Appeal from decree of Court of Common Pleas No. 1 of Philadelphia County, March T., 1964, No. 5376, in case of B. Price and Dr. Barook Masuda v. The Philadelphia Parking Authority.
Theodore Voorhees, with him Lawrence O. Turner, Jr., Lenard L. Wolffe, and Dechert, Price & Rhoads, for appellants.
Harry Shapiro, with him David N. Bressler, for appellee.
Matthew W. Bullock, Jr., Deputy City Solicitor, with him Gerald Gornish, Assistant City Solicitor, and Edward G. Bauer, Jr., City Solicitor, for Philadelphia, intervenor.
David Berger, Philip F. Newman and William B. Rudenko, for intervenors.
Bell, C. J., Musmanno, Jones, Cohen, Eagen, O'Brien and Roberts, JJ. Opinion by Mr. Justice Roberts. Dissenting Opinion by Mr. Justice Musmanno. Mr. Justice Eagen joins in this dissenting opinion. Dissenting Opinion by Mr. Justice Cohen. Dissenting Opinion by Mr. Justice Eagen.
In May 1964, appellants, B. Price and Barook Masuda, instituted an action in equity to enjoin appellee, the Philadelphia Parking Authority, from proceeding under separate negotiated agreements for the development of two projects, hereafter referred to as the Academy House Project and the Rittenhouse Square Project, and to have such agreements declared null and void.
The Philadelphia Parking Authority is "a public body corporate and politic, exercising public powers,"*fn1 created by the City of Philadelphia pursuant to enabling legislation*fn2 for the purpose of establishing a coordinated system of off-street public parking facilities.*fn3 Purporting to act under the powers granted by the enabling act, the Authority entered into the challenged projects: the Academy House Project with National Land and Investment Company and the Rittenhouse Square Project with Jack Wolgin and Ephraim Frankel. Due to the nature of the action and the issues presented, it is necessary that we set out the essential terms of the contested agreements.
The Philadelphia Parking Authority presently operates an open-air facility of a 100 car capacity on the southern half of the block bordered by Broad, Watts, Spruce, and Locust Streets in the City of Philadelphia.*fn4 National Land and Investment Company is the record owner of the remaining portion of the block, the situs of a vacant structure formerly the John Bartram Hotel.
In the Fall of 1963, National Land and the Parking Authority entered into a negotiated agreement for the development of the Academy House Project.*fn5 In
essential terms, the agreement provided that the Authority was to purchase that portion of the block owned by National and to acquire the remainder from the City of Philadelphia.*fn6 The Authority further agreed to demolish the existing structure and to finance and construct an eight-story public parking garage on the site. The proposed garage, estimated to cost between $8,000,000 and $9,000,000,*fn7 was to provide space for approximately 862 automobiles and was to be leased to National for operation as an Authority parking facility. The term of the lease with National for the garage was to be co-terminous with the life of the bonds issued by the Authority to finance land acquisition and construction costs. National, however, was granted an exclusive option to renew the lease "if, and whenever and to the extent that, the life of the Authority is extended . . . ."*fn8
In addition to the garage, the Authority also agreed to lease for a like term the air space over the proposed facility to the private developer for the construction of a high-rise apartment complex. The contemplated structure was to consist of two apartment towers rising 22 floors above the garage,*fn9 containing in excess of
apartment units. The developer was to be permitted to allocate space on the ground and concourse levels of the garage for its own use or for lease to commercial tenants. This area was to occupy approximately 74,000 square feet and was to be sublet to private commercial tenants for offices, shops, a bank, and a restaurant.*fn10
National's financial commitments under the lease agreement called for three separate rental payments: (1) "debt-service rentals" which were to consist of an amount sufficient to meet the amortization and interest on the bonds issued by the Authority to finance the acquisition of the situs and construction of the garage;*fn11 (2) "Authority rentals" which were to consist of payments for the use of air space over the garage in the following sequence and amounts: $5,000 for the first year of the lease term, $10,000 for the second, $15,000 for the third, $20,000 for the fourth, $25,000 for the fifth and every year thereafter, except for the last 10 years of the lease term, for which the payment was to be $30,000 annually; and (3) "excess rentals" which were to consist of a percentage of the gross receipts over a given amount received by the developer from the operation of the garage and the lease of commercial space therein. Neither the percentage nor the level of gross receipts at which excess rental payments become due is stated in the written agreement or has as yet been fixed by the parties.
Under the agreement, title to the project was to be in the name of the Parking Authority. The developer, however, obtained an exclusive option to acquire the entirety, including the land, garage and apartment
structure thereon, at the end of the lease term for an amount based upon the cost of the garage or its appraised value at the time of purchase. Thus, no actual payment was to be required for the acquisition by National of title to the structure to be constructed by it over the garage facility.
As an aspect of the lease, the developer agreed to operate the proposed garage "as a public parking facility of the Authority . . . ." The rates and other charges for use of the garage by the public were to be determined by the Authority subject to the proviso that the fees could not be reduced below the amounts initially set without the lessee's consent.
II. Rittenhouse Square Project
At approximately the same time the negotiations took place between the Authority and National, the Authority also entered into a construction and lease agreement with Jack Wolgin and Ephraim Frankel. The agreement provided for the lease of air rights over a parking facility owned and operated by the Authority at 1815-27 Walnut Street, Philadelphia, Pennsylvania.*fn12
Under this agreement, the tenant-developers, Wolgin and Frankel, were empowered to construct a 19 story office building over the Authority's parking garage. The tenants were also to be permitted to "improve and occupy space within the Garage for access to and support of the Office-Building, and . . . [to] construct . . . [stores] in the basement and on the ground level of the Garage . . ." to be used for their benefit or sublet to other private commercial tenants.*fn13
The tenant-developers, under the agreement, were obliged to pay the Authority for the space within and above the garage a rental averaging approximately $25,000 annually. The term of the lease was to extend for the life of the Authority, including any extension thereof, but was not to exceed 99 years. During the lease term, the parking facilities and improvements thereto made by Wolgin and Frankel, including the office building to be constructed, were to be owned by the Authority. However, the developers were given an exclusive option to purchase the entire project, land, parking facilities, and all improvements, for a sum ranging from $1,000,000 to $1,318,000, exercisable after January 1993, or after the retirement of all outstanding revenue bonds, whichever occurred later.
III. Grounds of Challenge
In their complaint, Price and Masuda challenge the legality of both projects alleging essentially that the Authority, by employing negotiated agreements rather than competitive bidding, had exceeded its statutory authority; that the Authority was not authorized to engage in the projects because as envisioned they were primarily and predominantly private in nature; and that, as to the Academy House Project, there was no demonstrable present or anticipated future public need for the parking facility proposed.
The Parking Authority filed an answer to the complaint which put the essential facts in issue, and the parties presented testimony. At the start of the trial, at the conclusion of appellants' case, and again when the record was closed, the Authority moved to dismiss on the ground that Price and Masuda lacked standing to challenge the transactions and that they had failed to establish that they were entitled to the relief sought.
Treating the complaint as averring two separate causes of action, the chancellor granted the Authority's
motion to dismiss with respect to the Rittenhouse Square Project on the ground that the complaining parties lacked standing to challenge the transaction. He denied the motion as to the Academy House Project and proceeded to make an adjudication, with findings of fact and conclusions of law.
The chancellor concluded that the Parking Authority, by entering into the Academy House Project without competitive bidding, had not violated the provisions of the enabling act. He further concluded that the project was a public endeavor and that appellants had failed conclusively to establish the lack of public need for the proposed construction.*fn14 And, although he had previously dismissed that portion of the complaint seeking to enjoin the Rittenhouse Square Project, the chancellor proceeded to make findings of fact and conclusions of law on the merits in order to provide a record in the event that his determination that Price and Masuda lacked standing to challenge it be reversed. On the merits, he concluded that the Authority had not acted contrary to the enabling act.
Price and Masuda are citizens and taxpayers of the City of Philadelphia. In sustaining their standing to challenge the Academy House Project, the chancellor found that Price and Masuda fell within the ambit of the well-defined rule that a taxpayer may challenge the "wrongful expenditures of tax monies and the wasting of assets." Loewen v. Shapiro, 389 Pa. 610, 613, 133 A.2d 525, 527 (1957). Although the Authority is not
a traditional governmental body, it is created to perform essential public services through the medium of a publicly owned enterprise and is not subject to taxes or assessments upon any property acquired for or devoted to such purposes. Act of June 5, 1947, P. L. 458, § 15, as amended, 53 P.S. § 355, enacted pursuant to Pa. Const., Art. IX, § 1; see Pittsburgh Public Parking Auth. v. Bd. of Property Assessment, 377 Pa. 274, 279, 105 A.2d 165, 166 (1954); McSorley v. Fitzgerald, 359 Pa. 264, 267, 59 A.2d 142, 144 (1948); cf. Moon Township Appeal, 387 Pa. 144, 127 A.2d 361 (1956); West View Borough Municipal Auth. Appeal, 381 Pa. 416, 113 A.2d 307 (1955). Thus, if permitted to proceed, the Academy House Project will presumably result in the removal of a large tract of real estate from the tax rolls because of the location thereon of an Authority parking facility. Cf. Pittsburgh Public Parking Auth. v. Bd. of Property Assessment, 377 Pa. 274, 105 A.2d 165 (1954); Moon Township Appeal, 387 Pa. 144, 127 A.2d 361 (1956). Based upon appellants' allegation that real estate would be illegally exempted thereby, the chancellor reasoned that the project was amenable to challenge by one whose tax burden would be affected. We agree with this conclusion. As the chancellor stated, "to the extent that real estate tax revenues will be diminished by an illegal exemption, and hence be unavailable for future use, . . . [Price and Masuda] as contributors to that fund will have suffered a pecuniary loss."
In Mayer v. Hemphill, 411 Pa. 1, 6, 190 A.2d 444, 446 (1963), this Court reiterated the well-settled rule that a taxpayer may seek to enjoin the wrongful or unlawful expenditure of public funds even though he is unable to establish any injury other than to his interest as a taxpayer. See Smith v. Gallagher, 408 Pa. 551, 185 A.2d 135 (1962); Scudder v. Smith, 331 Pa. 165, 200 Atl. 601 (1938); Harris v. Philadelphia, 299 Pa. 473,
Atl. 722 (1930); Page v. King, 285 Pa. 153, 131 Atl. 707 (1926). The court below correctly reasoned that the reduction of the tax base which results from the exemption of property from taxation has, for all practical purposes, the same effect upon the taxpayer as an expenditure of funds. If the latter is challengeable by a taxpayer, as has been repeatedly held, so therefore must be the former. Cf. Bernstein v. Pittsburgh, 366 Pa. 200, 77 A.2d 452 (1951).*fn15
Proceeding to that portion of the complaint dealing with the Rittenhouse Square proposal, the chancellor concluded that Price and Masuda lacked standing to challenge that project. In distinguishing that transaction from Academy House, the chancellor reasoned that since the Authority presently enjoys a tax exemption on its existing facility, the mere lease of commercial space within and above the building, even if improper, did not threaten appellants with any pecuniary injury. He concluded, therefore, that appellants could not invoke equity jurisdiction to attack the Rittenhouse Square Project. In this, the chancellor erred.
As has previously been noted, under the agreement between the Authority and the developers of the Rittenhouse Square Project, the latter were given an exclusive option to purchase the existing garage facility and land. Thus, the Rittenhouse Square Project involves not merely a lease transaction but also envisions the sale of publicly owned and financed facilities to private developers.
In considering the Authority's claim that the Rittenhouse Square Project is not subject to the instant challenge, it is significant to note that the existence of the Parking Authority is limited to a term of fifty years, subject to the power of the City of Philadelphia to extend its life for an additional like term. Act of June 5, 1947, P. L. 458, § 5, as amended, 53 P.S. § 345(b)(1). Upon the termination of its existence, the assets of the Authority will pass to the City of Philadelphia. Act of June 5, 1947, P. L. 458, § 14, as amended, 53 P.S. § 354.*fn16 Thus, within the foreseeable future, the City of Philadelphia is destined to acquire the assets of the Authority. And, an alleged improper diversion of this property, following its acquisition by the City, would be subject to judicial scrutiny at the behest of a taxpayer.*fn17 Yet, in the instant case, if Authority property is improperly diverted, Price and Masuda, as citizens and taxpayers of the City of Philadelphia, will sustain a similar pecuniary injury.*fn18 Under such circumstances, we are led to conclude that Price and Masuda, as representatives of the taxpayers of the
City of Philadelphia, possess the requisite pecuniary interest in the Rittenhouse Square Project to challenge the transaction.
Our conclusion is reinforced by a recognition of the need to subject the activities of public authorities to judicial scrutiny.*fn19 As public bodies, they exercise public powers and must act strictly within their legislative mandates. Moreover, they stand in a fiduciary relationship to the public which they are created to serve and their conduct must be guided by good faith and sound judgment. See Schwartz v. Urban Redevelopment Auth., 411 Pa. 530, 536, 192 A.2d 371, 374 (1963); Heilig Bros. Co. Inc. v. Kohler, 366 Pa. 72, 77-78, 76 A.2d 613, 616 (1950). The mushrooming of authorities at all levels of government and the frequent complaint that such bodies act in an arbitrary and capricious manner in violation of existing law dictate that a check rein be kept upon them. Schwartz v. Urban Redevelopment Auth., 411 Pa. 530, 536, 192 A.2d 371, 374 (1963); Keystone Raceway Corp. v. State Harness Racing Comm., 405 Pa. 1, 5, 173 A.2d 97, 99 (1961). These considerations dictate that the independence of authorities from some of the usual restrictions on governmental activity*fn20 not be extended so as to insulate them from judicial scrutiny through the medium of taxpayers' suits.*fn21
Having concluded that appellants have standing to seek to enjoin the Rittenhouse Square Project as well as the Academy House Project, we now proceed to a consideration of the merits of their challenge.
Appellants first urge that the chancellor erred in concluding that the enabling act did not impose upon the Authority the duty to utilize competitive bidding in the leasing of the air rights over the proposed Academy House construction. While we are in agreement with the chancellor's conclusion that the Authority was free to negotiate the lease of the proposed garage facility,*fn22 we do not agree that it was free to dispense with competitive bidding in the leasing of air rights.
The enabling act grants the Authority broad general powers to operate, own, and lease -- both as lessee or lessor -- facilities in the fulfillment of its statutory purpose of providing public off-street parking. Act of June 5, 1947, P. L. 458, § 5, as amended, 53 P.S. § 345(a) (Supp. 1965). In order to assist in defraying its expenses, the Authority is also empowered by the enabling act "to lease portions of the street level or other floors of . . . parking facilities for commercial use . . . ." Ibid. However, leases of such commercial space within Authority facilities are subject to
the explicit statutory requirement that they be entered into "on a fair competitive basis." Ibid.*fn23 Thus, the enabling act distinguishes between the leasing of facilities for operation as an Authority parking garage and the leasing of commercial space for incidental, revenue producing purposes, explicitly mandating that the latter commercial leases be granted only on the basis of competitive bidding. Ibid.
In 1961, the Legislature added the following proviso to § 5 of the Act: "Nothing herein contained shall be construed to prohibit the sale or leasing by the Authority of the right to occupy and use the space above any parking facilities for commercial uses other than parking . . . ." Act of June 5, 1947, P. L. 458, as amended, Act of September 2, 1961, P. L. 1229, § 1, 53 P.S. § 345(a) (Supp. 1965). This amendment merely granted the Authority the power to lease air space for non-parking commercial uses just as the Act had previously authorized the Authority "to lease portions of the street level or other floors of . . . parking facilities for commercial use . . . ." It is clear, therefore, that the power to lease air rights is an aspect of the Authority's power to lease non-parking commercial space and only incidental to its primary purpose of providing parking facilities for the general public.
This Court has previously expressed the policies underlying the requirement of competitive bidding, noting that the resulting competition guards against favoritism, improvidence, fraud, and corruption in the awarding of public contracts. Yohe v. Lower Burrell, 418 Pa. 23, 28, 208 A.2d 847, 850 (1965); Corcoran v. Philadelphia, 363 Pa. 606, 609, 70 A.2d 621, 623 (1950); see also 10 McQuillin, Municipal Corporations § 29.29 (3d ed. 1950). Giving recognition to these policies, the Legislature explicitly mandated the use of competitive bidding both with respect to the leasing of non-parking commercial space*fn24 and the letting of construction and repair contracts.*fn25
The language of the 1961 Amendment to the Act providing for the leasing of air space neither specifically nor impliedly exempts such leases from the requirement of competitive bidding. Nothing there contained suggests an intent on the part of the Legislature to alter its policy of requiring competitive bidding in the leasing of commercial space so as to exclude the leasing of air rights from the requirement of such bidding and to deny the public the protection thereby afforded. Absent a clear expression of such an intent, we are compelled to conclude that such leases are subject to the same requirement as all non-parking commercial leases, that they be granted "on a fair competitive basis."*fn26
We hold, therefore, that the agreement between the Parking Authority and National for the lease of air rights over the Academy House Project, entered into by private negotiation rather than by competitive bidding, was unauthorized and void. Accordingly, Price and Masuda were entitled to the relief which they sought below and the action of the chancellor in dismissing their complaint must be reversed.
However, in light of the importance of the public issues raised by the challenged transaction, we find it appropriate to discuss another aspect of the litigation which also mandates reversal of the court below.
Price and Masuda attacked the Academy House Project not only on the ground that it was entered into without competitive bidding but also on the ground that any benefit to be derived therefrom would be predominantly private, not public in nature and that the project was therefore beyond the scope of the powers statutorily conferred upon the Authority. Our consideration of the transaction in its entirety leads us to conclude that they must prevail on this ground as well.
The Parking Authority, as a public corporation, exercises public powers. Act of June 5, 1947, P. L. 458, § 5, as amended, 53 P.S. § 345 (Supp. 1965). Its engagements are public in nature, and its facilities, whether operated by the Authority or leased to private parties, are public property. See Pittsburgh Public Parking Auth. Petition, 366 Pa. 10, 76 A.2d 620 (1950). Empowered to act only for the public benefit, the Authority may not employ its resources for the primary and paramount benefit of a private endeavor. An engagement essentially private in nature may not be justified on the theory that the public will be incidentally benefited.
In determining whether the instant project is essentially public or private in nature, we are confronted
with an issue analogous to that frequently presented in eminent domain proceedings. We have said in that context that such power may not be employed for the purpose of devoting the property so acquired for merely private benefit. See Belovsky v. Redevelopment Auth. of Philadelphia, 357 Pa. 329, 340, 54 A.2d 277, 282 (1947). Although there may be an incidental benefit to private parties without invalidating the taking, the power of eminent domain may not be employed unless the public is to be the primary and paramount beneficiary of its exercise. Ibid. And while we do not deal here with eminent domain, we are confronted with the purported exercise of powers statutorily subject to the same limitation.*fn27 The Parking Authority Law confers no power on the Authority to act other than for the public benefit in providing off-street parking facilities. Accordingly, the Academy House Project may not be permitted to proceed unless as presently envisioned it will result predominantly in public benefit through the creation of additional off-street public parking facilities commensurate with the public investment in the project.
In considering the validity of the agreement between the Authority and National, we examine first the benefits to be derived by the private developer from the Academy House Project. Under the agreement, the Parking Authority will purchase land from the developer for the situs of the project, demolish the existing structure, and construct the garage thereon. National will lease and operate the garage and also construct
and operate thereover a high-rise apartment building containing in excess of 1000 units. The developer will also be permitted to devote substantial portions -- approximately 74,000 square feet -- of the ground and basement levels of the garage to its own purposes and to sublet other portions to private commercial enterprises. In addition, National will have an exclusive option to acquire the land and public garage.
By what is essentially a sale and lease-back arrangement, National will be able to finance its site costs through the medium of long term public financing, with all the benefits which attend such an arrangement, not generally available to other private commercial developers. Moreover, were National to embark on the proposed apartment construction absent reliance on Authority provided parking, it would be required to make provision for its tenants to the extent of approximately 500 car spaces in order to comply with the Philadelphia Zoning Code.*fn28 By advantaging itself of the Authority's commitment to construct and to lease a public parking facility to it, National is able to avoid the initial investment required to comply with the requisite zoning provisions. And by the use of its exclusive option to acquire the garage facility in the future, ...