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decided: May 26, 1983.


No. 39 W.D. Appeal Docket, 1982, Appeal from Order of the Commonwealth Court at No. 222 Misc. Dkt. No. 3, dated March 16, 1982, affirming the order of the Court of Common Plea of Clearfield County, Civil Division, at No. 82 - 2 - EQU. Bundy v. Belin, 65 Pa. Commonwealth Ct. 339, Roberts, C.j., and Nix, Flaherty, McDermott, Hutchinson and Zappala, JJ. Roberts, C.j., files a concurring opinion. Larsen, J., did not participate in the consideration or decision in this case.

Author: Nix

[ 501 Pa. Page 257]


This case presents the question whether a tax levied for repayment of past due principal and interest on tax anticipation notes is excepted from tax limitations as provided in the County Code, § 1770, 16 P.S. § 1770, because the delinquent repayment is indebtedness incurred pursuant to the Act of July 12, 1972 (P.L. 781, No. 185), 53 P.S. § 6780-1 et seq., known as the Local Government Unit Debt Act ("Debt Act").*fn1 A three-judge panel of the Commonwealth Court,

[ 501 Pa. Page 258]

    by a 2-1 decision, held that the obligation was not "indebtedness incurred pursuant to the [Debt Act]" so that taxes levied for repayment are not excluded from the maximum rate of taxation contained in the County Code. We affirm.*fn2


In January 1982 appellee, Carl A. Belin, Jr., a taxpayer of Clearfield County, filed a complaint in equity in the court of common pleas to declare illegal a tax of ten (10) mills for debt service, levied by appellants, Commissioners of Clearfield County, and to enjoin the Commissioners from attempting to collect the tax. Appellants filed preliminary objections raising a question of jurisdiction and in the nature of a demurrer. The court of common pleas dismissed the preliminary objections. Appellants asked the lower court to certify the matter, under 42 Pa.C.S.A. § 702(b).*fn3 The application was denied and appellants filed, in the Commonwealth Court, a petition for review of the court of common pleas' refusal to certify. The Commonwealth Court, 65 Pa. Commw. 339, 442 A.2d 844, determined the question was

[ 501 Pa. Page 259]

    controlling and substantial and heard an appeal from the dismissal of the preliminary objections.

Accepting as true every well pleaded factual allegation of the complaint, as required in appellate review of judicial determination of preliminary objections, Danson v. Casey, 484 Pa. 415, 399 A.2d 360 (1979); Gekas v. Shapp, 469 Pa. 1, 364 A.2d 691 (1976); Buchanan v. Brentwood Federal Savings and Loan Assn., 457 Pa. 135, 320 A.2d 117 (1974), the record discloses that in fiscal year 1981, Clearfield County sold a note in the amount of $1,000,000.00 in anticipation of receipt of current fiscal year taxes to the Union Bank and Trust Company.*fn4 Appellants adopted a budget for the fiscal year of 1982 which included an unpaid tax anticipation obligation for current expenses for fiscal year 1981 in the amount of $750,000.00. To meet this obligation which occurred because of the Commissioners' failure to comply with the mandated maturity date of the note,*fn5 appellants levied a tax upon realty of thirty (30) mills on every dollar of the adjusted valuation. Ten (10) mills of the thirty (30) mills is a tax beyond the twenty (20) mill limit and is called by the Commissioners a "debt service tax." Since inception of the thirty (30) mill levy, appellants have asserted that the proviso

[ 501 Pa. Page 260]

    in Section 1770 of the County Code authorizes the levy. Appellee argues in this Court, as the Commonwealth Court found, that the unpaid portion of the tax anticipation note is not "debt incurred pursuant to the [Debt Act]."


Preliminarily we must dispose of appellants' contention that the court of common pleas did not have jurisdiction to hear the complaint. The gist of the argument hinges upon a strained interpretation of Section 901(b) of the Debt Act.*fn6 Appellants insist that Section 901(b) deprives the court of common pleas of jurisdiction to determine whether the additional ten (10) mill levy to pay past due interest and principal of the tax anticipation note is illegal.*fn7 The exclusive

[ 501 Pa. Page 261]

    jurisdiction conferred by Section 901(b) is deemed by appellants to encompass the subject matter of this case. An examination of Section 901(b) compels an opposite conclusion.

At this juncture, it is helpful to review the rules of construction pertinent to this decision, as set forth in the Statutory Construction Act of 1972, 1 Pa.C.S.A. § 1501 et seq., ("the Act") and accompanying case law. The Act at 1 Pa.C.S.A. § 1921(a) mandates that the object of all construction and interpretation of statutes is to ascertain and effectuate the intention of the General Assembly. When the words of the statute are not explicit, it further permits consideration of

(1) The occasion and necessity for the statute.

(2) The circumstances under which it was enacted.

(3) The mischief to be remedied.

(4) The object to be attained.

(5) The former law, if any, including other statutes upon the same or similar subjects.

(6) The consequences of a particular interpretation.

(7) The contemporaneous legislative history.

(8) Legislative and administrative interpretation of such statute.

1 Pa.C.S.A. § 1921(c)

The permissible presumptions applicable here are "[t]hat the General Assembly does not intend a result that is absurd, impossible of execution of unreasonable" and "[t]hat the General Assembly does not intend to violate the Constitution . . . of this Commonwealth." 1 Pa.C.S.A. § 1922(1) and (3). The title and preamble of a statute may be considered in construction thereof. 1 Pa.C.S.A. § 1924; Fedor v. Borough of Dormont, 487 Pa. 249, 409 A.2d 334 (1979); see, Commonwealth v. Bigelow, 484 Pa. 476, 399 A.2d 392 (1979). Provisions imposing taxes shall be strictly construed, 1 Pa.C.S.A. § 1928(b)(3) and all reasonable doubt must be

[ 501 Pa. Page 262]

    resolved in favor of the taxpayer. Estate of Carlson, 479 Pa. 421, 388 A.2d 726 (1978); Estate of Rose, 465 Pa. 53, 348 A.2d 113 (1975). Provisions decreasing the jurisdiction of a court of record must be strictly construed. 1 Pa.C.S.A. § 1928(b)(7); In re Jones & Laughlin Steel Corp., 263 Pa. Super. 378, 398 A.2d 186 (1979), affirmed 488 Pa. 524, 412 A.2d 1099 (1980). And finally comments or reports of the commission, committee, association or other entity which drafted a statute may be consulted in the construction of the original provisions of the statute if the comments or reports were published prior to the consideration of the statute by the General Assembly. 1 Pa.C.S.A. § 1939.

First, applying the principle that provisions decreasing the jurisdiction of a court of record must be strictly construed, we cannot accept appellants' expansive interpretation of the function of the phrase "including without limitation" in Section 901(b). The section's opening sentence provides:

Exclusive jurisdiction is hereby conferred on the department to hear and determine all procedural and substantive matters arising from the proceedings of a local government until taken pursuant to this act, including without limitation, the regularity of the proceedings, the validity of the bonds, notes, tax anticipation notes or other obligations of the local government unit, and the legality of the purpose for which such obligations are to be issued.

The phrase in the above quoted sentence, "including without limitation," is a subordinate constituent of three categories of subject-matter: First, the regularity of the proceedings; second, the validity of certain papers which represent obligations of the local government unit and third, the legality of purpose of the underlying obligation. Each category is qualified by the words "including without limitation." Yet the categories are not to be nullified, transformed or expanded beyond the primary concern of the section. The effect of appellants' interpretation is to infinitely expand the subject-matter areas by reading "including without limitation" as "including but not limited to." The legality of the tax beyond the twenty (20) mill limit, the heart of the matter before us, does not pertain to any of the

[ 501 Pa. Page 263]

    enumerated subjects, even in their most unlimited sense. Also, such a loose reading is proscribed by the statutory principle of strict construction required when the jurisdiction of a court of record is being reduced. The words "without limitation" indicate the subject-matter categories are to be generously defined, not added to by or transformed into other subject-matter.

Second, we cannot accept the argument of appellants that the fact that part of the question raised requires a resolution of the interpretation of certain provisions of the Debt Act forces the conclusion that jurisdiction is within the exclusive province of the Department of Community Affairs. Whereas, what is "indebtedness incurred pursuant to the [Debt Act]" as employed in Section 1770 of the County Code invokes an interpretation of the Debt Act and is a substantive issue, the substantive quality of that issue is not jurisdictionally dispositive under Section 901(b). The question of exclusive jurisdiction primarily turns on the point of origin of the enabling authority for the proceedings in which the questioned action was taken. Suffice to say the Commissioners' levying of taxes was not authorized by the Debt Act.*fn8 Consequently, we agree with the Commonwealth Court that the proceedings wherein the tax was levied were not held "pursuant to [the Debt Act]" which is a prerequisite for the exclusive jurisdiction of the Department of Community Affairs. 53 P.S. § 6780-401(b).

Third, we must read Section 901(b) in the context of the entire statute. 1 Pa.C.S.A. § 1922(2); In Interest of Jones, 286 Pa. Super. 574, 429 A.2d 671 (1981); Wolfe v. Com. Dept. of Transp. Bureau of Traffic Safety, 24 Pa. Commonwealth Ct. 261, 355 A.2d 600 (1976); Keitt v. Ross, 17 Pa. Commonwealth Ct. 183, 331 A.2d 582 (1975). The entire Debt Act does not address tax limitations. It is an act essentially concerned with providing limits and methods of incurring debt, defining the powers and duties of the Department of Community Affairs with respect to incurring debts and their limits, and limitations on the incurring of lease rentals. See

[ 501 Pa. Page 264]

Official Title of the Debt Act. In light of this, it would be exceedingly inappropriate, if not absurd, and clearly unreasonable to assume the legislature intended to confer jurisdiction, in a provision of the Debt Act, upon the Department of Community Affairs over the subject-matter of tax limitations which is beyond the purview of that Act. Such an assumption, needed to adopt appellants' position, contravenes the rule of construction that "the General Assembly does not intend a result that is absurd . . . or unreasonable." We will not make such an assumption. Clearly Section 901(b) of the Debt Act does not oust the jurisdiction of the court of common pleas to entertain a complaint charging the illegality of a tax levy.


The underpinning of the appellants' position is the premise that the rate of taxes levied by counties of the third through eighth classes to pay past due tax anticipation notes, including interest, is unlimited under the proviso in Section 1770 of the County Code.*fn9 The threshold question, in examining that position, is what is "indebtedness incurred pursuant to the [Debt Act]" as employed in Section 1770 of the County Code.

The recent history of that section tells us the proviso in question was part of an amendment enacted May 22, 1981. The essential sentence, prior to the 1981 amendment, read:

No tax for general county purposes in counties of the third, fourth, fifth, sixth, seventh and eighth classes, exclusive of the requirements for the payment of the interest and principal of the funded debt of any such county and for the payment of rentals to any municipal authority, shall in any one year exceed the rate of twenty mills on every dollar of the adjusted valuation. [Emphasis added]

As a result of the 1981 amendment, the sentence now reads:

No tax for general county purposes in counties of the third, fourth, fifth, sixth, seventh and eighth classes,

[ 501 Pa. Page 265]

    exclusive of the requirements for the payment of rentals to any municipal authority, shall in any one year exceed the rate of twenty mills on every dollar of the adjusted valuation: Provided, however, That the rate of taxation for payment of interest and principal on any indebtedness incurred pursuant to the act of July 12, 1972 (P.L. 781, No. 185), known as the "Local Government Unit Debt Act," or any prior or subsequent act governing the incurrence of indebtedness of the county shall be unlimited. [Emphasis added]

16 P.S. § 1770.

The italicized language in the sentence prior to the 1981 amendment, was deleted; the period at the end of the sentence was changed to a colon, and the italicized proviso of the 1981 amendment substituted.

The history of the 1981 legislative change in Section 1770 reveals a number of statutes relating to taxing power and limitations were amended on May 22, 1981. Each amendment contained identical language: "interest and principal on any indebtedness incurred pursuant to the Act of July 12, 1972 (P.L. 781, No. 185), known as the 'Local Government Unit Debt Act.'"*fn10 The preambles to the amendments, Acts Nos. 1981-20, 21, 22, 23, 24, 25 and 26 indicate the amendments were enacted to authorize "taxation for the purpose of paying interest and principal on certain indebtedness." Looking further, we find the Bill Analysis prepared for the House of Representatives shows the Amendment attempted to address the dual problem of (a) lack of uniformity in the provisions of various Municipal Codes affected by the Debt

[ 501 Pa. Page 266]

Act, and (b) clarity as to taxing authority to provide funds that may be directed by the court when there has been a failure to budget debt service. The attempt to solve the dual problem was described as (a) referencing the Debt Act in the Codes; (b) clarifying that there was no tax limit in the Codes that would unduly restrict the local government unit and the court in providing for debt service; and (c) an "editorial" change in language from "sinking fund charges" to "interest and principal." The changes were submitted as "essentially editorial" and necessary. They were not submitted as substantive.

[ 501 Pa. Page 267]

Looking further, we find that the drafter of the amendments,*fn11 in addressing the Local Government Commission, identified the clarification problem as stemming from taxing power needed to effectuate the covenant set forth in Section 404 of the Debt Act.*fn12 See, Statement of Walter W. Shearer Page 267} to Local Government Commission Public Hearing Of February 28, 1980. At that time Mr. Shearer also stated, "It well could be argued that in reality no real additional authority with respect to taxation was being granted." Id. at 4.

The legislature, acting upon the Bill Analysis which conforms with the position of Mr. Shearer's statement, passed the amendments overwhelmingly. The intent was to clarify that there was unlimited taxing power for indebtedness incurred pursuant to the Debt Act, previously called funded debt under the County Code and to make uniform the language of the various statutes. There was no intent to increase the types of obligations covered by the statutes being amended. Certainly substantive changes such as inclusion of obligations not containing the covenant set forth in Section 404 were not envisioned.

Therefore we hold, as the Commonwealth Court inferred,*fn13 that the 1981 amendment to Section 1770 of the County Code did not relax the requirement of funded debt. Restated, "indebtedness incurred pursuant to the [Debt Act]" as used in the May 22, 1981 amendment to Section 1770 of the County Code means funded indebtedness incurred pursuant to the Debt Act.

[ 501 Pa. Page 268]


The interest and principal due on unpaid tax anticipation notes are not funded indebtedness incurred pursuant to the Debt Act. The Debt Act in Section 509,*fn14 as originally enacted, included unpaid tax anticipation notes in the category of obligations of the same or prior years incurred for current expenses. It classified such obligations as unfunded debt provided

(1) the taxes and other revenues remaining to be collected in the fiscal year and funds on hand will not be sufficient without a curtailment of municipal services to an extent endangering the health or safety of the public or proper education for school children, and (2) the local government unit may not legally levy a sufficient tax for the balance of the fiscal year or a sufficient tax, if legal, would be contrary to the public interest.

In Re Council of Borough of Aliquippa, 58 Pa. Commonwealth Ct. 214, 219, 427 A.2d 693, 696 (1981).

[ 501 Pa. Page 269]

The last sentence of Section 509, beginning "[u]nfunded debt shall not, however, include debt incurred under this act" had been deleted by an amendment or amendments prior to 1978. In 1978, the language was reinserted at the end of the section. The Comment of the Report Of The Local Government Commission On The Local Government Page 269} Unit Debt Act, ("Report") § 509, comment 9 indicates that obligations sometimes called "floating debt" and unpaid tax anticipation notes which meet certain limitations to be satisfied for funding by borrowing constitute "unfunded debt." The corollary to this section is Section 510, 53 P.S. § 6780-210, which sets forth the procedure to be used if the local government unit decides to fund unfunded debt, called funding debt, when the funding is approved. Under the procedure outlined, the court of common pleas must grant authority to the local government unit to fund the unfunded debt. Bonds and notes representing court authorized funded debt must be issued and sold in accordance with the provisions of the Debt Act applying to general obligation bonds, which include the covenant requirement of Section 404.*fn15 Such funding debt is included in the "indebtedness incurred pursuant to the [Debt Act]" as stated in the County Code.

The problem in this case is occasioned by the fact that the Commissioners, after embarking upon a funding debt course, changed directions by withdrawing the petition they had filed in the court of common pleas under Section 510 of the Debt Act and attempted to garner the money needed to pay the $750,000.00 principal, together with interest, due on the 1981 tax anticipation note by (a) declaring the moneys owed a "debt service," (b) viewing the obligation "indebtedness incurred pursuant to the [Debt Act]" and (c) attempting to invoke the unlimited tax proviso of Section 1770 of the

[ 501 Pa. Page 270]

County Code with the ten (10) mill levy beyond the twenty (20) mill limit.

Also, Section 505 of the Debt Act,*fn16 relied upon by appellants, does not support a finding that the obligation here is the funded indebtedness exempt, under Section 1770 of the County Code, from tax limitations. In essence, appellants contend Section 505 converts, by operation of law, the obligation into a discreet type of nonelectoral debt quite different from the debt defined in the definitional section of the Debt Act.*fn17 It is true the legislature converted the obligation into unfunded debt (not debt incurred under the Debt Act) under Section 509. But the legislature not only required court approval, under Section 510, before the local government unit could turn unfunded debt into funding debt, it also required the funding debt to comply with all of the Debt Act requirements of funded debt unless modified by Section 510 or the court.

Appellants would have us believe the legislature intended to convert the obligation into "indebtedness incurred pursuant

[ 501 Pa. Page 271]

    to the [Debt Act]" when Section 505 deems the obligation to be "nonelectoral debt enforceable in the manner of a general obligation*fn18 when not funded." Section 505 was originally enacted without the relevant language discussed here. In addition to a sinking fund depository as security for tax anticipation notes, the Debt Act provided the Commission's abandoned method of funding debt under Section 510, as the "escape valve" for tax anticipation notes not paid in the year the debt was incurred. Report § 505, Comment 5.

The section's 1978 amendment added the language deeming such obligations nonelectoral debt enforceable in the manner of a general obligation. This change gave unpaid tax anticipation notes a status requiring inclusion in the budget of the ensuing fiscal year. The change, however, did not explicitly or implicitly cause unpaid tax anticipation notes to be viewed as funded, rather than unfunded debt. The inclusion of due and owing tax anticipation notes in Section 509 relating to unfunded debt was retained when Section 505 was amended in 1978 and again in 1981 when both sections underwent very minor changes. Thus, the conclusion is inescapable that the 1978 changes in Section 505, rather than repealing the last sentence in Section 509 (which would be the effect of appellants' interpretation), gave an alternate escape valve for due and owing tax anticipation notes, viz., payment of the obligation from tax receipts of the ensuing year.

What the 1978 amendment to Section 505 did not do was to state that amounts due and owing for tax anticipation notes are debt incurred under the Debt Act. This omission is particularly significant since the very same 1978 amendment explicitly declared (in the last sentence of Section 509)

[ 501 Pa. Page 272]

    that "unfunded debt shall not include debt incurred under the [Debt Act]." Appellants resolutely put forward their position in the face of the history of the section. The fact that no concomitant duty to comply with applicable provisions governing funded debt exists when the alleged Section 505 conversion occurs is not viewed as critical. We cannot accept that the legislature would intend, by operation of law in Section 505, to give unpaid tax anticipation notes the status of funded debt without subjecting such notes to aggregate debt limitation scrutiny, advertising requirements, filing with the recorder of deeds in the county of issuance or approval by the Department of Community Affairs or the court of common pleas. The Debt Act requires none of these procedures for tax anticipation notes prior to issuance and sale or when included in the budget of the ensuing fiscal year.

We have been urged that the exclusion of unpaid tax anticipation notes from the unlimited tax provision of the County Code will create a legal impairment to the security needed by tax and revenue anticipation instruments and will be a detriment to local government units. On the other hand, tax anticipation notes have been used to avoid, or evade, tax limitations on occasion. The New York City fiscal crisis of the 1970's is illustrative.

[ 501 Pa. Page 273]

A unique borrowing abuse involved the City's misuse of tax anticipation notes (TANs) and revenue anticipation notes (RANs). The purpose of these short-term borrowing devices was to bridge the temporary cash flow gap between expenditures, which must be made on a daily basis, and revenues (taxes and intergovernmental aid), which are received only on a quarterly or yearly basis. If repaid within the permissible statutory period, TANs and RANs are excluded from the New York Constitution's article VIII debt limit. City officials abused these exempted short-term debt instruments by borrowing "in increasing amounts against accrued, but actually uncollectable, tax revenues." Some "anticipated" real estate tax revenue was uncollectable because tax exempt properties were, Page 273} and continue to be, carried on the City's tax rolls. Moreover, although the tax delinquency rate for privately-owned property was seven percent, non-paying landowners were retained on the records used in formulating estimates of "anticipated" real estate taxes. These two devices, in violation of standard accounting procedures, resulted in an overestimate of the income likely from current taxes, thus enabling the City to issue more TANs than could be repaid from revenue actually received. Similarly, the city issued substantial amounts of RANs against overstated estimates of "anticipated" federal and state aid. These unsupported TANs and RANs had to be refinanced, becoming gradual accretions to the City's permanent debt, unregulated by the constitutional debt ceiling. [Emphasis added.]

Gelfand, Seeking Local Government Financial Integrity Through Debt Ceilings, Tax Limitations and Expenditure Limits: The New York City Fiscal Crisis, the Taxpayers' Revolt and Beyond, 63 U.Minn.L.Rev. 545, 567-568 (1979).

It is established that one of the principal means of evasion of debt ceilings by New York City was that City's use of tax anticipation and revenue anticipation notes. Id. at 559.

We do not infer that the present case is one of borrowing abuse. Yet the debt ceiling has been removed in regards to unpaid tax anticipation notes under Section 505. The last vestige of protection against run away spending by way of tax anticipation notes is the tax limitation in the various tax statutes such as the County Code. If this barrier is also to fall, it should be a considered and deliberate legislative judgment and not a judicial pronouncement.

In light of the principle that tax statutes are to be strictly construed and all doubts are to be resolved in favor of the taxpayer,*fn19 we find the language in Section 505 relied upon

[ 501 Pa. Page 274]

    by appellants was enacted to clarify that unpaid tax anticipation notes, not converted into funding debt, may be included in the budget of the ensuing fiscal year. If the holders thereof wish to enforce their rights, they may bring, inter alia, an action in mandamus in the court of common pleas under the lien and charge on the taxes and revenue specified to be received. 53 P.S. § 6780-551. When there are adequate revenues or if the local government unit has a sinking fund to secure the tax anticipation notes, the holders will be paid.*fn20

It is important to bear in mind that local government units are not to pay other current expenses in lieu of payment of tax anticipation notes. If the budgeting process is properly employed, instances where there are insufficient funds to redeem the notes will be the exception, not the rule.

Accordingly, the order of the Commonwealth Court is affirmed.

ROBERTS, Chief Justice, concurring.

I agree that a shortfall of the revenues anticipated by a municipality in issuing a tax anticipation note may not be covered by direct levy of taxes in excess of the statutory

[ 501 Pa. Page 275]

    ceiling on tax millage, but must instead be covered by court-approved financing pursuant to the Local Government Unit Debt Act. Accordingly, the order of the Commonwealth Court is properly affirmed and the record remanded for a hearing on appellee's complaint.

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