The City of Phoenix held an election in June, 1969 ,at which the
issuance of general obligation bonds to finance various municipal
improvements was approved. Under Arizona law, only real property
taxpayers were permitted to vote. Six days after the election, this
Court held, in
Cipriano v. City of Houma, 395 U.
S. 701, that restricting the franchise to property
taxpayers in elections on revenue bonds violated the Equal
Protection Clause. In August, 1969, appellee, who owned no realty,
challenged the franchise restriction and attacked the validity of
the June election. The District Court, finding no significant
difference between revenue bonds and general obligation bonds, held
the nonproperty owner exclusion unconstitutional. It declared the
June bond election invalid, since the authorization for the
issuance of the bonds was not final on the date of the
Cipriano decision.
Held:
1. The Equal Protection Clause does not permit a State to
restrict the franchise to real property taxpayers in elections to
approve the issuance of general obligation bonds, as the
differences between the interests of property owners and
nonproperty owners are not sufficiently substantial to justify
excluding the latter from voting. Pp.
399 U. S.
207-213.
2. This decision will apply only to authorizations for general
obligation bonds that are not final as of the date of this
decision. Pp.
399 U. S.
213-215.
Affirmed.
Page 399 U. S. 205
MR. JUSTICE WHITE delivered the opinion of the Court.
In
Kramer v. Union Free School District, 395 U.
S. 621 (1969), this Court held that a State could not
restrict the vote in school district elections to owners and
lessees of real property and parents of school children because the
exclusion of otherwise qualified voters was not shown to be
necessary to promote a compelling state interest. This ruling, by
its terms applicable to elections of public officials, was extended
to elections for the approval of revenue bonds to finance local
improvements in
Cipriano v. City of Houma, 395 U.
S. 701 (1969). Our decision in
Cipriano did
not, however, reach the question now presented for decision: does
the Federal Constitution permit a State to restrict to real
property taxpayers the vote in elections to approve the issuance of
general obligation bonds?
This question arises in the following factual setting: on June
10, 1969, the City of Phoenix, Arizona, held an election to
authorize the issuance of $60,450,000 in general obligation bonds,
as well as certain revenue bonds. Under Arizona law, property taxes
were to be levied to service this indebtedness, although the city
was legally privileged to use other revenues for this purpose.
[
Footnote 1] The
Page 399 U. S. 206
general obligation bonds were to be issued to finance various
municipal improvements, with the largest amounts to go for the city
sewer system, parks and playgrounds, police and public safety
buildings, and libraries. Pursuant to Arizona constitutional and
statutory provisions, [
Footnote
2] only otherwise qualified voters who were also real property
taxpayers were permitted to vote on these bond issues. All of the
bond issues submitted to the voters were approved by a majority of
those voting.
On June 16, 1969, six days after the election in Phoenix, this
Court held, in
Cipriano v. City of Houma, supra, that
restricting the franchise to property taxpayers in elections on
revenue bonds violated the Equal Protection Clause of the
Fourteenth Amendment. That ruling was applied to the case before
the Court, in which, under local law, the authorization of the
revenue bonds was not yet final when the challenge to the election
was raised in the District Court. On August 1, 1969, appellee
Kolodziejski, a Phoenix resident who was otherwise qualified to
vote but who owned no real property, filed
Page 399 U. S. 207
her complaint in the United States District Court for the
District of Arizona challenging the constitutionality of the
restriction on the franchise in Arizona bond elections and
attacking the validity of the June, 1969, election approving the
Phoenix bond issues. A District Court of three judges was convened.
In the District Court, appellants conceded that, under this Court's
decisions in
Cipriano and
Kramer, supra, the bond
election was invalid with regard to the revenue bonds that had been
approved. The District Court perceived no significant difference
between revenue bonds and general obligation bonds, and therefore
held that the exclusion of nonproperty-owning voters from the
election on the general obligation bonds was unconstitutional under
Cipriano and
Kramer. Because the authorization of
the Phoenix general obligation bonds was not final on the date of
the
Cipriano decision, the court held the
Cipriano rule applicable and declared the June 10, 1969,
bond election invalid. The appellants were enjoined from taking
further action to issue the bonds approved in that election. The
City of Phoenix and the members of the City Council appealed from
the judgment of the District Court with respect to the general
obligation bonds. We noted probable jurisdiction, 397 U.S. 903
(1970). We affirm the judgment of the District Court, but do not
agree that the ruling in this case should be retroactive to the
date of the
Cipriano decision.
I
In
Cipriano v. City of Houma, supra, the denial of the
franchise to nonproperty owners in elections on revenue bonds was
held to be a denial of the Fourteenth Amendment rights of the
nonproperty owners, since they, as well as property owners, are
substantially affected by the issuance of revenue bonds to finance
municipal utilities. It is now argued that the rationale of
Cipriano does not render unconstitutional the exclusion of
nonproperty
Page 399 U. S. 208
owners from voting in elections on general obligation bonds.
The argument proceeds on two related fronts. First, it is said
that the Arizona statutes require that property taxes be levied in
an amount sufficient to service the general obligation bonds,
[
Footnote 3] the law thus
expressly placing a special burden on property owners for the
benefit of the entire community. Second, and more generally,
whereas revenue bonds are secured by the revenues from the
operation of particular facilities and these revenues may be earned
from both property owners and nonproperty owners, general
obligation bonds are secured by the general taxing power of the
issuing municipality. Since most municipalities rely to a
substantial extent on property tax revenues which will be used to
make debt service payments if other revenue sources prove
insufficient, [
Footnote 4]
general obligation bonds are, in effect, a lien on the real
property subject to taxation by the issuing municipality. Whatever
revenues are actually used to service the bonds, an unavoidable
potential tax burden is imposed only on those who own realty, since
that property cannot be moved beyond the reach of the
municipality's taxing power. Hence, according to appellants, the
State is justified in recognizing the unique interests of real
property owners by allowing only property taxpayers to participate
in elections to approve the issuance of general obligation
bonds.
Concededly, the case of elections to approve general obligation
bonds was not decided in
Cipriano v. City of Houma, supra.
But we have concluded that the principles
Page 399 U. S. 209
of that case, and of
Kramer v. Union Free School District,
supra, dictate a like result where a State excludes
nonproperty taxpayers from voting in elections for the approval of
general obligation bonds. The differences between the interests of
property owners and the interests of nonproperty owners are not
sufficiently substantial to justify excluding the latter from the
franchise. This is so for several reasons.
First, it is unquestioned that all residents of Phoenix,
property owners and nonproperty owners alike, have a substantial
interest in the public facilities and the services available in the
city, and will be substantially affected by the ultimate outcome of
the bond election at issue in this case. Presumptively, when all
citizens are affected in important ways by a governmental decision
subject to a referendum, the Constitution does not permit weighted
voting or the exclusion of otherwise qualified citizens from the
franchise. Arizona nevertheless excludes nonproperty owners from
participating in bond elections, and vests in the majority of
individual property owners voting in the election the power to
approve or disapprove facilities that the municipal government has
determined should be financed by issuing general obligation bonds.
Placing such power in property owners alone can be justified only
by some overriding interest of those owners that the State is
entitled to recognize.
Second, although Arizona law ostensibly calls for the levy of
real property taxes to service general obligation bonds, other
revenues are legally available for this purpose. According to the
parties' stipulation in this case, it is anticipated with respect
to the instant bonds, as has been true in the past, that more than
half of the debt service requirements will be satisfied not from
real property taxes, but from revenues from other local taxes paid
by nonproperty owners as well as those who own real
Page 399 U. S. 210
property. [
Footnote 5] Not
only do those persons excluded from the franchise have a great
interest in approving or disapproving municipal improvements, but
they will also contribute, as directly as property owners, to the
servicing of the bonds by the payment of taxes to be used for this
purpose.
Third, the justification for restricting the franchise to the
property owners would seem to be strongest in the case of a
municipality which, unlike Phoenix, looks only to property tax
revenues for servicing general obligation bonds. But even in such a
case, the justification would be insufficient. Property taxes may
be paid initially by property owners, but a significant part of the
ultimate burden of each year's tax on rental property will very
likely be borne by the tenant, rather than the landlord, since, as
the parties also stipulated in this case, the landlord will treat
the property tax as a business expense, and normally will be able
to pass all or a large part of this cost on to the tenants in the
form of higher rent. [
Footnote
6] Since most city residents not owning their
Page 399 U. S. 211
own homes are lessees of dwelling units, virtually all residents
share the burden of property taxes imposed and used to service
general obligation bonds. Moreover, property taxes on commercial
property, [
Footnote 7] much of
which is owned by corporations having no vote, will be treated as a
cost of doing business, and will normally be reflected in the
prices of goods and services purchased by nonproperty owners and
property owners alike.
While, in theory, the expected future income from real property,
and hence property values in a municipality, may depend in part on
the predicted future levels of property taxes, [
Footnote 8] the actual impact of an increase in
property taxes is problematical. [
Footnote 9] Moreover, to the extent that property values
are directly affected by the additional potential tax burden
entailed in the bond issue, any adverse effect would normally be
offset at least in substantial part by the favorable effects on
property values of the improvements to be financed by the bond
issue. [
Footnote 10]
Page 399 U. S. 212
It is true that a general obligation bond may be loosely
described as a "lien" on the property within the jurisdiction of
the municipality in the sense that the issuer undertakes to levy
sufficient taxes to service the bond. In theory, if the economy of
the issuing city were to collapse, the levy of sufficiently high
property taxes on property producing little or no income might
result in some cases in defaults, foreclosures, and tax sales.
Nothing before us, however, indicates that the possibility of
future foreclosures to meet bond obligations significantly affects
current real estate values or the ability of the concerned property
owner to liquidate his holdings to avoid the risk of those future
difficulties; the price of real estate appears to be more a
function of the health of the local economy than a reflection of
the level of property taxes imposed to finance municipal
improvements. In any event, we are not convinced that the risk of
future economic collapse that might result in bond obligations
becoming an unshiftable, unsharable burden on property owners is
sufficiently real or substantial to justify denying the vote in a
current bond election to all those nonproperty owners who have a
significant interest in the facilities to be financed, who are now
indirectly sharing the property tax burden, and who will be paying
other taxes used by the municipality to service its general
obligation bonds.
We thus conclude that, although owners of real property have
interests somewhat different from the interests of nonproperty
owners in the issuance of general obligation bonds, there is no
basis for concluding that nonproperty owners are substantially less
interested in the issuance of these securities than are property
owners. That there is no adequate reason to restrict the franchise
on the issuance of general obligation bonds to property owners is
further evidenced by the fact that only 14
Page 399 U. S. 213
States now restrict the franchise in this way; [
Footnote 11] most States find it possible
to protect property owners from excessive property tax burdens by
means other than restricting the franchise to property owners. The
States now allowing all qualified voters to vote in general
obligation bond elections do not appear to have been significantly
less successful in protecting property values and in soundly
financing their municipal improvements. Nor have we been shown that
the 14 States now restricting the franchise have unique problems
that make it necessary to limit the vote to property owners. We
must therefore affirm the District Court's declaratory judgment
that the challenged provisions of the Arizona Constitution and
statutes, as applied to exclude nonproperty owners from elections
for the approval of the issuance of general obligation bonds,
violate the Equal Protection Clause of the United States
Constitution.
II
In view of the fact that, over the years, many general
obligation bonds have been issued on the good faith assumption that
restriction of the franchise in bond elections was not prohibited
by the Federal Constitution,
Page 399 U. S. 214
it would be unjustifiably disruptive to give our decision in
this case full retroactive effect. We therefore adopt a rule
similar to that employed with respect to the applicability of the
Cipriano decision: our decision in this case will apply
only to authorizations for general obligation bonds that are not
final as of June 23, 1970, the date of this decision. In the case
of States authorizing challenges to bond elections within a
definite period, all elections held prior to the date of this
decision will not be affected by this decision unless a challenge
on the grounds sustained by this decision has been or is brought
within the period specified by state law. In the case of States,
including apparently Arizona, [
Footnote 12] that do not have a well defined period for
bringing challenges to bond elections, all elections held prior to
the date of this decision that have not yet been challenged on the
grounds sustained in this decision prior to the date of this
decision will not be open to challenge on the basis of our ruling
in this case. In addition, in States with no definite challenge
period, the validity of general obligation bonds that have been
issued before this decision and prior to the commencement of an
action challenging the issuance on the grounds sustained by this
decision will not be affected by the decision in this case. Since
appellee in this case brought her constitutional challenge to the
Phoenix election prior to the date of our decision in this case and
no bonds have been issued pursuant to
Page 399 U. S. 215
that election, our decision applies to the election involved in
this case. The District Court was therefore correct in holding that
the June 10, 1969, bond election in Phoenix was constitutionally
invalid, and in enjoining the issuance of bonds pursuant to the
approval obtained in that election.
Affirmed.
MR. JUSTICE BLACK concurs in the judgment and in Part I of the
opinion of the Court.
MR. JUSTICE BLACKMUN took no part in the consideration or
decision of this case.
[
Footnote 1]
The relevant Arizona statute provides as follows:
"A. After the bonds are issued, the governing body or board
shall enter upon its minutes a record of the bonds sold, their
numbers and dates, and shall annually levy and cause to be
collected a tax, at the same time and in the same manner as other
taxes are levied and collected upon all taxable property in such
political subdivision, sufficient to pay the interest on the bonds
when due, and shall likewise annually levy a tax sufficient to
redeem the bonds when they mature."
"B. Monies derived from the levy of the tax when collected shall
constitute a fund for payment of interest and the bonds. The fund
shall be kept separately and shall be known as the 'Interest Fund'
and 'Redemption Fund.'"
Ariz.Rev.Stat.Ann. § 35-458 (1956).
In
Allison v. City of Phoenix, 44 Ariz. 66, 33 P.2d 927
(1934), the Arizona Supreme Court ruled that the predecessor of
this section permitted an issuing municipality to use other funds
for debt service if such funds were available. In this case, the
parties have stipulated that, for the 1969-1970 fiscal year,
$3,244,773 of the city's total general obligation debt service
requirement of $5,594,937 was met from sources other than
ad
valorem property taxes, and that this apportionment of debt
service burden is typical of recent years.
[
Footnote 2]
Ariz.Const., Art. 7, § 13, Art. 9, § 8; Ariz.Rev.Stat.Ann. §§
9-523, 35-452 (1956), § 35-455 (Supp. 1969).
[
Footnote 3]
See n 1,
supra.
[
Footnote 4]
In 1967-1968, property taxes yielded $26.835 billion
(approximately 86%) of the $31.171 billion raied in taxes by local
governments. U.S. Dept. of Commerce, Bureau of the Census,
Governmental Finances in 1967-68, p. 20 (1969).
[
Footnote 5]
For the 1969-1970 fiscal year, the City of Phoenix utilized
revenues other than revenues from property taxes to meet over 55%
of its general obligation debt service requirements.
See
n 1,
supra.
[
Footnote 6]
In this case, the parties stipulated that
"the amount of money paid as real property taxes is a cost of
doing business of the [appellee's] landlord, and, as such, has a
material bearing on the cost of the [appellee's] rental
payments."
The extent to which a landlord can pass along an increase in
property taxes to his tenants generally depends on how changes in
rent levels in the municipality affect the amount of rental
property demanded -- the less responsive the demand for rental
property to changes in rent levels, the larger the proportion of
property taxes that will ultimately be borne by tenants.
See C. Shoup, Public Finance 385-390 (1969); D. Netzer,
Economics of the Property Tax 32-40 (1966); Simon, The Incidence of
a Tax on Urban Real Property, in Readings in the Economics of
Taxation 416 (published by the American Economic Assn.1959).
[
Footnote 7]
In 1957, about 28 1/2% of real property taxes paid to local
governments in the United States were paid on commercial and
industrial properties.
See Netzer,
supra,
n 6, at 19.
[
Footnote 8]
In theory, the value of property is the present value of the
expected income to be earned from the property in the future; in
the case of owner-occupied residences, this "income" is the
satisfaction which the homeowners derive from the enjoyment of
their residences. Property taxes on rental property will reduce the
expected future earnings from the property to the extent that it is
expected that the taxes cannot be passed on to tenants in the form
of higher rent.
See n
6,
supra. For owner-occupiers, the property tax will
reduce the expected "income" net of costs, and will thus reduce the
value of their property. For a further discussion of this
"capitalization" of unshiftable future property taxes,
see
H. Newman, An Introduction to Public Finance 262 (1968); Shoup,
supra, n 6, at
442-443; Netzer,
supra, n 6, at 34-36; J. Jensen, Property Taxation in the United
States 63-75 (1931).
[
Footnote 9]
The empirical evidence on capitalization of unshifted property
taxes has been described as "most unsatisfactory."
See
Netzer,
supra, n 6, at
34-35;
see also Shoup,
supra, n 6, at 443.
[
Footnote 10]
See Netzer,
supra, n 6, at 34.
[
Footnote 11]
It appears from the briefs filed in this case that 13 States
besides Arizona restrict the franchise to property owners or
property taxpayers in some or all general obligation bond
elections:
Alaska (Alaska Stat. § 07.30.010(b) (Supp. 1969)); Colorado
(Colo.Const., Art XI, §§ 6, 7, and 8); Florida (Fla.Const., Art. 7,
§ 12); Idaho (Idaho Code Ann. § 31-1905 (1963), § 33-404 (Supp.
1969), § 50-1026 (1967)); Louisiana (La.Const.Art. 14, § 14(a));
Michigan (Mich.Const., Art. II, § 6); Montana (Mont.Const., Art.
IX, § 2, Art. XIII, § 5; Mont.Rev.Codes Ann. § 11-2310 (1968), §
75-3912 (1962)); New Mexico (N.M.Const., Art. IX, §§ 10, 11, and
12); New York (N.Y.Town Law § 84 (1965); N.Y.Village Law § 4-402
(1966)); Oklahoma (Okla.Const., Art. X, § 27); Rhode Island
(R.I.Const. amdt. 29, § 2); Texas (Tex.Const., Art. 6, § 3a); Utah
(Utah Const., Art. XIV, § 3).
[
Footnote 12]
Ariz.Rev.Stat.Ann. § 16-1202 (Supp. 1969) and § 16-1204 (1956)
provide that election contest suits generally must be brought by
"electors" within five days after completion of the canvass and
declaration of the result of an election. Under the Arizona Supreme
Court's decision in
Morgan v. Board of Supervisors, 67
Ariz. 133, 192 P.2d 236 (1948), it is unclear whether suits brought
after the expiration of the five-day period to challenge a bond
election on constitutional grounds would in all cases be barred.
The District Court found there was no bar to suit in this case.
MR. JUSTICE STEWART, whom THE CHIEF JUSTICE and MR. JUSTICE
HARLAN join, dissenting.
If this case really involved an "election," that is, a choice by
popular vote of candidates for public office under a system of
representative democracy, then our frame of reference would
necessarily have to be
Reynolds v. Sims, 377 U.
S. 533, and its progeny. For, rightly or wrongly, the
Court has said that, in cases where public officials with
legislative or other governmental power are to be elected by the
people, the Constitution requires that the electoral franchise must
generally reflect a regime of political suffrage based upon "one
man, one vote." Recent examples of that constitutional doctrine are
the Court's decisions in
Kramer v. Union Free School
District, 395 U. S. 621,
involving the franchise to vote for the members of a school board,
and
Hadley v. Junior College District, 397 U. S.
50, involving the apportionment of voting districts for
the election of the trustees of a state junior college.
Whether or not one accepts the constitutional doctrine embodied
in those decisions, they are of little relevance here. For, in this
case, nobody has claimed that the
Page 399 U. S. 216
members of the City Council of Phoenix, Arizona -- the
individual appellants here -- were elected in any way other than on
a one man, one vote basis, or that they do not fully and fairly
represent the entire electorate of the municipality. And it was
these councilmen who initiated the program for borrowing money so
that the city might have a sewer system, parks and playgrounds,
police and public safety buildings, a new library, and other
municipal improvements. Having made that initial decision, the
councilmen submitted the borrowing and construction program for
final approval by those upon whom the burden of the municipal
bonded indebtedness would legally fall -- the property owners of
the city. These property owners approved the entire program by a
majority vote. Yet the Court today says the Equal Protection Clause
prevents the city of Phoenix from borrowing the money to build the
public improvements that the council and the property owners of the
city have both approved. I cannot believe that the United States
Constitution lays such a heavy hand upon the initiative and
independence of Phoenix, Arizona, or any other city in our
Nation.
In
Cipriano v. City of Houma, 395 U.
S. 701, the Court held unconstitutional a Louisiana law
that permitted only property owners to vote on the question of
approving bonds that were to be financed exclusively from the
revenues of municipally operated public utilities. I agreed with
that decision because the State had created a wholly irrelevant
voting classification.
Id. at
395 U. S. 707
(BLACK and STEWART, JJ., concurring in the judgment). As the Court
there noted:
"The revenue bonds are to be paid only from the operations of
the utilities; they are not financed in any way by property tax
revenue. Property owners, like nonproperty owners, use the
utilities and pay the rates; however, the impact of the revenue
Page 399 U. S. 217
bond issue on them is unconnected to their status as property
taxpayers. Indeed, the benefits and burdens of the bond issue fall
indiscriminately on property owner and nonproperty owner
alike."
Id. at
395 U. S.
705.
The case before us bears only a superficial resemblance to
Cipriano, for we deal here not with income-producing
utilities that can pay for themselves, but with municipal
improvements that must be paid for by the taxpayers. Under Arizona
law, a city's general bonded indebtedness effectively operates as a
lien on all taxable real estate located within the city's borders.
During the entire life of the bonds, the privately owned real
property in the city is burdened by the city's pledge -- and
statutory obligation -- to use its real estate taxing power for the
purpose of repaying both interest and principal under the bond
obligation. [
Footnote 2/1] Whether,
under these circumstances, Arizona could constitutionally confer
upon its municipal governing bodies exclusive and absolute
power
Page 399 U. S. 218
to incur general bonded indebtedness without limit at the
expense of real property owners is a question that is not before
us. For the State has chosen a different policy, reflected in both
its constitutional and statutory law. [
Footnote 2/2] It has told the governing bodies of its
cities that, while they are free to plan and propose capital
improvements, general obligation bonds cannot be validly issued to
finance them without the approval of a majority of those upon whom
the weight of repaying those bonds will legally fall.
This is not the invidious discrimination that the Equal
Protection Clause condemns, but an entirely rational public policy.
I would reverse the judgment, because I cannot hold that the
Constitution denies the City of Phoenix the public improvements
that its Council and its taxpayers have endorsed. [
Footnote 2/3]
[
Footnote 2/1]
Ariz.Rev.Stat.Ann. § 3558 provides:
"After the bonds are issued, the governing body or board . . .
shall annually levy and cause to be collected a tax . . . upon all
taxable property in such political subdivision, sufficient to pay
the interest on the bonds when due, and . . . to redeem the bonds
when they mature."
In
Allison v. City of Phoenix, 44 Ariz. 66, 33 P.2d 927
(1934), the Arizona Supreme Court held that, if a city has money
available from another source, "it may from time to time be
transferred to the interest and redemption funds created by the
statute. . . ." 44 Ariz. at 77, 33 P.2d at 931. The court made
clear, however, that the predecessor of Ariz.Rev.Stat.Ann. §
3558
"is mandatory and binding upon all parties mentioned therein,
and that they must levy and cause to be collected a tax for the
payment of bonds issued under such article in the manner provided
by such section."
Id. at 74, 33 P.2d at 930. The use of excise taxes to
repay general obligation bonds is thus optional, but the imposition
of
ad valorem taxes for these purposes is mandatory.
Taxes imposed on real property in Arizona become a lien on that
property. Ariz.Rev.Stat.Ann. § 2-312.
[
Footnote 2/2]
The constitutional and statutory provisions applicable to all
bond authorization elections of incorporated cities and towns in
the State of Arizona limit the right to vote in such elections to
persons who are qualified electors and who are also real property
taxpayers. Ariz.Const., Art. 7, § 13; Art. 9, § 8.
Ariz.Rev.Stat.Ann. § 9-523 and § 35-455. These constitutional and
statutory provisions apply to all political subdivisions within the
State of Arizona, and not just to cities and towns.
[
Footnote 2/3]
Since the Court's contrary view today prevails, I add that, upon
that premise, THE CHIEF JUSTICE and I agree with Part II of the
Court's opinion, and that MR. JUSTICE HARLAN also joins in Part II
of the Court's opinion, subject however, to the views expressed in
his concurring opinion in
United States v. Estate of
Donnelly, 397 U. S. 286,
397 U. S. 295
(1970).