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PHILADELPHIA INDEBTEDNESS EXCLUSION PETITION (06/27/69)

decided: June 27, 1969.

PHILADELPHIA INDEBTEDNESS EXCLUSION PETITION


Appeal from order of Court of Common Pleas of Philadelphia County, Feb. T., 1969, No. 4010, in re petition of City of Philadelphia for exclusion of certain indebtedness invested in certain transit facilities.

COUNSEL

Arsen Kashkashian, Jr. and Harold Rosenthal, for appellants.

Pace Reich, Deputy City Solicitor, with him Edward G. Bauer, Jr., City Solicitor, for City of Philadelphia, appellee.

Bell, C. J., Cohen, Eagen, O'Brien, Roberts and Pomeroy, JJ. Opinion by Mr. Justice Roberts. Mr. Justice Jones took no part in the consideration or decision of this case.

Author: Roberts

[ 435 Pa. Page 195]

On February 17, 1969, the City of Philadelphia petitioned the common pleas court to exclude from the calculation of the city's indebtedness certain bonds which it planned to issue in the amount of $87,330,000 to finance the construction of extensions to the Broad-Ridge-Locust Subway System.

This action was taken under the authority of Article IX, § 12 of the Pennsylvania Constitution which provides in relevant part: "In ascertaining the debt-incurring capacity of the City of Philadelphia at any time, there shall be deducted from the debt of said city so much of such debt as shall have been incurred,

[ 435 Pa. Page 196]

    or is about to be incurred, and the proceeds thereof expended, or about to be expended, upon any public improvement, or in construction, purchase or condemnation of any public utility, or part thereof, or facility thereof, if such public improvement or public utility, or part thereof, or facility therefor, whether separately, or in connection with any other public improvement or public utility, or part thereof, or facility therefor, may reasonably be expected to yield revenue in excess of operating expenses sufficient to pay the interest and sinking fund charges thereon." The Act of May 21, 1921, P. L. 1054, § 1, 53 P.S. § 16994 implements § 12 and provides the procedure for the city to petition for a judicial determination whether the planned facilities "may reasonably be expected to yield revenue in excess of operating expenses sufficient to pay the interest and sinking fund charges thereon. . . ."

The court below held the appropriate hearing on March 17, 1969, and concluded after the taking of testimony that "Estimates projected for the years 1970 through 2002, inclusive, show that the transit facilities may reasonably be expected to yield net revenue sufficient to pay the interests and sinking fund charges on the indebtedness to be invested in the transit facilities." After the filing of exceptions by appellants the trial court issued a further explanation for its decision: "Southeastern Pennsylvania Transportation Authority . . . has obligated itself under its lease with the City of Philadelphia to pay interest and payments on account of principal on bonds issued to finance the extensions of its leased subway system provided the total rental is not in excess of $13,000,000 plus non-cumulative additional rent of approximately $1,700,000 totaling $14,700,000. Interest and principal payments on the bonds to be issued

[ 435 Pa. Page 197]

    will be approximately $5,663,000, far less than the minimum provided in the lease. In accordance with the terms of the lease SEPTA is obligated to produce the required revenues from fares, rents or other sources."

At first glance, it would appear that this nonnegotiable undertaking and firm obligation on the part of SEPTA to provide these monies would be sufficient to satisfy the requirements of the Pennsylvania Constitution. However, appellants raise several objections. First, they contend that the city had the burden of proving that the increased passenger traffic due to the proposed extensions would yield sufficient additional revenue to pay for the rentals under the lease. In other words, appellants are urging that the city must prove that the new facilities of themselves will be self-supporting and produce sufficient net revenue ...


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