For the prosecutor, Autenrieth & Wortendyke.
For the defendant, Powell & Parker.
Before Brogan, Chief Justice, and Justices Case and Perskie.
The opinion of the court was delivered by
CASE, J. The writ brings up for review ordinance No. 194, passed October 5th, 1935, by the council of the borough of Seaside Heights, in the county of Ocean. The ordinance provides for the construction and financing of an undertaking which in the terms of the ordinance is to consist of "extensions, enlargements and improvements to the electric light and power system of the Borough of Seaside Heights." That language, however, is not aptly descriptive. The project, according to the stipulated fact, is to be the erection, construction and acquisition by the municipality of a light, heat
and power plant or works for the manufacture and production of electric energy. The ordinance was passed without regard to, and with no provision for, a referendum of the question to a public vote. No supplemental debt statement was filed with the municipal clerk prior to the passage of the ordinance; but it is stipulated that the percentage of the net debt of the municipality to the average of the assessed valuations is 26.72 per cent. The ordinance also provides that the work shall be paid for by deferred payments which are to be evidenced by coupon revenue certificates of the municipality, bearing interest at the rate of four and one-half per centum per annum from the date of completion, payable on due dates spread over a period of nine years to the order of the contractor or bearer; that a fund shall be set up into which all gross receipts or revenues from the electric light and power system shall be deposited and from the net balance of which, after operating expenses and any prior deduction required by law shall have been taken out, shall be used for the payment of the coupon revenue certificates; that the municipality shall operate the newly constructed project, but that the construction shall be and remain strictly personal property and be in the ownership of the contractor until the same shall be fully paid for "and in the event that any judgment is taken on account of all or any part of said sums the title * * * shall not pass until such revenue certificates so given, or extensions thereof or judgment taken are fully paid and satisfied." The borough owns and operates a distribution system, built in 1916 under an ordinance then lately adopted, whereby it receives purchased current and delivers the same to consumers. The proceedings out of which the distribution system issued did not include a power plant.
Prosecutor contends that the ordinance under review is invalid because it (1) does not comply with the requirements of chapter 77, Pamph. L. 1935, p. 186, (2) does not provide for an appropriation to meet the cost of the proposed contract and (3) was not passed pursuant to a referendum. Respondent concedes that the ordinance does not meet these tests but insists that it need not and, further, that the prosecutor, a taxpayer, should not be permitted to prosecute the writ.
Instruments of payment issued under the ordinance would be in writing signed by the municipality and made "payable to the order of the contractor or bearer" at fixed or determinable times. If they should be saved from negotiability by being charged against specified revenues, the scheme nevertheless affects borough finances over a long period of years, anticipates and takes some precaution with respect to law suits and judgments against the borough and diverts from general borough funds the proceeds which accrue from the presently owned distribution system. We are not dealing with an existing fund from non-tax sources as the court was in Ford v. City of Bayonne, 87 N.J.L. 298 (also otherwise distinguishable). Neither are we reviewing an action of a borough in using non-tax funds to accomplish that which it clearly has the right to do.
The financing method, when analyzed, falls little short of a sale, at par and without competitive bidding, of short term four and one-half per cent. interest bearing coupon bonds chargeable against prospective receipts and secured by a trustee's mortgage on the proposed plant. But the 1935 statute applies not only to the issue of bonds. The title is: "An act to authorize and regulate the issuance of bonds and other obligations and the incurring of indebtedness by county, city, borough, town, township, village or any other municipality, other than a school district (Revision of 1935.)" Article I, section 102, gives power to "incur indebtedness." No amount of argument can still the fact that the borough, in contracting for the construction of the generating plant, will incur a debt. The same section further provides that "No * * * municipality shall * * * issue its obligations for the purposes for which this act authorized bonds to be issued except as provided in this act." We take that to be a legislative mandate as to all municipal financing within its purview. The legislature is telling the municipalities of the state that when ...