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 Appropriations 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 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 Subcommittee 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 generating 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 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 against revenues from such works, in pursuance of section 224, or bonds or other evidences of indebtedness, general or district, heretofore or hereafter issued for the purpose of such works, or parts, thereof.

Third. For the necessary expenses of constructing, extending, and improving such works, including the purchase of lands, water rights and other property; also the necessary expenses of conducting and extending the business of the department pertaining to such works; also for reimbursement to another bureau on account of services rendered, or material, supplies, or equipment furnished; also for expenditures for purposes for which bonds, or evidences of indebtedness provided for in section 224, shall have been authorized, subject to reimbursement as soon as practicable, from moneys derived from the sale or issuance of such bonds or evidences of indebtedness.

Fourth. To return and pay into the general fund of the city, from time to time, upon resolution of the board, from any surplus money in either such revenue fund, any sums paid by the city from funds raised by taxation for the payment of the principal or interest of any municipal bonds issued by the city for or on account of the municipal works to which such revenue fund pertains, or of liability arising in connection with the construction, operation, or maintenance of the municipal works to which said fund pertains.

Fifth. For defraying the expenses of any pension system applicable to the employees of the department that shall be established by the city.

Fifth (a,. For establishing and maintaining a reserve fund to insure the payment at maturity of the principal and interest on all bonds now outstanding or hereafter issued for the purpose of the municipal works, and such other reserve funds pertaining to such works as the board may provide for by resolution subject to the approval of the council by ordinance. The money set aside and placed in such und or funds so created shall remain in said fund or funds until expended for the purposes thereof and shall not be transferred to the "reserve fund" of the city.

Sixth. To be transferred as provided in section 382 of this charter.

SEC. 222. The board shall provide for the cost of extensions and betterments of said water works and electric works from the funds derived from the sale of bonds, general or district, so far as such funds shall be made available for the use of the board for said purposes, and so far as such funds shall not be made available for the use of the board therefor, from revenues received from the works to which such extensions and betterments pertain, and from the proceeds of loans contracted as provided by section 224.

SEC. 382. At the close of each fiscal year the controller and treasurer shall transfer all surplus money remaining in each fund over and above the amount of outstanding demands and liabilities payable out of such fund to the "reserve fund,” except such surplus money as is in the several bond funds, interest and sinking funds, trust funds, the fire and police pension fund, the harbor revenue fund, the library fund, the park fund. the permanent improvement fund, the playground and recreation fund, the power revenue fund and the water revenue fund, but the council may by ordinance direct that any or all said surplus money in either the harbor revenue fund, the power revenue fund, or the water revenue fund be transferred to such reserve fund with the consent of the board in charge of such fund, but not otherwise.

Leaving entirely out of consideration the proceeds from the sale of bonds, which would no doubt require, under section 18 of article 11 of the State constitution, the approval of two-thirds of the electors, and leaving entirely out of consideration the proceeds of loans contracted as provided by section 224 of the city charter, which are authorized only for emergency purposes, and bearing in mind that the Department of Water and Power is not authorized to levy taxes-it is apparent that its resources are limited to its earnings from the sale or use of water and of electric energy, and that over these revenues it has complete control of expenditure for the construction, operation, and maintenance of all works and property for the purpose of supplying the city and its inhabitants with water and electric energy.

I am advised by the Secretary of the Interior that yearly revenues of this department are more than ample to meet all of its liabilities under the original and amended contracts, and, therefore, to relieve the city of any necessity of financing the obligations which will arise under these contracts; that these revenues under the Department of Water and Power are not only amply sufficient for this purpose, but its yearly earnings will in his judgment be amply sufficient to provide for the construction of the transmission lines as well.

The only limitation upon the expenditure of such funds by this department is found in section 369 of the charter of the City of Los Angeles, which reads: No department, bureau, division, or office of the city government shall make expenditures or incur liabilities in excess of the amount appropriated therefor. The method of appropriation is, however, provided in section 83 as follows: The board of each department * * * the finances of which are not included in the general budget, but which department itself has control of definite revenues or funds, as elsewhere in this charter set forth, shall, prior to the beginning of each fiscal year, adopt an annual departmental budget and make an annual departmental budget appropriation, covering the anticipated revenues and expenditures of said department. Such departmental budget shall conform, as far as practicable, to the forms and times provided in this charter for the general city budget. Each such budget shall contain a sum to be known as the "unappropriated balance," which sum shall be available for appropriation by the board later in the ensuing fiscal year to meet contingencies as they may arise. A copy of such budget when adopted, and of every resolution subsequently adopted making appropriation from said unappropriated balance, shall promptly be filed with the mayor and controller, each. No expenditure shall be made or financial obligations incurred by any such department except as authorized by the annual departmental appropriation, or appropriations made subsequent to said annual budget.

Question arises under section 369 of the charter as to whether by the execution of the original and amended contracts a present liability was incurred for the payments to be made thereunder in the future. No authorities have been found construing this charter provision, but similar questions have often arisen under section 18 of article 11 of the constitution of the State of California, and although this constitutional limitation has no application to contracts made by the Department of Water & Power, these authorities must be considered in determining the effect of section 369 of the charter upon the validity of the contracts here in question.

Section 18 of article 11 of the constitution of California provides:

No county, city, town, township, board of education, or school district shall incur any indebtedness or liability in any manner or for any purpose exceeding in any year the income and revenue provided for such year, without the assent of two-thirds of the qualified electors thereof, voting at an election to be held for that purpose, nor unless before or at the time of incurring such indebtedness provision shall be made for the collection of an annual tax sufficient to pay the interest on such indebtedness as it falls due, and also provision to constitute a sinking fund for the payment of the principal thereof on or before maturity, which shall not exceed forty years from the time of contracting the same; * * * Any indebtedness incurred contrary to any provision of this section shall be void; * *

The obvious purpose of this limitation is to prevent the city from incurring indebtedness in excess of its yearly revenue, and the question has often arisen in the courts of California as to when an indebtedness or liability is incurred, within the meaning of this provision, when a contract is executed requiring payments to be made from time to time in the future.

There is authority for the proposition that when a municipality receives the entire consideration for its promise to make payments or incur expenditures in the future, a liability is immediately incurred under the provisions of the State constitution. See Chester v. Carmichael, 187 Cal. 287; In re City and County of San Francisco, 195 Cal. 426; Mahoney v. City and County of San Francisco, 201 Cal. 248. But a municipality does not incur an "indebtedness" or "liability" invalid under the constitutional provision when it enters into a contract to pay for services as and when rendered from time to time in the future. The obligations here involved to pay rental and power rates can not be said to be incurred until the rental accrues and the power is received. Such liabilities are held, for the purpose of this constitutional provision, to be incurred when the services have been rendered and the obligation to pay for them arises. See McBean v. Fresno, 112 Cal. 195; Smilie v. Fresno County, 112 Cal. 311; Doland v. Clark, 143 Cal. 176; In re City and County of San Francisco, 191 Cal. 172; Compare Walla Walla v. Walla Walla Water Co., 172 U. S. 1.

It may, however, be said that if a contract imposes upon the municipality liabilities to arise in the future which in any year will necessarily exceed the income and revenue provided for such year, it will be invalid. The courts have held that the aggregate of all payments which will be required under such a contract is not to be regarded as a liability presently incurred upon the execution of the contract, and thus incurred within the year of its execution; but they have not held that a municipality may, in the face of the constitutional limitation incur future liabilities which will exceed the income and revenue for the year in which payment thereof will be required, and so to hold would appear to be in direct contradiction of the express provision of the Constitution.

The city, acting through its Department of Water and Power, will be under the necessity to construct transmission lines over which the power for which it has agreed to pay may be transmitted, but in so far as the parties to this contract are concerned it is under no express obligation to do so. Under no circumstances will it be necessary for the city to construct transmission lines in advance of the completion of the dam and generating equipment, and, if, therefore, it appears that during this period it will be able to finance such construction out of current revenues of its Department of Water and Power, I am of the opinion that no legal objection can be made to the contract as amended because of the necessity or liability which may arise to defray these construction costs.

Consideration of these authorities leads to the conclusion that the Department of Water and Power has not incurred a present liability upon the execution of these contracts, and therefore the only effect of section 369 is to require the appropriation in each annual budget of sufficient funds from the water and power revenues to meet the obligations which will arise under and in connection with the performance of these contracts. Inasmuch as the Secretary of the Interior is clearly of the opinion that such funds will be available and ample for all such purposes, I see no reason for doubting the validity of the contract or for questioning its effect in securing payment to the United States of the amounts of money which will become payable under its terms.

In the brief submitted on behalf of the State of Arizona it is agreed that the instrument does not impose a present liability or indebtedness but that, as is conceded in the opinion of the Attorney General, it purports to impose a present obligation to incur future liabilities and indebtednesses when the United States shall have furnished the consideration of building the dam and the power plants and, it is contended in effect that since the city is limited in its power to obligate its funds, the performance of the contract will be subject to such limitation and that the carrying out of the contract will have to depend entirely upon the city or its department of water and power each year appropriating or making funds available for the purpose, there being nothing compulsory in so far as the municipality is concerned, and no redress in the United States if the city or its Department of Water and Power refuse to perform.

The objectionable feature pointed out by the State of Arizona appears to be present in all cases in which a municipality or other governmental corporation is involved. In those cases the good faith of the corporation to a certain extent must be relied upon. To hold otherwise in the present case would require the City of Los Angeles or its Department of Water and Power to make available at this time not only funds to build a transmission line to conduct the power contracted for to the gates of the city but, also, the full amount required to fulfill the contract, which covers a period of 50 years. Such requirement would be considered unconscionable, not only because it would amount to penalizing the municipal corporation in that such a requirement could not be made in the case of a private corporation, when, as a matter of fact, under section 5 of the Boulder Canyon project act municipalities are entitled to certain preferential rights under certain conditions therein set forth, but because there is no way the city