Controversy Between California Toll Bridge Authority & City & County of San Francisco v. Wentworth

The California Toll Bridge Authority, created by act of the legislature (Stats. 1929, chap. 763, p. 1489), has obtained an alternative writ of mandate requiring the respondent, as auditor of the City and County of San Francisco, to audit and approve, or show cause why he should not audit and approve, a demand for the sum of $5,000, which amount, it is alleged, has been appropriated by the board of supervisors of the city and county for the purpose of aiding in meeting the necessary costs of making a survey and preparing plans, specifications and estimates for the construction of a bridge across San Francisco bay between San Francisco and Oakland. A demand in due form for the sum of $5,000 was presented to the auditor, who refused to approve the claim on the ground that the appropriation is an illegal and unlawful appropriation of public funds, because it is in “aid of defraying preliminary expenses leading up to an issue of so-called revenue bonds to the extent of many millions of dollars under purported authority” of the act of the legislature above referred to, and therefore a violation of section 1, article XYI, of the state Constitution, which provides, in part: “The legislature shall not, in any manner, create any debt or debts, liability or liabilities, which shall, singly or in the aggregate, with any previous debts or liabilities, exceed the sum of three hundred thousand dollars, except in case of war to repel invasion or suppress insurrection,” without first submitting the particular proposition to a vote of the people.

The act in question, which marks a complete departure from the old system of constructing and acquiring toll bridges in connection with the state’s highways, declares it to be the policy of the state of California to acquire and own all toll bridges situated upon or along any part of the highways of the state, with the end in view of ultimately eliminating all toll charges thereon. It creates the California Toll Bridge Authority, a public agency of the state, the members of which are the Governor, lieutenant-governor, director of the department of public works, director of the department of finance and the chairman of the California highway commission. The Authority has power under the act, operating through the department of public

Finally, it is provided that political subdivisions of the state mentioned in the act may, upon the request of the department of public works, or of the Authority, advance or contribute money, rights of way, labor, materials, and other property, toward the expense of building, acquiring, and maintaining the bridges, and for preliminary surveys and the preparation of plans and estimates of cost therefor, and other preliminary expenses. It was under this provision that the board of supervisors of the City and County of San Francisco, by resolution, appropriated the sum of $5,000, which is the subject of the controversy now before the court.

Following the enactment of the statute, the President of the United States and the Governor of California appointed a commission, known as the “Hoover-Young San Francisco Bay Bridge Commission”, to make a study of state and interurban traffic needs across the San Francisco bay, with due regard to the needs of national defense and navigation. This commission rendered its final report and recommendation to the President and to the Governor, and the depart

Respondent’s objection rests mainly upon the finding of the department of public works, in its recommendation to the Toll Bridge Authority, that the cost of the proposed bridge will be in the neighborhood of $75,000,000. Therefore, he contends, the issuance of revenue bonds to that amount is not only greatly in excess of the $300,000 limit placed by the Constitution, but the bonds, if issued, will constitute debts or liabilities of the state of California not authorized by vote of the people.

We are of the view that the language of section 10 of the act already quoted completely disposes of the question now before us, and that the contention of the respondent cannot be sustained. The overwhelming weight of judicial opinion in this country is to the effect that bonds, or other forms of obligation issued by states, cities, counties, political subdivisions, or public agencies by legislative sanction and authority, if such particular bonds or obligations are secured by and payable only from the revenues to be realized from a particular utility or property, acquired with the proceeds of the bonds or obligations, do not constitute debts of the particular state, political subdivision, or public agency issuing them, within the definition of “debts” as used in the constitutional provisions of the states having limitations as to the incurring of indebtedness. The decisions we shall presently cite clearly establish that to be so.

The legislature of the state of New York created the Port of New York Authority under a compact entered into between that state and the state of New Jersey. A district was created embracing the greater portion of the city of New York and a part of New Jersey across the Hudson Biver, and New Jersey passed a similar act relative to the construction of toll bridges across the navigable waters between the two states. These acts provide that the money needed for the construction of the bridges and incidental purposes “shall be raised by the Port Authority on its own obligations, secured by the pledge of the revenues and tolls arising out of the use of the bridges. ... As security for obligations so issued and moneys so appropriated, the revenues and tolls arising out of the use of said bridges shall be pledged to the repayment of the entire issue oi; bonds and other securities for the construction thereof, together with interest, and the repayment of the moneys appropriated by the state; it being the declared policy of the state that the said bridges, so far as the payment of the bonds or other securities issued for the construction thereof, together with the repayment of moneys advanced by the state, shall in all respects be self-sustaining.” By agreement of the two states, the legality of such an organization as the Port Authority, and the validity of its bonds, was submitted to the Honorable Charles Evans Hughes, then practicing law in New York, and now the chief justice of the Supreme Court of the United States. After a close study of the provisions of the act and an examination of the authorities, Mr. Chief Justice Hughes gave as his opinion that “this legislation places upon the Port Authority the duty to provide adequate tolls and charges for the purpose described, and the perform

We are not, however, left without the decisions of the highest courts of several states on the exact question. In 1929, West Virginia adopted a Bridge Act similar in its provisions to our Toll Bridge Act (Laws W. Va. 1929, chap. 8), the construction of the bridges to be provided for solely by means of or with the proceeds of bridge revenue bonds, the particular bonds issued for any bridge or bridges and the interest thereon to be paid out of the tolls for the use of the bridges. The act contained a similar provision to that found in the California statute, that nothing found in the act should be so construed or interpreted as to authorize or permit the incurring of a state debt of any kind or nature, within contemplation of the provisions of the Constitution of the state of West Virginia in relation to creating state debt. The act was upheld by the Supreme Court of Appeals of West Virginia in the case of Bates v. State Bridge Com. et al. (State Bridge Com. v. H. G. Nease Co.), 109 W. Va. 186 [ 153 S. E. 305 ]. The sole question presented there was the constitutionality of the act, it being urged that the power given the commission to issue bridge revenue bonds of the state for the purpose of acquisition or erection of bridges was an unauthorized delegation of legislative powers. The court held that it could not be perceived what provision of the Constitution was thus violated.

“It is urged,” also said the court, “that the act violates the letter and spirit of section 4, article X, of the Constitution, which says that ‘No debt shall be contracted by this State, except to meet casual deficits in the revenue, to redeem a previous liability ... to suppress insurrection, repel invasion, or defend the State in time of war.’ ... It is argued that the bonds authorized to be issued by the commission are debts of the state. Are these bonds a debt of the state within the meaning of said section 4, above quoted? The act expressly says in section 12 thereof that nothing therein shall be construed or interpreted to authorize

“The great weight of decisions is that bonds of a state or political subdivision, payable solely out of revenue derived from a utility of a public nature acquired by the money derived from the bonds do not create debts within the constitutional inhibition against the contraction of public debt, but partake of the nature of purchase-money mortgages. [Citing authorities.] We hold that these bonds proposed to be issued are not debts of the state within the meaning of section 4, article X, of the Constitution.”

The state of Alabama, in 1927, enacted a state bridge law (Laws of Ala. 1927, p. 278) authorizing incorporation by the Alabama highway director and certain other officials for the purpose of constructing or causing to be constructed bridges and the approaches for public use on or connecting highways in the state. This law bears marked similarity to the California Toll Bridge Law, but its provisions go farther in providing that interest on the revenue bonds authorized to be issued may be paid out of a gasoline tax exacted and collected by the state. The Supreme Court of Alabama sustained the act in the case of Alabama State Bridge Corp. v. Smith, 217 Ala. 311 [ 116 South. 695 ], Answering the contention that the act violated the section (213) of the Alabama Constitution providing that “no new debt shall be created against, or incurred by the state”, with certain exceptions and prescriptions not relevant to the question before it, the court, in its opinion, said: “Our judgment is that ‘debt’, within the meaning, the purview, the whole content of the constitutional provision, is that which the state in any event is bound to pay, an obligation secured by the general faith and credit of the state. Bonds that may be issued for the construction of bridges under this act will not evidence such an obligation — will not be so secured. The surplus of several funds pledged in the first

The general assembly of the state of Kentucky in 1928 enacted a statute known as the Murphy Toll Bridge Act (Acts of Ky. 1928, chap. 172), which has been before the court of appeals of Kentucky for interpretation in several cases. In Estes v. State Highway Com., 235 Ky. 86 [ 29 S. W. (2d) 583 , 585], the court said: “A reading of that chapter shows that the main- idea running all through it is that the state highway commission may sell bonds to obtain the necessary funds to construct such bridges and, - as security for the payment of the bonds so issued, may pledge the tolls received from such bridges as security. . . . The mere fact that they [the bonds] are executed in the name of the commonwealth, under its seal, and attested by the secretary of state, does not make them obligations of the Commonwealth to any greater extent than expressed in the acts. . . . the debt created is not an obligation of the Commonwealth of Kentucky and is not payable otherwise than out of the tolls.” The court then proceeds to cite cases, among them the case of the City of Bowling Green v. Kirhy, 220 Ky. 839 [ 295 S. W. 1004 ], and Klein v. City of Louisville, 224 Ky. 624 [ 6 S. W. (2d) 1104 ], which support its decision.

The state of Arkansas in 1927 passed a law (Laws Ark. 1927, p. 282) providing, among other things, for the construction of toll bridges. The act provided, in part, that the state highway commission was authorized to construct and operate toll bridges on the state highway system and to

Further citation of authorities seems unnecessary, and we only briefly refer to other decisions supporting the now well-established rule that revenue bonds issued by political subdivisions or public agencies do not constitute “debts”, as used in constitutional provisions limiting the creation of indebtedness. In the ease of State ex rel. Morgan, Attorney-General, v. City of Portage, 174 Wis. 588 [ 184 N. W. 376 ], the Supreme Court of Wisconsin held that bonds issued by the city, payable from revenues, did not constitute a debt in excess of the limitation contained in the state Constitution. In the case of Fox v. City of Bicknell, 193 Ind. 537 ,141N. E. 222, the Supreme Court of Indiana decided that revenue bonds proposed to be issued by a city for the acquisition of a waterworks plant did not create a debt within the meaning of the state Constitution, and were not obligations of the city, but were payable only out of a special fund to be derived from the income from the plant. A similar holding by the Supreme Court of North Carolina is found in the case of Brockenbrough v. Board of Water Commrs., 134 N. C. 1 [ 46 S. E. 28 ].

This court has not heretofore had occasion to pass directly upon the question whether or not revenue bonds secured only by the revenues of a particular utility acquired with proceeds of such bonds constitutes a debt or liability

The respondent auditor specified a large number of objections when asked to approve the claim for the $5,000 appropriated by the board of supervisors. What we have already said disposes of the main objection raised; in fact is fairly determinative of all the points raised. But, it is argued, the legislature cannot lawfully delegate to a subordinate body or board, such as the California Toll Bridge Authority, the right to pledge the earnings or revenue derived from property belonging to the state without approval of the legislature or without specific approval by the voters of the state. It has not done so. The act creating the Toll Bridge Authority, and providing for the cost of the construction of toll bridges through the revenue-bonds method of financing, pledges the earnings and revenue derived from the bridge, when erected, as security for the

While the parties to the controversy sought to submit it to the court without action, under the provisions of sections 1138 to 1140 of the Code of Civil Procedure, we have elected to treat it as an application for a writ of mandate, following our action in City and County of San Francisco v. Boyle, 195 Cal. 426 [ 233 Pac. 965 ],

Therefore, let a peremptory writ of mandate issue to the respondent, as auditor of the City and County of San Francisco, directing him to audit and approve the demand of the petitioner, California Toll Bridge Authority, for the sum of $5,000, duly appropriated by the board of supervisors of the city and county of San Francisco, as set forth in the petition.

Seawell, J., Curtis, J., Shenk, J., Richards, J., Langdon, J., and Preston, J., concurred.