, 57 S.D. 325, 232 N.W. 53; Hight v. City of Harrisonville, 328 Mo. 549, 41 S.W.2d 155; Cityof Campbell v. Arkansas-Missouri *Page 298 Power Co. (C.C.A.) 55 F.2d 560; Zachary v. City ofWagoner, 146 Okla. 268, 292 P. 345; Miller v. City of Buhl,48 Idaho 668, 284 P. 843, 72 A.L.R. 682; Fox v. Bicknell,193 Ind. 537, 141 N.E. 222.
It was argued that, since the city commission has a right to impound the net earnings from its water department over a series of years, and then expend such revenues for betterments or extensions, it may also anticipate such revenues and borrow now for improvements and betterments and repay the obligation out of earnings in the future. A sufficient answer is that in the first instance the money is on hand and may be expended for any lawful purpose, while in the second an indebtedness must be incurred. The law allows city boards to expend revenues on hand or anticipated revenues for the current year, but places restrictions on their borrowing powers where they attempt to pledge anticipated revenues of future years.
It is admitted that no provision was made in the 1932 budget with respect to the issue of the water revenue bonds. Whether any provision was made in the 1933 budget for payment of interest on such bonds is not disclosed by the pleadings.
We hold to the view that all revenues and expenditures of the waterworks department are subject to the requirements of the budget law. Chapter 15, Laws Utah 1925. This enactment provides that each city commissioner shall report to the city auditor on or before October 1 of each year "a detailed 3 estimate of the revenues and of all the necessary expenditures of the department or departments under his supervision." Section 1. From the information contained in such reports the budget for the ensuing year is prepared. The budget as finally adopted is the basis for an appropriation ordinance which is required to be passed. It is made unlawful for any board of city commissioners to make any appropriation in excess of the estimated expendable revenue for the ensuing year, and city auditors are forbidden to draw warrants on city funds *Page 299 except in accordance with and within the limits of an appropriation ordinance. One of the departments of the city government under the direct supervision of a city commissioner is the "department of water supply and water works." Comp. Laws Utah 1917, title 16, ch. 2, § 552. The commissioners of all departments are required by the budget law to report both revenues and expenditures for budget purposes. There are no exceptions specified in the law.
While undoubtedly the city commission may for convenience in bookkeeping and the more business like manage-of its affairs create a special waterworks fund, into which shall be paid and accounted separately all moneys received from water rentals, and out of which shall be paid all costs of 4 operation, maintenance, betterments to the system, bond interest, and principal of water bonds, yet by so doing the revenues and expenditures of the waterworks department cannot be withdrawn from control by the provisions of the budget statute. The provisions of the statute cover the department of water supply and waterworks equally with other departments of the city government which may be supported in whole or in part from taxation. Not anything is stated in the statute to afford any basis for distinguishing revenues of a waterworks system already owned, from other revenues of the city, for the purpose of budget control.
In Barnes v. Lehi City, supra, it was said:
"Laws Utah 1925, c. 30 p. 49, provides for a budget system in cities of the third class. From the principles establised by the foregoing authorities, it must be held that such statute has no application to the payment of the purchase price installments from the special fund."
This language, of course, is applicable to the facts of that case, and cannot be extended to cover a different set of facts. There the special fund was created out of revenues produced by the property purchased and did not include revenues from an already existing system owned and operated by the city and producing revenues which thertofore were subject to the budget law. *Page 300
This court has in a series of cases held that the phrase "taxes of the current year," in article 14, § 3, of the Constitution, means revenues of the current year, and includes all revenues of the city, including taxes, license fees, waterworks income, and department fees. Fritsch 5, 6 v. Board of Com'rs of Salt Lake County, 15 Utah 83,47 P. 1026; Muir v. Murray City, supra; Dickinson v. Salt Lake City, supra; Scott v. Salt Lake County, 58 Utah 25, 196 P. 1022. In anticipation of this revenue, the city authorities may borrow or otherwise contract without a vote of the people and without regard to constitutional debt limit. This is all revenue which the board of commissioners may expect to receive in any one year. It would be inconsistent to say these revenues are included in the language "taxes of the current year" for purposes of tax anticipation borrowing (Dickinson v. Salt Lake City, supra), but give them another name or classification for the purpose of permitting borrowing against anticipated revenues of future years. If these revenues are "tax revenues" for one purpose in contemplation of constitutional restriction, why should they be regarded as other than tax revenues for some other purpose?
While what we have already said effectually disposes of this case, we have been urged by counsel to pass on other objections raised by the pleadings on account of the fact that other municipalities are interested in the outcome, and should be guided as to the manner in which moneys may be obtained for the purchase or construction of new water plants and the enlargement and improvement of existing water systems. For this reason we express our views on other points made in objecting to the proposed bond issue.
It is urged that a municipality has no express statutory or implied power to issue or authorize the issuance of self-liquidating bonds. The statute provides for the issuance of bonds by cities in sections 792 and 794, Comp. Laws Utah 1917, but these provisions are limited to bonds 7 issued within the constitutional debt limit and where authorized by a majority of the qualified electors. *Page 301 Section 570x6, Comp. Laws Utah 1917, authorizes cities to borrow money on the credit of the corporation for corporate purposes in the manner and to the extent allowed by the Constitution and laws. These provisions of the statute do not control the making of conditional sale contracts, or the issue of bonds for true self-liquidating obligations, such as may be within the doctrine of the case of Barnes v. Lehi City, supra. In that case the question of power in a city to incur the particular form of obligation therein approved was not discussed. By numerous sections in the statutes the municipalities of the state are granted ample power to purchase, lease, construct, maintain, manage, and operate part or all of a waterworks system. See sections 570x14, 570x15, 570x18, 570x75, 570x21, and 575, Comp. Laws Utah 1917. For the purpose of acquiring water and water rights and constructing waterworks it may levy a tax, Comp. Laws Utah 1917, § 671, or issue bonds, Comp. Laws Utah 1917, § 792, and Const. art. 14, § 4. There is no mention anywhere in the statutes or Constitution of conditional sale contracts or of self-liquidating bonds. The statute has conferred the power to purchase, lease, and construct waterworks or water supply systems, but has not, other than already indicated herein, specified the manner in which, or means by which, the municipality may accomplish its purposes within the powers conferred. It is competent for a municipality to accomplish such purposes in any lawful manner, and may itself by ordinance provide the manner and details necessary for the full exercise of such powers under the provisions of Comp. Laws Utah 1917, § 578, which is as follows:
"When by this title power is conferred upon the city council to do and perform any act or thing, and the manner of exercising the same is not specifically pointed out, the city council may provide by ordinance the manner and details necessary for the full exercise of such power."
Specific objections made to the various conditions stated in the ordinance, and our comments, follow:
(a) The ordinance provides that the bonds may be sold *Page 302 on best terms obtainable, where as Comp. Laws Utah 1917, § 794, as amended by Laws Utah 1925, c. 63, provides that "no such bonds shall be sold for less than their face 8 value." This section applies to the sale of all bonds issued pursuant to statutory and constitutional authority, and does not apply to such bonds or other obligations as are not a debt of the municipality.
(b) The ordinance makes no provision for the levy of taxes to pay interest or principal when due or to meet any deficiency, as required by section 794, supra. This 9 provision does not apply where the obligation is not a debt of the city as herein defined, but does apply when the obligation to be incurred is such a debt.
(c) The bond ordinance requires that "the reasonable value of all water used by Ogden City for public purposes shall be paid by said City into the Waterworks Fund." We can see no objection to a municipality, which owns and operates a waterworks system or other utility, adopting as a policy the 10 requirement that the city or its several departments should pay for such of the product or service as is used by the city in its public service, such reasonable rates, uniform in proportion to amount used, as is charged other users or consumers. Indeed, when a public utility is operated by a municipality, its books of account should be so kept that they disclose whether or not the property is self-supporting. The income should be sufficient to pay interest on and principal of the bonds issued or other obligations incurred in the purchase, improvement, or extension of the system, in addition to cost of operation, maintenance, betterments, and replacements. The amendment to Laws Utah 1925, § 794, p. 116, c. 63, contemplates that the system should bear the burden of paying interest on and principal of bonds, the proceeds of which have gone into the system, and that the general taxpayer should only be burdened with the deficiency. Good business principles dictate that such utility be self-supporting so far as possible. That this provision alone does not create a debt within contemplation *Page 303 of the Constitution was held in Barnes v. Lehi City, supra, where the court said:
"The general rule is that such contracts, being for services to be paid for periodically, are merely arrangements to pay for current expenses as they are incurred."
The city has not obligated itself to purchase its water from the water department, nor bound itself to take any particular amount of water, but merely to pay for what it uses each year during the life of the bonds. 6 McQuillin on Municipal Corporations, p. 52; 44 C.J. 1130.
(d) The ordinance provides that "for the purpose of servicing the bonds herein authorized, that its fiscal year shall continue to be the same as the calendar year until all of said bonds are paid and retired." Whether section 1 or article 13 of the Constitution, providing that "the fiscal year shall 10 begin on the first day of January, unless changed by the Legislature," inhibits a municipality from fixing its fiscal year, we need not decide. The city has not attempted to fix a fiscal year other or different from that specified in the Constitution.
(e) We see no reason why a municipality may not issue coupon bonds, or provide for registration of its 12 bonds, or the bonds and coupons.
(f) The ordinance provides "that so long as any of said bonds are outstanding and unpaid, it (the city) will charge and collect sufficient rates for water furnished from said system to provide for all payments and reserve" specified therein. The power to fix reasonable rates for the commodity or 13 service is in the board of commissioners, and by the Constitution it is under a duty to operate the system and supply water at reasonable rates. Constitution, art. 11, § 6. The board of commissioners may not by contract restrict or curtail the powers of future boards to determine and to fix reasonable rates.Brummitt v. Ogden Waterworks Co., 33 Utah 289, 93 P. 828,829; City of St. George v. Public Utilities Commission,62 Utah 453, *Page 304 220 P. 720. What rates are or in the future will be reasonable for the city to charge is a question not before us, and on which we express no opinion.
(g) It is provided that the ordinance shall "constitute a contract between the city and the holder or holders, from time to time, of the bonds or any of said bonds, and any such holder may enforce the performance of any provision hereof by appropriate action in law or equity." It is obvious 14 that, when a city obligates itself on a bond, the transaction is a contract, and, when valid, is binding on the city to perform according to its terms. When bonds are legally issued, there is no objection to stating in the ordinance authorizing their issue that the transaction is a contract and its terms may be enforced by appropriate action in the courts. The writ will be made permanent.
ELIAS HANSEN, EPHRAIM HANSON, and MOFFAT, JJ., concur.