[ITEM 115] BOULDER CANYON PROJECT OPINION OF THE COMPTROLLER GENERAL OCTOBER 10, 1930 COMPTROLLER General of THE UNITED States, THE ATTORNEY GENERAL STATE OF ARIZONA, Phoenix, Ariz. SIR: Consideration has been given the contentions and arguments advanced on behalf of the State of Arizona in briefs and discussions by Mr. Dean G. Acheson, of the firm of Covington, Burling & Rublee, who it appears has been appointed special assistant to the attorney general of the State of Arizona, said contentions and arguments being to the effect that no part of the appropriation of $10,660,000 made for the commencement of the Boulder Dam project in the deficiency act of July 3, 1930 (46 Stat. 877), should be expended for the construction work of the dam or power plant because the condition precedent to such expenditure, as required by section 4 (b) of the Boulder Canyon project act of December 2, 1928 (45 Stat. 1059), has not been complied with. The provisions of said section 4 (b), relied upon by the State of Arizona, are as follows: Before any money is appropriated for the construction of said dam or power plant, or any construction work done or contracted for, the Secretary of the Interior shall make provision for revenues by contract, in accordance with the provisions of this act, adequate in his judgment to insure payment of all expenses of operation and maintenance of said works incurred by the United States and the repayment, within fifty years from the date of the completion of said works, of all amounts advanced to the fund under subdivision (b) of section 2 for such works, together with interest thereon made reimbursable under this act. The contention made on behalf of the State of Arizona is that the contracts entered into for the raising of revenues, in compliance with the provisions of this section, are not legally valid and enforceable contracts and, therefore, are not contracts in accordance with the provisions of the Boulder Canyon project act. The instruments entered into by the Secretary of the Interior in order to comply with the provisions of section 4 (b) of the act are: (1) Contract lease and power privilege dated April 26, 1930, amended May 28, 1930, between the United States and the City of Los Angeles and Southern California Edison Co. (Ltd.); (2) contract for electrical energy dated April 26, 1930, amended May 28, 1930, between the United States and the Metropolitan Water District of Southern California; and (3) contract for delivery of water, dated April 24, 1930, between the United States and the Metropolitan Water District of Southern California. It is admitted by all concerned that the last-mentioned contract is a mere option on the part of the Metropolitan Water District of Southern California to take water if and when available and with respect to that instrument, no question is raised or presented by the State of Arizona for consideration at this time. With respect to the contract with the Metropolitan Water District of Southern California for electrical energy the Secretary of the Interior has stated that such contract is not necessary in his judgment to provide adequate revenues to repay the United States for advances to be made, the first contract with the City of Los Angeles and the Southern California Edison Co. being sufficient for the purpose. Therefore, the discussion herein will be limited to this last-mentioned contract. It should be noted in this connection that section 4 of the act, supra, leaves the matter as to adequacy of the revenues to the judgment of the Secretary of the Interior. It may be stated, also, that the amendment of May 28, 1930, in the two contracts first mentioned, was at the instance and direction of the Subcommittee of the House Committee on Ap propriations when the appropriation item here under consideration was before it for hearings so as to provide in specific terms the minimum amount of power the contractors were required and obligated to take and/or pay for, no specific provision for that purpose being incorporated in the contracts as originally executed. The opening clause of the contract with the City of Los Angeles and the Southern California Edison Co., in so far as concerns the City of Los Angeles, states that the contract is entered into with the City of Los Angeles, a municipal corporation, and its department of water and power, said department acting in the name of the city but as principal in its own behalf as well as in the behalf of the city, the term "city" as used in the contract being deemed to be both the City of Los Angeles and its department of water and power. It appears that section 18 of article 11 of the constitution of California forbids a city or other municipality from incurring any indebtedness exceeding in any one year the income and revenue provided in such year without the favorable vote of two-thirds of the electors. The courts have held, however, that this provision does not apply to the department of water and power of the city but only to the city corporation proper, the department of water and power having a separate legal entity and being authorized under the city charter to collect, obligate, and dispose of its funds for the purposes for which it was created. At the hearings before the Subcommittee of the House Committee on Appropriations it was stated that the City of Los Angeles, as a municipal corporation, was mentioned in the contract so as to provide a proper financial backing for the execution of the contract which is to last 50 years, but opinions have been expressed that the contract does not bind the city, in so far as concerns the taxing power, not only because of the provision in the constitution of California, herein cited, but because a contract such as has been entered into would be construed as a contract with the city with reference to its department of water and power. The matter as to the validity of the contract was submitted to the Attorney General of the United States, at the instance of the Subcommitee of the House Committee on Appropriations. The Attorney General rendered an opinion on June 9, 1930, holding, in substance, that the contract for the lease and power privilege between the United States and the City of Los Angeles, its department of water and power, and the Southern California Edison Co. is a valid agreement binding upon the city and its department to the extent to which funds are available under the provisions of the charter to the department and is in full compliance with section 4 (b) of the Boulder Canyon project act, since the revenues which it will provide out of such funds are, in the judgment of the Secretary of the Interior, adequate to meet the requirements of that section. In the course of the opinion it was said: In substance the contract as amended imposes upon the city acting by and through its Department of Water and Power, and therefore upon the department itself— First: The obligation, when the dam is completed and the generating equipment has been installed by the Government, to take over as lessee the genrating plant and operate it, paying as rental in ten annual instalments the cost to the United States of the generating equipment, with interest at 4 per cent. Second: The obligation to pay for electrical energy, as furnished, at stated rates. Third: An obligation to operate and maintain at cost the transmission lines required for transmitting power to the pumping plants of the Metropolitan Water District, and to transmit over its main transmission line the power allocated to others, for compensation based on a reasonable share of the cost of construction, operation, and maintenance. As none of the transmission lines have been built, performance of these obligations will require their construction. Under the provisions of the charter of the City of Los Angeles the Department of Water and Power is specifically authorized to construct, operate, maintain, extend, manage, and control works and property for the purpose of supplying the city and its inhabitants with water and electric energy. To this department of the city government is entrusted full responsibility and control in entering into such contracts as those here involved. Quite in conformity with the charter provisions of the city, in its execution of the original and supplemental contracts for lease of power privilege, is described as acting by and through its board of water and power commissioners. The contract as amended is therefore to be regarded as made in the name of the city. but subject to all of the provisions of the charter of the City of Los Angeles relating to contracts executed by the Department of Water and Power, and the question of the validity of this contract and the character of the resources available to secure its performance must be determined from a consideration of the power of the board of water and power commissioners of the Department of Water and Power to make such a contract, and the sufficiency of the resources of the city which are specifically allocated under the terms of the charter to its control and expenditure in the performance of the obligations of such contracts. Under the charter of the City of Los Angeles revenues for such purposes as those contemplated by these contracts are provided through the operations of the Department of Water and Power, which, although an entity separate from the city for some purposes (Shelton v. City of Los Angeles, 275 Pac. 421), is a department of the city government. Its revenues are revenues of the city, but are allocated to the control and disposition of the department. The charter provisions which are pertinent in this connection are as follows: SEC. 220. The Department of Water and Power shall have the power and duty(1) To construct, operate, maintain, extend, manage, and control works and property for the purpose of supplying the city and its inhabitants with water and electric energy, or either, and to acquire and take, by purchase, lease, condemnation or otherwise, and to hold, in the name of the city, any and all property situated within or without the city, and within or without the State, that may be necessary or convenient for such purpose. (2) To regulate and control the use, sale, and distribution of water and electric energy owned or controlled by the city; the collection of water and electric rates, and the granting of permits for connections with said water or electric works; and to fix the rates to be charged for such connections; and, subject to the approval of the council by ordinance, to fix the rates to be charged for water or electric energy for use within or without the city, and to prescribe the time and the manner of payment of the same. * * (7) To control and order, except as otherwise in this charter provided, the expenditure of all money received from the sale or use of water, or from any other source in connection with the operation of said waterworks, and all money received from the sale or use of electric energy, or from any other source in connection with the operation of said electric works; provided, that all such money pertaining to said waterworks shall be deposited in the city treasury to the credit of a fund to be known as the "water revenue fund," and all such money pertaining to said electric works shall be deposited in the city treasury to the credit of a fund to be known as the "power revenue fund"; and the money so deposited in each such fund shall be kept separate and apart from other money of the city, and shall be drawn only from said fund upon demands authenticated by the signature of the chief accounting employee of the board. SEC. 221. None of the money in or belonging to the water revenue fund or the power revenue fund shall be appropriated or used for any purpose except the following purposes pertaining to the municipal works from or on account of which such money was received, to wit: FIRST. For the necessary expenses of operating and maintaining such works. SECOND. For the payment of the principal and interest, or either, due or coming due upon outstanding notes, certificates, or other evidences of indebtedness issued |