City of Palatka v. State

Rule of Law:

Pledging specific, limited non-ad valorem revenue sources to secure a new bond issuance has only an incidental effect on a municipality's ad valorem taxing power and does not require a voter referendum. Additionally, placing sufficient funds in an irrevocable escrow to pay off prior outstanding bonds is the legal equivalent of payment, satisfying the covenants of those prior bonds.

Facts:

• The City of Palatka owns and operates a municipal water and sewer system.
• The city had previously issued revenue bonds to finance its existing facilities, and some of these bonds were still outstanding.
• Palatka sought to issue new bonds to refund the outstanding prior bonds and to finance the construction of a new sewage treatment plant.
• The new bonds were to be secured by revenues from the city's water and sewer system and from utility taxes.
• To refund the prior bonds, the city planned to deposit proceeds from the new bonds into an irrevocable escrow account.
• The funds in the escrow account would be invested in U.S. government obligations and used to pay the principal and interest on the old bonds as they came due.
• The ordinances governing the prior bonds contained covenants prohibiting the issuance of new, equally ranked (pari passu) bonds unless certain revenue-to-debt service coverage ratios were met.

Procedural Posture:

• The City of Palatka initiated a bond validation proceeding in the Circuit Court in Putnam County, Florida (a court of first instance).
• The circuit court entered a final judgment refusing to validate the proposed bonds.
• The City of Palatka (Appellant) filed a direct appeal of the circuit court's final judgment to the Supreme Court of Florida, with the State of Florida as the Appellee.