Allen Etc. v. Van Buren Township Etc.

On Petition for Rehearing

Achor, J.

— The appellees have filed a petition for rehearing, asking the court to decide, an issue , presented in the case but not decided in our opinion.

Appellees call our attention to the fact that the mandate in the opinion handed down in this case instructs the lower court to issue the injunction “as prayed.” [Allen v. Van Buren Township of Madison County (1962), 243 Ind. 665 , 184 N. E. 2d 25, 32 .] The prayer for relief asks that an injunction issue, preventing the

“fejxecuting, issuing, selling or offering for sale, or taking any further action in connection with the issuance of any bonds of Van Burén School Township of Madison County so long as the outstanding indebtedness of the School Township, including the advance from, the State of Indiana, exceeds two per cent (2%) of the net assessed valuation of taxable property in the School Township [Our italics.]

Thus the injunction affirmed by this court enjoined the incurring of any indebtedness by the appellee School Township in excess of the constitutional two per cent (2%) debt limit and'included, in such cáícu- *685 lation of indebtedness advancements made by the state from the school fund for construction purposes, as authorized by Acts 1955, ch. 312, §§1 and 11, p. 958, being §§28-175 and 28-185, Burns’ 1962 Cum. Supp., as amended.

It is urged by appellees that such advancements are not an “indebtedness” to be included in the constitutional limitation and, as noted by appellees, the opinion as written did not discuss this aspect of the case. Appellees, in their petition for rehearing, asked that this issue be clarified. Because of its effect upon pending school finances, we agree that the opinion should clarify the law with respect to this issue.

Are advancements made under the act to schools for construction purposes an indebtedness on the part of the recipient school township or school corporation, which must be included in calculating the two per cent (2%) debt limitation described by the constitution?. In support of their position that such advancements are not to be considered an obligation within the constitutional limitation, appellees cite and rely in part upon the legislative declaration contained in the statute:

“Such advancement out of the state school tuition fund shall not be an obligation of the school corporation within the meaning of the constitutional limitation against indebtedness. . . .” — §28-182, Burns’ 1962 Cum. Supp.

However, the answer to the question as to whether such advancements are or are not an obligation or indebtedness of the school corporation, within the meaning of the constitutional limitation, must be determined, not by mere legislative desire or declaration as expressed in the act, but by *686 the character of the obligation or transaction authorized by the act.

This court, speaking upon this issue, has adopted certain standards or tests by which we may determine whether the transaction is an indebtedness within the purview of the constitutional limitation, as follows:

“Under its provisions bondholders, in case of default, have no recourse against the State of Indiana in its corporate sovereign capacity, or against any State fund....

“The debt provisions of Art. 10, §5, of the Constitution of Indiana apply only to legally enforceable obligations. Kees et al. v. Smith, Trustee, etc. et al., supra (1956), 235 Ind. 687 , 137 N. E. 2d 541 ; Protsman v. Jefferson-Craig Consol. School Corp., supra (1953), 231 Ind. 527 , 109 N. E. 2d 889 .” Book v. State Office Bldg. Comm. et al. (1958), 238 Ind. 120, 140, 148 , 149 N. E. 2d 273 .

The statute with which we are here concerned contains the following provision regarding the method and obligation of payment:

“Any school corporation receiving an advancement under the provisions of this act ... shall agree to have the total amount of the money advanced plus one percent [1%] of the. outstanding balance thereof deducted from the semiannual distribution of state school tuition support for a period of not to exceed twenty [20] years or until all of the money so advanced, plus one percent [1%] thereof, has been so deducted. ...” §28-182, Burns’ 1962 Cum. Supp., supra:

Thus it appears that under the statute the advancement is not made under terms which make it a “legally enforceable obligation” of such a character that in event of a default in payment the state may *687 have recourse in the courts in order to enforce repayment. The only method of repayment provided is that the state withhold from the school corporation a portion of the school’s tuition fund otherwise available from the state, until the total amount advanced had been deducted. However, there is no assurance that the legislature will continue future distribution of the state school tuition funds over the prescribed period. Future sessions of the General Assembly cannot be bound as to such distributions, neither do local school corporations have a vested right therein.

Under the above stated circumstances, the advancement made lacks the essential characteristics of a “debt” in that there is no legal obligation to repay the same. Such an obligation is an essential characteristic of an indebtedness. Austin v. Healy (1941), 376 Ill. 633 , 35 N. E. 2d 78 ; State Office Building Commission v. Trujillo (1942), 46 N. M. 29, 120 P. 2d 434 ; Preston v. Clements (1950), 313 Ky. 479 ; 232 S. W. 2d 85 . See generally, Words and Phrases, Vol. 11, pp. 297-311.

It is true that the school corporations which re- . ceive such advancements are authorized to levy a tax, if they see fit, for additional school revenue equal .to the amount of state school tuition funds withheld . in., satisfaction of the advancement, but there is no . obligation whatsoever on the school corporation to ievy any taxes for such repayment. The test is "whether ..there is any obligation to pay the advancement by a . tax levy or, otherwise, whether an additional tax could .voluntarily be levied by reason .of such advancement.

The'. Attorney General rendered an opinion with respect to such advancements; in which we concur, as follows:

*688 “When we analyze the statute under consideration, it is apparent there has been an advancement to the school corporation, by the State of Indiana of that revenue which the state ordinarily would thereafter, over a period of years, distribute to the school corporation as state support to the public school system of the state, it is more in the nature of an advancement, rather than a loan. It is to be liquidated by deductions from future tuition and school support over a period of years, in an amount somewhat dependent upon the amount of the advancement and the agreement of the parties. No direct taxes are [required] to be levied by the local school corporation in payment of such installments;...

“[N]o payment is required, instead there is á deduction made by the state from monies to be subsequently distributed by it; and any replacement of such amount for the operation of the school system, under its budget, is currently raised each year by an additional tax rate for such purpose.

“I am of the opinion an advancement of funds made pursuant to the Act in question does not constitute a portion of the school corporation’s indebtedness within the meaning of the Indiana Constitution, Art. 13, Sec. 1.” 1956 Opinions of the Attorney General, pp. 95, 98-99. See also; 1959 Opinions of the Attorney General, pp. 104,111-113.

The mandate in the original opinion is modified to provide that an injunction shall issue, which shall provide that no bonds shall issue in excess of the two percent (2%) limitation calculated, in accordance'with the construction of the constitution, as set forth in this opinion, and in the determination of the existing indebtedness of the school township, the advancements from the state fund, as authorized by the Acts of 1955, ch. 312, as amended, supra, shall not be considered as an indebtedness within the meaning of . the constitutional limitation. . ...

Petition for rehearing denied.

*689 Jackson, C. J., concurs in the result.

Arterburn, J., concurs.

Landis, J., dissents, with opinion.

Myers, J., not participating.