Petitioner, as director of the joint school district, seeks a peremptory writ directing John Milligan, as clerk of the joint School District No. 3 of the village of Centuria and the towns of St. Croix Falls, Balsam Lake, and Eureka, to sign the lease and re-lease agreements as set forth in the petition. The defendant filed a general demurrer putting in issue the constitutionality of the statutes relied upon by petitioner and the validity of the acts purported to have been and to be taken pursuant thereto.
Under the provisions of secs. 40.305 and 40.22 of the Wisconsin statutes, the district board is authorized to lease and re-lease district lands and improvements to a nonprofit sharing corporation for terms not exceeding twenty years upon certain conditions. The Centuria School Building Company, Inc., was organized under ch. 181, Stats., as a nonprofit corporation, and under secs. 40.305 and 40.22, Stats., the school district board proposes to lease school district land to said corporation on which it will build school buildings, there being a contemporary re-lease back from the corporation to the district of the leased premises. There is a stipulation as to the facts which reads as follows:
"I
"Joint School District No. 3 of the village of Centuria and the towns of St. Croix Falls, Balsam Lake, and Eureka, Polk county, Wisconsin, is a common school district duly organized and existing under the laws of the state of Wisconsin, and said district maintains a school in the village of Centuria giving instruction to students through twelve grades.
"II
"The petitioner, Joseph L. Rogers, is the duly elected, qualified, and acting director of said school district and defendant, John Milligan, is the duly elected, qualified, and acting clerk. Leonard Handles is the duly elected, qualified, and acting treasurer of said school district and the third member of the board of said district and he has joined with the director in supporting this action.
"III
"Due to increased enrolment the school district is in great need of additional school facilities and the school board determined that it was necessary to provide such facilities at the very first possible date and engaged an architect who prepared plans and specifications for an addition to the school building consisting of a separate building connected by corridors.
"IV
"After plans and specifications for the proposed addition to the school building were prepared, a special school meeting was held at which such plans and specifications were discussed and approved by the voters present. Thereafter upon due notice by publication in the official newspaper and by posting as required by law, a special meeting and election was held in the district on August 20, 1953, and a proposal to issue bonds for erecting and equipping said school addition was adopted by a vote of 193 in favor and nine opposed. Thereafter plans and specifications were completed and bids for the construction of a building were received. The low bid was in the amount of $127,775.
"V
"The total value of taxable property in the school district as ascertained by the last assessment for state and county taxes is the sum of $975,247 and the maximum debt which the school district is authorized to contract pursuant to the provisions of article XI, section 3 of the Wisconsin statutes [constitution], is the sum of $48,762.35, which amount is totally inadequate to construct required school facilities.
"VI
"There is no existing building now available either in the village of Centuria or elsewhere within the district which is suitable for lease for additional classrooms.
"VIII
"In order to take advantage of powers granted to a school district under section 40.39 [renumbered 40.305], Wisconsin statutes, the school board of the school district has caused Centuria School Building Company, Inc., to be incorporated as a nonprofit corporation pursuant to chapter 181, Wisconsin statutes, for the purpose of building or otherwise acquiring a suitable building for school purposes within the village of Centuria, Wisconsin, and of leasing said building to the school district. The members of said company consist of the members of the school board of the school district and its officers are the officers of said school district.
"VIII
"The said school-building company has no property or assets excepting its interest under the lease and re-lease agreements hereinafter described and in order to provide money for the construction of said school building the said company has entered into a contract for the sale of its first mortgage serial bonds in the amount of $130,000 to be secured by a mortgage and deed of trust upon its said leasehold interest in the building to be erected thereon and all of its right, title, and interest in the re-lease agreement hereinafter described.
"IX
"The school-building company has entered into contracts for the construction of a building upon the leased premises in accordance with the plans and specifications previously approved by the school board of the district and proposes to cause said building to be constructed thereon to be available for use during the 1954-55 school year.
"X
"The said school-building company has caused to be prepared and the school board of the school district has approved a proposed lease agreement leasing a portion of the school premises to said company in the form hereto attached, marked Exhibit A and by reference made a part hereof. Said premises consists of vacant unused land except in so far as the same were part of the school premises.
"XI
"The said school-building company has caused to be prepared and the school board of the district has approved a release agreement in the form hereto attached, marked Exhibit B and by reference made a part hereof.
"XII
"Under said re-lease agreement the school district has entered into an agreement to lease said school building for a period of twenty years, paying as annual rentals $5,500 for the school year 1954-55 and $9,600 for each year thereafter during the full term of said lease, and has further promised and agreed to levy an annual property tax sufficient to provide such rents irrespective of whatever action may be taken by the voters of the school district at the respective annual meetings pursuant to section 40.04 (5), Wisconsin statutes. The district has further agreed to maintain said premises, to keep said premises fully insured, to pay any and all taxes which may be assessed against the premises, to assume all liability and all obligations on account of all damages arising from matters referred to in said lease and to indemnify and save harmless the building company from any loss or claim arising thereon and has further granted a lien upon all goods, chattels, fixtures, and personal property belonging to the school district which may be put into the demised premises.
"XIII
"At a special meeting and election held on May 27, 1954, the following resolution was approved by vote of 82 favoring and six opposed:
"Resolution Approving Re-lease Agreement and Providing a Tax Levy to Pay Annual Rentals for the Period of Said Lease.
"Be it resolved by the school board of Joint School District No. 3 of the village of Centuria and the towns of St. Croix Falls, Balsam Lake, and Eureka, Polk county, Wisconsin, as follows:
"1. It is hereby determined that the school district is in urgent need of an addition to its existing school building in order to provide room for education of the students of school age now residing in the district.
"2. Due to the constitutional limit on the incurring of indebtedness for school purposes, the school district is unable to provide money by the issuance of bonds under the authority of chapter 67, Wisconsin statutes, and it is necessary in order to provide sufficient building that the district take advantage of the powers granted by section 40.39, Wisconsin statutes.
"3. The twenty-year re-lease agreement between joint School District No. 3 of the village of Centuria and the towns of St. Croix Falls, Balsam Lake, and Eureka, Polk county, Wisconsin, and Centuria School Building Company, Inc., in the form presented to this meeting and by reference made a part hereof, is hereby approved and the director and clerk of the school district are authorized and directed to execute said re-lease agreement.
"4. A tax is hereby voted in the total amounts as follows: $5,500 for the school year 1954-55 and $9,600 for each year for the school years 1955-56 and thereafter for the full term of twenty years, which tax shall be collected in the years and amounts as above set forth.
"XIV
"The said lease and re-lease agreements have been signed by the director pursuant to the direction of the school board but because of doubt as to the powers of the district to enter into such lease and re-lease agreements and in order that such powers may be tested in a proper action, the clerk has refused to sign the same and by reason of such refusal the school-building company is unable to comply with its contract to issue and deliver bonds secured by mortgage on the leased premises and its right under the re-lease agreement and is unable to provide the necessary funds due the contractor for work in constructing the school-building addition.
"XV
"The prospective useful life of the school building is more than twenty years and there is no claim that the annual rentals under the lease agreement will be in excess of the fair and reasonable rental value of the leased premises.
"XVI
"The problem confronting the school district is one common to many school districts and arises from a rapid increase in school enrolment and low assessed values which do not provide sufficient borrowing authority to provide funds to construct necessary school buildings under the constitutional five-per-cent debt limit."
The circuit court ruled that the petitioner is entitled to the relief prayed for in the petition, and directed that a writ shall be entered directing Milligan to sign the lease and re-lease agreements as set forth in the petition. The appeal is from that judgment.
FAIRCHILD, C. J.
Counsel frankly concede that this is a test case to determine whether the device resorted to by the school district in this case, pursuant to the authority granted in sec. 40.305, Stats., violates sec. 3, art. XI of the Wisconsin constitution, in that the cost of the new school building, to finance which the building corporation is to mortgage its leasehold interest, exceeds the debt limit of said constitutional provision.
The pertinent provisions of sec. 3, art. XI of the constitution, are as follows:
"No . . . school district. . . . shall be allowed to become indebted in any manner or for any purpose to any amount, including existing indebtedness, in the aggregate exceeding five per centum on the value of the taxable property therein, to be ascertained by the last assessment for state and county taxes previous to the incurring of such indebtedness. . . . Any . . . school district. . . . incurring any indebtedness as aforesaid, shall, before or at the time of doing so, provide for the collection of a direct annual tax sufficient to pay the interest on such debt as it falls due, and also to pay and discharge the principal thereof within twenty years from the time of contracting the same; . . ."
The total value of the taxable property in the school district, as ascertained by the last assessment for state and county taxes, was $975,247. Therefore the maximum debt which the school district is authorized to create is five per cent of said sum, or $48,762.35, which amount is totally inadequate to construct the school-building facilities contemplated.
The school district proposes to lease vacant school lands to a separate school-building corporation created under ch. 181, Stats., the corporation to immediately re-lease the premises to the district; but the corporation, as a condition of the lease to it, being obligated to construct the new school building and finance the cost of the same by a mortgage of its leasehold interest. This mortgage will be retired out of the rents payable by the district under the re-lease from the corporation to the district. After such debt is retired, the corporation will convey the leased premises, including the new building and its equipment, to the district.
The lease to the corporation, the re-lease back to the district, and the mortgaging of its leasehold interest by the corporation must be viewed as one transaction, and not as three isolated occurrences. The net result is that because of the mortgage there is the possibility of the district being deprived of the use of its land during the remaining term of the lease if it defaults in the payment of the rent. The only difference between this situation and the one confronting us in State ex rel. Thomson v. Giessel (1954), ante, p. 331, 65 N.W.2d 529 (hereinafter referred to as the "State Office Building Case"), is that only vacant land is involved here, while in the latter case the mortgaged leasehold interest covered not only vacant land but also the existing state office building. From the standpoint of legal principle, if the mortgaging of a leasehold interest in land and a building creates a debt, then the mortgaging of a leasehold of land alone does also, where the land is already owned by the governmental unit involved at the time the leasing arrangement is entered into, and the governmental unit requires the use of such land for governmental purposes.
Our attention is called to the effort in other states to meet a similar situation by creating a separate building company where such method was ruled to be invalid. McCutcheon v. State Building Authority (1953), 13 N.J. 46, 97 A.2d 663; Hively v. School City of Nappanee (1929), 202 Ind. 28, 169 N.E. 51; State v. Volusia County School Building Authority (Fla. 1952), 60 So.2d 761; State ex rel. Public Institutional Building Authority v. Griffith (1939), 135 Ohio St. 604, 22 N.E.2d 200; State ex rel. Public Institutional Building Authority v. Neffner (1940), 137 Ohio St. 390, 30 N.E.2d 705; People ex rel. Greening v. Green (1943), 382 Ill. 577, 47 N.E.2d 465; Opinion of the Justices (1951), 146 Me. 183, 79 A.2d 753; Opinion of the Justices (1951), 146 Me. 295, 80 A.2d 869.
The limiting of the amount of the indebtedness which may be imposed upon a community is a rule which public opinion at the time of the writing of the constitution required to be written into that instrument. It was the purpose to fix limitations with respect to liabilities within which the representatives of the people were to conduct the government. It was not the intention of the writers of our constitution to finally end things in a definite and static state bound to then existing conditions, but it is apparent that if the people are the authorities over the constitution, we are bound, when moving from one basic plan to another, to move in that direction through the deliberate and thoughtful processes of constitutional amendment. It follows that the provisions of sec. 40.305, Stats., under which the school district is acting, to lease to the corporation school lands, the immediate releasing back to the district of such lands, the lease being upon the condition that the corporation, lessee, will raise the money for the construction of a building by mortgaging its leasehold interest, the cost of which building far exceeds the district's allowable debt limit, is authorizing the district to become indebted in a manner contrary to the constitutional inhibition.
We must follow the law as stated in the State Office Building Case and hold that the plan followed by the district creates a lien on its property, and that in consequence thereof an indebtedness exceeding that permitted under sec. 3, art. XI of the Wisconsin constitution, has resulted.
In justice to the learned trial court, it should be stated that he did not have the benefit of our decision in the State Office Building Case at the time of rendering his decision the judgment appealed from having been rendered on July 28, 1954, the very day on which our opinion in the State Office Building Case was handed down.
By the Court. — Judgment reversed, and cause remanded with directions to deny the writ and dismiss the petition.